SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

For the quarterly period ended September 30, ~~2018~~2019

(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, Pennsylvania19422

~~Blue Bell, Pennsylvania~~

~~Registrant’s telephone number, including area code: (215) 986-4011~~

Securities registered pursuant to Section 12(b) of the Act:



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

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 ¨Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ~~YES~~ ý NO ¨Yes ☒ 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	¨☐	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 ýYes ☐ No ☒

Number of shares of Common Stock outstanding as of September 30, ~~2018: 51,024,602.~~2019: 62,394,738.

UNISYS CORPORATION

TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION		Page Number
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Cash Flows	5
	Consolidated Statements of Deficit	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2527
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3335
Item 4.	Controls and Procedures	3335
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	3536
Item 1A.	Risk Factors	3536
Item 6.	Exhibits	3540

Exhibit Index		3641
Signatures		3742

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,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenue
Services	$	605.6		$	575.5		$	1,760.8		$	1,735.6		$	654.1		$	605.6		$	1,919.6		$	1,760.8
Technology	82.7			90.8			303.3			261.4			103.5			82.7			287.6			303.3
	688.3			666.3			2,064.1			1,997.0			757.6			688.3			2,207.2			2,064.1
Costs and expenses
Cost of revenue:
Services	504.9			522.5		*	1,460.0			1,519.7		*	536.1			504.9			1,582.8			1,460.0
Technology	29.6			40.2		*	96.2			116.4		*	49.1			29.6			108.2			96.2
	534.5			562.7		*	1,556.2			1,636.1		*	585.2			534.5			1,691.0			1,556.2
Selling, general and administrative	90.9			97.8		*	274.5			314.2		*	95.6			90.9			293.3			274.5
Research and development	7.1			8.7		*	21.8			31.3		*	5.9			7.1			22.1			21.8
	632.5			669.2		*	1,852.5			1,981.6		*	686.7			632.5			2,006.4			1,852.5
Operating income (loss)	55.8			(2.9		)*	211.6			15.4		*
Operating income													70.9			55.8			200.8			211.6
Interest expense	15.9			16.4			48.2			36.4			15.2			15.9			46.9			48.2
Other income (expense), net	(17.7		)	(21.1		)*	(58.3		)	(78.5		)*	(49.2		)	(17.7		)	(108.5		)	(58.3		)
Income (loss) before income taxes	22.2			(40.4		)	105.1			(99.5		)
Income before income taxes													6.5			22.2			45.4			105.1
Provision for income taxes	15.2			12.5			50.4			21.6			15.9			15.2			41.8			50.4
Consolidated net income (loss)	7.0			(52.9		)	54.7			(121.1		)	(9.4		)	7.0			3.6			54.7
Net income (loss) attributable to noncontrolling interests	0.9			(11.8		)	4.2			(5.3		)
Net income attributable to noncontrolling interests													3.8			0.9			10.0			4.2
Net income (loss) attributable to Unisys Corporation	$	6.1		$	(41.1	)	$	50.5		$	(115.8	)	$	(13.2	)	$	6.1		$	(6.4	)	$	50.5
Earnings (loss) per share attributable to Unisys Corporation
Basic	$	0.12		$	(0.81	)	$	0.99		$	(2.30	)	$	(0.23	)	$	0.12		$	(0.12	)	$	0.99
Diluted	$	0.12		$	(0.81	)	$	0.89		$	(2.30	)	$	(0.23	)	$	0.12		$	(0.12	)	$	0.89

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,
	2018			2017			2018			2017			2019			2018			2019			2018
Consolidated net income (loss)	$	7.0		$	(52.9	)	$	54.7		$	(121.1	)	$	(9.4	)	$	7.0		$	3.6		$	54.7
Other comprehensive income:
Foreign currency translation	(8.2		)	25.5			(36.6		)	99.3			(51.7		)	(8.2		)	(99.7		)	(36.6		)
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
Postretirement adjustments, net of tax of $8.8 and $11.9 in 2019 and $1.4 and $4.3 in 2018													63.4			39.1			182.3			118.0
Total other comprehensive income	30.9			30.7			81.4			116.5			11.7			30.9			82.6			81.4
Comprehensive income (loss)	37.9			(22.2		)	136.1			(4.6		)
Less comprehensive income (loss) attributable to noncontrolling interests	0.8			(12.2		)	4.0			(5.3		)
Comprehensive income													2.3			37.9			86.2			136.1
Less comprehensive income attributable to noncontrolling interests													2.6			0.8			5.8			4.0
Comprehensive income (loss) attributable to Unisys Corporation	$	37.1		$	(10.0	)	$	132.1		$	0.7		$	(0.3	)	$	37.1		$	80.4		$	132.1

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Millions)


	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	516.1		$	733.9		$	425.4		$	605.0
Accounts receivable, net	492.2			503.3			504.4			509.2
Contract assets	73.3			—			38.3			29.7
Inventories:
Parts and finished equipment	12.3			13.6			15.0			14.0
Work in process and materials	10.7			12.5			13.2			13.3
Prepaid expenses and other current assets	102.6			126.2			122.7			130.2
Total current assets	1,207.2			1,389.5			1,119.0			1,301.4
Properties	857.2			898.8			799.0			800.2
Less-Accumulated depreciation and amortization	737.4			756.3			676.6			678.9
Properties, net	119.8			142.5			122.4			121.3
Outsourcing assets, net	202.0			202.3			208.3			216.4
Marketable software, net	157.2			138.3			183.3			162.1
Operating lease right-of-use assets							126.8			—
Prepaid postretirement assets	155.0			148.3			150.4			147.6
Deferred income taxes	97.3			119.9			102.0			109.3
Goodwill	178.1			180.8			176.2			177.8
Restricted cash	17.8			30.2			7.9			19.1
Other long-term assets	193.6			190.6			209.5			202.6
Total assets	$	2,328.0		$	2,542.4		$	2,405.8		$	2,457.6
Liabilities and deficit
Current liabilities:
Current maturities of long-term-debt	$	9.9		$	10.8
Current maturities of long-term debt							$	13.4		$	10.0
Accounts payable	225.7			241.8			240.6			268.9
Deferred revenue	254.7			327.5			236.0			294.4
Other accrued liabilities	351.9			391.5			362.9			350.0
Total current liabilities	842.2			971.6			852.9			923.3
Long-term debt	640.1			633.9			563.6			642.8
Long-term postretirement liabilities	1,814.0			2,004.4			1,830.5			1,956.5
Long-term deferred revenue	167.4			159.0			142.4			157.2
Long-term operating lease liabilities							83.8			—
Other long-term liabilities	68.1			100.0			50.0			77.4
Commitments and contingencies
Deficit:
Common stock, shares issued:
2018; 54.2, 2017; 53.4	0.5			0.5
2019; 65.9, 2018; 54.2							0.7			0.5
Accumulated deficit	(1,725.3		)	(1,963.1		)	(1,700.4		)	(1,694.0		)
Treasury stock, shares at cost:
2018; 3.1, 2017; 2.9	(104.9		)	(102.7		)
2019; 3.5, 2018; 3.1							(109.6		)	(105.0		)
Paid-in capital	4,536.6			4,526.4			4,640.2			4,539.8
Accumulated other comprehensive loss	(3,942.9		)	(3,815.8		)	(3,998.0		)	(4,084.8		)
Total Unisys stockholders’ deficit	(1,236.0		)	(1,354.7		)	(1,167.1		)	(1,343.5		)
Noncontrolling interests	32.2			28.2			49.7			43.9
Total deficit	(1,203.8		)	(1,326.5		)	(1,117.4		)	(1,299.6		)
Total liabilities and deficit	$	2,328.0		$	2,542.4		$	2,405.8		$	2,457.6

