UNISYS CORP (UIS)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(For a discussion of 2023 compared with 2022, refer to Part II, Item 7 contained in the company’s Form 10-K for the fiscal year ended December 31, 2023.)

Overview

In 2024, the company recorded a net loss attributable to Unisys Corporation of $193.4 million, or $2.79 per diluted share, compared with a loss of $430.7 million, or $6.31 per diluted share, in 2023. The net loss in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of defined benefit pension plan settlement losses.

The net loss in 2024 included a goodwill impairment charge of $39.1 million within the Digital Workplace Solutions (DWS) reportable segment and a tax provision established for certain foreign subsidiaries of $27.3 million as the company is no longer asserting indefinite reinvestment of the earnings of those foreign subsidiaries.

During 2024, the company purchased a group annuity contract, with plan assets, for approximately $192 million to transfer projected benefit obligations related to one of the company’s U.S. defined benefit pension plans. This action resulted in a pre-tax settlement loss of $130.1 million in 2024.

During 2023, the company purchased two group annuity contracts, with pension plan assets, for approximately $516 million to transfer projected benefit obligations related to the company’s U.S. defined benefit pension plans. These actions resulted in pre-tax settlement losses of $348.2 million in 2023.

Results of operations

Company results

Revenue for 2024 was $2.01 billion compared with $2.02 billion for 2023, a decrease of 0.3%. Foreign currency fluctuations had a negligible impact on revenue in 2024 compared with 2023.

Revenue from international operations for 2024 was $1.14 billion compared with $1.13 billion for 2023, an increase of 1.6%. Foreign currency had a negligible impact on international revenue in 2024 compared with 2023. Revenue from U.S. operations was $864.1 million for 2024 compared with $889.0 million for 2023, a decrease of 2.8%.

During 2024, the company recognized cost-reduction charges and other costs of $20.6 million. The net charges related to workforce reductions were $13.5 million, principally related to severance costs, and were comprised of: (a) a charge of $23.7 million and (b) a credit of $10.2 million for changes in estimates. In addition, the company recorded net charges of $7.1 million comprised of a charge of $4.4 million for an asset impairment, a charge of $2.6 million for net foreign currency losses related to exiting foreign countries and a net charge of $0.1 million for other expenses and changes in estimates related to other cost-reduction efforts.

During 2023, the company recognized cost-reduction charges and other costs of $9.3 million. The net charges related to workforce reductions were $8.3 million, principally related to severance costs, and were comprised of: (a) a charge of $15.2 million and (b) a credit of $6.9 million for changes in estimates. In addition, the company recorded net charges of $1.0 million comprised of charges of $4.7 million primarily related to professional fees and other expenses related to cost-reduction efforts and a credit of $3.7 million for net foreign currency gains related to exiting foreign countries.

The cost reduction charges (credits) were recorded in the following statement of income (loss) classifications:

Gross profit and gross profit margin were $585.9 million and 29.2% in 2024, respectively, and $551.3 million and 27.4% in 2023, respectively. The increases in gross profit and gross profit margin in 2024 were primarily due to delivery modernization

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and labor cost savings initiatives, partially offset by higher cost reduction charges in 2024. Prior year gross profit margin was negatively impacted by certain adjustments related to a previously exited contract.

Selling, general and administrative expenses were $424.2 million in 2024 (21.1% of revenue) and $450.3 million in 2023 (22.3% of revenue). The decrease was primarily driven by lower professional services.

Research and development (R&D) expenses in 2024 were $25.2 million compared with $24.1 million in 2023.

In 2024, the company reported an operating profit of $97.4 million compared with an operating profit of $76.9 million in 2023. The increase in 2024 was primarily driven by higher gross profit and lower selling, general and administrative expenses as discussed above, partially offset by a goodwill impairment charge of $39.1 million related to the DWS reportable segment. See Note 1, “Summary of significant accounting policies” of the Notes to Consolidated Financial Statements for details on the goodwill impairment.

Interest expense was $31.9 million in 2024 compared with $30.8 million in 2023.

Other (expense), net was expense of $140.8 million in 2024 compared with expense of $393.9 million in 2023. Other (expense), net in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of pension settlement losses. Additionally, other (expense), net in 2024 included a gain of $40.0 million related to a favorable settlement of a litigation matter and a net gain of $14.9 million related to a favorable judgment received in a Brazilian services tax matter. See Note 6, “Other (expense), net,” of the Notes to Consolidated Financial Statements for details of other (expense), net.

