NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share amounts)
Note 1 — Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of all majority-owned subsidiaries.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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, inventories, outsourcing assets, marketable software, goodwill and other long-lived assets, legal contingencies, indemnifications, assumptions used in the measurement of progress toward completion 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.
Cash equivalents
All short-term investments purchased with a maturity of three months or less and certificates of deposit which may be withdrawn at any time at the discretion of the company without penalty are classified as cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out method.
Properties
Properties are carried at cost and are depreciated over the estimated lives of such assets using the straight-line method. The estimated lives used, in years, are as follows: buildings,
20
–
50
; machinery and office equipment,
4
–
7
; rental equipment,
4
; and internal-use software,
3
–
10
.
Advertising costs
All advertising costs are expensed as incurred. The amount charged to expense during 2016, 2015 and 2014 was
$2.7 million
,
$4.9 million
and
$8.0 million
, respectively.
Shipping and handling
Costs related to shipping and handling is included in cost of revenue.
Goodwill
Goodwill arising from the acquisition of an entity represents the excess of the cost of acquisition over the fair value of the acquired identifiable assets, liabilities and contingent liabilities of the entity recognized at the date of acquisition. Goodwill is initially recognized as an asset and is subsequently measured at cost less any accumulated impairment losses. Goodwill is held in the currency of the acquired entity and revalued to the closing rate at each balance sheet date.
The company tests goodwill for impairment annually in the fourth quarter using data as of September 30th of that year, as well as whenever there are events or changes in circumstances (triggering events) that would more likely than not reduce the fair value of one or more reporting units below its respective carrying amount. The impairment assessment involves a two-step test. In step one, the company compares the fair value of each of its reporting units to their respective carrying value. If the carrying value exceeds fair value, then step two of the impairment test is performed to determine if the implied fair value of the goodwill of the reporting unit exceeds the carrying value of that goodwill. If the carrying value of a reporting unit is zero or negative, the second step of the impairment test shall be performed to measure the amount of impairment loss, if any, when it is more likely than not that a goodwill impairment exists. In this evaluation a company is required to take into consideration certain qualitative factors and whether there are significant differences between the carrying value and the estimated fair value of its assets and liabilities, and the existence of significant unrecognized intangible assets. Goodwill is impaired when the carrying value of the goodwill exceeds its implied value. Impaired goodwill is written down to its implied fair value through a charge to the consolidated statement of income in the period the impairment is identified.
We estimate the fair value of each reporting unit using a combination of the income approach and market approach.
The income approach incorporates the use of a discounted cash flow method in which the estimated future cash flows and terminal values for each reporting unit are discounted to present value. Cash flow projections are based on management's estimates of economic and market conditions, which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working capital requirements. The discount rate in turn is based on various market factors and specific risk characteristics of each reporting unit.
The market approach estimates fair value by applying performance metric multiples to the reporting unit's prior and expected operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.
If the fair value of the reporting unit derived using the income approach is significantly different from the fair value estimate using the market approach, the company reevaluates its assumptions used in the two models. When considering the weighting between the market approach and income approach, we gave more weighting to the income approach. The higher weighting assigned to the income approach took into consideration that the guideline companies used in the market approach generally represent larger diversified companies relative to the reporting units and may have different long term growth prospects, among other factors.
In order to assess the reasonableness of the calculated reporting unit fair values, the company also compares the sum of the reporting units' fair values to its market capitalization (per share stock price multiplied by shares outstanding) and calculates an implied control premium (the excess of the sum of the reporting units' fair values over the market capitalization).
Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.
Revenue recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is probable.
Revenue from hardware sales with standard payment terms is recognized upon the passage of title and the transfer of risk of loss. Outside the United States, the company recognizes revenue even if it retains a form of title to products delivered to customers, provided the sole purpose is to enable the company to recover the products in the event of customer payment default and the arrangement does not prohibit the customer’s use of the product in the ordinary course of business.
Revenue from software licenses with standard payment terms is recognized at the inception of the initial license term and upon execution of an extension to the license term.
The company also enters into multiple-element arrangements, which may include any combination of software, hardware, 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 deliverables, with software and hardware delivered in one reporting period and the software support and hardware maintenance services delivered 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 software and hardware products to the client. The services are provided on a continuous basis across multiple reporting periods and the software and hardware products are delivered in one reporting period. To the extent that a deliverable in a multiple-deliverable arrangement is subject to specific guidance, that deliverable is accounted for in accordance with such specific guidance. Examples of such arrangements may include leased hardware which is subject to specific leasing guidance or software which is subject to specific software revenue recognition guidance.
In these transactions, the company allocates the total revenue to be earned under the arrangement among the various elements based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or the best estimated selling price (ESP) if neither VSOE nor TPE is available. VSOE of selling price is based upon the normal pricing and discounting practices for those services and products when sold separately. TPE of selling price is based on evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. ESP is established considering factors such as margin objectives, discounts off of list prices, market conditions, competition and other factors. ESP represents the price at which the company would transact for the deliverable if it were sold by the company regularly on a standalone basis.
As mentioned above, some of the company’s multiple-element arrangements may include leased hardware which is subject to specific leasing guidance. Revenue under these arrangements is allocated considering the relative selling prices of the lease and non-lease elements. Lease deliverables include hardware, financing, maintenance and other executory costs, while non-lease deliverables generally consist of non-maintenance services. The determination of the amount of revenue allocated to the lease deliverables begins by allocating revenue to maintenance and other executory costs plus a profit thereon. These elements are generally recognized over the term of the lease. The remaining amounts are allocated to the hardware and financing elements. The amount allocated to hardware is recognized as revenue monthly over the term of the lease for those leases which are classified as operating leases and at the inception of the lease term for those leases which are classified as sales-type leases. The amount of finance income attributable to sales-type leases is recognized on the accrual basis using the effective interest method.
For multiple-element arrangements that involve the licensing, selling or leasing of software, for software and software-related elements, the allocation of revenue is based on VSOE. There may be cases in which there is VSOE of fair value of the undelivered elements but no such evidence for the delivered elements. In these cases, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered elements equals the total arrangement consideration less the aggregate VSOE of fair value of the undelivered elements.
For multiple-element arrangements that include services or products that (a) do not include the licensing, selling or leasing of software, or (b) contain software that is incidental to the services or products as a whole or (c) contain software components that are sold, licensed or leased with tangible products when the software components and non-software components (i.e., the software and hardware) of the tangible product function together to deliver the tangible product’s essential functionality (e.g., sales of the company’s enterprise-class servers including software and hardware), or some combination of the above, the allocation of revenue is based on the relative selling prices of each of the deliverables in the arrangement based on the selling price hierarchy, discussed above.
For multiple-element arrangements that include both software and non-software deliverables, the company allocates arrangement consideration to the software group and to the non-software group based on the relative selling prices of the deliverables in the arrangement based on the selling price hierarchy discussed above. For the software group, arrangement consideration is further allocated using VSOE as described above.
The company recognizes revenue on delivered elements only if: (a) any undelivered services or products are not essential to the functionality of the delivered services or products, (b) the company has an enforceable claim to receive the amount due in the event it does not deliver the undelivered services or products, (c) there is evidence of the selling price for each undelivered service or product, and (d) the revenue recognition criteria otherwise have been met for the delivered elements. Otherwise, revenue on delivered elements is recognized as the undelivered elements are delivered. The company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A delivered element constitutes a separate unit of accounting when it has standalone value and there is no customer-negotiated refund or return right for the delivered elements. If these criteria are not met, the deliverable is combined with the undelivered elements and the allocation of the arrangement consideration and revenue recognition are determined for the combined unit as a single unit.
Revenue from hardware sales and software licenses with extended payment terms is recognized as payments from customers become due (assuming that all other conditions for revenue recognition have been satisfied).
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 either on the percentage-of-completion method of accounting using the cost-to-cost method, or when services have been performed, depending on the nature of the project. For contracts accounted for on the percentage-of-completion basis, 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.
Income taxes
Income taxes are based on income before taxes for financial reporting purposes and reflect a current tax liability for the estimated taxes payable in the current-year tax returns and changes in deferred taxes. Deferred tax assets or liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax laws and rates. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the asset will not be realized. The company recognizes penalties and interest accrued related to income tax liabilities in provision for income taxes in its consolidated statements of income.
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, but not in excess of
three
years following product release. The company performs quarterly reviews to ensure that unamortized costs remain recoverable from future revenue.
Internal-use software
The company capitalizes certain internal and external costs incurred to acquire or create internal-use software, principally related to software coding, designing system interfaces, and installation and testing of the software. These costs are amortized in accordance with the fixed asset policy described above.
Outsourcing assets
Costs on outsourcing contracts are generally expensed as incurred. However, certain costs incurred upon initiation of an outsourcing contract (principally initial customer setup) are deferred and expensed over the initial contract life. Fixed assets and software used in connection with outsourcing contracts are capitalized and depreciated over the shorter of the initial contract life or in accordance with the fixed asset policy described above.
Recoverability of outsourcing assets is subject to various business risks. Quarterly, the company compares the carrying value of the outsourcing assets with the undiscounted future cash flows expected to be generated by the outsourcing assets to determine
if there is impairment. If impaired, the outsourcing 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 future cash flows could differ from these estimates.
Translation of foreign currency
The local currency is the functional currency for most of the company’s international subsidiaries, and as such, assets and liabilities are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated at average exchange rates during the year. Translation adjustments resulting from changes in exchange rates are reported in other comprehensive income (loss). Exchange gains and losses on intercompany balances are reported in other income (expense), net.
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.
Stock-based compensation plans
Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. The company recognizes compensation expense for the fair value of stock options, which have graded vesting, on a straight-line basis over the requisite service period. The company estimates the fair value of stock options using a Black-Scholes valuation model. The expense is recorded in selling, general and administrative expenses.
Retirement benefits
Accounting rules covering defined benefit pension plans and other postretirement benefits require that amounts recognized in financial statements be determined on an actuarial basis. A significant element in determining the company’s retirement benefits expense or income is the expected long-term rate of return on plan assets. This expected return is an assumption as to the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected pension benefit obligation. The company applies this assumed long-term rate of return to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over
four
years. This produces the expected return on plan assets that is included in retirement benefits expense or income. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset losses or gains affects the calculated value of plan assets and, ultimately, future retirement benefits expense or income.
At December 31 of each year, the company determines the fair value of its retirement benefits plan assets as well as the discount rate to be used to calculate the present value of plan liabilities. The discount rate is an estimate of the interest rate at which the retirement benefits could be effectively settled. In estimating the discount rate, the company looks to rates of return on high-quality, fixed-income investments currently available and expected to be available during the period to maturity of the retirement benefits. The company uses a portfolio of fixed-income securities, which receive at least the second-highest rating given by a recognized ratings agency.
Fair value measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the company assumes that the transaction is an orderly transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (for example, a forced liquidation or distress sale). The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the company can access at the measurement date; Level 2 – Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 – Unobservable inputs for the asset or liability. The company has applied fair value measurements to its long-term debt (see note 12), derivatives (see note 12) and to its postretirement plan assets (see note 16).
Noncontrolling interest
The company owns a
fifty-one
percent interest in Intelligent Processing Solutions Ltd. (iPSL), a U.K. business processing outsourcing joint venture. The remaining interests, which are reflected as a noncontrolling interest in the company’s financial statements, are owned by three financial institutions for which iPSL performs services.