See notes to consolidated financial statements

UNISYS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Millions)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Cash flows from operating activities
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		)
Consolidated net income							$	3.6		$	54.7
Adjustments to reconcile consolidated net income to net cash used for operating activities:
Foreign currency transaction losses							7.2			1.1
Non-cash interest expense	7.8			6.9			7.5			7.8
Loss on debt extinguishment	—			1.5
Loss on debt exchange							20.2			—
Employee stock compensation	10.0			8.6			10.1			10.0
Depreciation and amortization of properties	31.2			29.6			26.7			31.2
Depreciation and amortization of outsourcing assets	48.7			39.3			47.3			48.7
Amortization of marketable software	42.8			47.1			35.0			42.8
Other non-cash operating activities	(2.6		)	3.3			(0.8		)	(2.6		)
Loss on disposal of capital assets	0.6			4.5			1.3			0.6
Gain on sale of properties	(7.3		)	—			—			(7.3		)
Postretirement contributions	(124.5		)	(119.2		)*	(82.3		)	(124.5		)
Postretirement expense	58.2			74.5		*	71.5			58.2
Decrease in deferred income taxes, net	9.3			2.3			1.0			9.3
Changes in operating assets and liabilities:
Receivables, net	(69.3		)	3.1			(17.4		)	(69.3		)
Inventories	(1.3		)	(2.6		)	(1.7		)	(1.3		)
Accounts payable and other accrued liabilities	(144.1		)	(15.3		)	(173.4		)	(144.1		)
Other liabilities	(1.5		)	(18.5		)*	33.1			(1.5		)
Other assets	8.8			20.2			9.3			8.8
Net cash used for operating activities	(77.4		)	(36.3		)	(1.8		)	(77.4		)
Cash flows from investing activities
Proceeds from investments	2,889.3			3,663.5			2,824.9			2,889.3
Purchases of investments	(2,892.4		)	(3,632.8		)	(2,835.8		)	(2,892.4		)
Investment in marketable software	(61.7		)	(46.6		)	(56.2		)	(61.7		)
Capital additions of properties	(25.0		)	(21.8		)	(29.1		)	(25.0		)
Capital additions of outsourcing assets	(54.4		)	(60.1		)	(44.4		)	(54.4		)
Net proceeds from sale of properties	19.2			—			(0.2		)	19.2
Other	(0.9		)	(0.8		)	(0.9		)	(0.9		)
Net cash used for investing activities	(125.9		)	(98.6		)	(141.7		)	(125.9		)
Cash flows from financing activities
Cash paid in connection with debt exchange							(56.3		)	—
Proceeds from capped call transactions							7.2			—
Proceeds from issuance of long-term debt	—			445.0			28.6			—
Issuance costs relating to long-term debt	—			(12.1		)
Payments of long-term debt	(2.0		)	(98.4		)	(12.2		)	(2.0		)
Financing fees	(0.2		)	—			—			(0.2		)
Other	(2.2		)	0.2			(4.6		)	(2.2		)
Net cash (used for) provided by financing activities	(4.4		)	334.7
Net cash used for financing activities							(37.3		)	(4.4		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(22.5		)	19.1			(10.0		)	(22.5		)
(Decrease) increase in cash, cash equivalents and restricted cash	(230.2		)	218.9
Decrease in cash, cash equivalents and restricted cash							(190.8		)	(230.2		)
Cash, cash equivalents and restricted cash, beginning of period	764.1			401.1			624.1			764.1
Cash, cash equivalents and restricted cash, end of period	$	533.9		$	620.0		$	433.3		$	533.9

See notes to consolidated financial statements

*Amounts were changed to conform to the current-year presentation. See Note 3.

UNISYS CORPORATION

CONSOLIDATED STATEMENTS OF DEFICIT (Unaudited)

(Millions)


				Unisys Corporation																						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			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
Balance at January 1, 2019																							$	(1,299.6	)	$	(1,343.5	)	$	0.5	$	(1,694.0	)	$	(105.0	)	$	4,539.8	$	(4,084.8	)	$	43.9
Consolidated net income (loss)																							(16.8		)	(19.4		)			(19.4		)									2.6
Stock-based activity																							(0.4		)	(0.4		)	0.1					(4.4		)	3.9
Translation adjustments	(5.1		)	(5.9		)											(5.9		)	0.8			(34.2		)	(32.8		)											(32.8		)	(1.4		)
Postretirement plans	39.0			38.6													38.6			0.4			68.5			69.2													69.2			(0.7		)
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
Balance at March 31, 2019																							$	(1,282.5	)	$	(1,326.9	)	$	0.6	$	(1,713.4	)	$	(109.4	)	$	4,543.7	$	(4,048.4	)	$	44.4
Consolidated net income	6.0			3.8					3.8											2.2			29.8			26.2					26.2											3.6
Stock-based compensation	4.1			4.1											4.1
Stock-based activity																							2.4			2.4								(0.1		)	2.5
Translation adjustments	(23.3		)	(21.6		)											(21.6		)	(1.7		)	(13.8		)	(11.6		)											(11.6		)	(2.2		)
Postretirement plans	39.9			39.5													39.5			0.4			50.4			49.1													49.1			1.3
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
Balance at June 30, 2019																							$	(1,213.7	)	$	(1,260.8	)	$	0.6	$	(1,687.2	)	$	(109.5	)	$	4,546.2	$	(4,010.9	)	$	47.1
Consolidated net income (loss)																							(9.4		)	(13.2		)			(13.2		)									3.8
Stock-based activity																							2.9			2.9								(0.1		)	3.0
Debt exchange																							83.9			83.9			0.1								83.8
Capped call on debt exchange																							7.2			7.2											7.2
Translation adjustments	(8.2		)	(7.8		)											(7.8		)	(0.4		)	(51.7		)	(49.0		)											(49.0		)	(2.7		)
Postretirement plans	39.1			38.8													38.8			0.3			63.4			61.9													61.9			1.5
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
Balance at September 30, 2019																							$	(1,117.4	)	$	(1,167.1	)	$	0.7	$	(1,700.4	)	$	(109.6	)	$	4,640.2	$	(3,998.0	)	$	49.7



				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 activity	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 activity	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 activity	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

See notes to consolidated financial statements

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 results of operations, comprehensive income, financial 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 GAAP 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, operating lease right-of-use assets, 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 Notes to Consolidated Financial Statements in the company’s Annual Report on Form 10-K for the year ended December 31, ~~2017 (2017~~2018 (2018 Form 10-K) filed with the Securities and Exchange Commission. Such Annual Report also contains a discussion of the company’s critical accounting 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.

As described in Note 3, effective January 1, ~~2018~~2019 the company adopted the requirements of Accounting Standards Update (ASU) No. ~~2014-09,~~ ~~Revenue from Contracts with Customers~~2016-02, Leases (Topic ~~606)~~ 842) using the ~~modified retrospective~~effective date transition method. The company’s updated accounting policy on ~~revenue recognition~~leases is described in Note 2 ~~and in “Critical accounting policies and estimates update” in Item 2~~ of this Form 10-Q.

Note 2 - Summary of Significant Accounting Policies

~~Revenue recognition~~Leases

~~Revenue~~The company determines if an arrangement is ~~recognized~~a lease at ~~an amount that reflects~~inception. This determination generally depends on whether the ~~consideration~~arrangement conveys to ~~which~~ the company ~~expects~~the right to ~~be entitled~~control the use of an explicitly or implicitly identified asset for a period of time 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 priceconsideration. Control of an underlying asset is conveyed to the ~~performance obligations in the contract, and (5) recognize revenue when (or as)~~company if 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~~obtains 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~~rights to direct the use of and to obtain substantially all of the ~~remaining~~economic benefits ~~of an~~from using the underlying asset. The company has lease agreements that include lease and non-lease components, which the company accounts for as a single lease component for all personal property leases. Lease expense for variable leases and short-term leases is recognized when the expense is incurred.

~~Revenue from software licenses is~~Operating leases are included in operating lease right-of-use (ROU) assets, other accrued liabilities and long-term operating lease liabilities on the consolidated balance sheets. Operating lease ROU assets and lease liabilities are recognized at the ~~inception~~commencement date of the lease based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term.

Finance leases are included in outsourcing assets, net and long-term debt on the consolidated balance sheets. Finance lease ROU assets and lease liabilities are initially measured in the same manner as operating leases. Finance lease ROU assets are amortized using the straight-line method. Finance lease liabilities are measured at amortized cost using the effective interest method.

The company has not capitalized leases with terms of twelve months or less.

As most of the company’s leases do not provide an implicit rate, the company uses its incremental borrowing rate, based on the information available at the lease commencement date, in determining the present value of lease payments.

The lease term for all of the company’s leases includes the non-cancelable period of the lease plus any additional periods covered by either a company option to extend (or not to terminate) the ~~initial license term~~lease that the company is reasonably certain to exercise, or an option to extend (or not to terminate) the ~~inception~~lease controlled by the lessor.

Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, amounts expected to be payable under a residual value guarantee and the exercise of the company option to purchase the underlying asset, if reasonably certain.

Variable lease payments associated with the company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as an ~~extension~~operating expense in the company’s consolidated results of operations in the same line item as expense arising from fixed lease payments (operating leases) or ~~renewal~~amortization of the ROU asset (finance leases).

The company uses the long-lived assets impairment guidance in ASC Subtopic 360-10 Property, Plant, and Equipment to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. If impaired, ROU assets for operating and finance leases are reduced for any impairment losses.

The company monitors for events or changes in circumstances that require a reassessment of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the ~~license term.~~carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in the consolidated statement of income.

~~Revenue~~The company has commitments under operating leases for certain facilities and equipment used in its operations. The company also has finance leases for equipment. The company’s leases generally have initial lease terms ranging from 1 year to 8 years, most of which include options to extend or renew the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year. Certain lease agreements contain provisions for future rent increases.

The components of lease expense for the three and nine months ended September 30, 2019 are as follows:



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	19.0		$	52.2
Finance lease cost
Amortization of right-of-use assets	0.4			1.2
Interest on lease liabilities	0.2			0.2
Total finance lease cost	0.6			1.4
Short-term lease costs	0.2			0.4
Variable lease cost	5.1			11.8
Sublease income	(0.1		)	(0.7		)
Total lease cost	$	24.8		$	65.1

Supplemental balance sheet information related to leases is as follows:



	September 30, 2019
Operating Leases
Operating lease right-of-use assets	$	126.8
Other accrued liabilities	69.2
Long-term operating lease liabilities	83.8
Total operating lease liabilities	$	153.0

Finance Leases
Outsourcing assets, net	$	5.0
Current maturities of long-term debt	1.7
Long-term debt	4.0
Total finance lease liabilities	$	5.7

Weighted-Average Remaining Lease Term
Operating leases	3.2
Finance leases	3.2

Weighted-Average Discount Rate
Operating leases	6.3		%
Finance leases	4.9		%

Supplemental cash flow information related to leases is as follows:



	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Cash payments for operating leases included in operating activities	$	51.7
Cash payments for finance leases included in financing activities	1.3

Right-of-use assets obtained in exchange for lease obligations are as follows:



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating leases	$	8.2	$	51.1
Finance leases	1.1		1.5

Maturities of lease liabilities as of September 30, 2019 are as follows:



Year	Finance Leases		Operating Leases
2019	$	0.5	$	20.6
2020	2.0		70.1
2021	2.0		31.5
2022	1.4		18.9
2023	0.2		11.6
Thereafter	0.1		16.1
Total lease payments	6.2		168.8
Less imputed interest	0.5		15.8
Total	$	5.7	$	153.0

Maturities of lease liabilities as of December 31, 2018, prior to the adoption of ASU No. 2016-02 as described in Note 3 of this Form 10-Q are as follows:



Year	Finance Leases		Operating Leases⁽ⁱ⁾
2019	$	1.6	$	48.5
2020	1.6		42.1
2021	1.6		30.0
2022	1.0		20.8
2023	—		14.3
Thereafter	—		24.4
Total	$	5.8	$	180.1

⁽ⁱ⁾Such rental commitments have been reduced by minimum sublease rentals of $2.7 million, due in the future under noncancelable leases.

For transactions where the company is considered the lessor, 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 These amounts were immaterial 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~~2019.

As of September 30, 2019, receivables under sales-type leases before the allowance for unearned income were collectible as follows:



Year
2019	$	6.4
2020	18.2
2021	12.8
2022	12.3
2023	12.3
Thereafter	17.5
Total	$	79.5

Marketable software

The cost of development of computer software to be sold or leased, incurred subsequent to establishment of technological feasibility, is capitalized and amortized to cost of sales over the estimated revenue-producing lives of the products. In assessing the estimated revenue-producing lives and recoverability of the products, the company considers operating strategies, underlying technologies utilized, estimated economic life and external market factors, such as expected levels of competition, barriers to entry by potential competitors, stability in the ~~above contract asset~~market and ~~liability balances were as follows: revenue~~governmental regulation. The company continually

reassesses the estimated revenue-producing lives of ~~$64.6 million~~the products 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,any change in the company’s ~~Consolidated Balance Sheets. At~~estimate could result in the remaining amortization expense being accelerated or spread out over a longer period.

Previously, the estimated revenue-producing lives of the company’s proprietary enterprise software was three years. Due to the maturity of the company’s proprietary enterprise software product, the company increased the time between its major releases as its product has a longer useful life. In addition, the company modified its commitment to provide post-contract support from an average of three years to five years following each new proprietary enterprise software release. In the first quarter of 2019, the company validated that the revised extended timeline between major product releases and the revised post-contract support period has achieved market acceptance. The company’s historical experience is that its significant customers typically renew the software on average every five years. As a result, the company adjusted the remaining useful life of its proprietary enterprise software product, which represents approximately 65% of the company’s marketable software, to five years. This change in estimate was applied prospectively effective January 1, 2019. The adjustment resulted in a $5.8 million decrease to cost of revenue in the three months ended September 30, ~~2018~~2019, and ~~December 31, 2017, the company had $11.8~~accordingly increased consolidated net income by $5.8 million ~~and $11.0 million, respectively, of deferred commissions.~~or $0.10 per diluted earnings per share. For the ~~three and~~ nine months ended September 30, ~~2018, $1.8~~2019, this adjustment resulted in a $15.1 million decrease to cost of revenue, and ~~$5.2~~accordingly increased consolidated net income by $15.1 million ~~respectively,~~or $0.28 per diluted earnings per share. The useful lives of ~~amortization expense related to deferred commissions was recorded in selling, general and administrative expense in~~ the ~~company’s Consolidated Statement~~remaining products classified as marketable software remain at three years, which is consistent with prior years. As 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~~2019, $60.5 million of marketable software was in process and ~~December 31, 2017 was $77.2~~the remaining $122.8 million ~~and $76.0 million, respectively. These~~has a weighted-average remaining life of 3.3 years. The company performs quarterly reviews to ensure that unamortized costs remain recoverable from future revenue. As of September 30, 2019, the company believes that all unamortized 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.fully recoverable.

Note 3 - Accounting Standards

Accounting Pronouncements Adopted

Effective January 1, ~~2018,~~2019, the company adopted ASU No. ~~2017-07~~ ~~Compensation - Retirement Benefits~~2016-02 Leases (Topic ~~715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~842) 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 summarizes the effects 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, 2018.~~

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

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

Included in the Technology revenue adjustments for 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 adopted Topic 606 under the modified retrospective method whereby prior periods were not restated, the company was required to include this $53.0 million in the cumulative effect adjustment to retained earnings on January 1, 2018. 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. 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 required 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 related to 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 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 applied 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 adoption. 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 August 2018, the FASB issued ASU No. 2018-14,~~ ~~Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans~~ ~~which adds,~~

removes and clarifies disclosure requirements related to defined 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~~Topic 842 requires organizations that lease assets, referred to as 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 company adopted the ~~FASB issued ASU No. 2018-11,~~ ~~Leases (Topic 842), Targeted Improvements,~~ ~~which provides an alternative~~new standard using the effective date transition method ~~permitting the recognition of~~by applying a cumulative-effect adjustment to ~~retained earnings on~~ the ~~date~~balance sheet through the addition of ~~adoption rather than restating comparative periods in~~ROU assets and lease liabilities at January 1, 2019. Prior-period results were not restated.

The company applied certain practical expedients, including the package of practical expedients, permitted under the transition ~~as originally prescribed by~~guidance within Topic ~~842. The standard is effective for annual reporting periods beginning after December 15, 2018, which for the company is~~842 to leases that commenced before January 1, 2019. The ~~company will adopt~~election of the ~~new guidance utilizing the alternative transition method, and is currently~~package of practical expedients resulted in the ~~process of reviewing~~company not reassessing prior conclusions under FASB Topic 840 Leases related to lease ~~contracts, implementing new~~identification, lease ~~accounting software, establishing new processes~~classification 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.~~ initial direct costs for existing leases at January 1, 2019.

The adoption ~~is expected to have~~had a material impact on the consolidated financial position and isdid not ~~expected to~~ have a material impact on the consolidated results of operations or cash flows as of and ~~cash flows.~~for the three and nine months ended September 30, 2019. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the company’s accounting for finance leases remained substantially unchanged.