Pension expense in 2024 was $182.8 million compared with $391.3 million in 2023. Pension expense in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of settlement losses primarily related to the company’s U.S. defined benefits plans. See Note 17, “Employee plans,” of the Notes to Consolidated Financial Statements for details of the settlement losses.

The loss before income taxes in 2024 was $75.3 million compared with a loss of $347.8 million in 2023. The net loss in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of settlement losses related to the company’s defined benefit pension plans. Additionally, the loss before income taxes in 2024 included a goodwill impairment charge of $39.1 million related to the DWS reportable segment.

The provision for income taxes in 2024 was $117.9 million compared with a provision of $79.3 million in 2023. The change in the tax provision was primarily driven by a provision of $27.3 million established for certain foreign subsidiaries for which the company is no longer asserting indefinite reinvestment of earnings, the geographic distribution of income and the net change in the valuation allowances of approximately $7.9 million, primarily in the United Kingdom. The effective tax rate in 2024 and 2023 was (156.6)% and (22.8)%, respectively, primarily driven by U.S. operating losses with no tax benefit as the deferred tax assets are subject to a full valuation allowance and non-creditable withholding taxes in the U.S. and jurisdictions with no valuation allowance that are subject to tax. Additionally, the effective tax rate in 2024 was impacted by a change in the company’s indefinite reinvestment assertion of the earnings in certain foreign subsidiaries. See Note 7, “Income taxes,” of the Notes to Consolidated Financial Statements for further details.

The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary. The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to the company’s valuation allowance, except with respect to refundable tax credits and withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly period to period depending on the geographic distribution of income.

The realization of the company’s net deferred tax assets as of December 31, 2024 is primarily dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments. During 2024 and 2023, the company determined that a portion of its non-U.S. net deferred tax assets required an additional valuation allowance. The net change in the valuation allowance impacting the effective tax rate in 2024 was approximately $7.9 million, primarily in the United Kingdom, and in 2023, the net change was approximately $2.1 million, primarily in Latin America.

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It is at least reasonably possible that the company’s judgment about the need for, and level of, existing valuation allowances could change in the near term based on changes in objective evidence such as further sustained income or loss in certain jurisdictions, as well as the other factors discussed above, primarily in certain jurisdictions outside of the United States. As such, the company will continue to monitor income levels and mix among jurisdictions, potential changes to the company’s operating and tax model, and other legislative or global developments in its determination. It is reasonably possible that such changes could result in a material impact to the company’s valuation allowance within the next 12 months. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in such period and could have a significant impact on that period’s earnings.

In 2021, the Organization for Economic Cooperation and Development introduced a framework to implement a global minimum corporate tax of 15%, referred to as Pillar Two, effective January 1, 2024, and onward. While it is uncertain whether the U.S. will enact legislation to adopt Pillar Two, certain countries in which the company operates have adopted such legislation, and other countries are in the process of introducing legislation to implement this minimum tax directive. Pillar Two did not have a material effect on the company’s global effective tax rate and its consolidated financial statements.

The net loss attributable to Unisys Corporation for 2024 was $193.4 million, or $2.79 per diluted share, compared with a net loss of $430.7 million, or $6.31 per diluted share in 2023. The net loss in 2024 and 2023 included $130.6 million and $348.9 million, respectively, of settlement losses, net of tax, related to the company’s defined benefit pension plans. Additionally, the net loss in 2024 included a goodwill impairment charge of $39.1 million related to the DWS reportable segment and a tax provision of $27.3 million established for certain foreign subsidiaries for which the company is no longer asserting indefinite reinvestment of earnings.

Segment results

The company’s reportable segments are as follows:

•Digital Workplace Solutions (DWS), which provides workplace solutions featuring intelligent workplace services, proactive experience management and collaboration tools to support business growth;

•Cloud, Applications & Infrastructure Solutions (CA&I), which provides digital transformation in the areas of cloud migration and management, applications and infrastructure transformation and modernization solutions; and

•Enterprise Computing Solutions (ECS), which provides solutions that harness secure, high-intensity enterprise computing and enable digital services through software-defined operating environments.

