UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
   
FORM 10-Q
   
(Mark One)
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172018
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     .
Commission file number 1-8729
   
UNISYS CORPORATION
(Exact name of registrant as specified in its charter)
   
Delaware 38-0387840
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
  
801 Lakeview Drive, Suite 100
Blue Bell, Pennsylvania
 19422
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (215) 986-4011 
   
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ý    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ý    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
       
Large accelerated filer ¨  Accelerated filer ý
    
Non-accelerated filer 
¨ (Do not check if a smaller reporting company)
  Smaller reporting company ¨
       
    Emerging growth company 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  ý
Number of shares of Common Stock outstanding as of September 30, 2017: 50,473,301.2018: 51,024,602.



UNISYS CORPORATION
TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION Page Number
Item 1.Financial Statements (Unaudited)  
 Consolidated Statements of Income 
 Consolidated Statements of Comprehensive Income 
 Consolidated Balance Sheets 
 Consolidated Statements of Cash Flows 
 Consolidated Statements of Deficit
Notes to Consolidated Financial Statements 
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations 
Item 3.Quantitative and Qualitative Disclosures about Market Risk 
Item 4.Controls and Procedures 
PART II - OTHER INFORMATION
Item 1.Legal Proceedings 
Item 1A.Risk Factors 
Item 6.Exhibits 
    
Exhibit Index 
Signatures 



Part I - FINANCIAL INFORMATION
Item 1. Financial Statements

UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Millions, except per share data)
 
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017 2016 2018 2017 2018 2017
Revenue                
Services $575.5
 $600.9
 $1,735.6
 $1,809.8
 $605.6
 $575.5
 $1,760.8
 $1,735.6
Technology 90.8
 82.4
 261.4
 289.2
 82.7
 90.8
 303.3
 261.4
 666.3
 683.3
 1,997.0
 2,099.0
 688.3
 666.3
 2,064.1
 1,997.0
Costs and expenses                
Cost of revenue:                
Services 539.7
 531.3
 1,570.9
 1,594.1
 504.9
 522.5* 1,460.0
 1,519.7*
Technology 40.5
 30.4
 117.3
 106.5
 29.6
 40.2* 96.2
 116.4*
 580.2
 561.7
 1,688.2
 1,700.6
 534.5
 562.7* 1,556.2
 1,636.1*
Selling, general and administrative 102.3
 120.0
 325.6
 345.8
 90.9
 97.8* 274.5
 314.2*
Research and development 10.8
 11.4
 37.7
 40.5
 7.1
 8.7* 21.8
 31.3*
 693.3
 693.1
 2,051.5
 2,086.9
 632.5
 669.2* 1,852.5
 1,981.6*
Operating profit (loss) (27.0) (9.8) (54.5) 12.1
Operating income (loss) 55.8
 (2.9)* 211.6
 15.4*
Interest expense 16.4
 7.7
 36.4
 19.9
 15.9
 16.4
 48.2
 36.4
Other income (expense), net 3.0
 2.3
 (8.6) 3.7
 (17.7) (21.1)* (58.3) (78.5)*
Loss before income taxes (40.4) (15.2) (99.5) (4.1)
Income (loss) before income taxes 22.2
 (40.4) 105.1
 (99.5)
Provision for income taxes 12.5
 9.9
 21.6
 34.2
 15.2
 12.5
 50.4
 21.6
Consolidated net loss (52.9) (25.1) (121.1) (38.3)
Consolidated net income (loss) 7.0
 (52.9) 54.7
 (121.1)
Net income (loss) attributable to noncontrolling interests (11.8) 3.1
 (5.3) 8.2
 0.9
 (11.8) 4.2
 (5.3)
Net loss attributable to Unisys Corporation $(41.1) $(28.2) $(115.8) $(46.5)
Loss per share attributable to Unisys Corporation        
Net income (loss) attributable to Unisys Corporation $6.1
 $(41.1) $50.5
 $(115.8)
Earnings (loss) per share attributable to Unisys Corporation        
Basic $(0.81) $(0.56) $(2.30) $(0.93) $0.12
 $(0.81) $0.99
 $(2.30)
Diluted $(0.81) $(0.56) $(2.30) $(0.93) $0.12
 $(0.81) $0.89
 $(2.30)
See notes to consolidated financial statements
*Amounts were changed to conform to the current-year presentation. See Note 3.


UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Millions)
 
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017 2016 2018 2017 2018 2017
Consolidated net loss $(52.9) $(25.1) $(121.1) $(38.3)
Consolidated net income (loss) $7.0
 $(52.9) $54.7
 $(121.1)
Other comprehensive income:                
Foreign currency translation 25.5
 (15.7) 99.3
 (54.1) (8.2) 25.5
 (36.6) 99.3
Postretirement adjustments, net of tax of $(3.9) and $(12.0) in 2017 and $4.0 and $18.6 in 2016 5.2
 54.0
 17.2
 200.9
Postretirement adjustments, net of tax of $1.4 and $4.3 in 2018 and $(3.9) and $(12.0) in 2017 39.1
 5.2
 118.0
 17.2
Total other comprehensive income 30.7
 38.3
 116.5
 146.8
 30.9
 30.7
 81.4
 116.5
Comprehensive income (loss) (22.2) 13.2
 (4.6) 108.5
 37.9
 (22.2) 136.1
 (4.6)
Less comprehensive income (loss) attributable to noncontrolling interests (12.2) 2.4
 (5.3) 6.7
 0.8
 (12.2) 4.0
 (5.3)
Comprehensive income (loss) attributable to Unisys Corporation $(10.0) $10.8
 $0.7
 $101.8
 $37.1
 $(10.0) $132.1
 $0.7
See notes to consolidated financial statements


UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Millions)
September 30,
2017
 December 31, 2016September 30,
2018
 December 31, 2017
Assets      
Current assets:      
Cash and cash equivalents$598.7
 $370.6
$516.1
 $733.9
Accounts and notes receivable, net511.8
 505.8
Accounts receivable, net492.2
 503.3
Contract assets73.3
 
Inventories:      
Parts and finished equipment17.7
 14.0
12.3
 13.6
Work in process and materials15.1
 15.0
10.7
 12.5
Prepaid expenses and other current assets118.8
 121.9
102.6
 126.2
Total current assets1,262.1
 1,027.3
1,207.2
 1,389.5
Properties915.4
 886.6
857.2
 898.8
Less-Accumulated depreciation and amortization766.7
 741.3
737.4
 756.3
Properties, net148.7
 145.3
119.8
 142.5
Outsourcing assets, net190.6
 172.5
202.0
 202.3
Marketable software, net136.4
 137.0
157.2
 138.3
Prepaid postretirement assets47.9
 33.3
155.0
 148.3
Deferred income taxes150.8
 146.1
97.3
 119.9
Goodwill181.2
 178.6
178.1
 180.8
Restricted cash21.3
 30.5*17.8
 30.2
Other long-term assets157.9
 151.0*193.6
 190.6
Total assets$2,296.9
 $2,021.6
$2,328.0
 $2,542.4
Liabilities and deficit      
Current liabilities:      
Current maturities of long-term-debt11.3
 106.0
$9.9
 $10.8
Accounts payable195.5
 189.0
225.7
 241.8
Deferred revenue326.9
 337.4
254.7
 327.5
Other accrued liabilities387.8
 349.2
351.9
 391.5
Total current liabilities921.5
 981.6
842.2
 971.6
Long-term debt631.5
 194.0
640.1
 633.9
Long-term postretirement liabilities2,195.2
 2,292.6
1,814.0
 2,004.4
Long-term deferred revenue108.3
 117.6
167.4
 159.0
Other long-term liabilities90.3
 83.2
68.1
 100.0
Commitments and contingencies
 

 
Deficit:      
Common stock, shares issued:      
2017; 53.4, 2016; 52.80.5
 0.5
2018; 54.2, 2017; 53.40.5
 0.5
Accumulated deficit(2,013.6) (1,893.4)(1,725.3) (1,963.1)
Treasury stock, shares at cost:      
2017; 2.9, 2016; 2.7(102.7) (100.5)
2018; 3.1, 2017; 2.9(104.9) (102.7)
Paid-in capital4,523.9
 4,515.2
4,536.6
 4,526.4
Accumulated other comprehensive loss(4,036.3) (4,152.8)(3,942.9) (3,815.8)
Total Unisys stockholders’ deficit(1,628.2) (1,631.0)(1,236.0) (1,354.7)
Noncontrolling interests(21.7) (16.4)32.2
 28.2
Total deficit(1,649.9) (1,647.4)(1,203.8) (1,326.5)
Total liabilities and deficit$2,296.9
 $2,021.6
$2,328.0
 $2,542.4
See notes to consolidated financial statements
* Amounts were changed to conform to the current-year presentation. See Note 11.


UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Millions)
 
 Nine Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2018 2017
Cash flows from operating activities        
Consolidated net loss $(121.1) $(38.3)
Adjustments to reconcile consolidated net loss to net cash provided by (used for) operating activities:    
Foreign currency transaction (gains) losses (0.5) 0.4
Consolidated net income (loss) $54.7
 $(121.1)
Adjustments to reconcile consolidated net income (loss) to net cash used for operating activities:    
Foreign currency transaction losses (gains) 1.1
 (0.5)
Non-cash interest expense 6.9
 4.9
 7.8
 6.9
Loss on debt extinguishment 1.5
 
 
 1.5
Employee stock compensation 8.6
 7.7
 10.0
 8.6
Depreciation and amortization of properties 29.6
 28.6
 31.2
 29.6
Depreciation and amortization of outsourcing assets 39.3
 39.7
 48.7
 39.3
Amortization of marketable software 47.1
 48.0
 42.8
 47.1
Other non-cash operating activities 3.3
 1.4
 (2.6) 3.3
Loss on disposal of capital assets 4.5
 2.0
 0.6
 4.5
Pension contributions (110.8) (104.0)
Pension expense 69.4
 63.0
Decrease (increase) in deferred income taxes, net 2.3
 (2.7)
Gain on sale of properties (7.3) 
Postretirement contributions (124.5) (119.2)*
Postretirement expense 58.2
 74.5*
Decrease in deferred income taxes, net 9.3
 2.3
Changes in operating assets and liabilities:        
Receivables, net 3.1
 59.9
 (69.3) 3.1
Inventories (2.6) 5.5
 (1.3) (2.6)
Accounts payable and other accrued liabilities (15.3) (44.9)* (144.1) (15.3)
Other liabilities (21.8) 10.5
 (1.5) (18.5)*
Other assets 20.2
 21.3* 8.8
 20.2
Net cash (used for) provided by operating activities (36.3) 103.0*
Net cash used for operating activities (77.4) (36.3)
Cash flows from investing activities        
Proceeds from investments 3,663.5
 3,307.3
 2,889.3
 3,663.5
Purchases of investments (3,632.8) (3,331.6) (2,892.4) (3,632.8)
Investment in marketable software (46.6) (47.1) (61.7) (46.6)
Capital additions of properties (21.8) (18.3) (25.0) (21.8)
Capital additions of outsourcing assets (60.1) (41.4) (54.4) (60.1)
Net proceeds from sale of properties 19.2
 
Other (0.8) (0.8)* (0.9) (0.8)
Net cash used for investing activities (98.6) (131.9)* (125.9) (98.6)
Cash flows from financing activities        
Proceeds from issuance of long-term debt 445.0
 213.5
 
 445.0
Payments for capped call transactions 
 (27.3)
Issuance costs relating to long-term debt (12.1) (7.3) 
 (12.1)
Payments of long-term debt (98.4) (2.1) (2.0) (98.4)
Payments of short-term borrowings 
 (65.8)
Financing fees (0.2) 
Other 0.2
 (0.4)* (2.2) 0.2
Net cash provided by financing activities 334.7
 110.6*
Net cash (used for) provided by financing activities (4.4) 334.7
Effect of exchange rate changes on cash, cash equivalents and restricted cash 19.1
 (2.3)* (22.5) 19.1
Increase in cash, cash equivalents and restricted cash 218.9
 79.4*
(Decrease) increase in cash, cash equivalents and restricted cash (230.2) 218.9
Cash, cash equivalents and restricted cash, beginning of period 401.1
 396.8* 764.1
 401.1
Cash, cash equivalents and restricted cash, end of period $620.0
 $476.2* $533.9
 $620.0
See notes to consolidated financial statements
*Amounts were changed to conform to the current-year presentation. See Note 11.3.



UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT (Unaudited)
(Millions)

  
   Unisys Corporation  
  Total Total Unisys Corporation Common Stock Par Value Accumu-lated Deficit Treasury Stock At Cost Paid-in Capital Accumu-lated Other Compre-hensive Loss Non-controlling Interests
Balance at January 1, 2018 $(1,326.5) $(1,354.7) $0.5
 $(1,963.1) $(102.7) $4,526.4
 $(3,815.8) $28.2
Cumulative effect adjustment - ASU No. 2014-09 (21.4) (21.4)   (21.4)        
Consolidated net income 41.7
 40.6
   40.6
       1.1
Stock-based compensation 1.5
 1.5
     (2.1) 3.6
    
Translation adjustments (5.1) (5.9)         (5.9) 0.8
Postretirement plans 39.0
 38.6
         38.6
 0.4
Balance at March 31, 2018 $(1,270.8) $(1,301.3) $0.5
 $(1,943.9) $(104.8) $4,530.0
 $(3,783.1) $30.5
Consolidated net income 6.0
 3.8
   3.8
       2.2
Stock-based compensation 4.1
 4.1
       4.1
    
Translation adjustments (23.3) (21.6)    
     (21.6) (1.7)
Postretirement plans 39.9
 39.5
      
  
 39.5
 0.4
Balance at June 30, 2018 $(1,244.1) $(1,275.5) $0.5
 $(1,940.1) $(104.8) $4,534.1
 $(3,765.2) $31.4
Reclassification pursuant to ASU No. 2018-02 
 
   208.7
     (208.7)  
Consolidated net income 7.0
 6.1
   6.1
       0.9
Stock-based compensation 2.4
 2.4
     (0.1) 2.5
    
Translation adjustments (8.2) (7.8)         (7.8) (0.4)
Postretirement plans 39.1
 38.8
         38.8
 0.3
Balance at September 30, 2018 $(1,203.8) $(1,236.0) $0.5
 $(1,725.3) $(104.9) $4,536.6
 $(3,942.9) $32.2

  
   Unisys Corporation  
  Total Total Unisys Corporation Common Stock Par Value Accumu-lated Deficit Treasury Stock At Cost Paid-in Capital Accumu-lated Other Compre-hensive Loss Non-controlling Interests
Balance at January 1, 2017 $(1,647.4) $(1,631.0) $0.5
 $(1,893.4) $(100.5) $4,515.2
 $(4,152.8) $(16.4)
Cumulative effect adjustment - ASU No. 2016-16 (4.4) (4.4)   (4.4)        
Consolidated net income (loss) (29.7) (32.7)   (32.7)       3.0
Stock-based compensation 1.3
 1.3
     (2.0) 3.3
    
Translation adjustments 31.1
 29.8
         29.8
 1.3
Postretirement plans 22.4
 23.5
         23.5
 (1.1)
Balance at March 31, 2017 $(1,626.7) $(1,613.5) $0.5
 $(1,930.5) $(102.5) $4,518.5
 $(4,099.5) $(13.2)
Consolidated net income (loss) (38.5) (42.0)   (42.0)       3.5
Stock-based compensation 2.8
 2.8
     (0.2) 3.0
    
Translation adjustments 42.7
 39.3
    
     39.3
 3.4
Postretirement plans (10.4) (7.2)      
  
 (7.2) (3.2)
Balance at June 30, 2017 $(1,630.1) $(1,620.6) $0.5
 $(1,972.5) $(102.7) $4,521.5
 $(4,067.4) $(9.5)
Consolidated net loss (52.9) (41.1)   (41.1)       (11.8)
Stock-based compensation 2.4
 2.4
       2.4
    
Translation adjustments 25.5
 23.3
         23.3
 2.2
Postretirement plans 5.2
 7.8
         7.8
 (2.6)
Balance at September 30, 2017 $(1,649.9) $(1,628.2) $0.5
 $(2,013.6) $(102.7) $4,523.9
 $(4,036.3) $(21.7)



UNISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions, except share and per share amounts)