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, including adoption in any interim period. The new guidance can be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The company will adopt the new guidance on January 1, 2020, on a prospective basis, and does not expect the adoption to have a material impact on its consolidated results of operations and 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 will adopt the new guidance on January 1, 2020 through a cumulative-effect adjustment to retained earnings, and does not expect the adoption to have a material impact on its consolidated results of operations and financial position.

Note 4 - Cost-Reduction Actions

~~There were no additional~~During the three months ended September 30, 2019, the company recognized cost-reduction charges and other costs of $0.2 million. Charges were comprised of $0.7 million for lease abandonment costs and $(0.5) million for changes in estimates principally related to work-force reductions. The charges were recorded in the following statement of income classifications: cost of revenue – services, $(1.9) million and selling, general and administrative expenses, $2.1 million.

During the nine months ended September 30, 2019, the company recognized cost-reduction charges and other costs of $5.4 million. Charges were comprised of $5.0 million for lease abandonment costs and asset write-offs and $0.4 million for changes in estimates principally related to work-force reductions. The charges were recorded in the following statement of income classifications: cost of revenue – services, $(6.6) million; selling, general and administrative expenses, $10.7 million; and research and development expenses, $1.3 million.

NaN provisions for cost-reduction actions were recorded during the nine months ended September 30, 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~~ For the three months ended September 30, ~~2017,~~2018, 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 werewas recorded in the following statement of income classifications: cost of revenue –- services, ~~$42.8 million;~~$0.7 million and selling, general and administrative expenses, ~~$7.9 million; research and development expenses, $1.1 million; and other income (expense), net, $(5.7)~~$0.2 million.

~~During~~ For the nine months ended September 30, ~~2017,~~2018, 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 werebenefit was recorded in the following statement of income classifications: cost of revenue –- services, ~~$70.4 million; cost of revenue - technology, $0.4 million;~~$4.2 million and selling, general and administrative expenses, ~~$27.4 million; research and development expenses, $1.4 million; and other income (expense), net, $(0.6)~~$(1.1) million.

Liabilities and expected future payments related to the company’s ~~cost-reduction~~work-force reduction actions are as follows:



	Total			U.S.			International
Balance at December 31, 2018	$	86.2		$	6.1		$	80.1
Payments	(40.9		)	(3.0		)	(37.9		)
Changes in estimates	0.2			(1.1		)	1.3
Translation adjustments	(2.5		)	—			(2.5		)
Balance at September 30, 2019	$	43.0		$	2.0		$	41.0
Expected future utilization on balance at September 30, 2019:
2019 remaining three months	$	29.2		$	1.5		$	27.7
Beyond 2019	$	13.8		$	0.5		$	13.3

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, ~~2018~~2019 and ~~2017~~2018 is presented below:



	Three Months Ended September 30, 2019									Three Months Ended September 30, 2018
	Total			U.S. Plans			International Plans			Total			U.S. Plans			International Plans
Service cost⁽ⁱ⁾	$	0.7		$	—		$	0.7		$	0.8		$	—		$	0.8
Interest cost	66.1			49.6			16.5			63.1			46.8			16.3
Expected return on plan assets	(80.1		)	(54.7		)	(25.4		)	(85.7		)	(57.7		)	(28.0		)
Amortization of prior service benefit	(1.2		)	(0.6		)	(0.6		)	(1.5		)	(0.6		)	(0.9		)
Recognized net actuarial loss	37.9			29.6			8.3			41.9			31.4			10.5
Net periodic pension expense (benefit)	$	23.4		$	23.9		$	(0.5	)	$	18.6		$	19.9		$	(1.3	)


	Three Months Ended September 30, 2018									Three Months Ended September 30, 2017									Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
	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⁾	$	0.8		$	—		$	0.8		$	1.0		$	—		$	1.0		$	2.1		$	—		$	2.1		$	2.4		$	—		$	2.4
Interest cost	63.1			46.8			16.3			71.4			52.8			18.6			199.3			148.1			51.2			191.1			140.0			51.1
Expected return on plan assets	(85.7		)	(57.7		)	(28.0		)	(91.2		)	(58.8		)	(32.4		)	(242.2		)	(163.7		)	(78.5		)	(259.9		)	(172.9		)	(87.0		)
Amortization of prior service benefit	(1.5		)	(0.6		)	(0.9		)	(1.1		)	(0.6		)	(0.5		)	(3.7		)	(1.9		)	(1.8		)	(4.7		)	(1.9		)	(2.8		)
Recognized net actuarial loss	41.9			31.4			10.5			43.5			31.6			11.9			113.1			87.5			25.6			126.0			93.8			32.2
Net periodic pension expense (benefit)	$	18.6		$	19.9		$	(1.3	)	$	23.6		$	25.0		$	(1.4	)	$	68.6		$	70.0		$	(1.4	)	$	54.9		$	59.0		$	(4.1	)

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 )



⁽ⁱ⁾	Service cost is reported in ~~cost of revenue - services and~~ selling, general and administrative ~~expenses.~~expense. All other components of net periodic pension expense are reported in other income (expense), net in the ~~Consolidated Statements~~consolidated statements of ~~Income.~~income.

In ~~2018,~~2019, the company expects to make cash contributions of approximately ~~$130.3~~$103.4 million to its worldwide defined benefit pension plans, which are comprised of ~~$80.6~~$67.2 million for the company’s U.S. qualified defined benefit pension plans and ~~$49.7~~$36.2 million primarily for the company’s ~~non-U.S.~~international defined benefit pension plans. In ~~2017,~~2018, the company made cash contributions of ~~$138.4~~$129.7 million to its worldwide defined benefit pension plans. For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the company made cash contributions of ~~$117.5~~$78.8 million and ~~$110.8~~$117.5 million, respectively.

Net periodic postretirement benefit expense for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 is presented below:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Service cost⁽ⁱ⁾	$	0.2		$	0.2		$	0.5		$	0.4		$	0.1		$	0.2		$	0.3		$	0.5
Interest cost	1.1			1.4			3.5			4.4			1.2			1.1			3.6			3.5
Expected return on assets	(0.1		)	(0.1		)	(0.3		)	(0.3		)	(0.1		)	(0.1		)	(0.3		)	(0.3		)
Recognized net actuarial loss	0.4			0.3			0.9			0.9			0.2			0.4			0.5			0.9
Amortization of prior service benefit	(0.5		)	(0.1		)	(1.3		)	(0.3		)	(0.4		)	(0.5		)	(1.2		)	(1.3		)
Net periodic postretirement benefit expense	$	1.1		$	1.7		$	3.3		$	5.1		$	1.0		$	1.1		$	2.9		$	3.3



⁽ⁱ⁾	Service cost is reported in selling, general and administrative ~~expenses.~~expense. All other components of net periodic postretirement benefit expense are reported in other income (expense), net in the ~~Consolidated Statements~~consolidated statements of ~~Income.~~income.

The company expects to make cash contributions of approximately ~~$12.0~~$6.0 million to its postretirement benefit ~~plan~~plans in ~~2018~~2019 compared to ~~$12.2~~$9.0 million in ~~2017.~~2018. For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the company made cash contributions of ~~$7.0~~$3.5 million and ~~$8.4~~$7.0 million, respectively.

Note 6 - 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~~2019, 5.5 million shares of unissued common stock of the company were available for granting under these plans.

As of September 30, ~~2018,~~2019, 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,~~expense, 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~~2019 and ~~2017,~~2018, the company recorded ~~$10.0~~$10.1 million and ~~$8.6~~$10.0 million of share-based compensation expense, respectively, which was comprised of ~~$9.9~~$10.1 million and ~~$7.8~~$9.9 million of restricted stock unit expense and ~~$0.1 million~~0 and ~~$0.8~~$0.1 million of stock option expense, respectively.

There were no0 grants of stock option awards during the nine months ended September 30, ~~2018~~2019 and ~~2017.~~

~~A summary~~2018. As of September 30, 2019, 543,673 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
awards with a weighted-average exercise price of $23.53 are outstanding.

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~~0 to ~~two~~2 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. Time-based restricted stock unit grants for the company’s directors vest upon award and compensation expense for such awards is recognized upon grant.