Note 2 — Earnings per common share
The following table shows how the earnings (loss) per common share attributable to Unisys Corporation were computed for the three years ended
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Basic earnings (loss) per common share computation
|
|
|
|
|
|
|
Net income (loss) attributable to Unisys Corporation common shareholders
|
|
$
|
(47.7
|
)
|
|
$
|
(109.9
|
)
|
|
$
|
44.0
|
|
Weighted average shares (thousands)
|
|
50,060
|
|
|
49,905
|
|
|
49,280
|
|
Basic earnings (loss) per common share
|
|
$
|
(0.95
|
)
|
|
$
|
(2.20
|
)
|
|
$
|
0.89
|
|
Diluted earnings (loss) per common share computation
|
|
|
|
|
|
|
Net income (loss) attributable to Unisys Corporation for diluted earnings per share
|
|
$
|
(47.7
|
)
|
|
$
|
(109.9
|
)
|
|
$
|
44.0
|
|
Weighted average shares (thousands)
|
|
50,060
|
|
|
49,905
|
|
|
49,280
|
|
Plus incremental shares from assumed conversions:
|
|
|
|
|
|
|
Employee stock plans
|
|
—
|
|
|
—
|
|
|
304
|
|
Adjusted weighted average shares
|
|
50,060
|
|
|
49,905
|
|
|
49,584
|
|
Diluted earnings (loss) per common share
|
|
$
|
(0.95
|
)
|
|
$
|
(2.20
|
)
|
|
$
|
0.89
|
|
In
2016
,
2015
and
2014
, the following weighted-average number of stock options and restricted stock units were antidilutive and therefore excluded from the computation of diluted earnings per common share (in thousands):
3,553
;
2,915
; and
1,929
, respectively. In
2016
, the following weighted-average number of common shares issuable upon conversion of the
5.50%
Convertible Senior Notes due 2021 were antidilutive and therefore excluded from the computation of diluted earnings per share (in thousands):
17,230
. In
2014
, the following weighted-average mandatory convertible preferred stock was antidilutive and therefore excluded from the computation of diluted earnings per share (in thousands):
1,171
.
Note 3 — Cost reduction actions
In 2015, in connection with organizational initiatives to create a more competitive cost structure and rebalance the company’s global skill set, the company initiated a plan to incur restructuring charges currently estimated at approximately
$300 million
through 2017.
During
2015
, the company recognized charges of
$118.5 million
in connection with this plan, principally related to a reduction in employees. The charges related to work-force reductions were
$78.8 million
and were comprised of: (a) a charge of
$27.9 million
for
700
employees in the U.S. and (b) a charge of
$50.9 million
for
782
employees outside the U.S. In addition, the company recorded charges of
$39.7 million
comprised of
$20.2 million
for asset impairments and
$19.5 million
for other expenses related to the cost reduction effort. The charges were recorded in the following statement of income classifications: cost of revenue – services,
$52.3 million
; cost of revenue – technology,
$0.3 million
; selling, general and administrative expenses,
$53.5 million
; and research and development expenses,
$12.4 million
.
During 2016, the company recognized charges of
$82.1 million
in connection with this plan. The charges related to work-force reductions were
$62.6 million
, principally related to severance costs, and were comprised of: (a) a charge of
$7.0 million
for
351
employees in the U.S. and (b) a charge of
$55.6 million
for
1,048
employees outside the U.S. In addition, the company recorded charges of
$19.5 million
comprised of
$0.7 million
for net asset sales and write-offs,
$5.5 million
for idle leased facilities and contract amendment and termination costs and
$13.3 million
for professional fees and other expenses related to the cost reduction effort. The charges were recorded in the following statement of income classifications: cost of revenue - services,
$42.4 million
; selling, general and administrative expenses,
$38.0 million
; and research and development expenses,
$1.7 million
.
The following table presents a reconciliation of the work-force reduction liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
U.S.
|
|
|
International
|
|
Charges for work-force reductions
|
|
$
|
78.8
|
|
|
$
|
27.9
|
|
|
$
|
50.9
|
|
Payments
|
|
(45.3
|
)
|
|
(23.7
|
)
|
|
(21.6
|
)
|
Translation adjustments
|
|
(0.5
|
)
|
|
|
|
(0.5
|
)
|
Balance at December 31, 2015
|
|
33.0
|
|
|
4.2
|
|
|
28.8
|
|
Additional Provisions
|
|
66.9
|
|
|
8.3
|
|
|
58.6
|
|
Payments
|
|
(59.3
|
)
|
|
(9.4
|
)
|
|
(49.9
|
)
|
Changes in estimates
|
|
(4.3
|
)
|
|
(1.3
|
)
|
|
(3.0
|
)
|
Translation adjustments
|
|
(1.1
|
)
|
|
—
|
|
|
(1.1
|
)
|
Balance at December 31, 2016
|
|
$
|
35.2
|
|
|
$
|
1.8
|
|
|
$
|
33.4
|
|
Expected future payments on balance at December 31, 2016
|
|
|
|
|
|
|
In 2017
|
|
$
|
21.2
|
|
|
$
|
1.8
|
|
|
$
|
19.4
|
|
Beyond 2017
|
|
14.0
|
|
|
—
|
|
|
14.0
|
|
Note 4 — Goodwill
During the fourth quarter of
2016
, the company performed its annual impairment test of goodwill for all of our reporting units. The fair values of each of the reporting units exceeded their carrying values; therefore,
no
goodwill impairment was required.
At December 31,
2016
, the amount of goodwill allocated to reporting units with negative net assets was as follows: Business Processing Outsourcing Services,
$10.5
.
Changes in the carrying amount of goodwill by segment for the years ended
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Services
|
|
|
Technology
|
|
Balance at December 31, 2014
|
|
$
|
183.9
|
|
|
$
|
75.2
|
|
|
$
|
108.7
|
|
Translation adjustments
|
|
(6.5
|
)
|
|
(6.5
|
)
|
|
—
|
|
Balance at December 31, 2015
|
|
177.4
|
|
|
68.7
|
|
|
108.7
|
|
Translation adjustments
|
|
1.2
|
|
|
1.2
|
|
|
—
|
|
Balance at December 31, 2016
|
|
$
|
178.6
|
|
|
$
|
69.9
|
|
|
$
|
108.7
|
|
Note 5 — Recent accounting pronouncements and accounting changes
Effective January 1, 2016, the company adopted new guidance issued by the Financial Accounting Standards Board ("FASB") on the presentation of debt issuance costs. The new guidance requires that debt issuance costs shall be reported in the balance sheet as a direct deduction from the face amount of that debt. Previously the company reported these costs in “Other long-term assets” in the company’s consolidated balance sheets. At
December 31, 2015
, the amount reclassified was
$1.8 million
. The new guidance has been applied on a retrospective basis whereby prior-period financial statements have been adjusted to reflect the application of the new guidance, as required by the FASB.
Effective January 1, 2016, the company adopted new guidance issued by the FASB that simplifies the measurement of inventory. The new guidance states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimate of estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in the period in which it occurs. That loss may be required, for example, due to damage, physical deterioration, obsolescence, changes in price levels, or other causes. Adoption of this new guidance had no impact on the company’s consolidated results of operations and financial position.
Effective January 1, 2016, the company adopted new guidance issued by the FASB that simplifies the balance sheet classification of deferred income taxes. The new guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The new guidance also requires companies to offset all deferred tax assets and liabilities (and valuation allowances) for each tax-paying jurisdiction within each tax-paying component. The net deferred tax must be presented as a single noncurrent amount. Previous guidance required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The new guidance has been applied on a retrospective basis whereby prior-period financial statements have been adjusted to reflect the application of the new guidance. At
December 31, 2015
, the reclassification resulted in a reduction of current deferred income tax assets of
$24.1 million
, a decrease in other current assets of
$0.1 million
, an increase in noncurrent deferred income tax assets of
$12.9
million
, a decrease in other long-term assets of
$0.1 million
, a decrease in current other accrued liabilities of
$9.4 million
and a decrease in other long-term liabilities of
$2.0 million
.
Effective January 1, 2016, the company adopted new guidance issued by the FASB that removes the requirement to categorize within the fair value hierarchy and make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The new guidance has been applied on a retrospective basis whereby prior-period disclosures have been adjusted to reflect the application of the new guidance. Adoption of this new guidance had no impact on the company’s consolidated results of operations and financial position.
Effective for the annual reporting period ended December 31, 2016, the company adopted new guidance issued by the FASB which requires management to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. Adoption of this new guidance had no impact on the company's consolidated results of operations and financial position.
In January 2017, the FASB issued new guidance which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. Under the amended guidance, an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The guidance is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The company will adopt the new guidance on January 1, 2017. The company does not expect the adoption to have a material impact on its consolidated results of operations and financial position.
In October 2016, the FASB issued new guidance which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This amendment should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, with earlier adoption permitted. The company will adopt the new guidance on January 1, 2017. The company does not expect the adoption to have a material impact on its consolidated results of operations and financial position.
In August 2016, the FASB issued new guidance which clarifies the treatment of several cash flow categories. In addition, the guidance also clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The company will adopt the new guidance on January 1, 2017. The company does not expect the adoption to have a material impact on its consolidated statements of cash flows.
In June 2016, the FASB issued new guidance that introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected losses. This includes trade and other receivables, loans and other financial instruments. This update is effective for annual periods beginning after December 15, 2019, with earlier adoption permitted. The company is currently assessing when it will choose to adopt, and is currently evaluating the impact of the adoption on its consolidated financial statements.
In March 2016, the FASB issued new guidance that will change certain aspects of accounting for share-based payments to employees. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The guidance is effective for annual reporting periods beginning after December 15, 2016. The company will adopt the new guidance on January 1, 2017. The company does not expect the adoption to have a material impact on its consolidated results of operations and financial position.
In February 2016, the FASB issued a new lease accounting standard entitled “Leases.” The new standard is intended to improve financial reporting about leasing transactions. The new rule will require organizations that lease assets, referred to as lessees, to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The standard is effective for annual reporting periods beginning after December 15, 2018, which for the company is January 1, 2019. Earlier adoption is permitted. The company is currently assessing when it will choose to adopt, and is currently evaluating the impact of the adoption on its consolidated results of operations and financial position.
In 2014, the FASB issued a new revenue recognition standard entitled “Revenue from Contracts with Customers.” The objective of the standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows from a contract with a customer. The standard, and its various amendments, is effective for annual reporting periods beginning after December 15, 2017, which for the company is January 1, 2018. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, which for the company in January 1, 2017. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. Generally the new standard would require the company to recognize revenue for certain transactions, including extended payment term software licenses and short-term software licenses, sooner than the current rules would allow. The company will adopt the standard on January 1, 2018 using the modified retrospective method. The company is currently evaluating the impact the adoption of this new standard will have on its consolidated results of operations and financial position and currently does not believe that there will be a material impact upon adoption or on a go-forward basis. However, the final impact cannot be determined until the end of 2017 and it will be impacted by transactions entered into during 2017.
Note 6 — Accounts receivable
Accounts receivable consist principally of trade accounts receivable from customers and are generally unsecured and due within 30 to 90 days. Credit losses relating to these receivables consistently have been within management’s expectations. Expected credit losses are recorded as an allowance for doubtful accounts in the consolidated balance sheets. Estimates of expected credit losses are based primarily on the aging of the accounts receivable balances. The company records a specific reserve for individual accounts when it becomes aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. The collection policies and procedures of the company vary by credit class and prior payment history of customers.
Revenue recognized in excess of billings on services contracts, or unbilled accounts receivable, was
$98.0 million
and
$93.5 million
at
December 31, 2016
and
2015
, respectively.
At
December 31, 2016
, receivables under sales-type leases before the allowance for unearned income were collectible as follows:
2017
,
$27.9
;
2018
,
$30.0
;
2019
,
$20.3
;
2020
,
$8.1
;
2021
,
$0.6
; and
$0.2
thereafter.
Unearned income, which is deducted from accounts and notes receivable, was
$7.0 million
and
$10.9 million
at
December 31, 2016
and
2015
, respectively. The allowance for doubtful accounts, which is reported as a deduction from accounts and notes receivable, was
$22.8 million
and
$21.1 million
at
December 31, 2016
and
2015
, respectively. The provision for doubtful accounts, which is reported in selling, general and administrative expenses in the consolidated statements of income, was expense of
$2.2 million
,
$3.0 million
and
$2.7 million
, in
2016
,
2015
and
2014
, respectively.