Note 1 - Basis of Presentation
The accompanying consolidated financial statements and footnotes of Unisys Corporation have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of management, the financial information furnished herein reflects all adjustments necessary for a fair presentation of the financial position, results of operations, comprehensive income, andfinancial position, cash flows and deficit for the interim periods specified. These adjustments consist only of normal recurring accruals except as disclosed herein. Because of seasonal and other factors, results for interim periods are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with U.S. generally accepted accounting principlesGAAP requires management to make estimates and assumptions about future events. These estimates and assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and the reported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, contract assets, inventories, outsourcing assets, marketable software, goodwill and other long-lived assets, legal contingencies, indemnifications, assumptions used in the calculation for systems integration projects, income taxes and retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
The company’s accounting policies are set forth in detail in Note 1 of the notesNotes to the consolidated financial statementsConsolidated Financial Statements in the company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“20162017 (2017 Form 10-K”)10-K) filed with the Securities and Exchange Commission. Such Annual Report also contains a discussion of the company’s critical accounting policies.policies and estimates. The company believes that these critical accounting policies and estimates affect its more significant estimates and judgments used in the preparation of the company’s consolidated financial statements. There have been no changes
As described in Note 3, effective January 1, 2018 the company adopted the requirements of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective method. The company’s criticalupdated accounting policy on revenue recognition is described in Note 2 and in “Critical accounting policies from those disclosedand estimates update” in the company’s 2016Item 2 of this Form 10-K.10-Q.
Note 2 - Summary of Significant Accounting Policies
Revenue recognition
Revenue is recognized at an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring goods and services to a customer. The company determines revenue recognition using the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the company satisfies a performance obligation.
Revenue excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the company from a customer (e.g., sales, use and value-added taxes). Revenue includes payments for shipping and handling activities.
At contract inception, the company assesses the goods and services promised in a contract with a customer and identifies as a performance obligation each promise to transfer to the customer either: (1) a good or service (or a bundle of goods or services) that is distinct or (2) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. The company recognizes revenue only when it satisfies a performance obligation by transferring a promised good or service to a customer.
The company must apply its judgment to determine the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations including estimating variable consideration, adjusting


the consideration for the effects of the time value of money and assessing whether an estimate of variable consideration is constrained.
Revenue from hardware sales is recognized upon the transfer of control to a customer, which is defined as an entity’s ability to direct the use of and obtain substantially all of the remaining benefits of an asset.
Revenue from software licenses is recognized at the inception of either the initial license term or the inception of an extension or renewal to the license term.
Revenue for operating leases is recognized on a monthly basis over the term of the lease and for sales-type leases at the inception of the lease term.
Revenue from equipment and software maintenance and post-contract support is recognized on a straight-line basis as earned over the terms of the respective contracts. Cost related to such contracts is recognized as incurred.
Revenue and profit under systems integration contracts are recognized over time as the company transfers control of goods or services. The company measures its progress toward satisfaction of its performance obligations using the cost-to-cost method, or when services have been performed, depending on the nature of the project. For contracts accounted for using the cost-to-cost method, revenue and profit recognized in any given accounting period are based on estimates of total projected contract costs. The estimates are continually reevaluated and revised, when necessary, throughout the life of a contract. Any adjustments to revenue and profit resulting from changes in estimates are accounted for in the period of the change in estimate. When estimates indicate that a loss will be incurred on a contract upon completion, a provision for the expected loss is recorded in the period in which the loss becomes evident.
Revenue from time and materials service contracts and outsourcing contracts is recognized as the services are provided using either an objective measure of output or on a straight-line basis over the term of the contract.
The company also enters into multiple-element arrangements, which may include any combination of hardware, software or services. For example, a client may purchase an enterprise server that includes operating system software. In addition, the arrangement may include post-contract support for the software and a contract for post-warranty maintenance for service of the hardware. These arrangements consist of multiple performance obligations, with control over hardware and software transferred in one reporting period and the software support and hardware maintenance services performed across multiple reporting periods. In another example, the company may provide desktop managed services to a client on a long-term multiple-year basis and periodically sell hardware and license software products to the client. The services are provided on a continuous basis across multiple reporting periods and control over the hardware and software products occurs in one reporting period. To the extent that a performance obligation in a multiple-deliverable arrangement is subject to specific guidance, that performance obligation is accounted for in accordance with such specific guidance. An example of such an arrangement may include leased assets which are subject to specific leasing accounting guidance.
In multiple-element arrangements, the company allocates the total transaction price to be earned under the arrangement among the various performance obligations in proportion to their standalone selling prices (relative standalone selling price basis). The standalone selling price for a performance obligation is the price at which the company would sell a promised good or service separately to a customer.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Many of the company’s contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For contracts with multiple performance obligations, the company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract. The primary methods used to estimate standalone selling price are as follows: (1) the expected cost plus margin approach, under which the company forecasts its expected costs of satisfying a performance obligation and then adds an appropriate margin for that distinct good or service and (2) the percent discount off of list price approach.
In the Services segment, substantially all of the company’s performance obligations are satisfied over time as work progresses and therefore substantially all of the revenue in this segment is recognized over time. The company generally receives payment for these contracts over time as the performance obligations are satisfied.
In the Technology segment, substantially all of the company’s goods and services are transferred to customers at a single point in time. Revenue on these contracts is recognized when control over the product is transferred to the customer or a software license term begins. The company generally receives payment for these contracts upon signature or within 30 to 60 days.
At September 30, 2018, the company had approximately $1.4 billion of remaining performance obligations of which approximately 45% is estimated to be recognized as revenue by the end of 2019. The company does not disclose the value of


unsatisfied performance obligations for (1) contracts with an original expected length of one year or less and (2) contracts for which the company recognizes revenue at the amount to which it has the right to invoice for services performed.
The company discloses disaggregation of its customer revenue by geographic areas and by classes of similar products and services, by segment (see Note 16).
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, contract assets and deferred revenue (contract liabilities). The disclosure of contract assets is a new requirement due to the adoption of Topic 606. At December 31, 2017, contract assets were included in accounts receivable, net on the company’s Consolidated Balance Sheet. At September 30, 2018, $5.6 million of long-term contract assets were included in other long-term assets on the company’s Consolidated Balance Sheet.
Significant changes during the three and nine months ended September 30, 2018 in the above contract asset and liability balances were as follows: revenue of $64.6 million and $255.5 million, respectively, was recognized that was included in deferred revenue at December 31, 2017.
The company’s incremental direct costs of obtaining a contract consist of sales commissions which are deferred and amortized ratably over the initial contract life. These costs are classified as current or noncurrent based on the timing of when the company expects to recognize the expense. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets and in other long-term assets, respectively, in the company’s Consolidated Balance Sheets. At September 30, 2018 and December 31, 2017, the company had $11.8 million and $11.0 million, respectively, of deferred commissions. For the three and nine months ended September 30, 2018, $1.8 million and $5.2 million, respectively, of amortization expense related to deferred commissions was recorded in selling, general and administrative expense in the company’s Consolidated Statement of Income.
Costs to fulfill a contract, which are incurred upon initiation of certain services contracts and are related to initial customer setup, are included in outsourcing assets, net in the company’s Consolidated Balance Sheet. The amount of such cost at September 30, 2018 and December 31, 2017 was $77.2 million and $76.0 million, respectively. These costs are amortized over the initial contract life and reported in Services cost of sales. During the three and nine months ended September 30, 2018, $4.2 million and $14.9 million, respectively, was amortized. Recoverability of these costs are subject to various business risks. Quarterly, the company compares the carrying value of these assets with the undiscounted future cash flows expected to be generated by them to determine if there is impairment. If impaired, these assets are reduced to an estimated fair value on a discounted cash flow basis. The company prepares its cash flow estimates based on assumptions that it believes to be reasonable but are also inherently uncertain. Actual cash flows could differ from these estimates.
Note 3 - Accounting Standards
Accounting Pronouncements Adopted
Effective January 1, — Earnings Per Share2018, the company adopted ASU No. 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost issued by the Financial Accounting Standards Board (FASB) which requires employers to present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are presented separately from the line items that include service cost and outside the subtotal of operating income. ASU No. 2017-07 allows a practical expedient that permits an entity to use amounts disclosed in its pension and other postretirement benefit plan footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The new guidance has been applied on a retrospective basis, using the practical expedient, whereby prior-period financial statements have been adjusted to reflect the adoption of the new guidance, as required by the FASB. For the three and nine months September 30, 2017, $24.1 million and $69.9 million, respectively, of net periodic benefit cost, other than service costs, was reclassified from cost of revenue, selling, general and administrative expense and research and development expense to other income (expense), net in the company’s consolidated results of operations (see Note 5).
Effective January 1, 2018, the company adopted ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606) issued by the FASB which establishes principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Topic 606 allows for either “full retrospective” adoption, meaning the standard is applied to all periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. Topic 606 requires the company to recognize revenue for certain transactions, including extended payment term software licenses and short-term software licenses, sooner than the prior rules would allow and requires the company to recognize software license extensions and renewals (the most significant impact upon adoption), later than the prior rules would allow. Topic 606 also requires significantly expanded disclosure requirements. The company has adopted the standard using the modified


retrospective method and applied the standard to all contracts that were not completed as of January 1, 2018. The cumulative effect of the adoption was recognized as an increase in the company’s accumulated deficit of $21.4 million on January 1, 2018.
The following table shows howsummarizes the loss per share attributable to Unisys Corporation was computedeffects of adopting ASU No. 2014-09 on the company’s consolidated financial statements as of and for the three and nine months ended September 30, 2017 and 2016 (shares in thousands):
2018.
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Basic earnings (loss) per common share computation:        
Net loss attributable to Unisys Corporation $(41.1) $(28.2) $(115.8) $(46.5)
Weighted average shares 50,471
 50,082
 50,388
 50,052
Basic loss per common share $(0.81) $(0.56) $(2.30) $(0.93)
Diluted earnings (loss) per common share computation:        
Net loss attributable to Unisys Corporation for diluted earnings per share $(41.1) $(28.2) $(115.8) $(46.5)
Weighted average shares 50,471
 50,082
 50,388
 50,052
Diluted loss per common share $(0.81) $(0.56) $(2.30) $(0.93)
         
Anti-dilutive weighted-average stock options and restricted stock units(1)
 2,236
 2,238
 2,215
 3,637
Anti-dilutive weighted-average common shares issuable upon conversion of the 5.50% convertible senior notes(1)
 21,868
 21,868
 21,868
 15,685
  As Reported
 Adjustments
 Balances Without Adoption of Topic 606
For the three months ended September 30, 2018      
Statement of Income      
Revenue      
Services $605.6
 $(3.1) $602.5
Technology 82.7
 (8.1) 74.6
Costs and expenses     
Cost of revenue     
Services 504.9
 (0.9) 504.0
Technology 29.6
 0.2
 29.8
Selling, general and administrative expenses 90.9
 0.3
 91.2
Operating income 55.8
 (10.7) 45.1
Income before income taxes 22.2
 (10.7) 11.5
Provision for income taxes 15.2
 (5.3) 9.9
Consolidated net income 7.0
 (5.4) 1.6
Net income attributable to Unisys Corporation 6.1
 (5.4) 0.7
       
For the nine months ended September 30, 2018      
Statement of Income      
Revenue 
 
 
Services $1,760.8
 $(5.6) $1,755.2
Technology 303.3
 (101.1) 202.2
Costs and expenses      
Cost of revenue 
 
 
Services 1,460.0
 (2.2) 1,457.8
Technology 96.2
 (0.5) 95.7
Selling, general and administrative expenses 274.5
 0.7
 275.2
Operating income 211.6
 (104.7) 106.9
Income before income taxes 105.1
 (104.7) 0.4
Provision for income taxes 50.4
 (14.7) 35.7
Consolidated net income (loss) 54.7
 (90.0) (35.3)
Net income (loss) attributable to Unisys Corporation 50.5
 (90.0) (39.5)
       
As of September 30, 2018      
Balance Sheet      
Assets      
Accounts receivable, net current $492.2
 $63.5
 $555.7
Contract assets 73.3
 (73.3) 
Inventories 23.0
 4.6
 27.6
Prepaid expenses and other current assets 102.6
 0.9
 103.5
Deferred income taxes - long-term 97.3
 1.7
 99.0
(1)Amounts represent shares excluded from the computation of diluted earnings per share, as their effect, if included, would have been anti-dilutive for the periods presented.


Note 2 - Cost Reduction Actions
In 2015, in connection with organizational initiatives to create a more competitive cost structure and rebalance the company’s global skill set, the company initiated a restructuring plan which is currently expected to result in estimated charges of approximately $320 to $330 million through 2017. During 2016 and 2015, the company recognized charges in connection with this plan and other costs of $82.1 million and $118.5 million, respectively, principally related to a reduction in employees.
Other long-term assets 193.6
 (22.5) 171.1
Total assets 2,328.0
 (25.1) 2,302.9
Liabilities      
Deferred revenue - current 254.7
 46.5
 301.2
Other accrued liabilities - current 351.9
 (16.8) 335.1
Long-term deferred revenue 167.4
 8.4
 175.8
Other long-term liabilities 68.1
 5.5
 73.6
Equity      
Accumulated deficit (1,725.3) (68.7) (1,794.0)
Total liabilities and deficit 2,328.0
 (25.1) 2,302.9
During the three months ended September 30, 2017, the company recognized charges in connection with this plan and other costs of $46.1 million. Charges related to work-force reductions were $49.5 million, principally related to severance costs, and were comprised of: (a) a charge of $2.6 million for 93 employees and $(0.4) million for changes in estimatesIncluded in the U.S. and (b) a charge of $48.3 millionTechnology revenue adjustments for 1,459 employees and $(1.0) million for changes in estimates outside the U.S. In addition, the company recorded charges of $(3.4) million comprised of $0.6 million for idle leased facilities costs, $0.1 million for contract amendment and termination costs, $0.9 million for professional fees and other expenses related to the cost reduction effort, $0.7 million for net asset sales and write-offs and $(5.7) million for net foreign currency translation gains related to exiting foreign countries. The charges were recorded in the following statement of income classifications: cost of revenue – services, $42.8 million; selling, general and administrative expenses, $7.9 million; research and development expenses, $1.1 million; and other income (expense), net, $(5.7) million.
During the nine months ended September 30, 2018 in the above table is $53.0 million of revenue from software license extensions and renewals which were contracted for in the fourth quarter of 2017 and properly recorded as revenue at that time under the revenue recognition rules then in effect (Topic 605). Upon adoption of the new revenue recognition rules (Topic 606) on January 1, 2018, and since the company recognized chargesadopted Topic 606 under the modified retrospective method whereby prior periods were not restated, the company was required to include this $53.0 million in connection with this plan and other costs of $99.0 million. Chargesthe cumulative effect adjustment to retained earnings on January 1, 2018. Topic 606 requires revenue related to work-force reductionssoftware license renewals or extensions to be recorded when the new license term begins, which in the case of the $53.0 million is January 1, 2018. The company has excluded revenue and related profit for these software licenses to reflect the balances without the adoption of Topic 606 in the above table. This is a one-time adjustment and it will not reoccur in future periods. There are additional adjustments being made in the above table, but they do not represent previously recorded revenue. Those additional adjustments represent other differences between Topic 605 and Topic 606, principally extended payment term software licenses and short-term software licenses both of which are recorded at the inception of the license term under Topic 606, but were $86.2required to be recognized ratably over the software license term under Topic 605. An additional adjustment is that under Topic 605, a company was not able to recognize software license revenue until the last software license is delivered due to the lack of vendor specific objective evidence, whereas under Topic 606, a company is required to use the standalone selling price for all performance obligations. This resulted in software license revenue being recognized sooner under Topic 606 compared with Topic 605.
Effective July 1, 2018, the company adopted ASU No. 2018-02 Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income by applying the changes in the period of adoption. The new guidance permits companies to reclassify stranded tax effects in accumulated other comprehensive income (AOCI) caused by the U.S. Tax Cuts and Jobs Act of 2017 (TCJA) to retained earnings. Upon enactment of the TCJA, the U.S. corporate tax rate was reduced from 35% to 21% and the Company's U.S. deferred tax balances and related valuation allowances were remeasured to the lower enacted U.S. corporate tax rate. In accordance with its accounting policy, the company releases the income tax effects of deferred tax balances that have a valuation allowance from AOCI once the reason the tax effects were established cease to exist (e.g. postretirement plan is liquidated). The new guidance allows for the reclassification of stranded tax effects as a result of the change in tax rates from the TCJA to be recorded upon adoption of the guidance rather than at cessation date. On July 1, 2018, $208.7 million principally related to severance costs,postretirement plans was reclassified from AOCI to retained earnings.
In September 2018, the company adopted SEC Release No. 33-10532, Disclosure Update and Simplification which amends certain disclosure requirements that were comprised of: (a) a charge of $7.9 million for 507 employees and $(0.6) million for changes in estimates in the U.S. and (b) a charge of $72.3 million for 1,835 employees, $8.2 million for additional benefits provided in 2017 and $(1.6) million for changes in estimates outside the U.S.redundant, duplicative, overlapping, outdated or superseded. In addition, the rule expands the disclosure requirements on changes in stockholders’ equity for interim periods. Under this rule, a reconciliation of changes in stockholders' equity is required for each period for which an income statement is presented. The company recorded chargesapplied the new disclosure requirements retrospectively to all periods presented.
Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal - Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract which clarifies the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This update is effective for fiscal years ending after December 15, 2019, with earlier adoption permitted. The new guidance can be applied retrospectively or prospectively to all implementation costs incurred after the date of $12.8 million comprisedadoption. The company is currently assessing when it will choose to adopt, and is currently evaluating the impact of $3.5 million for idle leased facilities costs, $5.3 million for contract amendment and termination costs, $3.9 million for professional fees and other expenses relatedthe adoption on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework—Changes to the cost reduction effort, $0.7 millionDisclosure Requirements for net asset sales and write-offs and $(0.6) million for net foreign currency translation gains related to exiting foreign countries. The charges were recorded in the following statement of income classifications: cost of revenue – services, $70.4 million; cost of revenue - technology, $0.4 million; selling, general and administrative expenses, $27.4 million; research and development expenses, $1.4 million; and other income (expense), net, $(0.6) million.
During the three months ended September 30, 2016, the company recognized charges of $31.9 million in connection with this plan, principally related to a reduction in employees. The charges related to work-force reductions were $26.5 million, principally related to severance costs, and were comprised of: (a) a charge of $0.5 million for 49 employees in the U.S. and (b) a charge of $26.0 million for 329 employees outside the U.S. In addition, the company recorded charges of $5.4 million for other expenses related to the cost reduction effort. The charges were recorded in the following statement of income classifications: cost of revenue - services, $18.0 million; selling, general and administrative expenses, $14.2 million; and research and development expenses, $(0.3) million.
During the nine months ended September 30, 2016, the company recognized charges of $69.0 million in connection with this plan, principally related to a reduction in employees. The charges related to work-force reductions were $54.9 million, principally related to severance costs, and were comprised of: (a) a charge of $5.8 million for 293 employees in the U.S. and (b) a charge of $49.1 million for 928 employees outside the U.S. In addition, the company recorded charges of $14.1 million for other expenses related to the cost reduction effort. The charges were recorded in the following statement of income classifications: cost of revenue – services, $34.6 million; selling, general and administrative expenses, $33.0 million; and research and development expenses, $1.4 million.Defined Benefit Plans which adds,


Liabilitiesremoves and expected future paymentsclarifies disclosure requirements related to these costs aredefined benefit pension and other postretirement plans. This update is effective for fiscal years ending after December 15, 2020, with earlier adoption permitted. The company plans to adopt the guidance for the fiscal year ending on December 31, 2018 and will apply the changes on a retrospective basis for all periods presented. There will be no overall impact on the company’s consolidated financial position.
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected losses. This includes trade and other receivables, loans and other financial instruments. This update is effective for annual periods beginning after December 15, 2019, with earlier adoption permitted. The company is currently assessing when it will choose to adopt, and is currently evaluating the impact of the adoption on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842), which is intended to improve financial reporting about leasing transactions. The ASU requires organizations that lease assets, referred to as follows:
    Work-Force Reductions Idle Leased Facilities Costs
  Total U.S. International 
Balance at December 31, 2016 $36.6
 $1.8
 $33.4
 $1.4
Additional provisions 91.9
 7.9
 80.5
 3.5
Payments (28.7) (3.5) (23.8) (1.4)
Changes in estimates (2.0) (0.6) (1.6) 0.2
Translation adjustments 6.6
 
 6.4
 0.2
Balance at September 30, 2017 $104.4
 $5.6
 $94.9
 $3.9
Expected future utilization on balance at September 30, 2017:        
2017 remaining three months $30.1
 $3.5
 $25.9
 $0.7
Beyond 2017 $74.3
 $2.1
 $69.0
 $3.2
lessees, to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU No. 2018-11,
Leases (Topic 842), Targeted Improvements, which provides an alternative transition method permitting the recognition of a cumulative-effect adjustment to retained earnings on the date of adoption rather than restating comparative periods in transition as originally prescribed by Topic 842. The standard is effective for annual reporting periods beginning after December 15, 2018, which for the company is January 1, 2019. The company will adopt the new guidance utilizing the alternative transition method, and is currently in the process of reviewing lease contracts, implementing new lease accounting software, establishing new processes and internal controls and evaluating the impact of certain accounting policy elections. Until this effort is completed, the company cannot fully determine the impact of adopting the new guidance. The adoption is expected to have a material impact on the consolidated financial position, and is not expected to have a material impact on the consolidated results of operations and cash flows.
Note 34 - Cost-Reduction Actions
There were no additional cost-reduction charges recorded during 2018; however, a benefit of $0.9 million and $3.1 million, respectively, was recorded for changes in estimates during the three and nine months ended September 30, 2018.
During the three months ended September 30, 2017, the company recognized cost-reduction charges and other costs of $46.1 million. Charges related to work-force reductions were $49.5 million, principally related to severance costs, and were comprised of: (a) a charge of $2.6 million for 93 employees and $(0.4) million for changes in estimates in the U.S. and (b) a charge of $48.3 million for 1,459 employees and $(1.0) million for changes in estimates outside the U.S. In addition, the company recorded charges of $(3.4) million comprised of $0.6 million for idle leased facilities costs, $0.1 million for contract amendment and termination costs, $0.9 million for professional fees and other expenses related to the cost-reduction effort, $0.7 million for net asset sales and write-offs and $(5.7) million for net foreign currency gains related to exiting foreign countries. The charges were recorded in the following statement of income classifications: cost of revenue – services, $42.8 million; selling, general and administrative expenses, $7.9 million; research and development expenses, $1.1 million; and other income (expense), net, $(5.7) million.
During the nine months ended September 30, 2017, the company recognized cost-reduction and other costs of $99.0 million. Charges related to work-force reductions were $86.2 million, principally related to severance costs, and were comprised of: (a) a charge of $7.9 million for 507 employees and $(0.6) million for changes in estimates in the U.S. and (b) a charge of $72.3 million for 1,835 employees, $8.2 million for additional benefits provided in 2017 and $(1.6) million for changes in estimates outside the U.S. In addition, the company recorded charges of $12.8 million comprised of $3.5 million for idle leased facilities costs, $5.3 million for contract amendment and termination costs, $3.9 million for professional fees and other expenses related to the cost-reduction effort, $0.7 million for net asset sales and write-offs and $(0.6) million for net foreign currency gains related to exiting foreign countries. The charges were recorded in the following statement of income classifications: cost of revenue – services, $70.4 million; cost of revenue - technology, $0.4 million; selling, general and administrative expenses, $27.4 million; research and development expenses, $1.4 million; and other income (expense), net, $(0.6) million.