A summary of restricted stock unit activity for the nine months ended September 30, ~~2018~~2019 follows (shares in thousands):



	Restricted Stock Units		Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2018	2,151		$	12.90
Granted	1,319		15.04
Vested	(1,121	)	13.24
Forfeited and expired	(274	)	13.78
Outstanding at September 30, 2019	2,075		14.17

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, 2019 and 2018 ~~and 2017~~ was ~~$17.9~~$16.8 million and ~~$14.3~~$17.9 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,
	Nine Months Ended September 30, 2018			2019			2018
Weighted-average fair value of grant	$	15.20		$	16.58		$	15.20
Risk-free interest rate⁽ⁱ⁾	2.26		%	2.49		%	2.26		%
Expected volatility⁽ⁱⁱ⁾	52.97		%	47.91		%	52.97		%
Expected life of restricted stock units in years⁽ⁱⁱⁱ⁾	2.88			2.87			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,~~2019, there was ~~$15.6~~$15.2 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~~2.0 years. The aggregate weighted-average grant-date fair value of restricted stock units vested during the nine months ended September 30, 2019 and 2018 ~~and 2017~~ was ~~$10.3~~$14.8 million and ~~$7.3~~$10.3 million, respectively.

Common stock issued upon exercise of stock options or 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 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.~~

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~~2019 and ~~2017~~2018 (shares in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018		2017			2019			2018		2019			2018
Basic earnings (loss) per common share computation:
Net income (loss) attributable to Unisys Corporation	$	6.1	$	(41.1	)	$	50.5	$	(115.8	)	$	(13.2	)	$	6.1	$	(6.4	)	$	50.5
Weighted average shares	51,021		50,471			50,918		50,388			58,245			51,021		53,815			50,918
Basic earnings (loss) per common share	$	0.12	$	(0.81	)	$	0.99	$	(2.30	)	$	(0.23	)	$	0.12	$	(0.12	)	$	0.99
Diluted earnings (loss) per common share computation:
Net income (loss) attributable to Unisys Corporation	$	6.1	$	(41.1	)	$	50.5	$	(115.8	)	$	(13.2	)	$	6.1	$	(6.4	)	$	50.5
Add interest expense on convertible senior notes, net of tax of zero	—		—			14.6		—			—			—		—			14.6
Net income (loss) attributable to Unisys Corporation for diluted earnings per share	$	6.1	$	(41.1	)	$	65.1	$	(115.8	)	$	(13.2	)	$	6.1	$	(6.4	)	$	65.1
Weighted average shares	51,021		50,471			50,918		50,388			58,245			51,021		53,815			50,918
Plus incremental shares from assumed conversions:
Employee stock plans	697		—			479		—			—			697		—			479
Convertible senior notes	—		—			21,868		—			—			—		—			21,868
Adjusted weighted average shares	51,718		50,471			73,265		50,388			58,245			51,718		53,815			73,265
Diluted earnings (loss) per common share	$	0.12	$	(0.81	)	$	0.89	$	(2.30	)	$	(0.23	)	$	0.12	$	(0.12	)	$	0.89

Anti-dilutive weighted-average stock options and restricted stock units⁽ⁱ⁾	1,136		2,236			1,274		2,215			1,462			1,136		1,394			1,274
Anti-dilutive weighted-average common shares issuable upon conversion of the 5.50% convertible senior notes⁽ⁱ⁾	21,868		21,868			—		21,868			13,951			21,868		19,229			—



⁽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~~Contract Assets and Contract Liabilities

InContract assets represent rights to consideration in exchange for goods or services transferred to a customer when that right is conditional on something other than the ~~second quarter~~passage of time. Contract liabilities represent deferred revenue.

Net contract assets (liabilities) as of September 30, 2019 and December 31, 2018 are as follows:



	September 30, 2019			December 31, 2018
Contract assets - current	$	38.3		$	29.7
Contract assets - long-term⁽ⁱ⁾	22.4			22.2
Deferred revenue - current	(236.0		)	(294.4		)
Deferred revenue - long-term	(142.4		)	(157.2		)



⁽ⁱ⁾Reported in other long-term assets on the company’s consolidated balance sheets

As of September 30, 2019 and December 31, 2018, deposit liabilities of $16.8 million and $21.2 million, respectively, were principally included in current deferred revenue. These deposit liabilities represent upfront consideration received from customers for services such as post-contract support and maintenance that allow the customer to terminate the contract at any time for convenience.

Significant changes during the three and nine months ended September 30, 2019 and 2018 in the above contract asset and liability balances were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenue recognized that was included in deferred revenue at December 31, 2018	$	46.0			$	236.6
Revenue recognized that was included in deferred revenue at December 31, 2017			$	64.6			$	255.5

Note 10 - Capitalized Contract Costs

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, 2019 and December 31, 2018, the company ~~sold~~had $11.2 million and $12.1 million, respectively, of deferred commissions.

Amortization expense related to deferred commissions for the three and nine months ended September 30, 2019 and 2018 was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Deferred commissions - amortization expense⁽ⁱ⁾	$	0.9	$	1.8	$	2.9	$	5.2



⁽ⁱ⁾Reported in selling, general and administrative expense in the company’s consolidated statements of income

Costs on outsourcing contracts are generally expensed as incurred. However, certain costs incurred upon initiation of an outsourcing contract (costs to fulfill a ~~building~~contract), principally initial customer setup, are capitalized and ~~land located~~expensed over the initial contract life. These costs are included in outsourcing assets, net in the ~~United Kingdom.~~company’s consolidated balance sheets. The amount of such cost at September 30, 2019 and December 31, 2018 was $78.1 million and $79.5 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, 2019 and 2018, amortization expense related to costs to fulfill a contract was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Costs to fulfill a contract - amortization expense	$	5.9	$	4.2	$	17.8	$	14.9

The remaining balance of outsourcing assets, net is comprised of fixed assets and software used in connection with outsourcing contracts. These costs are capitalized and depreciated over the shorter of the initial contract life or in accordance with the company’s fixed asset policy.

Note 11 - 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 ~~received~~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, 2019 and December 31, 2018, the notional amount of these contracts was $394.9 million and $384.7 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, 2019 and December 31, 2018.



	September 30, 2019			December 31, 2018
Balance Sheet Location
Prepaid expenses and other current assets	$	0.1		$	3.4
Other accrued liabilities	3.2			0.3
Total fair value	$	(3.1	)	$	3.1

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, 2019 and 2018.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Statement of Income Location
Other income (expense), net	$	(11.9	)	$	(2.7	)	$	(17.1	)	$	(9.6	)

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 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 sheets as of September 30, 2019 and December 31, 2018.



	September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt:
10.75% senior secured notes due 2022	$	433.9	$	481.3	$	432.0	$	486.8
5.50% convertible senior notes due 2021	$	79.1	$	92.9	$	194.2	$	298.5

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.

At September 30, 2019, the amount of goodwill allocated to reporting units with negative net assets was as follows: Business Process Outsourcing Services, $10.1 million.

Changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2019 were as follows:



	Total			Services			Technology
Balance at December 31, 2018	$	177.8		$	69.1		$	108.7
Translation adjustments	(1.6		)	(1.6		)	—
Balance at September 30, 2019	$	176.2		$	67.5		$	108.7

Long-term debt is comprised of the following:



	September 30, 2019		December 31, 2018
10.75% senior secured notes due April 15, 2022 ($440.0 million face value less unamortized discount and fees of $6.1 million and $8.0 million at September 30, 2019 and December 31, 2018, respectively)	$	433.9	$	432.0
5.50% convertible senior notes due March 1, 2021 (Face value of $84.2 million and $213.5 million less unamortized discount and fees of $5.1 million and $19.3 million at September 30, 2019 and December 31, 2018, respectively)	79.1		194.2
Finance leases	5.7		5.8
Other debt	58.3		20.8
Total	577.0		652.8
Less – current maturities	13.4		10.0
Total long-term debt	$	563.6	$	642.8

See Note 11 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 may, 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 unpaid interest, if any.

Prior to April 15, 2020, the company 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 ~~$19.2 million~~certain equity offerings at a redemption price of 110.75% of the principal amount thereof, plus accrued and ~~recorded a pretax gain~~unpaid interest, if any. In addition, the company may redeem all (but not less than all) of ~~$7.3 million which was recorded in selling, general~~the 2022 Notes at any time that the Collateral Coverage Ratio is less than the Required Collateral Coverage Ratio (as such terms are described below and ~~administrative expense~~further defined in the ~~Consolidated Statements~~indenture) at a price equal to 100% of ~~Income.~~the principal amount of the 2022 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) 4, 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 company 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 require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding 2022 Notes to be due and payable immediately.