Note 7 — Income taxes
Following is the total income (loss) before income taxes and the provision for income taxes for the three years ended December 31,
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
United States
|
|
$
|
(88.3
|
)
|
|
$
|
(130.6
|
)
|
|
$
|
(19.9
|
)
|
Foreign
|
|
108.8
|
|
|
71.8
|
|
|
165.4
|
|
Total income (loss) before income taxes
|
|
$
|
20.5
|
|
|
$
|
(58.8
|
)
|
|
$
|
145.5
|
|
Provision for income taxes
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
United States
|
|
$
|
6.7
|
|
|
$
|
1.0
|
|
|
$
|
2.1
|
|
Foreign
|
|
47.7
|
|
|
42.2
|
|
|
59.4
|
|
State and local
|
|
—
|
|
|
0.3
|
|
|
1.0
|
|
Total
|
|
54.4
|
|
|
43.5
|
|
|
62.5
|
|
Deferred
|
|
|
|
|
|
|
United States
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign
|
|
2.8
|
|
|
0.9
|
|
|
23.7
|
|
Total provision for income taxes
|
|
$
|
57.2
|
|
|
$
|
44.4
|
|
|
$
|
86.2
|
|
Following is a reconciliation of the provision for income taxes at the United States statutory tax rate to the provision for income taxes as reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States statutory income tax provision (benefit)
|
|
$
|
7.2
|
|
|
$
|
(20.6
|
)
|
|
$
|
50.9
|
|
Income and losses for which no provision or benefit has been recognized
|
|
65.5
|
|
|
69.1
|
|
|
35.7
|
|
Foreign rate differential and other foreign tax expense
|
|
(21.1
|
)
|
|
(15.9
|
)
|
|
(22.0
|
)
|
Income tax withholdings
|
|
22.8
|
|
|
12.5
|
|
|
17.1
|
|
Permanent items
|
|
(4.7
|
)
|
|
(1.9
|
)
|
|
1.1
|
|
Enacted rate changes
|
|
3.5
|
|
|
9.1
|
|
|
—
|
|
Change in uncertain tax positions
|
|
0.4
|
|
|
1.5
|
|
|
0.2
|
|
Change in valuation allowances due to changes in judgment
|
|
(16.4
|
)
|
|
(5.4
|
)
|
|
7.0
|
|
Income tax credits, U.S.
|
|
—
|
|
|
(4.0
|
)
|
|
(3.9
|
)
|
Other
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Provision for income taxes
|
|
$
|
57.2
|
|
|
$
|
44.4
|
|
|
$
|
86.2
|
|
The 2016 and 2015 provision for income taxes included
$3.5 million
and
$9.1 million
due to a reduction in the UK income tax rate. The rate reductions were enacted in the third quarter of 2016 and the fourth quarter of 2015 and reduced the rate from
18%
to
17%
and from
20%
to
18%
effective April 1, 2020 and 2017, respectively. The tax provision was principally caused by a write down of the UK company’s net deferred tax assets.
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
|
2015
|
|
Deferred tax assets
|
|
|
|
|
Tax loss carryforwards
|
|
$
|
889.6
|
|
|
$
|
854.5
|
|
Postretirement benefits
|
|
728.9
|
|
|
695.7
|
|
Foreign tax credit carryforwards
|
|
317.6
|
|
|
263.2
|
|
Other tax credit carryforwards
|
|
91.4
|
|
|
86.7
|
|
Deferred revenue
|
|
81.0
|
|
|
65.7
|
|
Employee benefits and compensation
|
|
49.1
|
|
|
49.9
|
|
Purchased capitalized software
|
|
32.6
|
|
|
39.5
|
|
Depreciation
|
|
28.3
|
|
|
36.8
|
|
Warranty, bad debts and other reserves
|
|
16.1
|
|
|
14.1
|
|
Capitalized costs
|
|
10.9
|
|
|
13.0
|
|
Capitalized research and development
|
|
—
|
|
|
3.2
|
|
Other
|
|
27.7
|
|
|
39.7
|
|
|
|
2,273.2
|
|
|
2,162.0
|
|
Valuation allowance
|
|
(2,084.6
|
)
|
|
(2,024.9
|
)
|
Total deferred tax assets
|
|
$
|
188.6
|
|
|
$
|
137.1
|
|
Deferred tax liabilities
|
|
|
|
|
Capitalized research and development
|
|
$
|
20.3
|
|
|
$
|
—
|
|
Other
|
|
28.4
|
|
|
22.7
|
|
Total deferred tax liabilities
|
|
$
|
48.7
|
|
|
$
|
22.7
|
|
Net deferred tax assets
|
|
$
|
139.9
|
|
|
$
|
114.4
|
|
At
December 31, 2016
, the company has tax effected U.S. Federal (
$455.5 million
), state and local (
$199.3 million
), and foreign (
$234.8 million
) tax loss carryforwards, the total of which is
$889.6 million
. These carryforwards will expire as follows:
2017
,
$9.0
;
2018
,
$4.8
;
2019
,
$6.6
;
2020
,
$20.4
;
2021
,
$17.9
; and
$830.9
thereafter. The company also has available tax credit carryforwards of
$408.9 million
, which will expire as follows (in millions):
2017
,
$48.1
;
2018
,
$21.0
;
2019
,
$19.7
;
2020
,
$45.9
;
2021
,
$41.4
; and
$232.8
thereafter.
Failure to achieve forecasted taxable income might affect the ultimate realization of the company’s net deferred tax assets. Factors that may affect the company’s ability to achieve sufficient forecasted taxable income include, but are not limited to, the following: increased competition, a decline in sales or margins, loss of market share, the impact of the economic environment, delays in product availability and technological obsolescence.
Cumulative undistributed earnings of foreign subsidiaries, for which no U.S. income or foreign withholding taxes have been recorded, approximated
$1.5 billion
at
December 31, 2016
. As the company currently intends to indefinitely reinvest all such earnings, no provision has been made for income taxes that may become payable upon distribution of such earnings, and it is not practicable to determine the amount of the related unrecognized deferred income tax liability.
Cash paid for income taxes, net of refunds, during
2016
,
2015
and
2014
was
$46.4 million
,
$59.7 million
and
$73.9 million
, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at January 1
|
|
$
|
27.7
|
|
|
$
|
35.0
|
|
|
$
|
26.3
|
|
Additions based on tax positions related to the current year
|
|
2.7
|
|
|
3.4
|
|
|
14.4
|
|
Changes for tax positions of prior years
|
|
2.0
|
|
|
(4.0
|
)
|
|
(1.4
|
)
|
Reductions as a result of a lapse of applicable statute of limitations
|
|
(2.8
|
)
|
|
(3.4
|
)
|
|
(1.6
|
)
|
Settlements
|
|
(0.1
|
)
|
|
(0.9
|
)
|
|
(0.9
|
)
|
Changes due to foreign currency
|
|
(3.7
|
)
|
|
(2.4
|
)
|
|
(1.8
|
)
|
Balance at December 31
|
|
$
|
25.8
|
|
|
$
|
27.7
|
|
|
$
|
35.0
|
|
The company recognizes penalties and interest accrued related to income tax liabilities in the provision for income taxes in its consolidated statements of income. At December 31,
2016
and
2015
, the company had an accrual of
$1.2 million
and
$1.0 million
, respectively, for the payment of penalties and interest.
At December 31,
2016
, all of the company’s liability for unrecognized tax benefits, if recognized, would affect the company’s effective tax rate. Within the next
12 months
, the company believes that it is reasonably possible that the amount of unrecognized tax benefits may significantly change; however, various events could cause this belief to change in the future.
The company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Several U.S. state and foreign income tax audits are in process. The company is under an audit in India, for which years prior to
2006
are closed. For Brazil and the United Kingdom, which are the most significant jurisdictions outside the U.S., the audit periods through
2010
are closed. All of the various ongoing income tax audits throughout the world are not expected to have a material impact on the company’s financial position.
Internal Revenue Code Sections 382 and 383 provide annual limitations with respect to the ability of a corporation to utilize its net operating loss (as well as certain built-in losses) and tax credit carryforwards, respectively ("Tax Attributes"), against future U.S. taxable income, if the corporation experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than
50
percentage points over a three-year period. The company regularly monitors ownership changes (as calculated for purposes of Section 382). The company has determined that, for purposes of the rules of Section 382 described above, an ownership change occurred in February 2011. Any future transaction or transactions and the timing of such transaction or transactions could trigger additional ownership changes under Section 382.
As a result of the February 2011 ownership change, utilization for certain of the company’s Tax Attributes, U.S. net operating losses and tax credits, is subject to an overall annual limitation of
$70.6 million
. The cumulative limitation as of December 31,
2016
is approximately
$307.0 million
. This limitation will be applied first to any recognized built in losses, then to any net operating losses, and then to any other Tax Attributes. Any unused limitation may be carried over to later years. Based on presently available information and the existence of tax planning strategies, the company does not expect to incur a U.S. cash tax liability in the near term. The company maintains a full valuation allowance against the realization of all U.S. deferred tax assets as well as certain foreign deferred tax assets in excess of deferred tax liabilities.
Note 8 — Properties
Properties comprise the following:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
2.7
|
|
|
$
|
2.8
|
|
Buildings
|
|
88.2
|
|
|
93.1
|
|
Machinery and office equipment
|
|
591.7
|
|
|
586.8
|
|
Internal-use software
|
|
145.9
|
|
|
144.5
|
|
Rental equipment
|
|
58.1
|
|
|
49.4
|
|
Total properties
|
|
$
|
886.6
|
|
|
$
|
876.6
|
|
Note 9 — Debt
Long-term debt is comprised of the following:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
|
2015
|
|
5.50% convertible senior notes due March 1, 2021 ($213.5 million face value less unamortized discount and fees of $34.4 million)
|
|
$
|
179.1
|
|
|
$
|
—
|
|
6.25% senior notes due August 15, 2017 ($95.0 million and $210.0 million face value less unamortized discount and fees of $0.3 million and $1.8 million)
|
|
94.7
|
|
|
208.2
|
*
|
Capital leases
|
|
10.1
|
|
|
12.5
|
|
Other debt
|
|
16.1
|
|
|
24.0
|
|
Total
|
|
300.0
|
|
|
244.7
|
*
|
Less – current maturities
|
|
106.0
|
|
|
11.0
|
|
Total long-term debt
|
|
$
|
194.0
|
|
|
$
|
233.7
|
*
|
*Changed to conform to the current-year presentation. See Note 5.
Long-term debt maturities in
2017
,
2018
,
2019
,
2020
,
2021
and thereafter are
$106.0 million
,
$10.3 million
,
$1.3 million
,
$1.3 million
,
$180.3 million
and
$0.8 million
, respectively. Included in the above are capital lease maturities in
2017
,
2018
,
2019
,
2020
,
2021
and thereafter of
$3.0 million
,
$2.4 million
,
$1.3 million
,
$1.3 million
,
$1.3 million
and
$0.8 million
, respectively.
Cash paid for interest during
2016
,
2015
and
2014
was
$22.1 million
,
$14.4 million
and
$13.2 million
, respectively. Capitalized interest expense during
2016
,
2015
and
2014
was
$3.0 million
,
$3.1 million
and
$4.0 million
, respectively.
The amount reported in other debt represents debt secured by the sale of an account receivable.
During 2016, the company retired an aggregate principal amount of
$115.0 million
of its
6.25%
senior notes due 2017. The company used cash on hand to fund the retirement of this debt. As a result of this retirement, the company recognized charges in "Other income (expense), net" of
$4.0 million
(
$3.6 million
of premium paid and
$0.4 million
for the write-off of issuance costs).
On March 15, 2016, the company issued
$190.0 million
aggregate principal amount of Convertible Senior Notes due 2021 (the notes). On April 13, 2016, the company issued an additional
$23.5 million
of the notes pursuant to an over-allotment option exercised by the initial purchasers to buy additional notes, for a total of
$213.5 million
of notes issued. The 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, beginning on September 1, 2016. The notes are not redeemable prior to maturity and are convertible into shares of the company’s common stock. The conversion rate for the notes is
102.4249
shares of the company’s common stock per
$1,000
principal amount of the notes (or a total amount of
21,867,716
shares), which is equivalent to an initial conversion price of approximately
$9.76
per share of the company’s common stock. Upon any conversion, the company will settle its conversion obligation in cash, shares of its common stock, or a combination of cash and shares of its common stock, at its election.