Liabilities and expected future payments related to the company’s cost-reduction actions are as follows:
    Work-Force Reductions Idle Leased Facilities Costs
  Total U.S. International 
Balance at December 31, 2017 $117.8
 $3.9
 $109.6
 $4.3
Payments (34.6) (2.8) (30.2) (1.6)
Changes in estimates (2.9) (1.0) (2.5) 0.6
Translation adjustments (2.9) 
 (2.8) (0.1)
Balance at September 30, 2018 $77.4
 $0.1
 $74.1
 $3.2
Expected future utilization on balance at September 30, 2018:        
2018 remaining three months $12.5
 $0.1
 $12.0
 $0.4
Beyond 2018 $64.9
 $
 $62.1
 $2.8
Note 5 - Pension and Postretirement Benefits
Net periodic pension expense for the three and nine months ended September 30, 20172018 and 20162017 is presented below:
 Three Months Ended
September 30, 2017
 Three Months Ended
September 30, 2016
 Three Months Ended
September 30, 2018
 Three Months Ended
September 30, 2017
 Total 
U.S.
Plans
 
International
Plans
 Total 
U.S.
Plans
 
International
Plans
 Total 
U.S.
Plans
 
International
Plans
 Total 
U.S.
Plans
 
International
Plans
Service cost(i) $1.0
 $
 $1.0
 $1.8
 $
 $1.8
 $0.8
 $
 $0.8
 $1.0
 $
 $1.0
Interest cost 71.4
 52.8
 18.6
 79.3
 57.7
 21.6
 63.1
 46.8
 16.3
 71.4
 52.8
 18.6
Expected return on plan assets (91.2) (58.8) (32.4) (97.2) (63.2) (34.0) (85.7) (57.7) (28.0) (91.2) (58.8) (32.4)
Amortization of prior service benefit (1.1) (0.6) (0.5) (1.4) (0.6) (0.8) (1.5) (0.6) (0.9) (1.1) (0.6) (0.5)
Recognized net actuarial loss 43.5
 31.6
 11.9
 38.7
 29.0
 9.7
 41.9
 31.4
 10.5
 43.5
 31.6
 11.9
Net periodic pension expense (benefit) $23.6
 $25.0
 $(1.4) $21.2
 $22.9
 $(1.7) $18.6
 $19.9
 $(1.3) $23.6
 $25.0
 $(1.4)
  Nine Months Ended
September 30, 2018
 Nine Months Ended
September 30, 2017
  Total 
U.S.
Plans
 
International
Plans
 Total 
U.S.
Plans
 
International
Plans
Service cost(i)
 $2.4
 $
 $2.4
 $4.2
 $
 $4.2
Interest cost 191.1
 140.0
 51.1
 212.2
 158.5
 53.7
Expected return on plan assets (259.9) (172.9) (87.0) (270.7) (176.4) (94.3)
Amortization of prior service benefit (4.7) (1.9) (2.8) (3.6) (1.9) (1.7)
Recognized net actuarial loss 126.0
 93.8
 32.2
 132.5
 94.8
 37.7
Curtailment gain 
 
 
 (5.2) 
 (5.2)
Net periodic pension expense (benefit) $54.9
 $59.0
 $(4.1) $69.4
 $75.0
 $(5.6)
  Nine Months Ended
September 30, 2017
 Nine Months Ended
September 30, 2016
  Total 
U.S.
Plans
 
International
Plans
 Total 
U.S.
Plans
 
International
Plans
Service cost $4.2
 $
 $4.2
 $5.7
 $
 $5.7
Interest cost 212.2
 158.5
 53.7
 241.2
 173.4
 67.8
Expected return on plan assets (270.7) (176.4) (94.3) (296.6) (189.8) (106.8)
Amortization of prior service benefit (3.6) (1.9) (1.7) (4.2) (1.9) (2.3)
Recognized net actuarial loss 132.5
 94.8
 37.7
 116.9
 87.0
 29.9
Curtailment gain (5.2) 
 (5.2) 
 
 
Net periodic pension expense (benefit) $69.4
 $75.0
 $(5.6) $63.0
 $68.7
 $(5.7)
(i)
Service cost is reported in cost of revenue - services and selling, general and administrative expenses. All other components of net periodic pension expense are reported in other income (expense), net in the Consolidated Statements of Income.
In 2017,2018, the company expects to make cash contributions of approximately $137.5$130.3 million to its worldwide defined benefit pension plans, which are comprised of $54.4$80.6 million for the company’s U.S. qualified defined benefit pension planplans and $83.1$49.7 million primarily for the company’s non-U.S. defined benefit pension plans. In 2016,2017, the company made cash contributions of $132.5$138.4 million to its worldwide defined benefit pension plans. For the nine months ended September 30, 20172018 and 2016,2017, the company made cash contributions of $110.8$117.5 million and $104.0$110.8 million, respectively.

Net periodic postretirement benefit expense for the three and nine months ended September 30, 20172018 and 20162017 is presented below:
  Three Months Ended
September 30,
 Nine Months Ended
September 30,
  2018 2017 2018 2017
Service cost(i)
 $0.2
 $0.2
 $0.5
 $0.4
Interest cost 1.1
 1.4
 3.5
 4.4
Expected return on assets (0.1) (0.1) (0.3) (0.3)
Recognized net actuarial loss 0.4
 0.3
 0.9
 0.9
Amortization of prior service benefit (0.5) (0.1) (1.3) (0.3)
Net periodic postretirement benefit expense $1.1
 $1.7
 $3.3
 $5.1
(i)
Service cost is reported in selling, general and administrative expenses. All other components of net periodic postretirement benefit expense are reported in other income (expense), net in the Consolidated Statements of Income.
  Three Months Ended
September 30,
 Nine Months Ended
September 30,
  2017 2016 2017 2016
Service cost $0.2
 $0.1
 $0.4
 $0.3
Interest cost 1.4
 1.6
 4.4
 4.8
Expected return on assets (0.1) (0.1) (0.3) (0.3)
Recognized net actuarial loss 0.3
 0.3
 0.9
 0.9
Amortization of prior service benefit (0.1) 
 (0.3) 
Net periodic postretirement benefit expense $1.7
 $1.9
 $5.1
 $5.7
The company expects to make cash contributions of approximately $13$12.0 million to its postretirement benefit plan in 20172018 compared to $13.6$12.2 million in 2016.2017. For the nine months ended September 30, 20172018 and 2016,2017, the company made cash contributions of $8.4$7.0 million and $9.1$8.4 million, respectively.
Note 46 - Stock Compensation
Under stockholder approved stock-based plans, stock options, stock appreciation rights, restricted stock and restricted stock units may be granted to officers, directors and other key employees. At September 30, 2018, 2.3 million shares of unissued common stock of the company were available for granting under these plans.
As of September 30, 2018, the company has granted non-qualified stock options and restricted stock units under these plans. The company recognizes compensation cost net of a forfeiture rate in selling, general and administrative expenses, and recognizes compensation cost only for those awards expected to vest. The company estimates the forfeiture rate based on its historical experience and its expectations about future forfeitures.
During the nine months ended September 30, 2018 and 2017, the company recorded $10.0 million and $8.6 million of share-based compensation expense, respectively, which was comprised of $9.9 million and $7.8 million of restricted stock unit expense and $0.1 million and $0.8 million of stock option expense, respectively.
There were no grants of stock option awards during the nine months ended September 30, 2018 and 2017.
A summary of stock option activity for the nine months ended September 30, 2018 follows (shares in thousands):
  Stock Options 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term 
(years)
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2017 1,758
 $26.35
    
Granted 
 
    
Exercised (1) 15.66
    
Forfeited and expired (597) 23.72
    
Outstanding at September 30, 2018 1,160
 27.72
 1.42 $0.2
Expected to vest at September 30, 2018 6
 11.99
 4.20 $0.1
Exercisable at September 30, 2018 1,154
 27.81
 1.41 $0.2
Restricted stock unit awards may contain time-based units, performance-based units, total shareholder return market-based units, or a combination of these units. Each performance-based and market-based unit will vest into zero to two shares depending on the degree to which the performance or market conditions are met. Compensation expense for performance-based awards is recognized as expense ratably for each installment from the date of grant until the date the restrictions lapse, and is based on the fair market value at the date of grant and the probability of achievement of the specific performance-related goals. Compensation expense for market-related awards is recognized as expense ratably over the measurement period, regardless of the actual level of achievement, provided the service requirement is met.


A summary of restricted stock unit activity for the nine months ended September 30, 2018 follows (shares in thousands):
  
Restricted
Stock
Units
 
Weighted-
Average
Grant-Date
Fair Value
Outstanding at December 31, 2017 1,688
 $13.39
Granted 1,449
 12.53
Vested (767) 13.43
Forfeited and expired (198) 12.57
Outstanding at September 30, 2018 2,172
 12.90
The aggregate weighted-average grant-date fair value of restricted stock units granted during the nine months ended September 30, 2018 and 2017 was $17.9 million and $14.3 million, respectively. The fair value of restricted stock units with time and performance conditions was determined based on the trading price of the company’s common shares on the date of grant. The fair value of awards with market conditions was estimated using a Monte Carlo simulation with the following weighted-average assumptions:
  Nine Months Ended
September 30, 2018
Weighted-average fair value of grant $15.20
Risk-free interest rate(i)
 2.26%
Expected volatility(ii)
 52.97%
Expected life of restricted stock units in years(iii)
 2.88
Expected dividend yield %
(i)
Represents the continuously compounded semi-annual zero-coupon U.S. treasury rate commensurate with the remaining performance period
(ii)
Based on historical volatility for the company that is commensurate with the length of the performance period
(iii)
Represents the remaining life of the longest performance period
As of September 30, 2018, there was $15.6 million of total unrecognized compensation cost related to outstanding restricted stock units granted under the company’s plans. That cost is expected to be recognized over a weighted-average period of 2.1 years. The aggregate weighted-average grant-date fair value of restricted stock units vested during the nine months ended September 30, 2018 and 2017 was $10.3 million and $7.3 million, respectively.
Common stock issued upon lapse of restrictions on restricted stock units are newly issued shares. In light of its tax position, the company is currently not recognizing any tax benefits upon issuance of stock upon lapse of restrictions on restricted stock units. Tax benefits resulting from tax deductions in excess of the compensation costs recognized are classified as operating cash flows.
Note 7 - Income Taxes
Accounting rules governing income taxes require that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. These rules also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized.
The company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the company’s historical profitability, forecast of future taxable income and available tax-planning strategies that could be implemented to realize the net deferred tax assets. The company uses tax-planning strategies to realize or renew net deferred tax assets to avoid the potential loss of future tax benefits.
A full valuation allowance is currently maintained for all U.S. and certain foreign deferred tax assets in excess of deferred tax liabilities. The company will record a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their net deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to such valuation allowance, except with respect to withholding taxes not


creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly depending on the geographic distribution of income.

During the three months ended September 30, 2018, the company recognized a benefit of $6.6 million due to the release of a valuation allowance on certain foreign deferred tax assets (net operating losses) as a result of the identification of an additional source of taxable income available in prior periods. In the second quarter of 2017, the company elected to receive cash refunds of a portion of its U.S. alternative minimum tax (AMT) credit carryforwards in lieu of claiming bonus depreciation as provided by Internal Revenue Code Section 168(k)(4). The decision to make this election resulted in a tax benefit of $21.1 million in 2017.
Note 8 — Earnings Per Share
The following table shows how earnings (loss) per share attributable to Unisys Corporation was computed for the three and nine months ended September 30, 2018 and 2017 (shares in thousands):
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
Basic earnings (loss) per common share computation:        
Net income (loss) attributable to Unisys Corporation $6.1
 $(41.1) $50.5
 $(115.8)
Weighted average shares 51,021
 50,471
 50,918
 50,388
Basic earnings (loss) per common share $0.12
 $(0.81) $0.99
 $(2.30)
Diluted earnings (loss) per common share computation:        
Net income (loss) attributable to Unisys Corporation $6.1
 $(41.1) $50.5
 $(115.8)
Add interest expense on convertible senior notes, net of tax of zero 
 
 14.6
 
Net income (loss) attributable to Unisys Corporation for diluted earnings per share $6.1
 $(41.1) $65.1
 $(115.8)
Weighted average shares 51,021
 50,471
 50,918
 50,388
Plus incremental shares from assumed conversions:        
Employee stock plans 697
 
 479
 
Convertible senior notes 
 
 21,868
 
Adjusted weighted average shares 51,718
 50,471
 73,265
 50,388
Diluted earnings (loss) per common share $0.12
 $(0.81) $0.89
 $(2.30)
         
Anti-dilutive weighted-average stock options and restricted stock units(i)
 1,136
 2,236
 1,274
 2,215
Anti-dilutive weighted-average common shares issuable upon conversion of the 5.50% convertible senior notes(i)
 21,868
 21,868
 
 21,868
(i)
Amounts represent shares excluded from the computation of diluted earnings per share, as their effect, if included, would have been anti-dilutive for the periods presented.
Note 9 - Properties
In the second quarter of 2018, the company sold a building and land located in the United Kingdom. The company received net proceeds of $19.2 million and recorded a pretax gain of $7.3 million which was recorded in selling, general and administrative expense in the Consolidated Statements of Income.
Note 10 - Financial Instruments and Fair Value Measurements
Due to its foreign operations, the company is exposed to the effects of foreign currency exchange rate fluctuations on the U.S. dollar, principally related to intercompany account balances. The company uses derivative financial instruments to reduce its exposure to market risks from changes in foreign currency exchange rates on such balances. The company enters into foreign exchange forward contracts, generally having maturities of three months or less, which have not been designated as hedging instruments. At September 30, 20172018 and December 31, 2016,2017, the notional amount of these contracts was $449.2$380.0 million and $428.9$514.0 million, respectively. The fair value of these forward contracts is based on quoted prices for similar but not identical financial instruments; as such, the inputs are considered Level 2 inputs.


The following table summarizes the fair value of the company’s foreign exchange forward contracts as of September 30, 20172018 and December 31, 2016.
2017.
 Fair Value as of September 30,
2018
 December 31, 2017
Balance Sheet Location September 30, 2017 December 31, 2016    
Prepaid expenses and other current assets $0.7
 $2.4
 $0.7
 $4.9
Other accrued liabilities $3.5
 $1.9
 3.8
 1.6
Total fair value $(3.1) $3.3
The following table summarizes the location and amount of gains and losses recognized on foreign exchange forward contracts for the three and nine months ended September 30, 20172018 and 2016.
2017.
Amount of Gain (Loss) RecognizedThree months ended September 30, Nine months ended September 30,
Three months ended September 30, Nine months ended September 30,2018 2017 2018 2017
Statement of Income Location2017 2016 2017 2016       
Other income (expense), net$5.8
 $(5.7) $27.3
 $(19.8)$(2.7) $5.8
 $(9.6) $27.3


Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and other accrued liabilities. The carrying amounts of these financial assets and liabilities approximate fair value due to their short maturities. Such financial instruments are not included in the following table that provides information about the estimated fair values of other financial instruments that are not measured at fair value in the consolidated balance sheetsConsolidated Balance Sheets as of September 30, 20172018 and December 31, 2016.
2017.
 September 30, 2017 December 31, 2016
 Carrying Amount Fair Value Carrying Amount Fair Value
Long-term debt:       
10.75% senior secured notes due 2022(a)
$429.0
 $487.3
 $
 $
5.50% convertible senior notes due 2021$184.4
 $243.7
 $179.1
 $379.8
6.25% senior notes(b)
$
 $
 $94.7
 $97.8
(a) Issued in April 2017
(b) Retired in April 2017
 September 30, 2018 December 31, 2017
 Carrying Amount Fair Value Carrying Amount Fair Value
Long-term debt:       
10.75% senior secured notes due 2022$431.4
 $496.1
 $429.6
 $492.8
5.50% convertible senior notes due 2021$192.2
 $476.2
 $186.3
 $237.9
Long-term debt is carried at amortized cost and its estimated fair value is based on market prices classified as Level 2 in the fair value hierarchy.
Note 511 - Stock OptionsGoodwill
Under stockholder approved stock-based plans, stock options, stock appreciation rights, restricted stock and restricted stock units may be granted to officers, directors and other key employees. At September 30, 2017, 3.1 million shares2018, the amount of unissued common stockgoodwill allocated to reporting units with negative net assets was as follows: Business Process Outsourcing Services, $10.4 million.
Changes in the carrying amount of the company were available for granting under these plans.
There were no grants of stock option awards during the nine months ended September 30, 2017.
For the nine months ended September 30, 2016, the fair value of stock option awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted-average fair values:
  Nine Months Ended
September 30, 2016
Weighted-average fair value of grant $4.53
Risk-free interest rate 1.29%
Expected volatility 51.30%
Expected life of options in years 4.90
Expected dividend yield 
Restricted stock unit awards may contain time-based units, performance-based units or a combination of both. Each performance-based unit will vest into zero to two shares depending on the degree to which the performance goals are met. Compensation expense resulting from these awards is recognized as expense ratably for each installment from the date of grant until the date the restrictions lapse, and is based on the fair market value at the date of grant and the probability of achievement of the specific performance-related goals.
The company records all share-based expense in selling, general and administrative expense.
During the nine months ended September 30, 2017 and 2016, the company recorded $8.6 million and $7.7 million of share-based compensation expense, respectively, which was comprised of $7.8 million and $6.1 million of restricted stock unit expense and $0.8 million and $1.6 million of stock option expense, respectively.