Interest expense related to the 2022 notes for the three and nine month periods ended September 30, 2019 and 2018 was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Contractual interest coupon	$	11.9	$	11.9	$	35.5	$	35.5
Amortization of debt issuance costs	0.6		0.6		1.8		1.8
Total	$	12.5	$	12.5	$	37.3	$	37.3

Convertible Senior Notes

In 2016, the company issued $213.5 million aggregate principal amount of Convertible Senior Notes due 2021 (the “2021 Notes”). The 2021 Notes, which are senior unsecured obligations, bear interest at a coupon rate of 5.50% (or 9.5% effective interest rate) per year until maturity, payable semiannually in arrears on March 1 and September 1 of each year. The 2021 Notes are not redeemable by the company prior to maturity. The 2021 Notes are convertible by the holders into shares of the company’s common stock if certain conditions set forth in the indenture governing the 2021 Notes have been satisfied. 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. On the maturity date, the company will be required to repay in cash the principal amount, plus accrued and unpaid interest, of any 2021 Notes that remain outstanding on that date.

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.

On August 2, 2019, the company entered into separate, privately negotiated exchange agreements pursuant to which it (i) issued an aggregate of 10,593,930 shares of its common stock, and (ii) paid cash in an aggregate amount of $59.4 million, such cash amount included $3.1 million of accrued and unpaid interest on the exchanged 2021 Notes up to, but excluding, the settlement date, in exchange for $129.3 million in aggregate principal amount of its outstanding 2021 Notes. The transactions closed on August 6, 2019. Upon closing, $84.2 million aggregate principal amount of 2021 Notes remain outstanding. In connection with the transactions, the company unwound a pro rata portion of the capped call transactions described above and received proceeds of $7.2 million. As a result of the exchange, the company recognized a charge of $20.2 million, or $0.35 per diluted share, in other income (expense), net in the three months ended September 30, 2019.

Interest expense related to the 2021 notes for the three and nine month periods ended September 30, 2019 and 2018 was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Contractual interest coupon	$	1.8	$	2.9	$	7.7	$	8.8
Amortization of debt discount	1.2		1.7		4.7		4.9
Amortization of debt issuance costs	0.2		0.3		0.8		0.9
Total	$	3.2	$	4.9	$	13.2	$	14.6

Revolving Credit Facility

The company has a secured revolving credit facility (the “Credit Agreement”) that provides for loans and letters of credit up to an aggregate amount of $145.0 million (with a limit on letters of credit of $30.0 million). 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. At September 30, 2019, the company had 0 borrowings and $5.7 million of letters of credit outstanding, and availability under the facility was $139.3 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.

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 March 27, 2019, the company entered into an Installment Payment Agreement (IPA) with a syndicate of financial institutions to finance the acquisition of certain software licenses necessary for the provision of services to a client. The IPA was in the amount of $27.7 million, of which $4.8 million matures on March 30, 2022 and $22.9 million matures on December 30, 2023. Interest accrues at an annual rate of 7.0% and the company is required to make monthly principal and interest payments on each agreement in arrears.

On September 5, 2019, the company entered into a vendor agreement in the amount of $19.3 million to finance the acquisition of certain software licenses used to provide services to our clients. Interest accrues at an annual rate of 5.47% and the company is required to make annual principal and interest payments in advance with the last payment due on March 1, 2024.

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, 2018 and December 31, 2017, the notional amount of these contracts was $380.0 million and $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, 2018 and December 31, 2017.~~

September 30,
2018 December 31, 2017
Balance Sheet Location
Prepaid expenses and other current assets $ 0.7
$ 4.9
Other accrued liabilities 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, 2018 and 2017.~~

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Statement of Income Location
Other income (expense), net $ (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 Sheets as of September 30, 2018 and December 31, 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 11 - Goodwill~~

~~At September 30, 2018, the amount of goodwill allocated to reporting units with negative net assets was as follows: Business Process Outsourcing Services, $10.4 million.~~

~~Changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2018 were as follows:~~

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

~~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~~

~~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.~~

Prior to April 15, 2020, the company 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 described below and further defined in the indenture) at a price equal to 100% of the principal amount of the 2022 Notes plus accrued and unpaid interest, if any.

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.

~~Convertible Senior Notes~~

In 2016, the company issued $213.5 million aggregate principal amount of Convertible Senior Notes due 2021 (the “2021 Notes”). The 2021 Notes, which are senior unsecured obligations, bear interest at a coupon rate of 5.50% (or 9.5% effective interest rate) per year until maturity, payable semiannually in arrears on March 1 and September 1 of each year. The 2021 Notes are not redeemable prior to maturity and are convertible into shares of the company’s common 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.

~~Interest expense related to the 2021 notes for the three and nine month periods ended September 30, 2018 and 2017 was as follows:~~

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.

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.

~~Note 13~~14 - 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~~value-added taxes, customs, duties, sales and other ~~non-income related~~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, ~~2018,~~2019, 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 $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 sought data to identify the claims at issue for the remaining time period. On 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 the Louisiana Supreme ~~Court.~~Court, which was granted on January 18, 2019. On May 8, 2019 the Supreme Court issued an opinion vacating the decision of the appellate court and remanding the matter back to the state court for further proceedings.

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, ~~2018,~~2019, it has adequate provisions for any such matters.

Note 15 - Accumulated Other Comprehensive Income

Accumulated other comprehensive income (loss) as of December 31, 2018 and September 30, 2019 is as follows:



	Total			Translation Adjustments			Postretirement Plans
Balance at December 31, 2018	$	(4,084.8	)	$	(896.7	)	$	(3,188.1	)
Other comprehensive income before reclassifications	(18.1		)	(93.4		)	75.3
Amounts reclassified from accumulated other comprehensive income	104.9						104.9
Current period other comprehensive income	86.8			(93.4		)	180.2
Balance at September 30, 2019	$	(3,998.0	)	$	(990.1	)	$	(3,007.9	)

Amounts reclassified out of accumulated other comprehensive income for the three and nine months ended September 30, 2019 and 2018 are as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Postretirement Plans⁽ⁱ⁾:
Amortization of prior service cost	$	(1.4	)	$	(1.7	)	$	(4.4	)	$	(5.3	)
Amortization of actuarial losses	37.6			41.5			112.3			124.9
Total before tax	36.2			39.8			107.9			119.6
Income tax benefit	(1.0		)	(1.3		)	(3.0		)	(3.8		)
Total reclassification for the period	$	35.2		$	38.5		$	104.9		$	115.8

⁽ⁱ⁾These items are included in net periodic postretirement cost (see Note 5).

Note 16 - Supplemental Cash Flow Information



	Nine Months Ended September 30,
	2019		2018
Cash paid during the period for:
Income taxes, net of refunds	$	44.7	$	37.4
Interest	$	36.3	$	35.7

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the amounts shown in the consolidated statements of cash flows.



	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	425.4	$	605.0
Restricted cash	7.9		19.1
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	433.3	$	624.1

Cash and cash equivalents subject to contractual restrictions and not readily available are classified as restricted cash. Restricted cash includes cash the company is contractually obligated to maintain in accordance with the terms of its U.K. business process outsourcing joint venture agreement and other cash that is restricted from withdrawal.

Note ~~14 - Accumulated Other Comprehensive Income~~

~~Accumulated other comprehensive income (loss) as of December 31, 2017 and September 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 three 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 December 31, 2017 and September 30, 2018 are as follows:~~

Noncontrolling
Interests
Balance at December 31, 2017 $ 28.2
Net income 4.2
Translation adjustments (1.3 )
Postretirement plans 1.1
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 Consolidated 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 cash 17.8
30.2
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows $ 533.9
$ 764.1

Cash and cash equivalents subject to contractual restrictions and not readily available are classified as restricted cash. Restricted cash primarily 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 and other cash that is restricted from withdrawal.

~~Note 16~~17 - Segment Information

~~As described in Note 3, effective~~Effective January 1, 2018, the company adopted the requirements of ~~Topic 606~~ ASU No. 2014-09, Revenue from Contracts with Customers (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, iswas January 1, 2018.