In connection with the issuances of the 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 notes. The capped call transactions will effectively raise the conversion premium on the 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 notes.
In accordance with Accounting Standards Codification 470-20, a convertible debt instrument that may be settled entirely or partially in cash is required to be separated into a liability and equity component, such that interest expense reflects the issuer’s non-convertible debt interest rate. Upon issuance, (i) a debt discount of
$33.6 million
was recognized as a decrease in debt and an increase in additional-paid in capital and (ii) the cost of the capped call transactions of
$27.3 million
was recognized as a decrease in cash and a decrease in additional paid-in capital. The debt component will accrete up to the principal amount and will be recognized as non-cash interest expense over the expected term of the notes. In
2016
,
$14.5 million
was recorded as interest expense on such convertible debt, which includes the contractual interest coupon: (
$9.2 million
), amortization of the debt discount: (
$4.3 million
), and amortization of the debt issuance costs: (
$1.0 million
).
The company has a secured revolving credit facility expiring in June 2018, that provides for loans and letters of credit up to an aggregate amount of
$150.0 million
(with a limit on letters of credit of
$100.0 million
). At December 31,
2016
, the company had
no
borrowings and
$11.3 million
letters of credit outstanding under this facility. Borrowing limits under the facility are based upon the amount of eligible U.S. accounts receivable. At December 31,
2016
, availability under the facility was
$102.5 million
net of letters of credit issued. Borrowings under the facility bear interest based on short term rates. 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 company is required to maintain a minimum fixed charge coverage ratio if the availability under the credit facility falls below the greater of
12.5%
of the lenders’ commitments under the facility and
$18.75 million
. The credit agreement allows the company to pay dividends on its capital stock in an amount up to
$22.5 million
per year unless the company is in default and to, among other things, repurchase its equity, prepay other debt, incur other debt or liens, dispose of assets and make acquisitions, loans and investments, provided the company complies with certain requirements and limitations set forth in the agreement. 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
. 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 Unisys Corporation and the subsidiary guarantors, other than certain excluded assets. The company may elect to prepay or terminate the credit facility without penalty.
At December 31,
2016
, the company has met all covenants and conditions under its various lending agreements. The company expects to continue to meet these covenants and conditions.
The company’s principal sources of liquidity are cash on hand, cash from operations and its revolving credit facility, discussed above. The company and certain international subsidiaries have access to uncommitted lines of credit from various banks.
The company’s anticipated future cash expenditures include anticipated contributions to its defined benefit pension plans. The company believes that it has adequate sources of liquidity to meet its expected
2017
cash requirements.
Note 10 — Other accrued liabilities
Other accrued liabilities (current) are comprised of the following:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
|
2015
|
|
Payrolls and commissions
|
|
$
|
110.6
|
|
|
$
|
102.7
|
|
Accrued vacations
|
|
47.1
|
|
|
51.1
|
|
Income taxes
|
|
35.3
|
|
|
22.6
|
*
|
Taxes other than income taxes
|
|
25.4
|
|
|
32.7
|
|
Cost reduction (work-force reductions)
|
|
21.2
|
|
|
33.0
|
|
Postretirement
|
|
19.3
|
|
|
20.7
|
|
Accrued interest
|
|
6.1
|
|
|
4.9
|
|
Other
|
|
84.2
|
|
|
62.2
|
|
Total other accrued liabilities
|
|
$
|
349.2
|
|
|
$
|
329.9
|
*
|
*Changed to conform to the current-year presentation. See Note 5.
Note 11 — Rental expense and commitments
Rental expense, less income from subleases, for
2016
,
2015
and
2014
was
$77.4 million
,
$80.6 million
and
$83.7 million
, respectively. Income from subleases, for
2016
,
2015
and
2014
was
$7.8 million
,
$9.1 million
and
$8.5 million
, respectively.
Minimum net rental commitments under noncancelable operating leases, including idle leases, outstanding at December 31,
2016
, substantially all of which relate to real properties, were as follows:
2017
,
$47.8 million
;
2018
,
$37.7 million
;
2019
,
$30.6 million
;
2020
,
$22.8 million
;
2021
,
$13.1 million
; and
$21.1 million
thereafter. Such rental commitments have been reduced by minimum sublease rentals of
$17.7 million
, due in the future under noncancelable subleases.
At December 31,
2016
, the company had outstanding standby letters of credit and surety bonds totaling approximately
$298 million
related to performance and payment guarantees. On the basis of experience with these arrangements, the company believes that any obligations that may arise will not be material. In addition, at December 31,
2016
, the company had deposits and collateral of approximately
$44 million
in other long-term assets, principally related to collateralized letters of credit, and to tax and labor contingencies in Brazil.
Note 12 — Financial instruments and concentration of credit risks
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
3 months
or less, which have not been designated as hedging instruments. At December 31,
2016
and
2015
, the notional amount of these contracts was
$428.9 million
and
$940.1 million
, respectively, and the fair value of such contracts was a net
gain
of
$0.5 million
and a net
loss
of
$4.4 million
, respectively, of which a gain of
$2.4 million
and
$2.2 million
, respectively, has been recognized in “Prepaid expenses and other current assets” and a loss of
$1.9 million
and
$6.6 million
, respectively, has been recognized in “Other accrued liabilities.” Changes in the fair value of these instruments was a
loss
of
$29.1 million
, a
gain
of
$15.6 million
and a
gain
of
$17.3 million
, respectively, for years ended December 31,
2016
,
2015
and
2014
, which has been recognized in earnings in “Other income (expense), net” in the company’s consolidated statements of income. 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.
Financial instruments also include temporary cash investments and customer accounts receivable. Temporary investments are placed with creditworthy financial institutions, primarily in money market funds, time deposits and certificate of deposits which may be withdrawn at any time at the discretion of the company without penalty. At December 31,
2016
and
2015
, the company’s cash equivalents principally have maturities of less than one month or can be withdrawn at any time at the discretion of the company without penalty. Due to the short maturities of these instruments, they are carried on the consolidated balance sheets at cost plus accrued interest, which approximates market value. Realized gains or losses during
2016
,
2015
and
2014
, as well as unrealized gains or losses at December 31,
2016
and
2015
, were immaterial. Receivables are due from a large number of customers that are dispersed worldwide across many industries. At December 31,
2016
and
2015
, the company had no significant concentrations of credit risk with any one customer. At December 31,
2016
and
2015
, the company had approximately
$74 million
and
$99 million
, respectively, of receivables due from various U.S. federal governmental agencies. At December 31,
2016
and
2015
, the carrying amount of cash and cash equivalents approximated fair value. The fair value of long-term debt is based on market prices (Level 2 inputs). At December 31,
2016
and December 31,
2015
, the fair value of the company's Senior Notes due 2017, of which a portion was retired in 2016, was
$97.8 million
and
$213.2 million
, respectively. At December 31,
2016
, the fair value of the company's Convertible Senior Notes due 2021, which were issued in March and April of 2016, was
$379.8 million
.
Note 13 — Foreign currency translation
During the years ended December 31,
2016
,
2015
and
2014
, the company recorded foreign exchange losses related to its Venezuelan subsidiary of
$0.4 million
,
$8.4 million
and
$7.4 million
, respectively. At December 31,
2016
, the company's operations in Venezuela had an immaterial amount of net monetary assets denominated in local currency.
During the years ended December 31,
2016
,
2015
and
2014
, the company recognized foreign exchange gains (losses) in “Other income (expense), net” in its consolidated statements of income of
$2.3 million
,
$8.1 million
and
$(7.0) million
, respectively.
Note 14 — Litigation 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 flows 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
€28.0 million
. Unisys Belgium filed its defense and counterclaim in April 2008, in the amount of approximately
€18.5 million
. The company believes it has valid defenses to the claims and contends that the Belgian State’s termination of the contract was unjustified.
The company’s Brazilian operations, along with those of many other companies doing business in Brazil, are involved in various litigation matters, including numerous governmental assessments related to indirect and other taxes, as well as disputes associated with former employees and contract labor. The tax-related matters pertain to value added taxes, customs, duties, sales and other non-income related tax exposures. The labor-related matters include claims related to compensation matters. The company believes that appropriate accruals have been established for such matters based on information currently available. At
December 31, 2016
, 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
$126.0 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
$68.0 million
for the period January 2002 through July 2011 and is seeking data to identify the claims at issue for the remaining time period. The company believes that it has valid defenses to Louisiana's claims and is asserting them in the pending litigation.
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
December 31, 2016
, it has adequate provisions for any such matters.
Note 15 — Segment information
The company has
two
business segments: Services and Technology. Revenue classifications within the Services segment are as follows:
|
|
•
|
Cloud and infrastructure services. This represents revenue from helping clients apply cloud and as-a-service delivery models to capitalize on business opportunities, make their end users more productive, and manage and secure their IT infrastructure and operations more economically.
|
|
|
•
|
Application services. This represents revenue from helping clients transform their business processes by providing advanced solutions for select industries, developing and managing new leading-edge applications, offering advanced data analytics and modernizing existing enterprise applications.
|
|
|
•
|
Business process outsourcing (BPO) services. This represents revenue from the management of critical processes and functions for clients in target industries, helping them improve performance and reduce costs.
|
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 software and hardware shipments to customers under Services contracts. The Services segment, in turn, recognizes customer revenue and marketing profits on such shipments of company software and hardware to customers. The Services segment also includes the sale of software and hardware products sourced from third parties that are sold to customers through the company’s Services channels. In the company’s consolidated statements of income, the manufacturing costs of products sourced from the Technology segment and sold to Services customers are reported in cost of revenue for Services.
Also included in the Technology segment’s sales and operating profit are sales of software and hardware 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 years ended December 31,
2016
,
2015
and
2014
was
$0.7 million
,
$9.2 million
and
$17.0 million
, respectively. The profit on these transactions is eliminated in Corporate.
The company evaluates business segment performance based on operating income exclusive of pension income or expense, restructuring charges and unusual and nonrecurring items, 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.
No
single customer accounts for more than 10% of revenue. Revenue from various agencies of the U.S. Government, which is reported in both business segments, was approximately
$564 million
,
$569 million
and
$529 million
in
2016
,
2015
and
2014
, respectively.
Corporate assets are principally cash and cash equivalents, prepaid postretirement assets and deferred income taxes. The expense or income related to corporate assets is allocated to the business segments.
Customer revenue by classes of similar products or services, by segment, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Services
|
|
|
|
|
|
|
Cloud & infrastructure services
|
|
$
|
1,352.9
|
|
|
$
|
1,513.1
|
|
|
$
|
1,704.9
|
|
Application services
|
|
859.0
|
|
|
868.9
|
|
|
819.8
|
|
BPO services
|
|
194.4
|
|
|
223.6
|
|
|
261.0
|
|
|
|
2,406.3
|
|
|
2,605.6
|
|
|
2,785.7
|
|
Technology
|
|
414.4
|
|
|
409.5
|
|
|
570.7
|
|
Total
|
|
$
|
2,820.7
|
|
|
$
|
3,015.1
|
|
|
$
|
3,356.4
|
|
Presented below is a reconciliation of segment operating income to consolidated income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Total segment operating income
|
|
$
|
208.4
|
|
|
$
|
174.9
|
|
|
$
|
233.6
|
|
Interest expense
|
|
(27.4
|
)
|
|
(11.9
|
)
|
|
(9.2
|
)
|
Other income (expense), net
|
|
0.3
|
|
|
8.2
|
|
|
(0.2
|
)
|
Cost reduction charges
|
|
(82.1
|
)
|
|
(118.5
|
)
|
|
—
|
|
Corporate and eliminations
|
|
(78.7
|
)
|
|
(111.5
|
)
|
|
(78.7
|
)
|
Total income (loss) before income taxes
|
|
$
|
20.5
|
|
|
$
|
(58.8
|
)
|
|
$
|
145.5
|
|
Presented below is a reconciliation of total business segment assets to consolidated assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Total segment assets
|
|
$
|
1,339.0
|
|
|
$
|
1,486.0
|
|
|
$
|
1,533.8
|
|
Cash and cash equivalents
|
|
370.6
|
|
|
365.2
|
|
|
494.3
|
|
Deferred income taxes
|
|
146.1
|
|
|
127.4
|
*
|
|
146.3
|
*
|
Prepaid postretirement assets
|
|
33.3
|
|
|
45.1
|
|
|
19.9
|
|
Other corporate assets
|
|
132.6
|
|
|
106.3
|
*
|
|
126.7
|
*
|
Total assets
|
|
$
|
2,021.6
|
|
|
$
|
2,130.0
|
*
|
|
$
|
2,321.0
|
*
|
*Changed to conform to the current-year presentation. See Note 5.