A summary of stock option activitygoodwill by segment for the nine months ended September 30, 2017 follows (shares in thousands):
2018 were as follows:
Options Shares 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term (years)
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2016 2,099
 $25.41
    
Granted 
 
    
Exercised (1) 10.65
    
Forfeited and expired (320) 20.22
    
Outstanding at September 30, 2017 1,778
 26.35
 1.81 $
Expected to vest at September 30, 2017 204
 22.93
 3.70 
Exercisable at September 30, 2017 1,571
 26.80
 1.56 
The aggregate intrinsic value represents the total pretax value of the difference between the company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options that would have been received by the option holders had all option holders exercised their options on September 30, 2017. The intrinsic value of the company’s stock options changes based on the closing price of the company’s stock. The total intrinsic value of options exercised for the nine months ended September 30, 2017 was immaterial, and for the nine months ended September 30, 2016 was zero. As of September 30, 2017, $0.4 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of one year.
A summary of restricted stock unit activity for the nine months ended September 30, 2017 follows (shares in thousands):
  
Restricted
Stock
Units
 
Weighted-
Average
Grant-Date
Fair Value
Outstanding at December 31, 2016 1,454
 $12.68
Granted 1,022
 13.95
Vested (549) 13.28
Forfeited and expired (216) 11.73
Outstanding at September 30, 2017 1,711
 13.44
The fair value of restricted stock units is determined based on the trading price of the company’s common shares on the date of grant. The aggregate weighted-average grant-date fair value of restricted stock units granted during the nine months ended September 30, 2017 and 2016 was $14.3 million and $12.6 million, respectively. As of September 30, 2017, there was $12.4 million of total unrecognized compensation cost related to outstanding restricted stock units granted under the company’s plans. That cost is expected to be recognized over a weighted-average period of 2.1 years. The aggregate weighted-average grant-date fair value of restricted stock units vested during the nine months ended September 30, 2017 and 2016 was $7.3 million and $3.5 million, respectively.

Common stock issued upon exercise of stock options or upon lapse of restrictions on restricted stock units are newly issued shares. Cash received from the exercise of stock options for the nine months ended September 30, 2017 was immaterial, and for the nine months ended September 30, 2016 was zero. In light of its tax position, the company is currently not recognizing any tax benefits from the exercise of stock options or upon issuance of stock upon lapse of restrictions on restricted stock units. Tax benefits resulting from tax deductions in excess of the compensation costs recognized are classified as operating cash flows.
  Total Services Technology
Balance at December 31, 2017 $180.8
 $72.1
 $108.7
Translation adjustments (2.7) (2.7) 
Balance at September 30, 2018 $178.1
 $69.4
 $108.7


Note 612 - Segment InformationDebt
Long-term debt is comprised of the following:
  September 30,
2018
 December 31, 2017
10.75% senior secured notes due April 15, 2022 ($440.0 million face value less unamortized discount and fees of $8.6 million and $10.4 million at September 30, 2018 and December 31, 2017, respectively) $431.4
 $429.6
5.50% convertible senior notes due March 1, 2021 ($213.5 million face value less unamortized discount and fees of $21.3 million and $27.2 million at September 30, 2018 and December 31, 2017, respectively) 192.2
 186.3
Capital leases 6.1
 7.5
Other debt 20.3
 21.3
Total 650.0
 644.7
Less – current maturities 9.9
 10.8
Total long-term debt $640.1
 $633.9
See Note 10 for the fair value of the notes.
Senior Secured Notes
In 2017, the company issued $440.0 million aggregate principal amount of 10.75% Senior Secured Notes due 2022 (the “2022 Notes”). The 2022 Notes are initially fully and unconditionally guaranteed on a senior secured basis by Unisys Holding Corporation, Unisys AP Investment Company I and Unisys NPL, Inc. (together with the Company, the “Grantors”). In the future, the 2022 Notes will be guaranteed by each material domestic subsidiary and each restricted subsidiary that guarantees the secured revolving credit facility and other indebtedness of the company or another subsidiary guarantor. The 2022 Notes and the guarantees will rank equally in right of payment with all of the existing and future senior debt of the company and the subsidiary guarantors. The 2022 Notes and the guarantees will be structurally subordinated to all existing and future liabilities (including preferred stock, trade payables and pension liabilities) of the company’s subsidiaries that are not subsidiary guarantors.
The 2022 Notes pay interest semiannually on April 15 and October 15 at an annual rate of 10.75%, and will mature on April 15, 2022, unless earlier repurchased or redeemed.
The company has two business segments: Servicesmay, at its option, redeem some or all of the 2022 Notes at any time on or after April 15, 2020 at a redemption price determined in accordance with the redemption schedule set forth in the indenture governing the 2022 Notes (the “indenture”), plus accrued and Technology. Revenue classifications withinunpaid interest, if any.
Prior to April 15, 2020, the Services segmentcompany may, at its option, redeem some or all of the 2022 Notes at any time, at a price equal to 100% of the principal amount of the 2022 Notes redeemed plus a “make-whole” premium, plus accrued and unpaid interest, if any. The company may also redeem, at its option, up to 35% of the 2022 Notes at any time prior to April 15, 2020, using the proceeds of certain equity offerings at a redemption price of 110.75% of the principal amount thereof, plus accrued and unpaid interest, if any. In addition, the company may redeem all (but not less than all) of the 2022 Notes at any time that the Collateral Coverage Ratio is less than the Required Collateral Coverage Ratio (as such terms are as follows:
Cloud & infrastructure services. This represents revenue from helping clients apply clouddescribed below and as-a-service delivery modelsfurther defined in the indenture) at a price equal to capitalize on business opportunities, make their end users more productive100% of the principal amount of the 2022 Notes plus accrued and manage and secure their IT infrastructure and operations more economically.

Application services. This represents revenue from helping clients transform their business processes by providing advanced solutions for select industries, developing and managing new leading-edge applications, providing digital transformation services, offering advanced data analytics and modernizing existing enterprise applications.

Business process outsourcing services. This represents revenue from the management of critical processes and functions for clients in target industries, helping them improve performance and reduce costs.unpaid interest, if any.
The accounting policiesindenture contains covenants that limit the ability of each business segment are the same as those followedcompany and its restricted subsidiaries to, among other things: (i) incur additional indebtedness and guarantee indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem its capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make certain prepayments in respect of pension obligations; (v) issue certain preferred stock or similar equity securities; (vi) make loans and investments (including investments by the company and subsidiary guarantors in subsidiaries that are not guarantors); (vii) sell assets; (viii) create or incur liens; (ix) enter into transactions with affiliates; (x) enter into agreements restricting its subsidiaries’ ability to pay dividends; and (xi) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to several important limitations and exceptions.
The indenture also includes a covenant requiring that the company maintain a Collateral Coverage Ratio of not less than 1.50:1.00 (the “Required Collateral Coverage Ratio”) as a whole. Intersegment salesof any test date. The Collateral Coverage Ratio is based on the ratio of (A) Grantor unrestricted cash and transfers are pricedcash equivalents plus 4.75 multiplied by of the greater of (x) Grantor EBITDA for the most recently ended four fiscal quarters and (y) (i) the average quarterly Grantor EBITDA for the most recently ended seven fiscal quarters, multiplied by (ii) four, to (B) secured indebtedness of the Grantors. The Collateral Coverage Ratio is tested quarterly.


If the Collateral Coverage Ratio is less than the Required Collateral Coverage Ratio as of any test date, and the company has not redeemed the 2022 Notes within 90 days thereafter, this will be an event of default under the indenture.
If the company experiences certain kinds of changes of control, it must offer to purchase the 2022 Notes at 101% of the principal amount of the 2022 Notes, plus accrued and unpaid interest, if any. In addition, if the salescompany sells assets under certain circumstances it must apply the proceeds towards an offer to repurchase the 2022 Notes at a price equal to par plus accrued and unpaid interest, if any.
The indenture also provides for events of default, which, if any of them occurs, would permit or transfers wererequire the principal, premium, if any, interest and any other monetary obligations on all the then outstanding 2022 Notes to third parties. Accordingly,be due and payable immediately.
Convertible Senior Notes
In 2016, the Technology segment recognizes intersegment revenue and manufacturing profit on hardware and software shipments to customers under Services contracts. The Services segment, in turn, recognizes customer revenue and marketing profits on such shipments of company hardware and software to customers. The Services segment also includes the sale of hardware and software products sourced from third parties that are sold to customers through the company’s Services channels. In the company’s consolidated statements of income, the manufacturing costs of products sourced from the Technology segment and sold to Services customers are reported in cost of revenue for Services.
Also included in the Technology segment’s sales and operating profit are sales of hardware and software sold to the Services segment for internal use in Services engagements. Theissued $213.5 million aggregate principal amount of such profit included in operating income of the Technology segment for the three months ended September 30, 2017 was immaterial, and for the three months ended September 30, 2016 was $0.1 million.Convertible Senior Notes due 2021 (the “2021 Notes”). The amount for the nine months ended September 30, 2017 and 2016 was $1.0 million and $0.6 million, respectively. The sales and profit on these transactions are eliminated in Corporate.
The company evaluates business segment performance based on operating income exclusive of pension income or expense, restructuring charges and unusual and nonrecurring items,2021 Notes, which are includedsenior unsecured obligations, bear interest at a coupon rate of 5.50% (or 9.5% effective interest rate) per year until maturity, payable semiannually in Corporate. All other corporatearrears on March 1 and centrally incurred costsSeptember 1 of each year. The 2021 Notes are allocatednot redeemable prior to the business segments based principally on revenue, employees, square footage or usage.
A summarymaturity and are convertible into shares of the company’s operations by business segmentcommon stock. The conversion rate for the 2021 Notes is 102.4249 shares of the company’s common stock per $1,000 principal amount of the 2021 Notes (or a total amount of 21,867,716 shares), which is equivalent to an initial conversion price of approximately $9.76 per share of the company’s common stock. Upon any conversion, the company will settle its conversion obligation in cash, shares of its common stock, or a combination of cash and shares of its common stock, at its election.
In connection with the issuance of the 2021 Notes, the company also paid $27.3 million to enter into privately negotiated capped call transactions with the initial purchasers and/or affiliates of the initial purchasers. The capped call transactions will cover, subject to customary anti-dilution adjustments, the number of shares of the company’s common stock that will initially underlie the 2021 Notes. The capped call transactions will effectively raise the conversion premium on the 2021 Notes from approximately 22.5% to approximately 60%, which raises the initial conversion price from approximately $9.76 per share of common stock to approximately $12.75 per share of common stock. The capped call transactions are expected to reduce potential dilution to the company’s common stock and/or offset potential cash payments the company is required to make in excess of the principal amount upon any conversion of the 2021 Notes.
Interest expense related to the 2021 notes for the three and nine month periods ended September 30, 2018 and 2017 and 2016 is presented below:
was as follows:
  Total Corporate Services Technology
Three Months Ended September 30, 2017        
Customer revenue $666.3
 $
 $575.5
 $90.8
Intersegment 
 (4.4) 
 4.4
Total revenue $666.3
 $(4.4) $575.5
 $95.2
Operating income (loss) $(27.0) $(75.3) $18.7
 $29.6
         
Three Months Ended September 30, 2016        
Customer revenue $683.3
 $
 $600.9
 $82.4
Intersegment 
 (5.8) 
 5.8
Total revenue $683.3
 $(5.8) $600.9
 $88.2
Operating income (loss) $(9.8) $(53.9) $15.5
 $28.6
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
Contractual interest coupon $2.9
 $2.9
 $8.8
 $8.8
Amortization of debt discount 1.7
 1.6
 4.9
 4.5
Amortization of debt issuance costs 0.3
 0.3
 0.9
 0.9
Total $4.9
 $4.8
 $14.6
 $14.2

Holders of the 2021 Notes have the right to convert the 2021 Notes equivalent to an initial conversion price of approximately $9.76 per share of common stock prior to December 1, 2020, but only upon the occurrence of specified events described in the 2021 Notes indenture (the “indenture”). As certain conditions within the indenture have been met during the current quarter, the 2021 Notes’ holders have the right to convert during the quarter ending December 31, 2018.
Revolving Credit Facility
The company has a secured revolving credit facility (the “Credit Agreement”) that provides for loans and letters of credit. During the second quarter of 2018, the maximum amount available under the facility was increased from $125.0 million to $145.0 million (with a limit on letters of credit of $30.0 million). The accordion feature contained in the Credit Agreement that permitted this increase allows for an increase in the amount of the facility up to $150.0 million. Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. At September 30, 2018, the company had no borrowings and $6.4 million of letters of credit outstanding, and availability under the facility was $103.4 million net of letters of credit issued. The Credit Agreement expires October 5, 2022, subject to a springing maturity (i) on the date that is 91 days prior to the maturity date of the 2021 Notes unless, on such date, certain conditions are met; or (ii) on the date that is 60 days prior to the maturity date of the 2022 Notes unless, by such date, such secured notes have been redeemed or refinanced.
The credit facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc., Unisys AP Investment Company I and any future material domestic subsidiaries. The facility is secured by the assets of the company and the subsidiary guarantors, other



than certain excluded assets, under a security agreement entered into by the company and the subsidiary guarantors in favor of JPMorgan Chase Bank, N.A., as agent for the lenders under the credit facility.
The company is required to maintain a minimum fixed charge coverage ratio if the availability under the credit facility falls below the greater of 10% of the lenders’ commitments under the facility and $15.0 million.
  Total Corporate Services Technology
Nine Months Ended September 30, 2017        
Customer revenue $1,997.0
 $
 $1,735.6
 $261.4
Intersegment 
 (15.1) 
 15.1
Total revenue $1,997.0
 $(15.1) $1,735.6
 $276.5
Operating income (loss) $(54.5) $(168.1) $36.6
 $77.0
         
Nine Months Ended September 30, 2016        
Customer revenue $2,099.0
 $
 $1,809.8
 $289.2
Intersegment 
 (17.3) 
 17.3
Total revenue $2,099.0
 $(17.3) $1,809.8
 $306.5
Operating income (loss) $12.1
 $(130.3) $32.2
 $110.2

Presented below is a reconciliation of total business segment operating income to consolidated loss before income taxes:
  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
Total segment operating income $48.3
 $44.1
 $113.6
 $142.4
Interest expense (16.4) (7.7) (36.4) (19.9)
Other income (expense), net 3.0
 2.3
 (8.6) 3.7
Cost reduction charges(a)
 (51.8) (31.9) (99.6) (69.0)
Corporate and eliminations (23.5) (22.0) (68.5) (61.3)
Total loss before income taxes $(40.4) $(15.2) $(99.5) $(4.1)
(a)The three and nine months ended September 30, 2017 excludes $5.7 million and $0.6 million, respectively, for net foreign currency translation gains related to exiting foreign countries which are reportedThe Credit Agreement contains customary representations and warranties, including that there has been no material adverse change in Other income (expense), net in the consolidated statements of income.
Customer revenue by classes of similar products or services, by segment, is presented below:
  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
Services        
Cloud & infrastructure services $321.2
 $341.9
 $983.4
 $1,017.8
Application services 206.4
 210.4
 604.3
 641.4
Business process outsourcing services 47.9
 48.6
 147.9
 150.6
  575.5
 600.9
 1,735.6
 1,809.8
Technology 90.8
 82.4
 261.4
 289.2
Total $666.3
 $683.3
 $1,997.0
 $2,099.0
Geographic information about the company’s revenue, which is principally basedbusiness, properties, operations or financial condition. The Credit Agreement includes limitations on locationthe ability of the selling organization, is presented below: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. 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.
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
United States $313.2
 $327.1
 $955.5
 $1,006.4
United Kingdom 65.8
 72.3
 211.3
 263.6
Other foreign 287.3
 283.9
 830.2
 829.0
Total $666.3
 $683.3
 $1,997.0
 $2,099.0


Note 7 - Accumulated Other Comprehensive Income
Accumulated other comprehensive loss as of December 31, 2016 and September 30, 2017 is as follows:
  Total 
Translation
Adjustments
 
Postretirement
Plans
Balance at December 31, 2016 $(4,152.8) $(927.1) $(3,225.7)
Other comprehensive income before reclassifications (2.5) 91.8
 (94.3)
Amounts reclassified from accumulated other comprehensive income 119.0
 0.6
 118.4
Current period other comprehensive income 116.5
 92.4
 24.1
Balance at September 30, 2017 $(4,036.3) $(834.7) $(3,201.6)

Amounts reclassified out of accumulated other comprehensive income for the three and nine months ended September 30, 2017 and 2016 are as follows:
  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
Translation Adjustments:        
Adjustment for substantial completion of liquidation of foreign subsidiaries(a)
 $5.7
 $
 $0.6
 $
Postretirement Plans:        
Amortization of prior service cost(b)
 (1.3) (1.4) (4.1) (4.2)
Amortization of actuarial losses(b)
 43.1
 38.6
 131.3
 116.6
Curtailment gain(b)
 
 
 (5.2) 
Total before tax 47.5
 37.2
 122.6
 112.4
Income tax benefit (1.4) (1.1) (3.6) (4.0)
Total reclassification for the period $46.1
 $36.1
 $119.0
 $108.4
(a)Reported in Other income (expense), net in the consolidated statements of income
(b)These items are included in net periodic postretirement cost (see Note 3).
Noncontrolling interests as of December 31, 2016 and September 30, 2017 are as follows:
 
Noncontrolling
Interests
Balance at December 31, 2016$(16.4)
Net income (loss)(5.3)
Translation adjustments6.9
Postretirement plans(6.9)
Balance at September 30, 2017$(21.7)


Note 8 - Supplemental Cash Flow Information
 Nine Months Ended September 30,
 2017 2016
Cash paid during the period for:   
Income taxes, net of refunds$36.0
 $33.4
Interest$16.4
 $19.3
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
 September 30,
2017
 December 31, 2016
Cash and cash equivalents$598.7
 $370.6
Restricted cash21.3
 30.5
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows$620.0
 $401.1

Restricted cash consists of cash the company is contractually obligated to maintain in accordance with the terms of its U.K. business process outsourcing joint venture agreement, cash required to be held on deposit in accordance with other contractual agreements and other cash that is restricted from withdrawal.
Note 913 - Commitments and Contingencies
There are various lawsuits, claims, investigations and proceedings that have been brought or asserted against the company, which arise in the ordinary course of business, including actions with respect to commercial and government contracts, labor and employment, employee benefits, environmental matters, intellectual property and non-income tax matters. The company records a provision for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any provisions are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information and events pertinent to a particular matter.
The company believes that it has valid defenses with respect to legal matters pending against it. Based on its experience, the company also believes that the damage amounts claimed in the lawsuits disclosed below are not a meaningful indicator of the company’s potential liability. Litigation is inherently unpredictable, however, and it is possible that the company’s results of operations or cash flow could be materially affected in any particular period by the resolution of one or more of the legal matters pending against it.
In April 2007, the Ministry of Justice of Belgium sued Unisys Belgium SA-NV, a Unisys subsidiary (Unisys Belgium), in the Court of First Instance of Brussels. The Belgian government had engaged the company to design and develop software for a computerized system to be used to manage the Belgian court system. The Belgian State terminated the contract and in its lawsuit has alleged that the termination was justified because Unisys Belgium failed to deliver satisfactory software in a timely manner. It claims damages of approximately €28 million. Unisys Belgium filed its defense and counterclaim in April 2008, in the amount of approximately €18.5 million. The company believes it has valid defenses to the claims and contends that the Belgian State’s termination of the contract was unjustified.
The company’s Brazilian operations, along with those of many other companies doing business in Brazil, are involved in various litigation matters, including numerous governmental assessments related to indirect and other taxes, as well
as disputes associated with former employees and contract labor. The tax-related matters pertain to value added taxes, customs, duties, sales and other non-income related tax exposures. The labor-related matters include claims related to compensation matters. The company believes that appropriate accruals have been established for such matters based on information currently available. At September 30, 2017,2018, excluding those matters that have been assessed by management as being remote as to the likelihood of ultimately resulting in a loss, the amount related to unreserved tax-related matters, inclusive of any related interest, is estimated to be up to approximately $138.3$98 million.


