Accounting Standards

Accounting Pronouncements Adopted

Effective January 1, 2018, the company adopted ASU No. 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost issued by the Financial Accounting Standards Board (FASB) which requires employers to present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are presented separately from the line items that include service cost and outside the subtotal of operating income. ASU No. 2017-07 allows a practical expedient that permits an entity to use amounts disclosed in its pension and other postretirement benefit plan footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The new guidance has been applied on a retrospective basis, using the practical expedient, whereby prior-period financial statements have been adjusted to reflect the adoption of the new guidance, as required by the FASB. For the three and six months June 30, 2017, $21.3 million and $45.8 million, respectively, of net periodic benefit cost, other than service costs, was reclassified from cost of revenue, selling, general and administrative expense and research and development expense to other income (expense), net in the company’s consolidated results of operations (see Note 5).

Effective January 1, 2018, the company adopted ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606) issued by the FASB which establishes principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Topic 606 allows for either “full retrospective” adoption, meaning the standard is applied to all periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. Topic 606 requires the company to recognize revenue for certain transactions, including extended payment term software licenses and short-term software licenses, sooner than the prior rules would allow and requires the company to recognize software license extensions and renewals (the most significant impact upon adoption), later than the prior rules would allow. Topic 606 also requires significantly expanded disclosure requirements. The company has adopted the standard using the modified retrospective method and applied the standard to all contracts that were not completed as of January 1, 2018. The cumulative effect of the adoption was recognized as an increase in the company’s accumulated deficit of $21.4 million on January 1, 2018.

The following table summarizes the effects of adopting ASU No. 2014-09 on the company’s consolidated financial statements as of and for the three and six months ended June 30, 2018.



	As Reported		Adjustments			Balances Without Adoption of Topic 606
For the three months ended June 30, 2018
Statement of Income
Revenue
Services	$	586.7	$	(5.3	)	$	581.4
Technology	80.7		(16.2		)	64.5
Costs and expenses
Cost of revenue
Services	484.2		(3.1		)	481.1
Technology	30.3		0.2			30.5
Selling, general and administrative expenses	92.7		0.2			92.9
Operating income	54.0		(18.9		)	35.1
Income before income taxes	20.3		(18.9		)	1.4
Provision for income taxes	14.3		0.1			14.4
Consolidated net income	6.0		(19.0		)	(13.0		)
Net income attributable to Unisys Corporation	3.8		(19.0		)	(15.2		)

For the six months ended June 30, 2018
Statement of Income
Revenue
Services	$	1,155.2	$	(2.5	)	$	1,152.7
Technology	220.6		(93.0		)	127.6
Costs and expenses
Cost of revenue
Services	955.1		(1.3		)	953.8
Technology	66.6		(0.7		)	65.9
Selling, general and administrative expenses	183.6		0.4			184.0
Operating income	155.8		(94.0		)	61.8
Income before income taxes	82.9		(94.0		)	(11.1		)
Provision for income taxes	35.2		(9.4		)	25.8
Consolidated net income	47.7		(84.6		)	(36.9		)
Net income attributable to Unisys Corporation	44.4		(84.6		)	(40.2		)

As of June 30, 2018
Balance Sheet
Assets
Accounts receivable, net current	$	484.0	$	26.6		$	510.6
Contract assets	38.3		(38.3		)	—
Inventories	22.7		0.1			22.8
Prepaid expenses and other current assets	117.6		1.2			118.8
Outsourcing assets, net	208.8		3.4			212.2
Deferred income taxes - long-term	106.5		1.7			108.2
Other long-term assets	194.3		(22.7		)	171.6



Total assets	2,370.9		(28.1	)	2,342.8
Liabilities
Deferred revenue - current	284.6		32.0		316.6
Other accrued liabilities - current	319.1		(11.6	)	307.5
Long-term deferred revenue	177.3		9.4		186.7
Other long-term liabilities	79.0		5.4		84.4
Equity
Accumulated deficit	(1,940.1	)	(63.3	)	(2,003.4	)
Total liabilities and deficit	2,370.9		(28.1	)	2,342.8

Included in the technology revenue adjustments for the six months ended June 30, 2018 in the above table is $53.0 million of revenue from software license extensions and renewals which were contracted for in the fourth quarter of 2017 and properly recorded as revenue at that time under the revenue recognition rules then in effect (Topic 605). Upon adoption of the new revenue recognition rules (Topic 606) on January 1, 2018, and since the company adopted Topic 606 under the modified retrospective method whereby prior periods were not restated, the company was required to include this $53.0 million in the cumulative effect adjustment to retained earnings on January 1, 2018. Topic 606 requires revenue related to software license renewals or extensions to be recorded when the new license term begins, which in the case of the $53.0 million is January 1, 2018. The company has excluded revenue and related profit for these software licenses to reflect the balances without the adoption of Topic 606 in the above table. This is a one-time adjustment and it will not reoccur in future periods. There are additional adjustments being made in the above table, but they do not represent previously recorded revenue. Those additional adjustments represent other differences between Topic 605 and Topic 606, principally extended payment term software licenses and short-term software licenses both of which are recorded at the inception of the license term under Topic 606, but were required to be recognized ratably over the software license term under Topic 605. An additional adjustment is that under Topic 605, a company was not able to recognize software license revenue until the last software license is delivered due to the lack of vendor specific objective evidence, whereas under Topic 606, a company is required to use the standalone selling price for all performance obligations. This resulted in software license revenue being recognized sooner under Topic 606 compared with Topic 605.

Accounting Pronouncements Not Yet Adopted

In February 2018, the FASB issued ASU No. 2018-02 Income Statement - Reporting Comprehensive Income (Topic 220), which permits companies to reclassify stranded tax effects in accumulated other comprehensive income (AOCI) caused by the U.S. Tax Cuts and Jobs Act of 2017 (TCJA) to retained earnings. In addition, a company is required to disclose a description of its accounting policy for releasing income tax effects from AOCI. This update is effective for annual reporting periods beginning after December 15, 2018, with earlier adoption permitted. The new standard can be applied retrospectively, meaning it is applied to all periods in which the income tax effects of the TCJA related to items remaining in AOCI are recognized, or at the beginning of the period of adoption. The company is currently assessing when it will choose to adopt, and is currently evaluating the impact of the adoption on its consolidated financial position.

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected losses. This includes trade and other receivables, loans and other financial instruments. This update is effective for annual periods beginning after December 15, 2019, with earlier adoption permitted. The company is currently assessing when it will choose to adopt, and is currently evaluating the impact of the adoption on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842), which is intended to improve financial reporting about leasing transactions. The ASU requires organizations that lease assets, referred to as 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, with earlier adoption permitted. The company will adopt the new guidance on January 1, 2019, and is currently evaluating the impact of the adoption on its consolidated results of operations and financial position.