A summary of the company’s operations by business segment for
2016
,
2015
and
2014
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Corporate
|
|
|
Services
|
|
|
Technology
|
|
2016
|
|
|
|
|
|
|
|
|
Customer revenue
|
|
$
|
2,820.7
|
|
|
|
|
$
|
2,406.3
|
|
|
$
|
414.4
|
|
Intersegment
|
|
|
|
$
|
(22.6
|
)
|
|
—
|
|
|
22.6
|
|
Total revenue
|
|
$
|
2,820.7
|
|
|
$
|
(22.6
|
)
|
|
$
|
2,406.3
|
|
|
$
|
437.0
|
|
Operating income (loss)
|
|
$
|
47.6
|
|
|
$
|
(160.8
|
)
|
|
$
|
46.9
|
|
|
$
|
161.5
|
|
Depreciation and amortization
|
|
155.6
|
|
|
|
|
81.8
|
|
|
73.8
|
|
Total assets
|
|
2,021.6
|
|
|
682.6
|
|
|
963.3
|
|
|
375.7
|
|
Capital expenditures
|
|
147.1
|
|
|
3.0
|
|
|
74.8
|
|
|
69.3
|
|
2015
|
|
|
|
|
|
|
|
|
Customer revenue
|
|
$
|
3,015.1
|
|
|
|
|
$
|
2,605.6
|
|
|
$
|
409.5
|
|
Intersegment
|
|
|
|
$
|
(49.0
|
)
|
|
0.1
|
|
|
48.9
|
|
Total revenue
|
|
$
|
3,015.1
|
|
|
$
|
(49.0
|
)
|
|
$
|
2,605.7
|
|
|
$
|
458.4
|
|
Operating income (loss)
|
|
$
|
(55.1
|
)
|
|
$
|
(230.0
|
)
|
|
$
|
61.2
|
|
|
$
|
113.7
|
|
Depreciation and amortization
|
|
180.1
|
|
|
|
|
104.8
|
|
|
75.3
|
|
Total assets
|
|
2,130.0
|
*
|
|
644.0
|
*
|
|
1,081.7
|
|
|
404.3
|
|
Capital expenditures
|
|
213.7
|
|
|
1.9
|
|
|
143.3
|
|
|
68.5
|
|
2014
|
|
|
|
|
|
|
|
|
Customer revenue
|
|
$
|
3,356.4
|
|
|
|
|
$
|
2,785.7
|
|
|
$
|
570.7
|
|
Intersegment
|
|
|
|
$
|
(58.4
|
)
|
|
0.3
|
|
|
58.1
|
|
Total revenue
|
|
$
|
3,356.4
|
|
|
$
|
(58.4
|
)
|
|
$
|
2,786.0
|
|
|
$
|
628.8
|
|
Operating income
|
|
$
|
154.9
|
|
|
$
|
(78.7
|
)
|
|
$
|
96.0
|
|
|
$
|
137.6
|
|
Depreciation and amortization
|
|
168.6
|
|
|
|
|
103.2
|
|
|
65.4
|
|
Total assets
|
|
2,321.0
|
*
|
|
787.2
|
*
|
|
1,099.2
|
|
|
434.6
|
|
Capital expenditures
|
|
212.8
|
|
|
4.9
|
|
|
133.8
|
|
|
74.1
|
|
*Changed to conform to the current-year presentation. See Note 5.
Geographic information about the company’s revenue, which is principally based on location of the selling organization, properties and outsourcing assets, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenue
|
|
|
|
|
|
|
United States
|
|
$
|
1,309.3
|
|
|
$
|
1,454.9
|
|
|
$
|
1,378.1
|
|
United Kingdom
|
|
348.0
|
|
|
375.8
|
|
|
435.4
|
|
Other foreign
|
|
1,163.4
|
|
|
1,184.4
|
|
|
1,542.9
|
|
Total
|
|
$
|
2,820.7
|
|
|
$
|
3,015.1
|
|
|
$
|
3,356.4
|
|
Properties, net
|
|
|
|
|
|
|
United States
|
|
$
|
91.4
|
|
|
$
|
96.9
|
|
|
$
|
111.9
|
|
United Kingdom
|
|
15.1
|
|
|
18.8
|
|
|
22.0
|
|
Other foreign
|
|
38.8
|
|
|
38.1
|
|
|
34.8
|
|
Total
|
|
$
|
145.3
|
|
|
$
|
153.8
|
|
|
$
|
168.7
|
|
Outsourcing assets, net
|
|
|
|
|
|
|
United States
|
|
$
|
105.1
|
|
|
$
|
119.4
|
|
|
$
|
99.7
|
|
United Kingdom
|
|
39.0
|
|
|
36.6
|
|
|
25.8
|
|
Other foreign
|
|
28.4
|
|
|
26.0
|
|
|
25.4
|
|
Total
|
|
$
|
172.5
|
|
|
$
|
182.0
|
|
|
$
|
150.9
|
|
Note 16 — Employee plans
Stock plans
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 December 31,
2016
,
3.8 million
shares of unissued common stock of the company were available for granting under these plans.
As of December 31,
2016
, the company has granted non-qualified stock options and restricted stock units under these plans. The company recognizes compensation cost net of a forfeiture rate in selling, general and administrative expenses, and recognizes the compensation cost for only those awards expected to vest. The company estimates the forfeiture rate based on its historical experience and its expectations about future forfeitures.
The company’s employee stock option grants include a provision that, if termination of employment occurs after the participant has attained age
55
and completed
5
years of service with the company, the participant shall continue to vest in each of his or her awards in accordance with the vesting schedule set forth in the applicable award agreement. Compensation expense for such awards is recognized over the period to the date the employee first becomes eligible for retirement. Time-based restricted stock unit grants for the company’s directors vest upon award and compensation expense for such awards is recognized upon grant.
Options have been granted to purchase the company’s common stock at an exercise price equal to or greater than the fair market value at the date of grant, generally have a maximum duration of
seven
years for options issued in 2015 and
five
years for options issued before 2015, and become exercisable in annual installments over a
three
-year period following date of grant.
During the years ended December 31,
2016
,
2015
and
2014
, the company recognized
$9.5 million
,
$9.4 million
and
$10.4 million
of share-based compensation expense, which is comprised of
$7.5 million
,
$4.7 million
and
$3.3 million
of restricted stock unit expense and
$2.0 million
,
$4.7 million
and
$7.1 million
of stock option expense, respectively.
For stock options, the fair value is estimated at the date of grant using a Black-Scholes option pricing model. Principal assumptions used are as follows: (a) expected volatility for the company’s stock price is based on historical volatility and implied market volatility, (b) historical exercise data is used to estimate the options’ expected term, which represents the period of time that the options granted are expected to be outstanding, and (c) the risk-free interest rate is the rate on zero-coupon U.S. government issues with a remaining term equal to the expected life of the options. The company recognizes compensation expense for the fair value of stock options, which have graded vesting, on the straight-line basis over the requisite service period of the awards. The compensation expense recognized as of any date must be at least equal to the portion of the grant-date fair value that is vested at that date.
The fair value of stock option awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted-average fair values as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Weighted-average fair value of grant
|
|
$
|
4.53
|
|
|
$
|
8.92
|
|
|
$
|
11.24
|
|
Risk-free interest rate
|
|
1.29
|
%
|
|
1.28
|
%
|
|
1.04
|
%
|
Expected volatility
|
|
51.30
|
%
|
|
45.46
|
%
|
|
45.65
|
%
|
Expected life of options in years
|
|
4.90
|
|
|
4.92
|
|
|
3.71
|
|
Expected dividend yield
|
|
—
|
|
|
—
|
|
|
—
|
|
A summary of stock option activity for the year ended December 31,
2016
follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted- Average Exercise Price
|
|
Weighted- Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value ($ in millions)
|
Outstanding at December 31, 2015
|
|
2,723
|
|
|
$
|
27.88
|
|
|
|
|
|
Granted
|
|
11
|
|
|
10.85
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited and expired
|
|
(635
|
)
|
|
35.76
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
2,099
|
|
|
25.41
|
|
|
2.28
|
|
$
|
—
|
|
Expected to vest at December 31, 2016
|
|
608
|
|
|
26.06
|
|
|
3.70
|
|
$
|
—
|
|
Exercisable at December 31, 2016
|
|
1,478
|
|
|
25.17
|
|
|
1.67
|
|
$
|
—
|
|
The aggregate intrinsic value represents the total pretax value of the difference between the company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options
that would have been received by the option holders had all option holders exercised their options on December 31,
2016
. The intrinsic value of the company’s stock options changes based on the closing price of the company’s stock. The total intrinsic value of options exercised for the years ended December 31,
2016
,
2015
and
2014
was
zero
,
$0.6 million
and
$4.7 million
, respectively. As of December 31,
2016
,
$1.4 million
of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of
1.2
years.
Restricted stock unit awards may contain time-based units, performance-based units or a combination of both. Each performance-based unit will vest into
zero
to
2.0
shares depending on the degree to which the performance goals are met. Compensation expense resulting from these awards is recognized as expense ratably for each installment from the date of grant until the date the restrictions lapse and is based on the fair market value at the date of grant and the probability of achievement of the specific performance-related goals.
A summary of restricted stock unit activity for the year ended December 31,
2016
follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Weighted-Average Grant-Date Fair Value
|
Outstanding at December 31, 2015
|
|
469
|
|
|
$
|
23.57
|
|
Granted
|
|
1,306
|
|
|
9.91
|
|
Vested
|
|
(187
|
)
|
|
18.94
|
|
Forfeited and expired
|
|
(134
|
)
|
|
15.50
|
|
Outstanding at December 31, 2016
|
|
1,454
|
|
|
12.68
|
|
The fair value of restricted stock units is determined based on the trading price of the company’s common shares on the date of grant. The aggregate weighted-average grant-date fair value of restricted stock units granted during the years ended December 31,
2016
,
2015
and
2014
was
$12.9 million
,
$10.2 million
and
$12.8 million
, respectively. As of December 31,
2016
, there was
$8.2 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
2.0
years. The aggregate weighted-average grant-date fair value of restricted stock units vested during the years ended December 31,
2016
,
2015
and
2014
was
$3.5 million
,
$2.1 million
and
$3.3 million
, respectively.
Common stock issued upon exercise of stock options or upon lapse of restrictions on restricted stock units are newly issued shares. Cash received from the exercise of stock options was
zero
and
$3.7 million
for the years ended December 31,
2016
and
2015
, respectively. During
2016
and
2015
, the company did not recognize any tax benefits from the exercise of stock options or upon issuance of stock upon lapse of restrictions on restricted stock units because of its tax position. Any such tax benefits resulting from tax deductions in excess of the compensation costs recognized are classified as financing cash flows.