On June 26, 2014, the State of Louisiana filed a Petition for Damages against, among other defendants, the company and Molina Information Systems, LLC, in the Parish of East Baton Rouge, 19th Judicial District. The State alleged that between 1989 and 2012 the defendants, each acting successively as the State’s Medicaid fiscal intermediary, utilized an incorrect reimbursement formula for the payment of pharmaceutical claims causing the State to pay excessive amounts for prescription drugs. The State contends overpayments of approximately $68 million for the period January 2002 through July 2011 and is seekingsought data to identify the claims at issue for the remaining time period. The company believes that it has valid defensesOn August 14, 2018, the Louisiana Court of Appeal for the First Circuit dismissed the case. On September 27, 2018, the Court denied the State’s motion for a rehearing. On October 26, 2018, the State applied for a writ of review to Louisiana’s claims and is asserting them in the pending litigation.Louisiana Supreme Court.
With respect to the specific legal proceedings and claims described above, except as otherwise noted, either (i) the amount or range of possible losses in excess of amounts accrued, if any, is not reasonably estimable or (ii) the company believes that the amount or range of possible losses in excess of amounts accrued that are estimable would not be material.
Litigation is inherently unpredictable and unfavorable resolutions could occur. Accordingly, it is possible that an adverse outcome from such matters could exceed the amounts accrued in an amount that could be material to the company’s financial condition, results of operations and cash flows in any particular reporting period.


Notwithstanding that the ultimate results of the lawsuits, claims, investigations and proceedings that have been brought or asserted against the company are not currently determinable, the company believes that at September 30, 2017,2018, it has adequate provisions for any such matters.
Note 1014 - Accumulated Other Comprehensive Income Taxes
Accounting rules governingAccumulated other comprehensive income taxes require that deferred tax assets(loss) as of December 31, 2017 and liabilities be recognized using enacted tax ratesSeptember 30, 2018 is as follows:
  Total 
Translation
Adjustments
 
Postretirement
Plans
Balance at December 31, 2017 $(3,815.8) $(817.0) $(2,998.8)
Reclassification pursuant to ASU No. 2018-02 (208.7) 
 (208.7)
Other comprehensive income before reclassifications (34.2) (35.3) 1.1
Amounts reclassified from accumulated other comprehensive income 115.8
 
 115.8
Current period other comprehensive income (127.1) (35.3) (91.8)
Balance at September 30, 2018 $(3,942.9) $(852.3) $(3,090.6)
Amounts reclassified out of accumulated other comprehensive income for the effectthree and nine months ended September 30, 2018 and 2017 are as follows:
  Three Months Ended September 30, Nine Months Ended
September 30,
  2018 2017 2018 2017
Translation Adjustments(i):
        
Adjustment for substantial completion of liquidation of foreign subsidiaries $
 $5.7
 $
 $0.6
Postretirement Plans(ii):
        
Amortization of prior service cost (1.7) (1.3) (5.3) (4.1)
Amortization of actuarial losses 41.5
 43.1
 124.9
 131.3
Curtailment gain(ii)
 
 
 
 (5.2)
Total before tax 39.8
 47.5
 119.6
 122.6
Income tax benefit (1.3) (1.4) (3.8) (3.6)
Total reclassification for the period $38.5
 $46.1
 $115.8
 $119.0
(i)
Reported in other income (expense), net in the Consolidated Statements of Income
(ii)
These items are included in net periodic postretirement cost (see Note 5).
Noncontrolling interests as of temporary differences betweenDecember 31, 2017 and September 30, 2018 are as follows:
 
Noncontrolling
Interests
Balance at December 31, 2017$28.2
Net income4.2
Translation adjustments(1.3)
Postretirement plans1.1
Balance at September 30, 2018$32.2


Note 15 - Supplemental Cash Flow Information
 Nine Months Ended September 30,
 2018 2017
Cash paid during the period for:   
Income taxes, net of refunds$37.4
 $36.0
Interest$35.7
 $16.4
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the bookConsolidated Balance Sheets to the total of the amounts shown in the Consolidated Statements of Cash Flows.
 September 30,
2018
 December 31, 2017
Cash and cash equivalents$516.1
 $733.9
Restricted cash17.8
 30.2
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows$533.9
 $764.1
Cash and tax basescash equivalents subject to contractual restrictions and not readily available are classified as restricted cash. Restricted cash primarily consists of recorded assets and liabilities. These rules also require that deferred tax assets be reduced by a valuation allowance if itcash the company is more likely than not that some portion orcontractually obligated to maintain in accordance with the entire deferred tax asset will not be realized.
The company evaluates the realizabilityterms of its deferred tax assets by assessing its valuation allowanceU.K. business process outsourcing joint venture agreement and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the company’s historical profitability, forecast of future taxable income and available tax-planning strategiesother cash that could be implemented to realize the net deferred tax assets. The company uses tax-planning strategies to realize or renew net deferred tax assets to avoid the potential loss of future tax benefits.
A full valuation allowance is currently maintained for substantially all U.S. and certain foreign deferred tax assets in excess of deferred tax liabilities. The company will record a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their net deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to such valuation allowance, except with respect to 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 depending on the geographic distribution of income.
In the second quarter of 2017, the company elected to receive cash refunds of a portion of its U.S. alternative minimum tax (“AMT”) credit carryforwards in lieu of claiming bonus depreciation as provided by Internal Revenue Code Section 168(k)(4). The decision to make this election resulted in a total tax benefit of $21.1 million in 2017, of which $20.0 million was recorded in the second quarter of 2017. The company received a refund of $9.1 million in October 2017 and expects to receive refunds of approximately $12 million in future periods.restricted from withdrawal.
Note 1116 - Accounting StandardsSegment Information
As described in Note 3, effective January 1, 2018, the company adopted the requirements of Topic 606 which resulted in an adjustment to Technology revenue and profit of $53.0 million in the first quarter of 2018. The adjustment represents revenue from software license extensions and renewals, which were contracted for in the fourth quarter of 2017 and properly recorded as revenue at that time under the revenue recognition rules then in effect (Topic 605). Topic 606 requires revenue related to software license renewals or extensions to be recorded when the new license term begins, which in the case of the $53.0 million, is January 1, 2018.
Effective January 1, 2017,2018, the company adoptedchanged the grouping of certain of its classes of services. As a result, prior-periods’ customer revenue by classes of similar services have been reclassified to conform to the current-year period.
The company has two business segments: Services and Technology. Revenue classifications within the Services and Technology segment are as follows:
Cloud & infrastructure services. This represents revenue from helping clients apply cloud and as-a-service delivery models to capitalize on business opportunities, make their end users more productive and manage and secure their IT infrastructure and operations more economically.
Application services. This represents revenue from helping clients transform their business processes by developing and managing new guidance issuedleading-edge applications for select industries, offering advanced data analytics and modernizing existing enterprise applications.
Business process outsourcing (BPO) services. This represents revenue from the management of critical processes and functions for clients in target industries, helping them improve performance and reduce costs.
Technology. This represents revenue from designing and developing software and offering hardware and other related products to help clients reduce costs, improve security and flexibility and improve the efficiency of their data-center environments.
The accounting policies of each business segment are the same as those followed by the Financial Accounting Standards Board (“FASB”) which simplifies how an entity is requiredcompany as a whole. Intersegment sales and transfers are priced as if the sales or transfers were to test goodwill for impairment by eliminating Step 2third parties. Accordingly, the Technology segment recognizes intersegment revenue and manufacturing profit on hardware and software shipments to customers under Services contracts. The Services segment, in turn, recognizes customer revenue and marketing profits on such shipments of company hardware and software to customers. The Services segment also includes the sale of hardware and software products sourced from third parties that are sold to customers through the company’s Services channels. In the company’s Consolidated Statements of Income, the manufacturing costs of products sourced from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amended guidance, an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. Adoption of this new guidance had no impact on the company’s consolidated results of operationsTechnology segment and financial position.
Effective January 1, 2017, the company adopted new guidance issued by the FASB which allows the recognition of deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. The new guidance has been applied onServices customers are reported in cost of revenue for Services.


a modified retrospective basis through a cumulative-effect adjustment directly to accumulated deficit. At January 1, 2017, the adjustment to accumulated deficit was an increase of $4.4 million.
Effective January 1, 2017, the company adopted new guidance which clarifies the treatment of several cash flow categories. In addition, the guidance also clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. The company previously reported premium payments on and proceeds from the settlement of corporate-owned life insurance policies as cash flows from operating activitiesAlso included in the company’s consolidated statementTechnology segment’s sales and operating profit are sales of cash flows. Underhardware and software sold to the new guidance, these amounts were reclassified to investing activities.Services segment for internal use in Services engagements. The new guidance has been applied on a retrospective basis whereby prior-period financial statements have been adjusted to reflect the applicationamount of such profit included in operating income of the new guidance, as required byTechnology segment for the FASB. For the ninethree months ended September 30, 2016, $1.52018 was $0.1 million, was reclassified from “other assets” in operating activities to “other” in investing activities inand for the company’s consolidated statements of cash flows.
Effective January 1, 2017, the company adopted new guidance that changes certain aspects of accounting for share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. Additionally, the standard requires all tax-related cash flows resulting from share-based payments to be reported as operating activities on the consolidated statement of cash flows, and any cash payments made to taxing authorities on an employee’s behalf as financing activities, which the company previously reported as operating activities. The new guidance has been applied on a retrospective basis whereby prior-period financial statements have been adjusted to reflect the application of the new guidance, as required by the FASB. For the ninethree months ended September 30, 2016, $0.4 million2017 was reclassified from “accounts payable and other accrued liabilities” in operating activities to “other” in financing activities in the company’s consolidated statements of cash flows.
Effective January 1, 2017, the company adopted new guidance issued by the FASB which requires companies to include amounts generally described as restricted cash or restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.immaterial. The new guidance has been applied on retrospective basis whereby prior-period financial statements have been adjusted to reflect the application of the new guidance, as required by the FASB. For the nine months ended September 30, 2016, the reclassification in the consolidated statements of cash flows resulted in a $0.2 million decrease to “other assets” in operating activities, a $2.0 million increase in “other” in investing activities, a $0.1 million increase in “effect of exchange rate changes on cash, cash equivalents and restricted cash,” a $31.6 million increase in “cash, cash equivalents and restricted cash, beginning of period” and a $33.5 million increase in “cash, cash equivalents and restricted cash, end of period.”
In March 2017, the FASB issued new guidance on the presentation of net periodic benefit cost in the income statement. The new guidance requires employers to present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. The other components of net periodic benefit cost will be presented separately from the line items that include service cost and outside the subtotal of operating income. This update is effective for annual periods beginning after December 15, 2017, which for the company is January 1, 2018. Adoption of this new guidance will result in the reclassification of net periodic benefit cost, other than service costs ($69.9 millionamount for the nine months ended September 30, 2017), from2018 and 2017 was $2.3 million and $1.0 million, respectively. The sales and profit on these transactions are eliminated in Corporate.
The company evaluates business segment performance based on operating income exclusive of the service cost component of postretirement income or expense, restructuring charges and unusual and nonrecurring items, which are included in Corporate. All other corporate and centrally incurred costs are allocated to non-operating income. There will be no overall impactthe business segments based principally on revenue, employees, square footage or usage.
A summary of the company’s consolidated financial position.
In June 2016, the FASB issued new guidance that introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected losses. This includes trade and other receivables, loans and other financial instruments. This update is effective for annual periods beginning after December 15, 2019, with earlier adoption permitted. The company is currently assessing when it will choose to adopt, and is currently evaluating the impact of the adoption on its consolidated financial statements.
In February 2016, the FASB issued a new lease accounting standard entitled “Leases.” The new standard is intended to improve financial reporting about leasing transactions. The new rule will require organizations that lease assets, referred to as lessees, to recognize on the balance sheet the assets and liabilities for the rights and obligations createdoperations by those leases. The standard requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The standard is effective for annual reporting periods beginning after December 15, 2018, which for the company is January 1, 2019. Earlier adoption is permitted. The company is currently assessing when it will choose to adopt, and is currently evaluating the impact of the adoption on its consolidated results of operations and financial position.
In 2014, the FASB issued a new revenue recognition standard entitled “Revenue from Contracts with Customers.” The objective of the standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. The


standard, and its various amendments, is effective for annual reporting periods beginning after December 15, 2017, which for the company is January 1, 2018. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. The new standard would require the company to recognize revenue for certain transactions, including extended payment term software licenses and short-term software licenses, sooner than the current rules would allow and require the company to recognize software license extensions and renewals, later than the current rules would allow. The company will adopt the standard on January 1, 2018 using the modified retrospective method. The company is currently monitoring the impact the adoption of this new standard will have on its consolidated results of operations and financial position and currently does not believe there will be a material impact upon adoption or on a go-forward basis. However, the final impact cannot be determined until the end of 2017 and it will be impacted by transactions entered into during 2017.
Note 12 - Debt
Long-term debt is comprised of the following:
  September 30,
2017
 December 31, 2016
10.75% senior secured notes due April 15, 2022 ($440.0 million face value less unamortized discount and fees of $11.0 million at September 30, 2017) $429.0
 $
5.50% convertible senior notes due March 1, 2021 ($213.5 million face value less unamortized discount and fees of $29.1 million and $34.4 million at September 30, 2017 and December 31, 2016, respectively) 184.4
 179.1
6.25% senior notes 
 94.7
Capital leases 7.8
 10.1
Other debt 21.6
 16.1
Total 642.8
 300.0
Less – current maturities 11.3
 106.0
Total long-term debt $631.5
 $194.0
Interest expense related to the 5.50% convertible notes due 2021business segment for the three and nine month periods ended September 30, 2018 and 2017 and 2016 was as follows:is presented below:
  Total Corporate Services Technology
Three Months Ended September 30, 2018        
Customer revenue $688.3
 $
 $605.6
 $82.7
Intersegment 
 (4.3) 
 4.3
Total revenue $688.3
 $(4.3) $605.6
 $87.0
Operating income $55.8
 $2.7
 $18.6
 $34.5
         
Three Months Ended September 30, 2017        
Customer revenue $666.3
 $
 $575.5
 $90.8
Intersegment 
 (4.4) 
 4.4
Total revenue $666.3
 $(4.4) $575.5
 $95.2
Operating income (loss) $(2.9)* $(51.2)* $18.7
 $29.6
         
Nine Months Ended September 30, 2018        
Customer revenue $2,064.1
 $
 $1,760.8
 $303.3
Intersegment 
 (18.3) 
 18.3
Total revenue $2,064.1
 $(18.3) $1,760.8
 $321.6
Operating income $211.6
 $2.6
 $54.3
 $154.7
         
Nine Months Ended September 30, 2017        
Customer revenue $1,997.0
 $
 $1,735.6
 $261.4
Intersegment 
 (15.1) 
 15.1
Total revenue $1,997.0
 $(15.1) $1,735.6
 $276.5
Operating income (loss) $15.4* $(98.2)* $36.6
 $77.0
*Amounts were changed to conform to the current-year presentation. See Note 3.
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Contractual interest coupon $2.9
 $2.9
 $8.8
 $6.3
Amortization of debt discount 1.6
 1.4
 4.5
 2.9
Amortization of debt issuance costs 0.3
 0.3
 0.9
 0.7
Total $4.8
 $4.6
 $14.2
 $9.9
On April 17, 2017, the company issued $440 million aggregate principal amount of 10.75% Senior Secured Notes due 2022 (the “Notes”). The Notes are initially fully and unconditionally guaranteed on a senior secured basis by Unisys Holding Corporation, Unisys AP Investment Company I and Unisys NPL, Inc. (together with the Company, the “Grantors”). In the future, the Notes will be guaranteed by each material domestic subsidiary and each restricted subsidiary that guarantees the secured revolving credit facility and other indebtedness of the company or another subsidiary guarantor. The Notes and the guarantees will rank equally in right of payment with all of the existing and future senior debt of the company and the subsidiary guarantors. The Notes and the guarantees will be structurally subordinated to all existing and future liabilities (including preferred stock, trade payables and pension liabilities) of the company’s subsidiaries that are not subsidiary guarantors.
The Notes will pay interest semiannually on April 15 and October 15, commencing on October 15, 2017, at an annual rate of 10.75%, and will mature on April 15, 2022, unless earlier repurchased or redeemed.