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~~2 business segments: Services and Technology. Revenue classifications within the Services and Technology ~~segment~~segments are as follows:

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 Statements~~consolidated 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, 2019 and 2018 was 0 and $0.1 million, ~~and for the three months ended September 30, 2017 was immaterial.~~respectively. The amount for the nine months ended September 30, 2019 and 2018 ~~and 2017~~ was ~~$2.3~~$0.2 million and ~~$1.0~~$2.3 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 the business segments based principally on revenue, employees, square footage or usage.

A summary of the company’s operations by business segment for the three and nine month periods ended September 30, ~~2018~~2019 and ~~2017~~2018 is presented below:


											Total		Corporate			Services		Technology
Three Months Ended September 30, 2019
Customer revenue											$	757.6	$	—		$	654.1	$	103.5
Intersegment											—		(2.3		)	—		2.3
Total revenue											$	757.6	$	(2.3	)	$	654.1	$	105.8
Operating income (loss)											$	70.9	$	(0.1	)	$	36.1	$	34.9
	Total			Corporate			Services		Technology
Three Months Ended September 30, 2018
Customer revenue	$	688.3		$	—		$	605.6	$	82.7	$	688.3	$	—		$	605.6	$	82.7
Intersegment	—			(4.3		)	—		4.3		—		(4.3		)	—		4.3
Total revenue	$	688.3		$	(4.3	)	$	605.6	$	87.0	$	688.3	$	(4.3	)	$	605.6	$	87.0
Operating income	$	55.8		$	2.7		$	18.6	$	34.5	$	55.8	$	2.7		$	18.6	$	34.5

Three Months Ended September 30, 2017
Nine Months Ended September 30, 2019
Customer revenue	$	666.3		$	—		$	575.5	$	90.8	$	2,207.2	$	—		$	1,919.6	$	287.6
Intersegment	—			(4.4		)	—		4.4		—		(6.8		)	—		6.8
Total revenue	$	666.3		$	(4.4	)	$	575.5	$	95.2	$	2,207.2	$	(6.8	)	$	1,919.6	$	294.4
Operating income (loss)	$	(2.9	)*	$	(51.2	)*	$	18.7	$	29.6	$	200.8	$	(9.1	)	$	90.5	$	119.4

Nine Months Ended September 30, 2018
Customer revenue	$	2,064.1		$	—		$	1,760.8	$	303.3	$	2,064.1	$	—		$	1,760.8	$	303.3
Intersegment	—			(18.3		)	—		18.3		—		(18.3		)	—		18.3
Total revenue	$	2,064.1		$	(18.3	)	$	1,760.8	$	321.6	$	2,064.1	$	(18.3	)	$	1,760.8	$	321.6
Operating income	$	211.6		$	2.6		$	54.3	$	154.7	$	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.~~

Presented 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,							Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017				2018			2017				2019			2018			2019			2018
Total segment operating income	$	53.1		$	48.3			$	209.0		$	113.6			$	71.0		$	53.1		$	209.9		$	209.0
Interest expense	(15.9		)	(16.4		)		(48.2		)	(36.4		)		(15.2		)	(15.9		)	(46.9		)	(48.2		)
Other income (expense), net	(17.7		)	(21.1		)	*	(58.3		)	(78.5		)	*	(49.2		)	(17.7		)	(108.5		)	(58.3		)
Cost-reduction (charges) benefit⁽ⁱ⁾	0.9			(51.8		)		3.1			(99.6		)		(0.2		)	0.9			(5.4		)	3.1
Corporate and eliminations	1.8			0.6			*	(0.5		)	1.4			*	0.1			1.8			(3.7		)	(0.5		)
Total income (loss) before income taxes	$	22.2		$	(40.4	)		$	105.1		$	(99.5	)
Total income before income taxes															$	6.5		$	22.2		$	45.4		$	105.1



*	~~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 services, by segment, is presented below:


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017			2018		2017			2019		2018		2019		2018
Services
Cloud & infrastructure services	$	348.3	$	326.9	*	$	1,000.2	$	994.8	*	$	405.9	$	348.3	$	1,158.4	$	1,000.2
Application services	191.2		200.7		*	578.1		592.9		*	188.3		191.2		574.1		578.1
Business process outsourcing services	66.1		47.9			182.5		147.9			59.9		66.1		187.1		182.5
	605.6		575.5			1,760.8		1,735.6			654.1		605.6		1,919.6		1,760.8
Technology	82.7		90.8			303.3		261.4			103.5		82.7		287.6		303.3
Total	$	688.3	$	666.3		$	2,064.1	$	1,997.0		$	757.6	$	688.3	$	2,207.2	$	2,064.1



*	~~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 selling organization, is presented below:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
United States	$	418.9	$	313.2	$	1,144.5	$	905.0
United Kingdom	72.4		82.0		272.0		277.7
Other foreign	266.3		293.1		790.7		881.4
Total	$	757.6	$	688.3	$	2,207.2	$	2,064.1

Note 18 - Remaining Performance Obligations

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes (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. At September 30, 2019, the company had approximately $1.0 billion of remaining performance obligations of which approximately 13% is estimated to be recognized as revenue by the end of 2019 and an additional 34% by the end of 2020.

Note 19 - 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.

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,II, Item ~~1A of the company’s 2017 Form 10-K.~~1A. Any forward-looking statement speaks only as of the date on which that statement is made. The company assumes no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.

~~As described in Note 3, effective~~Effective January 1, 2018, the company adopted 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, iswas January 1, 2018. ~~Upon adoption~~

The company’s financial results in the current period were positively impacted by increases in revenue due to new business principally driven by the company’s U.S. Federal government business as well as the impact of ~~ASU 2014-09,~~new business in the remainder of the company’s U.S. business. In addition, the company ~~was required~~recorded a charge of $20.2 million, or $0.35 per diluted share, on the convertible note exchange. See Note 13 of the Notes to ~~include this $53.0 million in the cumulative effect adjustment to retained earnings on January 1, 2018.~~Consolidated Financial Statements for further detail.

For the nine months ended September 30, ~~2018,~~2019, the company reported a net ~~income~~loss attributable to Unisys Corporation of $6.4 million, or loss of $0.12 per diluted share, compared with net income 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~~ for the nine months ended September 30, 2017. The company’s results of operations in the current period were positively impacted by the Topic 606 adjustment described above, lower cost-reduction charges and savings due to cost-reduction actions partially offset by an increase in income tax expense.2018.

Results of operations

Three months ended September 30, ~~2018~~2019 compared with the three months ended September 30, ~~2017~~2018

Revenue for the quarter ended September 30, ~~2018~~2019 was ~~$688.3~~$757.6 million compared with ~~$666.3~~$688.3 million for the third quarter of ~~2017,~~2018, an increase of ~~3.3%~~10.1% from the prior ~~year.~~year principally due to increases within the company’s U.S. Federal government business as well as the impact of new business in the remainder of the company’s U.S. business. Foreign currency fluctuations had a 32 percentage-point negative impact on revenue in the current period compared with the year-ago period.

Services revenue increased ~~5.2%~~8.0% and Technology revenue ~~decreased 8.9%~~increased 25.2% in the current quarter compared with the year-ago period. U.S. revenue ~~was flat~~increased 33.7% in the third quarter ~~over~~compared with the prior-year quarter. International revenue ~~increased 6.2%~~decreased 9.7% in the current quarter primarily due to ~~increases~~decreases in the European and Asia Pacific regions partially offset by ~~a decline~~an increase in Latin America. Foreign currency had a 53 percentage-point negative impact on international revenue in the three months ended September 30, ~~2018~~2019 compared with the three months ended September 30, ~~2017.~~2018.

During the three months ended September 30, 2019, the company recognized cost-reduction charges and other costs of $0.2 million. The charges were comprised of $0.7 million for lease abandonment costs and $(0.5) million for changes in estimates principally related to work-force reductions. The charges were recorded in the following statement of income classifications: cost of revenue – services, $(1.9) million and selling, general and administrative expenses, $2.1 million.

No cost-reduction charges were recorded induring the three months ended September 30, 2018; however, a benefit of $0.9 million was recorded in the ~~current~~prior-year 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 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 werebenefit was recorded in the following statement of income classifications: cost of revenue - services, ~~$42.8 million;~~$0.7 million and selling, general and administrative expenses, ~~$7.9 million; research and development expenses, $1.1 million; and other income (expense), net, $(5.7)~~$0.2 million.