Defined contribution and compensation plans
U.S. employees are eligible to participate in an employee savings plan. Under this plan, employees may contribute a percentage of their pay for investment in various investment alternatives. The company matches
50 percent
of the first
6 percent
of eligible pay contributed by participants to the plan on a before-tax basis (subject to IRS limits). The company funds the match with cash. The charge to income related to the company match for the years ended December 31,
2016
,
2015
and
2014
, was
$10.7 million
,
$9.9 million
and
$10.6 million
, respectively.
The company has defined contribution plans in certain locations outside the United States. The charge to income related to these plans was
$19.0 million
,
$21.4 million
and
$25.2 million
, for the years ended December 31,
2016
,
2015
and
2014
, respectively.
The company has non-qualified compensation plans, which allow certain highly compensated employees and directors to defer the receipt of a portion of their salary, bonus and fees. Participants can earn a return on their deferred balance that is based on hypothetical investments in various investment vehicles. Changes in the market value of these investments are reflected as an adjustment to the liability with an offset to expense. As of December 31,
2016
and
2015
, the liability to the participants of these plans was
$12.3 million
and
$12.6 million
, respectively. These amounts reflect the accumulated participant deferrals and earnings thereon as of that date. The company makes no contributions to the deferred compensation plans and remains contingently liable to the participants.
Retirement benefits
For the company’s more significant defined benefit pension plans, including the U.S. and the U.K., accrual of future benefits under the plans has ceased.
In December 2016, the company completed a lump-sum offer for eligible former associates who had a deferred vested benefit under the company's U.S. pension plan to receive the value of their entire pension benefit in a lump-sum payment. As a result, the pension plan trust made lump sum payments to approximately
5,800
former associates of
$215.9 million
. In accordance with accounting guidance on settlements of a pension benefit obligation, no settlement charges were recorded as a result of this action.
Retirement plans’ funded status and amounts recognized in the company’s consolidated balance sheets at December 31,
2016
and
2015
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
As of December 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
5,231.4
|
|
|
$
|
5,665.5
|
|
|
$
|
2,987.8
|
|
|
$
|
3,354.9
|
|
Service cost
|
|
—
|
|
|
—
|
|
|
7.4
|
|
|
8.7
|
|
Interest cost
|
|
231.3
|
|
|
224.1
|
|
|
87.8
|
|
|
94.1
|
|
Plan participants’ contributions
|
|
—
|
|
|
—
|
|
|
2.3
|
|
|
2.5
|
|
Plan amendment
|
|
—
|
|
|
(2.7
|
)
|
|
—
|
|
|
(32.3
|
)
|
Plan curtailment
|
|
—
|
|
|
—
|
|
|
(3.7
|
)
|
|
—
|
|
Actuarial loss (gain)
|
|
87.2
|
|
|
(285.0
|
)
|
|
502.2
|
|
|
(79.5
|
)
|
Benefits paid
|
|
(577.9
|
)
|
|
(370.5
|
)
|
|
(110.0
|
)
|
|
(112.8
|
)
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
(397.6
|
)
|
|
(247.8
|
)
|
Benefit obligation at end of year
|
|
$
|
4,972.0
|
|
|
$
|
5,231.4
|
|
|
$
|
3,076.2
|
|
|
$
|
2,987.8
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
3,759.4
|
|
|
$
|
4,069.7
|
|
|
$
|
2,496.8
|
|
|
$
|
2,718.9
|
|
Actual return on plan assets
|
|
211.8
|
|
|
(5.6
|
)
|
|
287.7
|
|
|
18.6
|
|
Employer contribution
|
|
58.8
|
|
|
65.8
|
|
|
73.7
|
|
|
82.5
|
|
Plan participants’ contributions
|
|
—
|
|
|
—
|
|
|
2.3
|
|
|
2.5
|
|
Benefits paid
|
|
(577.9
|
)
|
|
(370.5
|
)
|
|
(110.0
|
)
|
|
(112.8
|
)
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
(320.8
|
)
|
|
(212.9
|
)
|
Fair value of plan assets at end of year
|
|
$
|
3,452.1
|
|
|
$
|
3,759.4
|
|
|
$
|
2,429.7
|
|
|
$
|
2,496.8
|
|
Funded status at end of year
|
|
$
|
(1,519.9
|
)
|
|
$
|
(1,472.0
|
)
|
|
$
|
(646.5
|
)
|
|
$
|
(491.0
|
)
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
Prepaid postretirement assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31.9
|
|
|
$
|
43.8
|
|
Other accrued liabilities
|
|
(6.7
|
)
|
|
(6.8
|
)
|
|
(0.2
|
)
|
|
(0.2
|
)
|
Long-term postretirement liabilities
|
|
(1,513.2
|
)
|
|
(1,465.2
|
)
|
|
(678.2
|
)
|
|
(534.6
|
)
|
Total funded status
|
|
$
|
(1,519.9
|
)
|
|
$
|
(1,472.0
|
)
|
|
$
|
(646.5
|
)
|
|
$
|
(491.0
|
)
|
Accumulated other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
2,828.8
|
|
|
$
|
2,816.2
|
|
|
$
|
1,144.7
|
|
|
$
|
1,018.6
|
|
Prior service credit
|
|
$
|
(42.4
|
)
|
|
$
|
(44.9
|
)
|
|
$
|
(27.7
|
)
|
|
$
|
(35.8
|
)
|
Accumulated benefit obligation
|
|
$
|
4,972.0
|
|
|
$
|
5,231.4
|
|
|
$
|
3,072.1
|
|
|
$
|
2,983.1
|
|
Information for defined benefit retirement plans with an accumulated benefit obligation in excess of plan assets at December 31,
2016
and
2015
follows:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
|
2015
|
|
Accumulated benefit obligation
|
|
$
|
7,551.8
|
|
|
$
|
7,231.2
|
|
Fair value of plan assets
|
|
5,357.2
|
|
|
5,228.6
|
|
Information for defined benefit retirement plans with a projected benefit obligation in excess of plan assets at December 31,
2016
and
2015
follows:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
|
2015
|
|
Projected benefit obligation
|
|
$
|
7,555.2
|
|
|
$
|
7,235.4
|
|
Fair value of plan assets
|
|
5,357.2
|
|
|
5,228.6
|
|
Net periodic pension cost for
2016
,
2015
and
2014
includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7.4
|
|
|
$
|
8.7
|
|
|
$
|
8.4
|
|
Interest cost
|
|
231.3
|
|
|
224.1
|
|
|
248.3
|
|
|
87.8
|
|
|
94.1
|
|
|
117.9
|
|
Expected return on plan assets
|
|
(253.1
|
)
|
|
(254.8
|
)
|
|
(287.1
|
)
|
|
(139.5
|
)
|
|
(155.4
|
)
|
|
(160.5
|
)
|
Amortization of prior service credit
|
|
(2.5
|
)
|
|
(2.4
|
)
|
|
(0.4
|
)
|
|
(3.0
|
)
|
|
(1.9
|
)
|
|
(2.1
|
)
|
Recognized net actuarial loss
|
|
116.0
|
|
|
132.7
|
|
|
109.7
|
|
|
40.3
|
|
|
63.6
|
|
|
40.2
|
|
Curtailment gain
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.0
|
)
|
|
—
|
|
|
(0.6
|
)
|
Net periodic pension cost
|
|
$
|
91.7
|
|
|
$
|
99.6
|
|
|
$
|
70.5
|
|
|
$
|
(9.0
|
)
|
|
$
|
9.1
|
|
|
$
|
3.3
|
|
Weighted-average assumptions used to determine net periodic pension cost for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
4.56
|
%
|
|
4.09
|
%
|
|
5.02
|
%
|
|
3.30
|
%
|
|
3.05
|
%
|
|
4.15
|
%
|
Rate of compensation increase
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
1.66
|
%
|
|
1.68
|
%
|
|
2.08
|
%
|
Expected long-term rate of return on assets
|
|
6.80
|
%
|
|
6.80
|
%
|
|
7.72
|
%
|
|
5.99
|
%
|
|
6.45
|
%
|
|
6.45
|
%
|
Weighted-average assumptions used to determine benefit obligations at December 31 were as follows:
|
Discount rate
|
|
4.38
|
%
|
|
4.56
|
%
|
|
4.09
|
%
|
|
2.34
|
%
|
|
3.30
|
%
|
|
3.05
|
%
|
Rate of compensation increase
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
1.66
|
%
|
|
1.68
|
%
|
|
1.68
|
%
|
The expected pretax amortization in
2017
of net periodic pension cost is as follows: net loss,
$174.1 million
; and prior service credit,
$(5.1) million
. The amortization of these items is recorded as an element of pension expense. In
2016
, pension expense included amortization of
$156.3 million
of net losses and
$(5.5) million
of prior service credit.
The company’s investment policy targets and ranges for each asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
Asset Category
|
|
Target
|
|
|
Range
|
|
|
Target
|
|
|
Range
|
Equity securities
|
|
58
|
%
|
|
52-64%
|
|
|
29
|
%
|
|
23-35%
|
Debt securities
|
|
36
|
%
|
|
33-39%
|
|
|
55
|
%
|
|
48-61%
|
Real estate
|
|
6
|
%
|
|
3-9%
|
|
|
1
|
%
|
|
0-3%
|
Cash
|
|
—
|
%
|
|
0-5%
|
|
|
1
|
%
|
|
0-5%
|
Other
|
|
—
|
%
|
|
—
|
%
|
|
14
|
%
|
|
7-21%
|
The company periodically reviews its asset allocation, taking into consideration plan liabilities, local regulatory requirements, plan payment streams and then-current capital market assumptions. The actual asset allocation for each plan is monitored at least quarterly, relative to the established policy targets and ranges. If the actual asset allocation is close to or out of any of the ranges, a review is conducted. Rebalancing will occur toward the target allocation, with due consideration given to the liquidity of the investments and transaction costs.
The objectives of the company’s investment strategies are as follows: (a) to provide a total return that, over the long term, increases the ratio of plan assets to liabilities by maximizing investment return on assets, at a level of risk deemed appropriate, (b) to maximize return on assets by investing primarily in equity securities in the U.S. and for international plans by investing in appropriate asset classes, subject to the constraints of each plan design and local regulations, (c) to diversify investments within asset classes to reduce the impact of losses in single investments, and (d) for the U.S. plan to invest in compliance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended and any subsequent applicable regulations and laws, and for international plans to invest in a prudent manner in compliance with local applicable regulations and laws.
The company sets the expected long-term rate of return based on the expected long-term return of the various asset categories in which it invests. The company considered the current expectations for future returns and the actual historical returns of each asset class. Also, since the company’s investment policy is to actively manage certain asset classes where the potential exists to
outperform the broader market, the expected returns for those asset classes were adjusted to reflect the expected additional returns.
In
2017
, the company expects to make cash contributions of
$127.7 million
to its worldwide defined benefit pension plans, which is comprised of
$73.3 million
primarily for non-U.S. defined benefit pension plans and
$54.4 million
for the company’s U.S. qualified defined benefit pension plan.