The company may, at its option, redeem somePresented below is a reconciliation of total business segment operating income to consolidated income (loss) before income taxes:
  Three Months Ended September 30,  Nine Months Ended
September 30,
 
  2018 2017  2018 2017 
Total segment operating income $53.1
 $48.3
  $209.0
 $113.6
 
Interest expense (15.9) (16.4)  (48.2) (36.4) 
Other income (expense), net (17.7) (21.1)* (58.3) (78.5)*
Cost-reduction (charges) benefit(i)
 0.9
 (51.8)  3.1
 (99.6) 
Corporate and eliminations 1.8
 0.6
* (0.5) 1.4
*
Total income (loss) before income taxes $22.2
 $(40.4)  $105.1
 $(99.5) 
*Amounts were changed to conform to the current-year presentation. See Note 3.
(i)
The three and nine months ended September 30, 2017 excludes $5.7 million and $0.6 million, respectively, for net foreign currency gains related to exiting foreign countries which are reported in other income (expense), net in the Consolidated Statements of Income.
Customer revenue by classes of similar products or allservices, by segment, is presented below:
  Three Months Ended September 30,  Nine Months Ended
September 30,
 
  2018 2017  2018 2017 
Services          
Cloud & infrastructure services $348.3
 $326.9
* $1,000.2
 $994.8
*
Application services 191.2
 200.7
* 578.1
 592.9
*
Business process outsourcing services 66.1
 47.9
  182.5
 147.9
 
  605.6
 575.5
  1,760.8
 1,735.6
 
Technology 82.7
 90.8
  303.3
 261.4
 
Total $688.3
 $666.3
  $2,064.1
 $1,997.0
 
*Amounts were changed to conform to the current-year presentation.
Geographic information about the company’s revenue, which is principally based on location of the Notes at any time on or after April 15, 2020 at a redemption price determined in accordance with the redemption schedule set forth in the indenture governing the Notes (the “indenture”), plus accrued and unpaid interest, if any.
Prior to April 15, 2020, the company may, at its option, redeem some or all of the Notes at any time, at a price equal to 100% of the principal amount of the Notes redeemed plus a “make-whole” premium, plus accrued and unpaid interest, if any. The company may also redeem, at its option, up to 35% of the Notes at any time prior to April 15, 2020, using the proceeds of certain equity offerings at a redemption price of 110.75% of the principal amount thereof, plus accrued and unpaid interest, if any. In addition, the company may redeem all (but not less than all) of the Notes at any time that the Collateral Coverage Ratioselling organization, is less than the Required Collateral Coverage Ratio (as such terms are described below and further defined in the indenture) at a price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest, if any.
The indenture contains covenants that limit the ability of the company and its restricted subsidiaries to, among other things: (i) incur additional indebtedness and guarantee indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem its capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make certain prepayments in respect of pension obligations; (v) issue certain preferred stock or similar equity securities; (vi) make loans and investments (including investments by the company and subsidiary guarantors in subsidiaries that are not guarantors); (vii) sell assets; (viii) create or incur liens; (ix) enter into transactions with affiliates; (x) enter into agreements restricting its subsidiaries’ ability to pay dividends; and (xi) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to several important limitations and exceptions.
The indenture also includes a covenant requiring that the company maintain a Collateral Coverage Ratio of not less than 1.50:1.00 (the “Required Collateral Coverage Ratio”) as of any test date. The Collateral Coverage Ratio is based on the ratio of (A) Grantor unrestricted cash and cash equivalents plus 4.75 multiplied by of the greater of (x) Grantor EBITDA for the most recently ended four fiscal quarters and (y) (i) the average quarterly Grantor EBITDA for the most recently ended seven fiscal quarters, multiplied by (ii) four, to (B) secured indebtedness of the Grantors. The Collateral Coverage Ratio is tested quarterly. If the Collateral Coverage Ratio is less than the Required Collateral Coverage Ratio as of any test date, and the company has not redeemed the Notes within 90 days thereafter, this will be an event of default under the indenture.
If the company experiences certain kinds of changes of control, it must offer to purchase the 2022 Notes at 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any. In addition, if the company sells assets under certain circumstances it must apply the proceeds towards an offer to repurchase the Notes at a price equal to par plus accrued and unpaid interest, if any.
The indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately.
On May 8, 2017, the company redeemed all of its then outstanding 6.25% senior notes due 2017. As a result of this redemption, the company recognized a charge of $1.5 million in “Other income (expense), net” in the second quarter of 2017, which is comprised of $1.3 million of premium and expenses paid and $0.2 million for the write off of unamortized discount and fees related to the portion of the notes redeemed.
At September 30, 2017, the company’s secured revolving credit facility had no borrowings and $8.1 million of letters of credit outstanding, and availability under the facility was $91.5 million net of letters of credit issued. On October 5, 2017, the company entered into a new revolving credit facility (the “Credit Agreement”) providing for loans and letters of credit up to an aggregate amount of $125.0 million, which replaces the company’s credit agreement that was due to expire in June 2018. The Credit Agreement includes an accordion feature allowing for an increase in the amount of the facility up to $150.0 million. Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. The Credit Agreement expires October 5, 2022, subject to a springing maturity (i) on the date that is 91 days prior to the maturity date of the company’s convertible notes due 2021 unless, on such date, certain conditions are met; or (ii) on the date that is 60 days prior to the maturity date of the company’s secured notes due 2022 unless, by such date, such secured notes have not been redeemed or refinanced.
The credit facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc., Unisys AP Investment Company I and any future material domestic subsidiaries. The facility is secured by the assets of the company and the subsidiary guarantors, other than certain excluded assets, under a security agreement entered into by the company and the subsidiary guarantors in favor of JPMorgan Chase Bank, N.A., as agent for the lenders under the new credit facility.


The company is required to maintain a minimum fixed charge coverage ratio if the availability under the credit facility falls below the greater of 10% of the lenders’ commitments under the facility and $15 million.
The Credit Agreement contains customary representations and warranties, including that there has been no material adverse change in the company’s business, properties, operations or financial condition. The Credit Agreement includes limitations 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. 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.
Note 13 - Goodwill
At September 30, 2017, the amount of goodwill allocated to reporting units with negative net assets was as follows: Business Process Outsourcing Services, $10.9 million.
Changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2017 was as follows:
presented below:
  Total Services Technology
Balance at December 31, 2016 $178.6
 $69.9
 $108.7
Translation adjustments 2.6
 2.6
 
Balance at September 30, 2017 $181.2
 $72.5
 $108.7
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
United States $313.2
 $313.2
 $905.0
 $955.5
United Kingdom 82.0
 65.8
 277.7
 211.3
Other foreign 293.1
 287.3
 881.4
 830.2
Total $688.3
 $666.3
 $2,064.1
 $1,997.0



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis of the company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this quarterly report. In this discussion and analysis of the company’s financial condition and results of operations, the company has included information that may constitute “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events and include any statement that does not directly relate to any historical or current fact. Words such as “anticipates,” “believes,” “expects,” “intends,” “plans,” “projects” and similar expressions may identify such forward-looking statements. All forward-looking statements rely on assumptions and are subject to risks, uncertainties and other factors that could cause the company’s actual results to differ materially from expectations. Factors that could affect future results include, but are not limited to, those discussed under “Risk Factors” in Part I, Item 1A of the company’s 20162017 Form 10-K. 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
In April 2015,As described in connection with organizational initiatives to create a more competitive cost structure and rebalance the company’s global skill set,Note 3, effective January 1, 2018, the company initiated a restructuring planadopted the requirements of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective method whereby prior periods were not restated. This resulted in an adjustment to Technology revenue and profit of $53.0 million ($47.7 million, net of tax) in the first quarter of 2018. The adjustment represents revenue from software license extensions and renewals, which were contracted for in the fourth quarter of 2017 and properly recorded as revenue at that time under the revenue recognition rules then in effect (Topic 605). Topic 606 requires revenue related to software license renewals or extensions to be recorded when the new license term begins, which in the case of the $53.0 million, is currently expected to result in estimated chargesJanuary 1, 2018. Upon adoption of approximately $320 to $330 million through 2017. During 2016 and 2015,ASU 2014-09, the company recognized chargeswas required to include this $53.0 million in connection with this plan and other costs of $82.1 million and $118.5 million, respectively, principally relatedthe cumulative effect adjustment to a reduction in employees. During the nine months ended September 30, 2017, the company incurred an additional $99.0 million of cost reduction charges and other costs.retained earnings on January 1, 2018.
For the nine months ended September 30, 2017,2018, the company reported a net lossincome attributable to Unisys Corporation of $50.5 million, or income of $0.89 per diluted share, compared with a net loss of $115.8 million, or a loss of $2.30 per diluted share compared with a net loss of $46.5 million, or a loss of $0.93 per diluted share for the nine months ended September 30, 2016.2017. The company’s results of operations in the current period were positively impacted by the Topic 606 adjustment described above, lower gross profit margins in the Technology segment driven by lower sales of the company’s enterprise softwarecost-reduction charges and servers, higher cost reduction charges, higher interest expense principally caused by the issuance of the senior secured notes and the negative impact of foreign currency fluctuationssavings due to cost-reduction actions partially offset by loweran increase in income tax expense as described below.expense.
Results of operations
Company results
Three months ended September 30, 20172018 compared with the three months ended September 30, 20162017
Revenue for the quarter ended September 30, 2018 was $688.3 million compared with $666.3 million for the third quarter of 2017, an increase of 3.3% from the prior year. Foreign currency fluctuations had a 3 percentage-point negative impact on revenue in the current period compared with the year-ago period.
Services revenue increased 5.2% and Technology revenue decreased 8.9% in the current quarter compared with the year-ago period. U.S. revenue was flat quarter over quarter. International revenue increased 6.2% in the current quarter primarily due to increases in the European and Asia Pacific regions partially offset by a decline in Latin America. Foreign currency had a 5 percentage-point negative impact on international revenue in the three months ended September 30, 2018 compared with the three months ended September 30, 2017.
No cost-reduction charges were recorded in the three months ended September 30, 2018; however, a benefit of $0.9 million was recorded in the current quarter for changes in estimates. During the three months ended September 30, 2017, the company recognized charges in connection with its cost-reduction plan and other costs of $46.1 million. The charges related to work-force reductions were $49.5 million, principally related to severance costs, and were comprised of: (a) a charge of $2.6 million for 93 employees and $(0.4) million for changes in estimates in the U.S. and (b) a charge of $48.3 million for 1,459 employees and $(1.0) million for changes in estimates outside the U.S. In addition, the company recorded charges of $(3.4) million comprised of $0.6 million for idle leased facilityfacilities costs, $0.1 million for contract amendment and termination costs, $0.9 million for professional fees and other expenses related to the cost reductioncost-reduction effort, $0.7 million for net asset sales and write-offs and $(5.7) million for net foreign currency translation gains related to exiting foreign countries. The charges were recorded in the following statement of income classifications: cost of revenue - services, $42.8 million; selling, general and administrative expenses, $7.9 million; research and development expenses, $1.1 million; and other income (expense), net, $(5.7) million.
During the three months ended September 30, 2016, the company recognized charges of $31.9 million in connection with this plan, principally related to a reduction in employees. The charges related to workforce reductions were $26.5 million, principally related to severance costs, and were comprised of: (a) a charge of $0.5 million for 49 employees in the U.S. and (b) a charge of $26.0 million for 329 employees outside the U.S. In addition, the company recorded charges of $5.4 million for other expenses related to the cost reduction effort. The charges were recorded in the following statement of income classifications: cost of revenue - services, $18.0 million; selling, general and administrative expenses, $14.2 million; and research and development expenses, $(0.3) million.
Revenue for the quarter ended September 30, 2017 was $666.3 million compared with $683.3 million for the third quarter of 2016, a decrease of 2% from the prior year. Foreign currency fluctuations had a 1 percentage-point positive impact on revenue in the current period compared with the year-ago period.


Services revenue decreased 4% and Technology revenue increased 10% in the current quarter compared with the year-ago period. U.S. revenue decreased 4% in the third quarter compared with the year-ago period. International revenue decreased 1% in the current quarter primarily due to a decline in Europe partially offset by increases in Latin America and Asia Pacific. Foreign currency had a 2 percentage-point positive impact on international revenueTotal gross profit margin was 22.3% in the three months ended September 30, 20172018 compared with the three months ended September 30, 2016.
Total gross profit margin was 12.9%15.5% in the three months ended September 30, 2017 compared with 17.8%2017. Included in the three months ended September 30, 2016. Gross2017 gross profit margin was impacted by higher cost reduction charges. Cost reductionwere cost-reduction charges of $42.8 million were recorded in cost of revenue in the three months ended September 30, 2017 compared with $18.0a benefit of $0.7 million in 2018 for changes in estimates. The increase in gross profit margin excluding these charges principally reflects benefits derived in 2018 from the three months ended September 30, 2016.prior-years’ cost-reduction actions.
Selling, general and administrative expense in the three months ended September 30, 20172018 was $102.3$90.9 million (15.4%(13.2% of revenue) compared with $120.0$97.8 million (17.6%(14.7% of revenue) in the year-ago period. Cost reduction chargesThe decrease in selling, general and administrative expense is principally attributed to a decrease of $7.9 million were recorded in the three months ended September 30, 2017 compared with $14.2$8.1 million in the three months ended September 30, 2016. Exclusive of thesecost-reduction charges the decline was due to theand benefits derived in 2018 from the cost reductionprior-years’ cost-reduction actions.
Research and development (“R&D”) expenses(R&D) expense in the third quarter of 20172018 was $10.8$7.1 million compared with $11.4$8.7 million in the third quarter of 2016.2017. The decrease is principally attributed to an increase in capitalized marketable software.
For the three months ended September 30, 2017, pension2018, postretirement expense was $23.6$19.7 million compared with pensionpostretirement expense of $21.2$25.3 million for the three months ended September 30, 2016.2017. The change in postretirement expense in 2018 from 2017 was principally due to a lower interest cost component of postretirement expense for the company’s U.S. defined benefit pension plans. For the full year 2017,2018, the company expects to recognize pensionpostretirement expense of approximately $92.7$73.2 million compared with $82.7$98.1 million for the full year of 2016.2017. The company records pensionthe service cost component of postretirement income or expense as well as other employee-related costs such as payroll taxes and medical insurance costs, in operating income in the following income statement categories: cost of revenue;revenue and selling, general and administrative expenses; and research and development expenses. The amount allocated to each category is principally based on whereAll other components of postretirement income or expense are recorded in other income (expense), net in the salariesConsolidated Statements of plan participants who are active employees are charged.Income.
For the third quarter of 2017,2018, the company reported an operating lossprofit of $27.0$55.8 million compared with an operating loss of $9.8$2.9 million in the third quarter of 2016.2017. The current year loss principally reflects higher cost reduction charges.principal items affecting the comparison of 2018 to 2017 were charges of $51.8 million in 2017 related to the cost-reduction actions compared with a benefit of $0.9 million in 2018 for changes in estimates and benefits derived in 2018 from the prior-years’ cost-reduction actions.
Interest expense for the three months ended September 30, 20172018 was $16.4$15.9 million compared with $7.7$16.4 million for the three months ended September 30, 2016. The increase was principally caused by the issuance of the senior secured notes due 2022 in the second quarter of 2017. See Note 12 of the Notes to Consolidated Financial Statements.
Other income (expense), net was incomeexpense of $3.0$17.7 million in the third quarter of 20172018 compared with incomeexpense of $2.3$21.1 million in the third quarter of 2016.2017. Included in the current2018 was postretirement expense, excluding service cost, of $18.7 million as described above and foreign exchange gains of $1.7 million. The prior-year period wereincluded postretirement expense, excluding service cost, of $24.1 million, $5.7 million of net foreign currency translation gains related to exiting foreign countries in connection with the company’s restructuring plan noted above. In addition, other foreign currency translation losses ofand $3.5 million were recordedof foreign exchange losses.
Effective July 1, 2018, the company’s Argentinian subsidiary began to apply highly inflationary accounting due to cumulative inflation of approximately 100 percent or more over the last 3-year period. For those international subsidiaries operating in highly inflationary economies, the thirdU.S. dollar is the functional currency, and as such, nonmonetary assets and liabilities are translated at historical exchange rates, and monetary assets and liabilities are translated at current exchange rates. Exchange gains and losses arising from translation are included in other income (expense), net. The impact of applying highly inflationary accounting for the quarter of 2017 compared to foreign currency translation losses of $0.6 million in the third quarter of 2016.ended September 30, 2018 was immaterial.
LossIncome before income taxes for the three months ended September 30, 20172018 was $40.4$22.2 million compared with a loss of $15.2$40.4 million for the three months ended September 30, 2016.

2017. The increase is principally attributed to lower cost-reduction charges and savings due to prior-years’ cost-reduction actions.
The provision for income taxes was $12.5$15.2 million in the current quarter compared with $9.9$12.5 million in the year-ago period. During the three months ended September 30, 2018, the company recognized a benefit of $6.6 million due to the release of a valuation allowance on certain foreign deferred tax assets (net operating losses) as a result of the identification of an additional source of taxable income available in prior periods. 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 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 quarter to quarter depending on the geographic distribution of income.
Net lossincome attributable to Unisys Corporation for the three months ended September 30, 20172018 was $41.1$6.1 million, or a lossincome of $0.81$0.12 per diluted share, compared with a net loss of $28.2$41.1 million, or loss of $0.56$0.81 per diluted share, for the three months ended September 30, 2016.2017. The increase is principally attributed to lower cost-reduction charges and savings due to prior-years’ cost-reduction actions.