Total gross profit margin was 22.8% in the three months ended September 30, 2019 compared with 22.3% in the three months ended September 30, ~~2018 compared with 15.5% in the three months ended September 30, 2017. Included in the 2017 gross~~2018. Gross profit margin ~~were cost-reduction charges~~in 2019 was positively impacted by $5.8 million related to the change in useful

life of ~~$42.8 million compared with a benefit~~the company’s proprietary enterprise software. See Note 2 of ~~$0.7 million in 2018~~the Notes to Consolidated Financial Statements for ~~changes in estimates. The increase in gross profit margin excluding these charges principally reflects benefits derived in 2018 from the prior-years’ cost-reduction actions.~~further detail.

Selling, general and administrative expense in the three months ended September 30, ~~2018~~2019 was $95.6 million (12.6% of revenue) compared with $90.9 million (13.2% of revenue) ~~compared with $97.8 million (14.7% of revenue)~~ in the year-ago period. The decrease in selling, general and administrative expense is principally attributed to a decrease of $8.1 million in cost-reduction charges and benefits derived in 2018 from the prior-years’ cost-reduction actions.

Research and development (R&D) expense in the third quarter of ~~2018~~2019 was ~~$7.1~~$5.9 million compared with ~~$8.7~~$7.1 million in the third quarter of ~~2017.~~2018.

For the third quarter of 2019, the company reported an operating profit of $70.9 million compared with an operating profit of $55.8 million in the third quarter of 2018.

Interest expense for the three months ended September 30, 2019 was $15.2 million compared with $15.9 million for the three months ended September 30, 2018. The ~~decrease is~~decline from the prior-year quarter was principally ~~attributed~~due to ~~an increase~~the convertible notes exchange (see Note 13 of the Notes to Consolidated Financial Statements).

Other income (expense), net was expense of $49.2 million in ~~capitalized marketable software.~~the third quarter of 2019 compared with expense of $17.7 million in the third quarter of 2018. Included in 2019 was postretirement expense of $23.6 million, a loss on debt exchange of $20.2 million and foreign exchange losses of $1.3 million. The prior-year period included postretirement expense of $18.7 million and $1.7 million of foreign exchange gains.

For the three months ended September 30, ~~2018, postretirement~~2019, pension expense was ~~$19.7~~$23.4 million compared with ~~postretirement expense of $25.3~~$18.6 million for the three months ended September 30, ~~2017.~~2018. The ~~change~~increase in ~~postretirement~~pension expense in ~~2018 from 2017~~2019 was principally due to a lower expected returns on plan assets and higher interest ~~cost component~~costs partially offset by lower amortization of ~~postretirement expense~~net actuarial losses for the company’s U.S. defined benefit pension plans. For the full year ~~2018,~~2019, the company expects to recognize ~~postretirement~~pension expense of approximately ~~$73.2~~$91.6 million compared with ~~$98.1~~$79.7 million for the full year of ~~2017.~~2018. The company records the service cost component of ~~postretirement~~pension income or expense in cost of revenue and selling, general and administrative ~~expenses.~~expense. All other components of ~~postretirement~~pension income or expense are recorded in other income (expense), net in the ~~Consolidated Statements~~consolidated statements of ~~Income.~~

For the third quarter of 2018, the company reported an operating profit of $55.8 million compared with an operating loss of $2.9 million in the third quarter of 2017. The 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, 2018 was $15.9 million compared with $16.4 million for the three months ended September 30, 2017.~~

Other income (expense), net was expense of $17.7 million in the third quarter of 2018 compared with expense of $21.1 million in the third quarter of 2017. Included in 2018 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 included postretirement expense, excluding service cost, of $24.1 million, $5.7 million of net foreign currency gains related to exiting foreign countries in connection with the company’s restructuring plan and $3.5 million of 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 U.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 ended September 30, 2018 was immaterial.income.

Income before income taxes for the three months ended September 30, ~~2018~~2019 was ~~$22.2~~$6.5 million compared with ~~a loss~~income of ~~$40.4~~$22.2 million for the three months ended September 30, ~~2017. The increase is principally attributed to lower cost-reduction charges and savings due to prior-years’ cost-reduction actions.~~2018.

The provision for income taxes was ~~$15.2~~$15.9 million in the current quarter compared with ~~$12.5~~$15.2 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 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 ~~income~~loss attributable to Unisys Corporation for the three months ended September 30, ~~2018~~2019 was $13.2 million, or a loss of $0.23 per diluted share, compared with income of $6.1 million, or income of $0.12 ~~per diluted share, compared with a net loss of $41.1 million, or loss of $0.81~~ per diluted share, for the three months ended September 30, ~~2017. The increase is principally attributed to lower cost-reduction charges and savings due to prior-years’ cost-reduction actions.~~2018.



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



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



	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



				Work-Force Reductions						Idle Leased Facilities Costs
	Total			U.S.			International			Idle Leased Facilities Costs
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



	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	)



	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



	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



	Noncontrolling Interests
Balance at December 31, 2017	$	28.2
Net income	4.2
Translation adjustments	(1.3		)
Postretirement plans	1.1
Balance at September 30, 2018	$	32.2


														Total			Eliminations			Services			Technology
Three Months Ended September 30, 2019
Customer revenue														$	757.6		$	—		$	654.1		$	103.5
Intersegment														—			(2.3		)	—			2.3
Total revenue														$	757.6		$	(2.3	)	$	654.1		$	105.8
Gross profit percent														22.8		%				17.6		%	51.1		%
Operating profit percent														9.4		%				5.5		%	33.0		%
	Total				Eliminations			Services			Technology
Three Months Ended September 30, 2018
Customer revenue	$	688.3			$	—		$	605.6		$	82.7		$	688.3		$	—		$	605.6		$	82.7
Intersegment	—				(4.3		)	—			4.3			—			(4.3		)	—			4.3
Total revenue	$	688.3			$	(4.3	)	$	605.6		$	87.0		$	688.3		$	(4.3	)	$	605.6		$	87.0
Gross profit percent	22.3		%					15.9		%	62.4		%	22.3		%				15.9		%	62.4		%
Operating profit percent	8.1		%					3.1		%	39.7		%	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		%



	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.~~



	Three Months Ended September 30,					Percent Change
	2018		2017			Percent Change
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	%



	~~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.~~




Exhibit Number	Description

3.1	Restated Certificate of Incorporation of Unisys Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on April 30, 2010)

3.2	Certificate of Amendment of the Restated Certificate of Incorporation of Unisys Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on April 28, 2011)

3.3	Certificate of Amendment of the Restated Certificate of Incorporation of Unisys Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on April 28, 2017)

3.4	Bylaws of Unisys Corporation, as amended through ~~April 30, 2015~~May 10, 2019 (incorporated by reference to Exhibit ~~3.3~~3.1 to the registrant’s ~~Quarterly~~Current Report on Form ~~10-Q~~8-K filed on ~~April 30, 2015)~~May 15, 2019)

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

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

32.1	Certification of Peter A. Altabef required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

32.2	Certification of ~~Inder~~Michael M. ~~Singh~~Thomson required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

~~101.INSXBRL~~101	~~Instance Document~~The following financial information from Unisys Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Deficit, and (vi) Notes to Consolidated Financial Statements

~~101.SCHXBRL~~104	~~Taxonomy Extension Schema Document~~

~~101.CALXBRL~~	~~Taxonomy Extension Calculation Linkbase Document~~

~~101.LABXBRL~~	~~Taxonomy Extension Labels Linkbase Document~~

~~101.PREXBRL~~	~~Taxonomy Extension Presentation Linkbase Document~~

~~101.DEFXBRL~~	~~Taxonomy Extension Definition Linkbase Document~~Cover page Interactive Data File (the cover page XBRL tags are embedded within the iXBRL (Inline Extensible Business Reporting Language) document)




	UNISYS CORPORATION

Date: ~~November 8, 2018~~	~~By:~~	~~/s/ Inder M. Singh~~
		~~Inder M. Singh~~
		~~Senior Vice President and~~
		~~Chief Financial Officer~~
		~~(Principal Financial Officer)~~

October 29, 2019	By:	/s/ Michael M. Thomson
		Michael M. Thomson
		Senior Vice President, Chief Financial Officer and
		Corporate Controller
		(Principal Financial and Accounting Officer)