As of December 31,
2016
, the following benefit payments, which reflect expected future service where applicable, are expected to be paid from the defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
U.S.
|
|
|
International
|
|
2017
|
|
$
|
364.1
|
|
|
$
|
93.9
|
|
2018
|
|
362.2
|
|
|
95.5
|
|
2019
|
|
360.9
|
|
|
97.5
|
|
2020
|
|
359.7
|
|
|
98.9
|
|
2021
|
|
358.6
|
|
|
100.4
|
|
2022 - 2026
|
|
1,735.0
|
|
|
520.7
|
|
Other postretirement benefits
A reconciliation of the benefit obligation, fair value of the plan assets and the funded status of the postretirement benefit plan at December 31,
2016
and
2015
, follows:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
|
2015
|
|
Change in accumulated benefit obligation
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
131.5
|
|
|
$
|
150.0
|
|
Service cost
|
|
0.4
|
|
|
0.6
|
|
Interest cost
|
|
6.2
|
|
|
6.9
|
|
Plan participants’ contributions
|
|
3.8
|
|
|
4.2
|
|
Amendments
|
|
(3.3
|
)
|
|
—
|
|
Actuarial gain
|
|
(1.4
|
)
|
|
(8.0
|
)
|
Federal drug subsidy
|
|
1.4
|
|
|
1.5
|
|
Benefits paid
|
|
(16.9
|
)
|
|
(21.4
|
)
|
Foreign currency translation and other adjustments
|
|
(1.6
|
)
|
|
(2.3
|
)
|
Benefit obligation at end of year
|
|
$
|
120.1
|
|
|
$
|
131.5
|
|
Change in plan assets
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
7.7
|
|
|
$
|
9.1
|
|
Actual return on plan assets
|
|
(0.3
|
)
|
|
(0.1
|
)
|
Employer contributions
|
|
13.6
|
|
|
15.9
|
|
Plan participants’ contributions
|
|
3.8
|
|
|
4.2
|
|
Benefits paid
|
|
(16.9
|
)
|
|
(21.4
|
)
|
Fair value of plan assets at end of year
|
|
$
|
7.9
|
|
|
$
|
7.7
|
|
Funded status at end of year
|
|
$
|
(112.2
|
)
|
|
$
|
(123.8
|
)
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
Prepaid postretirement assets
|
|
$
|
1.4
|
|
|
$
|
1.3
|
|
Other accrued liabilities
|
|
(12.4
|
)
|
|
(13.7
|
)
|
Long-term postretirement liabilities
|
|
(101.2
|
)
|
|
(111.4
|
)
|
Total funded status
|
|
$
|
(112.2
|
)
|
|
$
|
(123.8
|
)
|
Accumulated other comprehensive loss, net of tax
|
|
|
|
|
Net loss
|
|
$
|
19.0
|
|
|
$
|
21.3
|
|
Prior service (credit) cost
|
|
(3.2
|
)
|
|
0.1
|
|
Net periodic postretirement benefit cost for
2016
,
2015
and
2014
, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Service cost
|
|
$
|
0.4
|
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
Interest cost
|
|
6.2
|
|
|
6.9
|
|
|
7.6
|
|
Expected return on assets
|
|
(0.4
|
)
|
|
(0.4
|
)
|
|
(0.5
|
)
|
Amortization of prior service cost
|
|
—
|
|
|
1.1
|
|
|
1.7
|
|
Recognized net actuarial loss
|
|
0.5
|
|
|
1.8
|
|
|
1.7
|
|
Net periodic benefit cost
|
|
$
|
6.7
|
|
|
$
|
10.0
|
|
|
$
|
11.1
|
|
Weighted-average assumptions used to determine net periodic postretirement benefit cost for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
5.61
|
%
|
|
5.27
|
%
|
|
5.86
|
%
|
Expected return on plan assets
|
|
5.50
|
%
|
|
5.50
|
%
|
|
6.75
|
%
|
Weighted-average assumptions used to determine benefit obligation at December 31 were as follows:
|
Discount rate
|
|
5.53
|
%
|
|
5.61
|
%
|
|
5.27
|
%
|
The expected pretax amortization in
2017
of net periodic postretirement benefit cost is as follows: net loss,
$1.2 million
; and prior service credit,
$(0.4) million
.
The company reviews its asset allocation periodically, taking into consideration plan liabilities, plan payment streams and then-current capital market assumptions. The company sets the long-term expected return on asset assumption, based principally on the long-term expected return on debt securities. These return assumptions are based on a combination of current market conditions, capital market expectations of third-party investment advisors and actual historical returns of the asset classes.In
2017
, the company expects to contribute approximately
$13 million
to its postretirement benefit plan.
|
|
|
|
|
|
|
|
Assumed health care cost trend rates at December 31,
|
|
2016
|
|
|
2015
|
|
Health care cost trend rate assumed for next year
|
|
5.8
|
%
|
|
6.1
|
%
|
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
|
|
4.8
|
%
|
|
4.8
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
2023
|
|
|
2023
|
|
A one-percentage-point change in assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
1-Percentage- Point Increase
|
|
|
1-Percentage- Point Decrease
|
|
Effect on service and interest cost
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
Effect on postretirement benefit obligation
|
|
2.6
|
|
|
(2.4
|
)
|
As of December 31,
2016
, the following benefits are expected to be paid to or from the company’s postretirement plan:
|
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
Gross
Medicare
Part D
Receipts
|
|
|
Gross
Expected
Payments
|
|
2017
|
|
$
|
0.3
|
|
|
$
|
13.8
|
|
2018
|
|
0.1
|
|
|
13.4
|
|
2019
|
|
—
|
|
|
12.7
|
|
2020
|
|
—
|
|
|
12.0
|
|
2021
|
|
—
|
|
|
11.2
|
|
2022 – 2026
|
|
—
|
|
|
41.6
|
|
The following provides a description of the valuation methodologies and the levels of inputs used to measure fair value, and the general classification of investments in the company’s U.S. and international defined benefit pension plans, and the company’s other postretirement benefit plan.
Level 1 – These investments include cash, common stocks, real estate investment trusts, exchange traded funds, exchange traded futures, and U.S. government securities. These investments are valued using quoted prices in an active market. Payables and receivables are also included as Level 1 investments and are valued at face value.
Level 2 – These investments include the following:
Pooled Funds – These investments are comprised of money market funds and fixed income securities. The money market funds are valued using the readily determinable fair value (RDFV) provided by trustees of the funds. The fixed income securities are valued based on quoted prices for identical or similar investments in markets that may not be active.
Commingled Funds – These investments are comprised of debt, equity and other securities and are valued using the RDFV provided by trustees of the funds. The fair value per share for these funds are published and are the basis for current transactions.
Other Fixed Income – These investments are comprised of corporate and government fixed income investments and asset and mortgage backed securities for which there are quoted prices for identical or similar investments in markets that may not be active.
Derivatives – These investments include forward exchange contracts and options, which are traded on an active market, but not on an exchange; therefore, the inputs may not be readily observable. These investments also include fixed income futures and other derivative instruments.
Level 3 – These investments include the following:
Insurance Contracts – These investments are insurance contracts which are carried at book value, are not publicly traded and are reported at a fair value determined by the insurance provider.
Certain investments are valued using net asset value (NAV) as a practical expedient. These investments may not be redeemable on a daily basis and may have redemption notice periods of up to 90 days. These investments include the following:
Commingled Funds – These investments are comprised of debt, equity and other securities.
Private Real Estate and Private Equity - These investments represent interests in limited partnerships which invest in privately held companies or privately held real estate or other real assets. Net asset values are developed and reported by the general partners that manage the partnerships. These valuations are based on property appraisals, utilization of market transactions that provide valuation information for comparable companies, discounted cash flows, and other methods. These valuations are reported quarterly and adjusted as necessary at year end based on cash flows within the most recent period.
In accordance with the new guidance issued by the FASB discussed in Note 5, pension investments that are measured using NAV as a practical expedient have been removed from the fair value hierarchy. As the new guidance was adopted retrospectively, prior-period investments have been restated accordingly, resulting in the removal of
$150.5 million
and
$1,631.3 million
of investments, respectively, from the fair value hierarchy for U.S. and International plans, respectively, on December 31, 2015.
The following table sets forth by level, within the fair value hierarchy, the plans’ assets (liabilities) at fair value at December 31,
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
As of December 31, 2016
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks
|
|
$
|
1,443.1
|
|
|
$
|
1,438.3
|
|
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commingled Funds
|
|
517.9
|
|
|
|
|
517.9
|
|
|
|
|
76.0
|
|
|
|
|
76.0
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Govt. Securities
|
|
158.5
|
|
|
158.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Fixed Income
|
|
812.4
|
|
|
|
|
812.4
|
|
|
|
|
241.4
|
|
|
0.5
|
|
|
240.9
|
|
|
|
Insurance Contracts
|
|
|
|
|
|
|
|
|
|
116.2
|
|
|
|
|
|
|
116.2
|
|
Commingled Funds
|
|
|
|
|
|
|
|
|
|
242.8
|
|
|
|
|
242.8
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Investment Trusts
|
|
156.2
|
|
|
156.2
|
|
|
|
|
|
|
1.6
|
|
|
1.2
|
|
|
0.4
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
3.1
|
|
|
(1.1
|
)
|
|
4.2
|
|
|
|
|
4.9
|
|
|
|
|
4.9
|
|
|
|
Commingled Funds
|
|
|
|
|
|
|
|
|
|
294.5
|
|
|
|
|
294.5
|
|
|
|
Pooled Funds
|
|
272.0
|
|
|
|
|
272.0
|
|
|
|
|
6.7
|
|
|
|
|
6.7
|
|
|
|
Cash
|
|
12.2
|
|
|
12.2
|
|
|
|
|
|
|
11.4
|
|
|
11.4
|
|
|
|
|
|
Receivables
|
|
107.2
|
|
|
107.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables
|
|
(195.3
|
)
|
|
(195.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets in fair value hierarchy
|
|
$
|
3,287.3
|
|
|
$
|
1,676.0
|
|
|
$
|
1,611.3
|
|
|
$
|
—
|
|
|
$
|
995.5
|
|
|
$
|
13.1
|
|
|
$
|
866.2
|
|
|
$
|
116.2
|
|
Plan assets measured using NAV as a practical expedient
(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
—
|
|
|
|
|
|
|
|
|
$
|
726.7
|
|
|
|
|
|
|
|
Debt
|
|
18.6
|
|
|
|
|
|
|
|
|
640.0
|
|
|
|
|
|
|
|
Other
|
|
104.6
|
|
|
|
|
|
|
|
|
25.8
|
|
|
|
|
|
|
|
Private Real Estate
|
|
40.5
|
|
|
|
|
|
|
|
|
41.7
|
|
|
|
|
|
|
|
Private Equity
|
|
1.1
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Total pension plan assets
|
|
$
|
3,452.1
|
|
|
|
|
|
|
|
|
$
|
2,429.7
|
|
|
|
|
|
|
|
Other postretirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Contracts
|
|
$
|
7.9
|
|
|
|
|
|
|
$
|
7.9
|
|
|
|
|
|
|
|
|
|
(1) Investments measured at fair value using NAV as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table for these investments are included to permit reconciliation of the fair value hierarchy to the total plan assets.
The following table sets forth by level, within the fair value hierarchy, the plans’ assets (liabilities) at fair value at December 31,
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
As of December 31, 2015
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks
|
|
$
|
1,686.4
|
|
|
$
|
1,680.6
|
|
|
$
|
5.8
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commingled Funds
|
|
411.9
|
|
|
|
|
411.9
|
|
|
|
|
75.3
|
|
|
|
|
75.3
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Govt. Securities
|
|
162.2
|
|
|
162.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Fixed Income
|
|
974.7
|
|
|
|
|
974.7
|
|
|
|
|
248.5
|
|
|
|
|
248.5
|
|
|
|
Insurance Contracts
|
|
|
|
|
|
|
|
|
|
|
|
120.6
|
|
|
|
|
|
|
120.6
|
|
Commingled Funds
|
|
|
|
|
|
|
|
|
|
272.8
|
|
|
|
|
272.8
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Investment Trusts
|
|
170.7
|
|
|
170.7
|
|
|
|
|
|
|
0.7
|
|
|
0.7
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
0.8
|
|
|
0.3
|
|
|
0.5
|
|
|
|
|
7.0
|
|
|
|
|
7.0
|
|
|
|
Commingled Funds
|
|
|
|
|
|
|
|
|
|
112.6
|
|
|
|
|
112.6
|
|
|
|
Pooled Funds
|
|
263.1
|
|
|
|
|
263.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
1.9
|
|
|
1.9
|
|
|
|
|
|
|
27.4
|
|
|
27.4
|
|
|
|
|
|
Receivables
|
|
77.1
|
|
|
77.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables
|
|
(139.9
|
)
|
|
(139.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets in fair value hierarchy
|
|
$
|
3,608.9
|
|
|
$
|
1,952.9
|
|
|
$
|
1,656.0
|
|
|
$
|
—
|
|
|
$
|
865.5
|
|
|
$
|
28.7
|
|
|
$
|
716.2
|
|
|
$
|
120.6
|
|
Plan assets measured using NAV as a practical expedient
(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
—
|
|
|
|
|
|
|
|
|
$
|
880.8
|
|
|
|
|
|
|
|
Debt
|
|
—
|
|
|
|
|
|
|
|
|
632.6
|
|
|
|
|
|
|
|
Other
|
|
105.3
|
|
|
|
|
|
|
|
|
76.1
|
|
|
|
|
|
|
|
Private Real Estate
|
|
37.6
|
|
|
|
|
|
|
|
|
41.8
|
|
|
|
|
|
|
|
Private Equity
|
|
7.6
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Total pension plan assets
|
|
$
|
3,759.4
|
|
|
|
|
|
|
|
|
$
|
2,496.8
|
|
|
|
|
|
|
|
Other postretirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Contracts
|
|
$
|
7.7
|
|
|
|
|
|
|
$
|
7.7
|
|
|
|
|
|
|
|
|
|
(1) Investments measured at fair value using NAV as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table for these investments are included to permit reconciliation of the fair value hierarchy to the total plan assets.