Nine months ended September 30, 20172018 compared with the nine months ended September 30, 20162017
Revenue for the nine months ended September 30, 2018 was $2,064.1 million compared with $1,997.0 million for the nine months ended September 30, 2017, an increase of 3.4% from the prior year principally due to the impact of the Topic 606 adjustment described above. Excluding this adjustment, revenue was relatively flat. Foreign currency fluctuations had a 1 percentage-point positive impact on revenue in the current period compared with the year-ago period.
Services revenue increased 1.5% and Technology revenue increased 16.0% for the nine months ended September 30, 2018 compared with the year-ago period with the Topic 606 adjustment primarily contributing to the Technology revenue increase. Excluding this adjustment, Technology revenue decreased 4.2%. U.S. revenue decreased 5.3% in the current period compared with the year-ago period. International revenue increased 11.3% in the current period primarily due to increases in the European and Asia Pacific regions partially offset by a decline in Latin America. Without the Topic 606 adjustment, U.S. revenue decreased 5.8% and international revenue increased 6.7%. Foreign currency had a 2 percentage-point positive impact on international revenue in the nine months ended September 30, 2018 compared with the nine months ended September 30, 2017.
No cost-reduction charges were recorded in the nine months ended September 30, 2018; however, a benefit of $3.1 million was recorded in the current period for changes in estimates. During the nine months ended September 30, 2017, the company recognized charges in connection with its cost-reduction plan and other costs of $99.0 million. The charges related to work-force reductions were $86.2 million, principally related to severance costs, and were comprised of: (a) a charge of $7.9 million for 507 employees and $(0.6) million for changes in estimates in the U.S. and (b) a charge of $72.3 million for 1,835 employees, $8.2 million for additional benefits provided in 2017 and $(1.6) million for changes in estimates outside the U.S. In addition, the company recorded charges of $12.8 million comprised of $3.5 million for idle leased facilities costs, $5.3 million for contract amendment and termination costs, $3.9 million for professional fees and other expenses related to the cost reductioncost-reduction effort, $0.7 million for net asset sales and write-offs and $(0.6) million for net foreign currency translation gains related to exiting foreign countries. The charges were recorded in the following statement of income classifications: cost of revenue - services, $70.4 million; cost of revenue - technology, $0.4 million;million, selling, general and administrative expenses, $27.4 million;million, research and development expenses, $1.4 million; and other income (expense), net, $(0.6) million.
During the nine months ended September 30, 2016, the company recognized charges of $69.0 million in connection with this plan, principally related to a reduction in employees. The charges related to workforce reductions were $54.9 million, principally related to severance costs, and were comprised of: (a) a charge of $5.8 million for 293 employees in the U.S. and (b) a charge of $49.1 million for 928 employees outside the U.S. In addition, the company recorded charges of $14.1 million for other expenses related to the cost reduction effort. The charges were recorded in the following statement of income classifications: cost of revenue - services, $34.6 million; selling, general and administrative expenses, $33.0 million; and research and development expenses, $1.4 million.
Revenue for the nine months ended September 30, 2017Total gross profit margin was $1,997.0 million compared with $2,099.0 million for the nine months ended September 30, 2016, a decline of 5%. Foreign currency fluctuations had an immaterial impact on revenue in the current period compared with the year-ago period.
Services revenue decreased 4% and Technology revenue decreased 10% for the nine months ended September 30, 2017 compared with the year-ago period. Current period Technology revenue was primarily impacted by lower sales of the company’s enterprise software and servers. U.S. revenue decreased 5% in the current period compared with the year-ago period. International revenue decreased 5% in the current period primarily due to declines in Europe and Asia Pacific partially offset by an increase in Latin America. Foreign currency had an immaterial impact on international revenue24.6% in the nine months ended September 30, 20172018 compared with the nine months ended September 30, 2016.
Total gross profit margin was 15.5%18.1% in the nine months ended September 30, 2017. Included in the 2017 gross profit margin were cost-reduction charges of $70.8 million compared with 19.0%a benefit of $4.2 million in 2018 for changes in estimates. The increase in gross profit margin excluding these charges principally reflects the impact of the Topic 606 adjustment described above and benefits derived in 2018 from the prior-years’ cost-reduction actions. Excluding the Topic 606 adjustment, total gross profit margin in the nine months ended September 30, 2016. Gross margin2018 was impacted by lower sales in the Technology segment as well as higher cost reduction charges. Cost reduction charges of $70.8 million were recorded in cost of revenue during the nine months ended September 30, 2017 compared with $34.6 million in the nine months ended September 30, 2016.22.6%.
Selling, general and administrative expense in the nine months ended September 30, 20172018 was $325.6$274.5 million (16.3%(13.3% of revenue) compared with $345.8$314.2 million (16.5%(15.7% of revenue) in the year-ago period. Cost reductionThe decrease in selling, general and administrative expense is principally attributed to a decrease of $26.3 million in cost-reduction charges, a $7.3 million gain on the sale of $27.4 million wereproperty in the U.K. recorded in 2018 and benefits derived in 2018 from the prior-years’ cost-reduction actions. Excluding the Topic 606 adjustment, selling, general and administrative expense as a percentage of revenue was 13.6% in the nine months ended September 30, 2017 compared with $33.0 million in the nine months ended September 30, 2016. Exclusive of these charges, the decline was due to the benefits derived from the cost reduction actions.2018.
R&D expensesexpense for the nine months ended September 30, 2017 were $37.72018 was $21.8 million compared with $40.5$31.3 million in the prior-year period. The decrease is principally attributed to an increase in capitalized marketable software.
For the nine months ended September 30, 2017, pension2018, postretirement expense was $69.4$58.2 million compared with pensionpostretirement expense of $63.0$74.5 million for the nine months ended September 30, 2016.2017. The change in postretirement expense in 2018 from 2017 was principally due to a lower interest cost component of postretirement expense for the company’s U.S. defined benefit pension plans partially offset by a curtailment gain recognized in 2017 related to a foreign defined benefit plan.
For the nine months ended September 30, 2017,2018, the company reported an operating lossprofit of $54.5$211.6 million compared with an operating incomeprofit of $12.1$15.4 million in the prior-year period. The current period principally reflects lower marginsprincipal items affecting the comparison of 2018 to 2017 were the Topic 606 adjustment described above, charges of $99.6 million in 2017 related to cost-reduction actions compared with a benefit of $3.1 million in 2018 for changes in estimates, a $7.3 million gain on the sale of property in the Technology segmentU.K. recorded in 2018 and higher cost reduction charges.benefits derived in 2018 from the prior-years’ cost-reduction actions. Excluding the Topic 606 adjustment, operating profit in the nine months ended September 30, 2018 was $158.6 million.
Interest expense for the nine months ended September 30, 20172018 was $36.4$48.2 million compared with $19.9$36.4 million for the nine months ended September 30, 2016.2017. The increase was principally caused by the issuance of the senior secured notes due 2022 in the second quarter of 2017. See Note 12 of the Notes to Consolidated Financial Statements.


Other income (expense), net was expense of $8.6$58.3 million forin the nine months ended September 30, 20172018 compared with incomeexpense of $3.7$78.5 million in 2016. The2017. Included in the current period includeswas postretirement expense, excluding service cost, of $55.3


million as described above and foreign exchange losses of $0.7 million. The prior-year period included postretirement expense, excluding service cost, of $69.9 million, $0.6 million of net foreign currency gains related to exiting foreign countries in connection with the company’s restructuring plan and $7.5 million compared withof foreign exchange gains of $2.5 million in the prior-year period.losses.
LossIncome (loss) before income taxes for the nine months ended September 30, 20172018 was $99.5income of $105.1 million compared with a loss of $4.1$99.5 million for the nine months ended September 30, 2016.2017. The increase is principally attributed to the Topic 606 adjustment described above, lower cost-reduction charges, a gain on the sale of property in the U.K. recorded in 2018 and savings due to cost-reduction actions partially offset by an increase in interest expense.
The provision for income taxes was $21.6$50.4 million in the current period compared with $34.2$21.6 million in the year-ago period. The Topic 606 adjustment contributed $5.3 million of the increase from the prior-year period to the current-year period and was partially offset by a benefit of $6.6 million due to the release of a valuation allowance on certain foreign deferred tax assets (net operating losses) as a result of the identification of an additional source of taxable income available in prior periods. In the second quarter of 2017, the company elected to receive cash refunds of a portion of its U.S. alternative minimum tax (“AMT”)(AMT) credit carryforwards in lieu of claiming bonus depreciation as provided by Internal Revenue Code Section 168(k)Section168(k)(4). The decision to make this election resulted in a total tax benefit of $21.1 million in 2017, of which $20.0 million was recorded induring the second quarter ofnine months ended September 30, 2017. The company received a refund of $9.1 million in October 2017 and expects to receive refunds of approximately $12 million in future periods.
Net lossincome attributable to Unisys Corporation for the nine months ended September 30, 20172018 was $115.8$50.5 million, or a lossincome of $2.30$0.89 per diluted share, compared with a net loss of $46.5$115.8 million, or loss of $0.93$2.30 per diluted share, for the nine months ended September 30, 2016.2017. The increase is principally attributed to the Topic 606 adjustment described above, lower cost-reduction charges, a gain on the sale of property in the U.K. recorded in 2018 and savings due to cost-reduction actions partially offset by an increase in interest expense and income tax expense.
Segment results
Effective January 1, 2018, the company changed the grouping of certain of its classes of services. As a result, prior-periods’ customer revenue by classes of similar services have been reclassified to conform to the current-year period.
The company has two business segments: Services and Technology. Revenue classifications within the Services segmentand Technology segments are as follows:
Cloud & infrastructure services. This represents revenue from helping clients apply cloud and as-a-service delivery models to capitalize on business opportunities, make their end users more productive and manage and secure their IT infrastructure and operations more economically.

Application services. This represents revenue from helping clients transform their business processes by providing advanced solutions for select industries, developing and managing new leading-edge applications providing digital transformation services,for select industries, offering advanced data analytics and modernizing existing enterprise applications.

Business process outsourcing (BPO) services. This represents revenue from the management of critical processes and functions for clients in target industries, helping them improve performance and reduce costs.
Technology. This represents revenue from designing and developing software and offering hardware and other related products to help clients reduce costs, improve security and flexibility and improve the efficiency of their data-center environments.
The accounting policies of each business 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 Technology segment recognizes intersegment revenue and manufacturing profit on hardware and software shipments to customers under Services contracts. The Services segment, in turn, recognizes customer revenue and marketing profits on such shipments of company hardware and software to customers. The Services segment also includes the sale of hardware and software products sourced from third parties that are sold to customers through the company’s Services channels. In the company’s consolidated statementsConsolidated Statements of income,Income, the manufacturing costs of products sourced from the Technology segment and sold to Services customers are reported in cost of revenue for Services.
Also included in the Technology segment’s sales and operating profit are sales of hardware and software sold to the Services segment for internal use in Services engagements. The amount of such profit included in operating income of the Technology segment for the three months ended September 30, 20172018 was immaterial,$0.1 million, and for the three months ended September 30, 20162017 was $0.1 million.immaterial. The amount for the nine months ended September 30, 2018 and 2017 and 2016 was $1.0$2.3 million and $0.6$1.0 million, respectively. The sales and profit on these transactions are eliminated in Corporate.
The company evaluates business segment performance based on operating income exclusive of the service cost component of pension income or expense, restructuring charges and unusual and nonrecurring items, which are included in Corporate. All


other corporate and centrally incurred costs are allocated to the business segments based principally on revenue, employees, square footage or usage.



Three months ended September 30, 20172018 compared with the three months ended September 30, 20162017

Information by business segment is presented below:
  Total Eliminations Services Technology
Three Months Ended September 30, 2018        
Customer revenue $688.3
 $
 $605.6
 $82.7
Intersegment 
 (4.3) 
 4.3
Total revenue $688.3
 $(4.3) $605.6
 $87.0
Gross profit percent 22.3 %   15.9% 62.4%
Operating profit percent 8.1 %   3.1% 39.7%
         
Three Months Ended September 30, 2017  
  
  
  
Customer revenue $666.3
 $
 $575.5
 $90.8
Intersegment 
 (4.4) 
 4.4
Total revenue $666.3
 $(4.4) $575.5
 $95.2
Gross profit percent 15.5 %*  16.5% 53.3%
Operating profit (loss) percent (0.4)%*  3.2% 31.1%
  Total Eliminations Services Technology
Three Months Ended September 30, 2017        
Customer revenue $666.3
 $
 $575.5
 $90.8
Intersegment 
 (4.4) 
 4.4
Total revenue $666.3
 $(4.4) $575.5
 $95.2
Gross profit percent 12.9 %   16.5% 53.3%
Operating profit (loss) percent (4.1)%   3.2% 31.1%
         
Three Months Ended September 30, 2016  
  
  
  
Customer revenue $683.3
 $
 $600.9
 $82.4
Intersegment 
 (5.8) 
 5.8
Total revenue $683.3
 $(5.8) $600.9
 $88.2
Gross profit percent 17.8 %   16.7% 59.8%
Operating profit (loss) percent (1.4)%   2.6% 32.3%
Gross profit and operating profit percent are as a percent of total revenue.
*Amounts were changed to conform to the current-year presentation. See Note 3.
Gross profit and operating profit (loss) percent are as a percent of total revenue.
Customer revenue by classes of similar products or services, by segment, is presented below:
  Three Months Ended
September 30,
 
Percent
Change
  2018 2017 
Services      
Cloud & infrastructure services $348.3
 $326.9
*6.5 %
Application services 191.2
 200.7
*(4.7)%
Business process outsourcing services 66.1
 47.9
 38.0 %
  605.6
 575.5
 5.2 %
Technology 82.7
 90.8
 (8.9)%
Total $688.3
 $666.3
 3.3 %
*Amounts were changed to conform to the current-year presentation.
  Three Months Ended
September 30,
 
Percent
Change
  2017 2016 
Services      
Cloud & infrastructure services $321.2
 $341.9
 (6.1)%
Application services 206.4
 210.4
 (1.9)%
Business process outsourcing services 47.9
 48.6
 (1.4)%
  575.5
 600.9
 (4.2)%
Technology 90.8
 82.4
 10.2 %
Total $666.3
 $683.3
 (2.5)%
In the Services segment, customer revenue was $575.5$605.6 million for the three months ended September 30, 2017, down 4.2%2018, up 5.2% from the three months ended September 30, 2016.2017. Foreign currency translation had a 12 percentage-point positivenegative impact on Services revenue in the current quarter compared with the year-ago period.quarter.
Revenue from cloud & infrastructure services was $321.2$348.3 million in the September 2017current quarter, down 6.1%up 6.5% compared with the September 2016prior-year quarter. Foreign currency fluctuations had a 12 percentage-point positivenegative impact on cloud & infrastructure services revenue in the current period compared with the year-ago period.
Application services revenue decreased 1.9%4.7% for the three monththree-month period ended September 30, 20172018 compared with the three monththree-month period ended September 30, 2016.2017. Foreign currency fluctuations had a 13 percentage-point positivenegative impact on application services revenue in the current period compared with the year-ago period.
Business process outsourcing services revenue decreased 1.4%increased 38.0% in the current quarter compared with the prior-year quarter. Foreign currency fluctuations had a 12 percentage-point negative impact on business process outsourcing services revenue in the current period compared with the year-ago period.



Services gross profit was 16.5%15.9% in the third quarter of 20172018 compared with 16.7%16.5% in the year-ago period. Services operating profit percent was 3.1% in the three months ended September 30, 2018 compared with 3.2% in the three months ended September 30, 2017 compared with 2.6%2017. The decline in the three months ended September 30, 2016.Services margins is primarily attributed to new Services contracts in implementation stage.
In the Technology segment, customer revenue increased 10.2%decreased 8.9% to $90.8$82.7 million in the current quarter compared with $82.4$90.8 million in the year-ago period. Foreign currency translation had an immateriala 4 percentage-point negative impact on Technology revenue in the current quarter compared with the year-ago period.
Technology gross profit was 53.3%62.4% in the current quarter compared with 59.8%53.3% in the year-ago quarter. Technology operating profit percent was 39.7% in the three months ended September 30, 2018 compared with 31.1% in the three months ended September 30, 2017 compared with 32.3% in the three months ended September 30, 2016. Current period2017. The improvements to Technology margins were primarily impacteddriven in part by a higher mix of software sales of lower margin third-party products.in the current quarter.
Nine months ended September 30, 20172018 compared with the nine months ended September 30, 20162017

Information by business segment is presented below:
  Total Eliminations Services Technology
Nine Months Ended September 30, 2018        
Customer revenue $2,064.1
 $
 $1,760.8
 $303.3
Intersegment 
 (18.3) 
 18.3
Total revenue $2,064.1
 $(18.3) $1,760.8
 $321.6
Gross profit percent 24.6%   16.3% 66.7%
Operating profit percent 10.3%   3.1% 48.1%
         
Nine Months Ended September 30, 2017  
  
  
  
Customer revenue $1,997.0
 $
 $1,735.6
 $261.4
Intersegment 
 (15.1) 
 15.1
Total revenue $1,997.0
 $(15.1) $1,735.6
 $276.5
Gross profit percent 18.1%*  16.3% 53.2%
Operating profit percent 0.8%*  2.1% 27.8%
  Total Eliminations Services Technology
Nine Months Ended September 30, 2017        
Customer revenue $1,997.0
 $
 $1,735.6
 $261.4
Intersegment 
 (15.1) 
 15.1
Total revenue $1,997.0
 $(15.1) $1,735.6
 $276.5
Gross profit percent 15.5 %   16.3% 53.2%
Operating profit (loss) percent (2.7)%   2.1% 27.8%
         
Nine Months Ended September 30, 2016  
  
  
  
Customer revenue $2,099.0
 $
 $1,809.8
 $289.2
Intersegment 
 (17.3) 
 17.3
Total revenue $2,099.0
 $(17.3) $1,809.8
 $306.5
Gross profit percent 19.0 %   15.9% 60.2%
Operating profit percent 0.6 %   1.8% 36.0%
Gross profit and operating profit percent are as a percent of total revenue.
*Amounts were changed to conform to the current-year presentation. See Note 3.
Gross profit and operating profit (loss) percent are as a percent of total revenue.
Customer revenue by classes of similar products or services, by segment, is presented below:
  Nine Months Ended
September 30,
 
Percent
Change
  2018 2017 
Services      
Cloud & infrastructure services $1,000.2
 $994.8
*0.5 %
Application services 578.1
 592.9
*(2.5)%
Business process outsourcing services 182.5
 147.9
 23.4 %
  1,760.8
 1,735.6
 1.5 %
Technology 303.3
 261.4
 16.0 %
Total $2,064.1
 $1,997.0
 3.4 %
*Amounts were changed to conform to the current-year presentation.
  Nine Months Ended September 30, 
Percent
Change
  2017 2016 
Services      
Cloud & infrastructure services $983.4
 $1,017.8
 (3.4)%
Application services 604.3
 641.4
 (5.8)%
Business process outsourcing services 147.9
 150.6
 (1.8)%
  1,735.6
 1,809.8
 (4.1)%
Technology 261.4
 289.2
 (9.6)%
Total $1,997.0
 $2,099.0
 (4.9)%
In the Services segment, customer revenue was $1,735.6$1,760.8 million for the nine months ended September 30, 2017, down 4.1%2018, up 1.5% from the nine months ended September 30, 2016.2017. Foreign currency translation had an immateriala 1 percentage-point positive impact on Services revenue in the current period compared with the year-ago period.


Revenue from cloud & infrastructure services was $983.4$1,000.2 million for the nine months ended September 2017, down 3.4%30, 2018, up 0.5% compared with the year-ago period. Foreign currency fluctuations had a 1 percentage-point positive impact on cloud & infrastructure services revenue in the current period compared with the year-ago period.


Application services revenue decreased 5.8%2.5% for the nine monthnine-month period ended September 30, 20172018 compared with the nine monthnine-month period ended September 30, 2016.2017. Foreign currency fluctuations had an immaterial impact on application services revenue in the current period compared with the year-ago period.
Business process outsourcing services revenue decreased 1.8%increased 23.4% in the current period compared with the prior-year period. Foreign currency fluctuations had a 65 percentage-point negativepositive impact on business process outsourcing services revenue in the current period compared with the year-ago period.

Services gross profit was 16.3% for both the nine months ended September 30, 2018 and the nine months ended September 30, 2017. Services operating profit percent was 3.1% in the nine months ended September 30, 20172018 compared with 15.9% in the year-ago period. Services operating profit percent was 2.1% in the nine months ended September 30, 2017 compared with 1.8%2017. Current-period margins were positively impacted by a gain on the sale of property in the nine months ended September 30, 2016.U.K offset in part by new Services contracts in implementation stage.
In the Technology segment, customer revenue decreased 9.6%increased 16.0% to $261.4$303.3 million in the current period compared with $289.2$261.4 million in the year-ago period. The increase is principally attributed to the Topic 606 adjustment described above. Foreign currency translation had a 1 percentage-point negativean immaterial impact on Technology revenue in the current period compared with the year-ago period. Excluding the Topic 606 adjustment, customer revenue decreased 4.2%.
Technology gross profit was 53.2%66.7% in the current period compared with 60.2%53.2% in the year-ago period. Technology operating profit percent was 48.1% in the nine months ended September 30, 2018 compared with 27.8% in the nine months ended September 30, 2017 compared2017. The increase in gross profit and operating profit was principally due to the Topic 606 adjustment coupled with 36.0%lower R&D costs and a higher mix of software sales in the nine months ended September 30, 2016. Current period technology margins were primarily impacted by lower salescurrent period. Excluding the impact of the company’s enterprise softwareTopic 606 adjustment, gross profit percent was 60.1% and servers and higher sales of lower margin third-party products.operating profit percent was 37.9% in the current period.
New accounting pronouncements
See Note 113 of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on the company’s consolidated financial statements.
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 near-term cash requirements.
Cash and cash equivalents at September 30, 20172018 were $598.7$516.1 million compared to $370.6$733.9 million at December 31, 2016. The increase was primarily due to the net proceeds received from the sale of $440.0 million of its 10.75% senior secured notes due 2022 and was partially offset by the redemption of $95.0 million of its remaining outstanding 6.25% senior notes due 2017. See Note 12 of the Notes to Consolidated Financial Statements.
As of September 30, 2017, $291.62018, $315.2 million of cash and cash equivalents were held by the company’s foreign subsidiaries and branches operating outside of the U.S. In the future, if these funds are needed for the company’s operations in the U.S., it is expected the company would be required to pay taxes on only a limited portion of this balance.
During the nine months ended September 30, 2017,2018, cash used for operations was $36.3$77.4 million compared to cash provided by operationsusage of $103.0$36.3 million for the nine months ended September 30, 2016.2017. The fluctuation in cash flows from operating activities is principally attributeddriven by an increase in receivables related to lower operating income as well asseveral Technology contracts signed late in the timing of receivables collection.current quarter.
Cash used for investing activities during the nine months ended September 30, 20172018 was $98.6$125.9 million compared to cash usage of $131.9$98.6 million during the nine months ended September 30, 2016.2017. Net proceeds frompurchases of investments were $30.7$3.1 million for the nine months ended September 30, 20172018 compared with net purchasesproceeds of $24.3$30.7 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 addition, in the current period, the investment in marketable software was $46.6$61.7 million compared with $47.1$46.6 million in the year-ago period, capital additions of properties were $25.0 million in 2018 compared with $21.8 million in 2017 compared with $18.3 million in 2016 and capital additions of outsourcing assets were $54.4 million in 2018 compared with $60.1 million in 2017 compared with $41.4 million in 2016.2017. The increase in capital additions of outsourcing assetsmarketable software is attributed to assets acquired byadditional development of the company for itscompany’s proprietary software. In addition, the current year includes net proceeds of $19.2 million related to the sale of property in the U.K. business process outsourcing joint venture.


Cash provided byused for financing activities during the nine months ended September 30, 20172018 was $334.7$4.4 million compared to cash provided by financing activities of $110.6$334.7 million during the nine months ended September 30, 2016.2017. In the currentprior-year period, the company issued $440.0 million of notes and received net proceeds of $427.9 million and retired the remaining aggregate principal amount of $95.0 million of its 6.25% senior notes due 2017. During the nine months ended September 30, 2016, the company issued $213.5 million of convertible senior notes due 2021 and received net proceeds of $178.9 million and also paid down the outstanding balance of $65.8 million of its revolving credit facility.

notes.
At September 30, 2017,2018, total debt was $642.8$650.0 million compared to $300.0$644.7 million at December 31, 2016.2017. The increase was principally caused byis primarily due to the amortization of debt issuance of the notes referred to above, partially offset by the retirement of the remaining 6.25% senior notes due 2017.costs and fees.

At September 30, 2017, the company’s
The company has a secured revolving credit facility had no borrowings and $8.1 million of letters of credit outstanding, and availability under the facility was $91.5 million net of letters of credit issued. On October 5, 2017, the company entered into a new revolving credit facility (the “Credit Agreement”) providingthat provides for loans and letters of credit up to an aggregatecredit. During the second quarter of 2018, the maximum amount ofavailable under the facility was increased from $125.0 million which replacesto $145.0 million (with a limit on letters of credit of $30.0 million). The accordion feature contained in the company’s credit agreement that was due to expire in June 2018. The Credit Agreement includes an accordion feature allowingthat permitted this increase allows for an increase in the amount of the facility up to $150.0 million. Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. At September 30, 2018, the company had no borrowings and $6.4 million of letters of credit outstanding, and availability under the facility was $103.4 million net of letters of credit issued. The Credit Agreement expires October 5, 2022, subject to a springing maturity (i) on the date that is 91 days prior to the maturity date of the company’s convertible notes due 2021 unless, on such date, certain conditions are met; or (ii) on the date that is 60 days prior to the maturity date of the company’s secured notes due 2022 unless, by such date, such secured notes have not been redeemed or refinanced.

The credit facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc., Unisys AP Investment Company I and any future material domestic subsidiaries. The facility is secured by the assets of the company and the subsidiary guarantors, other than certain excluded assets, under a security agreement entered into by the company and the subsidiary guarantors in favor of JPMorgan Chase Bank, N.A., as agent for the lenders under the new credit facility.

The company is required to maintain a minimum fixed charge coverage ratio if the availability under the credit facility falls below the greater of 10% of the lenders’ commitments under the facility and $15$15.0 million.

The Credit Agreement contains customary representations and warranties, including that there has been no material adverse change in the company’s business, properties, operations or financial condition. The Credit Agreement includes limitations 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. 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.
On April 17, 2017, the company issued $440.0 million aggregate principal amount of 10.75% Senior Secured Notes due 2022 (the “Notes”). The Notes are initially fully and unconditionally guaranteed on a senior secured basis by Unisys Holding Corporation, Unisys AP Investment Company I and Unisys NPL, Inc. (together with the Company, the “Grantors”). In the future, the Notes will be guaranteed by each material domestic subsidiary and each restricted subsidiary that guarantees the secured revolving credit facility and other indebtedness of the company or another subsidiary guarantor. The Notes and the guarantees will rank equally in right of payment with all of the existing and future senior debt of the company and the subsidiary guarantors. The Notes and the guarantees will be structurally subordinated to all existing and future liabilities (including preferred stock, trade payables and pension liabilities) of the company’s subsidiaries that are not subsidiary guarantors.
The Notes will pay interest semiannually on April 15 and October 15, commencing on October 15, 2017, at an annual rate of 10.75%, and will mature on April 15, 2022, unless earlier repurchased or redeemed.
The company may, at its option, redeem some or all of the Notes at any time on or after April 15, 2020 at a redemption price determined in accordance with the redemption schedule set forth in the indenture governing the Notes (the “indenture”), plus accrued and unpaid interest, if any.
Prior to April 15, 2020, the company may, at its option, redeem some or all of the Notes at any time, at a price equal to 100% of the principal amount of the Notes redeemed plus a “make-whole” premium, plus accrued and unpaid interest, if any. The company may also redeem, at its option, up to 35% of the Notes at any time prior to April 15, 2020, using the proceeds of certain equity offerings at a redemption price of 110.75% of the principal amount thereof, plus accrued and unpaid interest, if any. In addition, the company may redeem all (but not less than all) of the Notes at any time that the Collateral Coverage Ratio


is less than the Required Collateral Coverage Ratio (as such terms are described below and further defined in the indenture) at a price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest, if any.
The indenture contains covenants that limit the ability of the company and its restricted subsidiaries to, among other things: (i) incur additional indebtedness and guarantee indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem its capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make certain prepayments in respect of pension obligations; (v) issue certain preferred stock or similar equity securities; (vi) make loans and investments (including investments by the company and subsidiary guarantors in subsidiaries that are not guarantors); (vii) sell assets; (viii) create or incur liens; (ix) enter into transactions with affiliates; (x) enter into agreements restricting its subsidiaries’ ability to pay dividends; and (xi) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to several important limitations and exceptions.
The indenture also includes a covenant requiring that the company maintain a Collateral Coverage Ratio of not less than 1.50:1.00 (the “Required Collateral Coverage Ratio”) as of any test date. The Collateral Coverage Ratio is based on the ratio of (A) Grantor unrestricted cash and cash equivalents plus 4.75 multiplied by of the greater of (x) Grantor EBITDA for the most recently ended four fiscal quarters and (y) (i) the average quarterly Grantor EBITDA for the most recently ended seven fiscal quarters, multiplied by (ii) four, to (B) secured indebtedness of the Grantors. The Collateral Coverage Ratio is tested quarterly. If the Collateral Coverage Ratio is less than the Required Collateral Coverage Ratio as of any test date, and the company has not redeemed the Notes within 90 days thereafter, this will be an event of default under the indenture.
If the company experiences certain kinds of changes of control, it must offer to purchase the Notes at 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any. In addition, if the company sells assets under certain circumstances it must apply the proceeds towards an offer to repurchase the Notes at a price equal to par plus accrued and unpaid interest, if any.
The indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately.
On May 8, 2017, the company redeemed all of its then outstanding 6.25% senior notes due 2017. As a result of this redemption, the company recognized a charge of $1.5 million in “Other income (expense), net” in the second quarter of 2017, which is comprised of $1.3 million of premium and expenses paid and $0.2 million for the write off of unamortized discount and fees related to the portion of the notes redeemed.
At September 30, 2017,2018, the company has met all covenants and conditions under its various lending and funding agreements. The company expects to continue to meet these covenants and conditions.
In 2017,2018, the company expects to make cash contributions of approximately $137.5$130.3 million to its worldwide defined benefit pension plans, which isare comprised of $83.1$49.7 million primarily for non-U.S. defined benefit pension plans and $54.4$80.6 million for the company’s U.S. qualified defined benefit pension plan.plans. In the third quarter of 2018, the company completed tri-annual negotiations of one of its international defined benefit pension plans which resulted in a $10.0 million decrease in estimated 2018 cash contributions.
The company maintains a shelf registration statement with the Securities and Exchange Commission that covers the offer and sale of up to $700.0 million of debt or equity securities. Subject to the company’s ongoing compliance with securities laws, the company may offer and sell debt and equity securities from time to time under the shelf registration statement. In addition, from time to time, the company may explore a variety of institutional debt and equity sources to fund its liquidity and capital needs.
The company may, from time to time, redeem, tender for, or repurchase its securities in the open market or in privately negotiated transactions depending upon availability, market conditions and other factors. As certain conditions within the 2021 Notes indenture have been met during the current quarter, the 2021 Notes holders have the right to convert during the quarter ending December 31, 2018.
Critical accounting policies and estimates update
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. The company bases its estimates and judgments on historical experience and on other assumptions that it believes are reasonable under the circumstances; however, to the extent there are material differences between these estimates, judgments and assumptions and actual results, the financial statements will be affected. There are a number of accounting policies, methods and estimates affecting the company’s financial statements as described in Note 1 of the Notes to Consolidated Financial Statements in the company’s 2017 Form 10-K. Significant changes to these critical accounting policies and estimates as a result of adopting Topic 606 are discussed below.
Revenue recognition
Many of the company’s sales agreements contain standard business terms and conditions; however, some agreements contain multiple elements or non-standard terms and conditions. As discussed in Note 2 of the Notes to Consolidated Financial


Statements, the company enters into multiple-element arrangements, which may include any combination of hardware, software or services. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including whether the performance obligations specified in a multiple-element arrangement should be treated as separate performance obligations for revenue recognition purposes, and when to recognize revenue for each performance obligation.
The company must apply its judgment to determine the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations including estimating variable consideration, adjusting the consideration for the effects of the time value of money and assessing whether an estimate of variable consideration is constrained.
Revenue and profit under systems integration contracts are recognized over time as the company transfers control of goods or services. The company measures its progress toward satisfaction of its performance obligations using the cost-to-cost method, or when services have been performed, depending on the nature of the project.
For contracts accounted for using the cost-to-cost method, revenue and profit recognized in any given accounting period are based on estimates of total projected contract costs. The estimates are continually reevaluated and revised, when necessary, throughout the life of a contract. The company follows this method because reasonably dependable estimates of the revenue and costs applicable to various elements of a contract can be made. The financial reporting of these contracts depends on estimates, which are assessed continually during the term of the contracts and therefore, recognized revenues and profit are subject to revisions as the contract progresses to completion. Revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become known. Accordingly, favorable changes in estimates result in additional revenue and profit recognition, and unfavorable changes in estimates result in a reduction of recognized revenue and profit. When estimates indicate that a loss will be incurred on a contract upon completion, a provision for the expected loss is recorded in the period in which the loss becomes evident. As work progresses under a loss contract, revenue continues to be recognized, and a portion of the contract costs incurred in each period is charged to the contract loss reserve.
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 20162017 Form 10-K.
Item 4. Controls and Procedures
Disclosure 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 ofdue to the end of such period,material weakness in our internal control over financial reporting, the company’s disclosure controls and procedures are effective. Such evaluation didwere not identify any changeeffective as of September 30, 2018.
As previously reported in the company’s 2017 Form 10-K, filed with the Securities and Exchange Commission on March 12, 2018, in connection with the company’s assessment of the effectiveness of its internal control over financial reporting at the end of its last fiscal year, management identified the following material weakness in the company’s internal control over financial reporting (as such termas of December 31, 2017 which is defined in Rules 13a-15(f)the process of being remediated as of September 30, 2018.
Our risk assessment procedures over Technology revenue did not adequately identify risks and 15d-15(f) underconsider changes in business operations and the Exchange Act)demands on personnel created by the efforts required to adopt the new revenue accounting pronouncement that occurredwill impact future financial reporting. As a result, the company had missing process level controls and insufficient trained personnel to operate process level controls over the measurement and recognition of multiple-element arrangements within Technology revenue.
This section of Item 4, “Controls and Procedures,” should be read in conjunction with Item 9A, “Controls and Procedures,” included in the company’s 2017 Form 10-K for additional information on Management’s Report on Internal Control over Financial Reporting.
To address the material weakness referenced above, the company performed additional analysis and performed other procedures in order to prepare the unaudited quarterly consolidated financial statements in accordance with generally accepted accounting principles (GAAP). Accordingly, management believes that the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.


Status of Remediation Plan
Management is actively remediating the identified material weakness, and is committed to remediate the material weakness as timely as possible. The company has taken the following remediation steps:
The company added personnel with an appropriate level of U.S. GAAP revenue recognition knowledge and experience by hiring additional personnel or by internal realignment.
Provided additional revenue recognition training to responsible staff.
Implemented enhanced procedures whereby a comprehensive review is being performed for certain Technology transactions.
Enhanced processes and reviews of all major multiple-element transactions.
Added data elements that support enhanced analytics and controls to the revenue recognition process.
The company has and will continue to supplement existing revenue recognition resources with consultants where necessary.
Management believes that the above actions are fully implemented and will be effective in remediating this material weakness. However, the company’s material weakness will not be considered remediated until the controls are tested during 2018 as part of its Section 404 compliance program and management concludes that these controls are properly designed and operating effectively.
Changes in Internal Control over Financial Reporting
Except as described above with respect to our remediation plan, there have been no changes in our internal control over financial reporting during the fiscal quarter to which this report relatesended September 30, 2018 that hashave materially affected, or isare reasonably likely to materially affect, the company’sour internal control over financial reporting.




Part II - OTHER INFORMATION

Item 1. Legal Proceedings
Information with respect to litigation is set forth in Note 913 of the Notes to Consolidated Financial Statements, and such information is incorporated herein by reference.

Item 1A. Risk Factors
There have been no significant changes to the “Risk Factors” in Part I, Item 1A of the company’s 20162017 Form 10-K.
CAUTIONARY STATEMENT PURSUANT TO THE U.S. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Risks and uncertainties that could cause the company’s future results to differ materially from those expressed in “forward-looking” statements include:
our ability to improve revenue and margins in our servicesServices business;
our ability to maintain our installed base and sell new products in our technologyTechnology business;
our ability to effectively anticipate and respond to volatility and rapid technological innovation in our industry;
our ability to access financing markets;
our significant pension obligations and requirements to make significant cash contributions to our defined benefit pension plans;
our ability to realize additional anticipated cost savings and successfully implement our cost reduction initiatives to drive efficiencies across all of our operations;
our ability to retain significant clients;
the potential adverse effects of aggressive competition in the information services and technology marketplace;
cybersecurity breaches could result in significant costs and could harm our business and reputation;
our significant pension obligations and required cash contributions and requirements to make additional significant cash contributions to our defined benefit pension plans;
our ability to attract, motivate and retain experienced and knowledgeable personnel in key positions;
the risks of doing business internationally when a significant portion of our revenue is derived from international operations;
our contracts may not be as profitable as expected or provide the expected level of revenues;
our ability to access financing markets;
contracts with U.S. governmental agencies may subject us to audits, criminal penalties, sanctions and other expenses and fines;
a significant disruption in our IT systems could adversely affect our business and reputation;
we may face damage to our reputation or legal liability if our clients are not satisfied with our services or products;
the performance and capabilities of third parties with whom we have commercial relationships;
aan involuntary termination of the company’s U.S. qualified defined benefit pension plan
the adverse effects of global economic conditions, acts of war, terrorism or natural disasters;plan;
the potential for intellectual property infringement claims to be asserted against us or our clients;
the business and financial risk in implementing future acquisitions or dispositions;
the adverse effects of global economic conditions, acts of war, terrorism or natural disasters;
the possibility that pending litigation could affect our results of operations or cash flow; and
theour controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business, results of operations and financial risk in implementing future dispositions or acquisitions.condition.
Other factors discussed in this report, although not listed here, also could materially affect the company’s future results.

Item 6. Exhibits
 
(a)Exhibits
See Exhibit Index



EXHIBIT INDEX
 
  
Exhibit NumberDescription
  
Restated Certificate of Incorporation of Unisys Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on April 30, 2010)
  
Certificate of Amendment of the Restated Certificate of Incorporation of Unisys Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on April 28, 2011)
  
Certificate of Amendment of the Restated Certificate of Incorporation of Unisys Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on April 28, 2017)
  
Bylaws of Unisys Corporation, as amended through April 30, 2015 (incorporated by reference to Exhibit 3.3 to the Company’sregistrant’s Quarterly Report on Form 10-Q filed on April 30, 2015)
Credit Agreement dated as of October 5, 2017 by and among Unisys Corporation, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on October 6, 2017)
Security Agreement dated as of October 5, 2017 by Unisys Corporation, Unisys Holding Corporation, Unisys NPL, Inc., and Unisys AP Investment Company I in favor of JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on October 6, 2017)
Intercreditor Agreement dated as of October 5, 2017 by and among JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Collateral Trustee, and Unisys Corporation, Unisys Holding Corporation, Unisys NPL, Inc., and Unisys AP Investment Company I (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on October 6, 2017)
Statement of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
  
Certification of Peter A. Altabef required by Rule 13a-14(a) or Rule 15d-14(a)
  
Certification of Inder M. Singh required by Rule 13a-14(a) or Rule 15d-14(a)
  
Certification of Peter A. Altabef required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
  
Certification of Inder M. Singh required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
  
101.INSXBRLInstance Document
  
101.SCHXBRLTaxonomy Extension Schema Document
  
101.CALXBRLTaxonomy Extension Calculation Linkbase Document
  
101.LABXBRLTaxonomy Extension Labels Linkbase Document
  
101.PREXBRLTaxonomy Extension Presentation Linkbase Document
  
101.DEFXBRLTaxonomy Extension Definition Linkbase Document


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
   
 UNISYS CORPORATION
   
Date: October 31, 2017November 8, 2018By:/s/ Inder M. Singh
  Inder M. Singh
  Senior Vice President and
  Chief Financial Officer
  (Principal Financial Officer)
   
 By:/s/ Michael M. Thomson
  Michael M. Thomson
  Vice President and
  Corporate Controller
  (Principal Accounting Officer)


3337