The following table sets forth a summary of changes in the fair value of the plans’ Level 3 assets for the year ended December 31,
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2016
|
|
Realized
gains
(losses)
|
|
Purchases
or
acquisitions
|
|
Sales
or
dispositions
|
|
Currency and unrealized gains (losses) relating to instruments still held at December 31, 2016
|
|
December 31,
2016
|
U.S. plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Other postretirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Contracts
|
|
$
|
7.7
|
|
|
$
|
(0.3
|
)
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7.9
|
|
International pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Contracts
|
|
$
|
120.6
|
|
|
$
|
—
|
|
|
$
|
4.7
|
|
|
$
|
(11.0
|
)
|
|
$
|
1.9
|
|
|
$
|
116.2
|
|
The following table sets forth a summary of changes in the fair value of the plans’ Level 3 assets for the year ended December 31,
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2015
|
|
Realized
gains
(losses)
|
|
Purchases
or
acquisitions
|
|
Sales
or
dispositions
|
|
Currency and unrealized gains (losses) relating to instruments still held at December 31, 2015
|
|
December 31,
2015
|
U.S. plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Contracts
|
|
$
|
17.4
|
|
|
$
|
(0.4
|
)
|
|
$
|
—
|
|
|
$
|
(16.6
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
—
|
|
Other postretirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Contracts
|
|
$
|
7.3
|
|
|
$
|
(0.1
|
)
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7.7
|
|
International pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Contracts
|
|
$
|
135.5
|
|
|
$
|
—
|
|
|
$
|
9.4
|
|
|
$
|
(10.9
|
)
|
|
$
|
(13.4
|
)
|
|
$
|
120.6
|
|
The following table presents additional information about plan assets valued using the net asset value as a practical expedient within the fair value hierarchy table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Fair Value
|
|
Unfunded Commitments
|
|
Fair Value
|
|
Unfunded Commitments
|
|
Redemption Frequency
|
|
Redemption Notice Period Range
|
U.S. plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
18.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Daily
|
|
5 days
|
Other
|
|
104.6
|
|
|
—
|
|
|
105.3
|
|
|
—
|
|
|
Monthly
|
|
5 days
|
Private Real Estate
(1)
|
|
40.5
|
|
|
—
|
|
|
37.6
|
|
|
—
|
|
|
Quarterly
|
|
60 days
|
Private Equity
(2)
|
|
1.1
|
|
|
—
|
|
|
7.6
|
|
|
—
|
|
|
|
|
|
Total
|
|
$
|
164.8
|
|
|
$
|
—
|
|
|
$
|
150.5
|
|
|
$
|
—
|
|
|
|
|
|
International pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
726.7
|
|
|
$
|
—
|
|
|
$
|
880.8
|
|
|
$
|
—
|
|
|
Weekly, Monthly
|
|
Up to 90 days
|
Debt
|
|
640.0
|
|
|
—
|
|
|
632.6
|
|
|
—
|
|
|
Weekly, Biweekly, Bimonthly, Monthly
|
|
Up to 90 days
|
Other
|
|
25.8
|
|
|
—
|
|
|
76.1
|
|
|
—
|
|
|
Monthly, Quarterly
|
|
Up to 90 days
|
Private Real Estate
|
|
41.7
|
|
|
—
|
|
|
41.8
|
|
|
—
|
|
|
Monthly, Quarterly
|
|
Up to 90 days
|
Total
|
|
$
|
1,434.2
|
|
|
$
|
—
|
|
|
$
|
1,631.3
|
|
|
$
|
—
|
|
|
|
|
|
(1) Includes investments in a private real estate fund and limited partnerships. The fund invests in U.S. real estate and allows redemptions quarterly, though queues, restrictions, and gates may extend the period. The limited partnerships include investments in primarily U.S. real estate, and can never be redeemed. The partnerships are all currently being wound up, and are expected to make all distributions over the next
three years
.
(2) Includes investments in limited partnerships, which invest primarily in U.S. buyouts and venture capital. The investments can never be redeemed. The partnerships are all currently being wound up, and are expected to make all distributions over the next
three years
.
Note 17 — Stockholders’ equity
The company has
100 million
authorized shares of common stock, par value
$.01
per share, and
40 million
shares of authorized preferred stock, par value
$1
per share, issuable in series.
At December 31,
2016
,
35.7 million
shares of unissued common stock of the company were reserved for stock-based incentive plans and the company's convertible senior notes.
Accumulated other comprehensive income (loss) as of December 31,
2016
,
2015
and
2014
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Translation
Adjustments
|
|
|
Postretirement
Plans
|
|
Balance at December 31, 2013
|
|
$
|
(3,333.4
|
)
|
|
$
|
(676.8
|
)
|
|
$
|
(2,656.6
|
)
|
Other comprehensive income before reclassifications
|
|
(638.8
|
)
|
|
(61.0
|
)
|
|
(577.8
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
(141.2
|
)
|
|
—
|
|
|
(141.2
|
)
|
Current period other comprehensive income
|
|
(780.0
|
)
|
|
(61.0
|
)
|
|
(719.0
|
)
|
Balance at December 31, 2014
|
|
(4,113.4
|
)
|
|
(737.8
|
)
|
|
(3,375.6
|
)
|
Other comprehensive income before reclassifications
|
|
346.2
|
|
|
(96.0
|
)
|
|
442.2
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
(178.1
|
)
|
|
—
|
|
|
(178.1
|
)
|
Current period other comprehensive income
|
|
168.1
|
|
|
(96.0
|
)
|
|
264.1
|
|
Balance at December 31, 2015
|
|
(3,945.3
|
)
|
|
(833.8
|
)
|
|
(3,111.5
|
)
|
Other comprehensive income before reclassifications
|
|
(64.9
|
)
|
|
(93.3
|
)
|
|
28.4
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
(142.6
|
)
|
|
—
|
|
|
(142.6
|
)
|
Current period other comprehensive income
|
|
(207.5
|
)
|
|
(93.3
|
)
|
|
(114.2
|
)
|
Balance at December 31, 2016
|
|
$
|
(4,152.8
|
)
|
|
$
|
(927.1
|
)
|
|
$
|
(3,225.7
|
)
|
Amounts related to postretirement plans not reclassified in their entirety out of accumulated other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
Amortization of prior service cost*
|
|
$
|
5.6
|
|
|
$
|
3.1
|
|
Amortization of actuarial losses*
|
|
(155.2
|
)
|
|
(189.7
|
)
|
Curtailment gain*
|
|
2.0
|
|
|
—
|
|
Total before tax
|
|
(147.6
|
)
|
|
(186.6
|
)
|
Income tax benefit
|
|
5.0
|
|
|
8.5
|
|
Net of tax
|
|
$
|
(142.6
|
)
|
|
$
|
(178.1
|
)
|
* These items are included in net periodic postretirement cost (see note 16).
The following table summarizes the changes in shares of preferred stock, common stock and treasury stock during the three years ended December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Treasury
Stock
|
|
Balance at December 31, 2013
|
|
2.6
|
|
|
45.1
|
|
|
1.1
|
|
Common stock repurchases
|
|
—
|
|
|
—
|
|
|
1.6
|
|
Stock-based compensation
|
|
—
|
|
|
0.4
|
|
|
—
|
|
Preferred stock conversion
|
|
(2.6
|
)
|
|
6.9
|
|
|
—
|
|
Balance at December 31, 2014
|
|
—
|
|
|
52.4
|
|
|
2.7
|
|
Stock-based compensation
|
|
—
|
|
|
0.2
|
|
|
—
|
|
Balance at December 31, 2015
|
|
—
|
|
|
52.6
|
|
|
2.7
|
|
Stock-based compensation
|
|
—
|
|
|
0.2
|
|
|
—
|
|
Balance at December 31, 2016
|
|
—
|
|
|
52.8
|
|
|
2.7
|
|
Note 18 — Quarterly financial information (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Year
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
666.8
|
|
|
$
|
748.9
|
|
|
$
|
683.3
|
|
|
$
|
721.7
|
|
|
$
|
2,820.7
|
|
Gross profit
|
|
98.5
|
|
|
178.3
|
|
|
121.6
|
|
|
160.2
|
|
|
558.6
|
|
Income (loss) before income taxes
|
|
(33.2
|
)
|
|
44.3
|
|
|
(15.2
|
)
|
|
24.6
|
|
|
20.5
|
|
Net income (loss) attributable to Unisys Corporation common shareholders
|
|
(39.9
|
)
|
|
21.6
|
|
|
(28.2
|
)
|
|
(1.2
|
)
|
|
(47.7
|
)
|
Earnings (loss) per common share attributable to Unisys Corporation
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.80
|
)
|
|
0.43
|
|
|
(0.56
|
)
|
|
(0.02
|
)
|
|
(0.95
|
)
|
Diluted
|
|
(0.80
|
)
|
|
0.36
|
|
|
(0.56
|
)
|
|
(0.02
|
)
|
|
(0.95
|
)
|
2015
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
721.2
|
|
|
$
|
764.8
|
|
|
$
|
739.2
|
|
|
$
|
789.9
|
|
|
$
|
3,015.1
|
|
Gross profit
|
|
117.0
|
|
|
124.3
|
|
|
140.6
|
|
|
159.0
|
|
|
540.9
|
|
Income (loss) before income taxes
|
|
(27.7
|
)
|
|
(50.8
|
)
|
|
7.3
|
|
|
12.4
|
|
|
(58.8
|
)
|
Net income (loss) attributable to Unisys Corporation common shareholders
|
|
(43.2
|
)
|
|
(58.2
|
)
|
|
(9.6
|
)
|
|
1.1
|
|
|
(109.9
|
)
|
Earnings (loss) per common share attributable to Unisys Corporation
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.87
|
)
|
|
(1.17
|
)
|
|
(0.19
|
)
|
|
0.02
|
|
|
(2.20
|
)
|
Diluted
|
|
|
|
(0.87
|
)
|
|
(1.17
|
)
|
|
(0.19
|
)
|
|
0.02
|
|
|
(2.20
|
)
|
In the fourth quarter of 2016, the company recorded pretax losses on debt extinguishment of
$4.0 million
. See Note 9, "Debt," of the Notes to Consolidated Financial Statements.
In the first, second, third and fourth quarters of 2016, the company recorded pretax cost-reduction and other charges of
$26.9 million
,
$10.2 million
,
$31.9 million
and
$13.1 million
respectively. See Note 3, "Cost reduction actions," of the Notes to Consolidated Financial Statements.
In the second, third and fourth quarters of 2015, the company recorded pretax cost-reduction and other charges of
$52.6 million
,
$17.4 million
and
$48.5 million
, respectively. See Note 3, "Cost reduction actions," of the Notes to Consolidated Financial Statements.
The individual quarterly per-share amounts may not total to the per-share amount for the full year because of accounting rules governing the computation of earnings per share.