The company evaluates the performance of the segments based on segment revenue and segment gross profit. Segment revenue and segment gross profit are exclusive of certain activities and expenses that are not allocated to specific segments related to certain non-core business activities including the company’s business process solutions, which primarily provides for the management of processes and functions for clients in select industries, and a U.K. business process outsourcing consolidated joint venture. Additionally, certain expenses such as restructuring charges, amortization of purchased intangibles and unusual and nonrecurring items are not allocated to specific segments. These amounts are combined within other revenue and other gross profit (loss) to arrive at consolidated revenue and consolidated gross profit (loss). See Note 20, “Segment information,” of the Notes to Consolidated Financial Statements for the reconciliations of segment revenue to total consolidated revenue and segment gross profit to total consolidated loss before income taxes.

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Information by reportable segment is presented below:

DWS revenue was $523.5 million in 2024 and $546.1 million in 2023, a decrease of 4.1%. The decline in revenue in 2024 was primarily driven by lower volume with existing clients, partially offset by revenue from expansion and new scope for existing clients and new logo contracts, as compared to the prior-year period. Foreign currency fluctuations had a negligible impact on DWS revenue in 2024 compared with 2023. Gross profit percent was 15.7% in 2024 and 14.0% in 2023. The increase in gross profit percent in 2024 compared with 2023 was primarily driven by delivery modernization and efficiency initiatives.

CA&I revenue was $526.9 million in 2024 and $531.0 million in 2023, a decrease of 0.8%. Foreign currency fluctuations had a negligible impact on CA&I revenue in 2024 compared with 2023. Gross profit percent was 16.5% in 2024 and 15.4% in 2023. The increase in gross profit percent in 2024 compared with 2023 was primarily driven by labor cost savings initiatives.

ECS revenue was $651.3 million in 2024 and $648.0 million in 2023, an increase of 0.5%. Foreign currency fluctuations had a negligible impact on ECS revenue in 2024 compared with 2023. Gross profit percent was 60.2% in 2024 and 61.2% in 2023. The decrease in gross profit percent in 2024 compared with 2023 was primarily driven by a higher proportion of hardware revenue, which has a lower gross margin relative to license renewals.

New accounting pronouncements

See Note 2, “Recent accounting pronouncements and accounting changes,” of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on the company’s consolidated financial statements.

Financial condition

The company’s principal sources of liquidity are cash on hand, cash from operations and its revolving credit facility, discussed below. The company and certain international subsidiaries have access to uncommitted lines of credit from various banks. The company believes that it will have adequate sources of liquidity to meet its expected cash requirements through at least the next twelve months.

Cash and cash equivalents at December 31, 2024 were $376.5 million compared with $387.7 million at December 31, 2023.

As of December 31, 2024, $265.2 million of cash and cash equivalents were held by the company’s foreign subsidiaries and branches operating outside of the U.S. The company may not be able to readily transfer approximately one-fifth of these funds out of the country in which they are located as a result of local restrictions, contractual or other legal arrangements or commercial considerations. Additionally, any transfers of these funds to the U.S. in the future may require the company to accrue or pay withholding or other taxes on a portion of the amount transferred. At December 31, 2024, the company maintained cash balances in various operating accounts in excess of federally insured limits. The company monitors this risk by evaluating the creditworthiness of the financial institutions.

During 2024, cash provided by operating activities was $135.1 million compared with cash provided by operations of $74.2 million during 2023. The increase in operating cash in 2024 was primarily due to lower international pension contributions and favorable settlements of legal and other matters.

Cash used for investing activities during 2024 was $97.4 million compared with cash used for investing activities of $69.6 million during 2023. Net purchases of foreign exchange forward contracts were $17.3 million in 2024 compared with net proceeds of $11.2 million in 2023. Proceeds from foreign exchange forward contracts and purchases of foreign exchange forward contracts represent derivative financial instruments used to manage the company’s currency exposure to market risks from changes in foreign currency exchange rates. In addition, capital additions of properties were $16.0 million in 2024 compared with $21.3 million in 2023, capital additions of outsourcing assets were $16.3 million in 2024 compared with $11.4 million in 2023 and the investment in marketable software was $47.5 million in 2024 compared with $46.0 million in 2023.

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Cash used for financing activities during 2024 was $18.1 million compared with cash used for financing activities of $17.3 million during 2023.

In March 2024, the company purchased a group annuity contract, with plan assets, for approximately $192 million to transfer projected benefit obligations related to approximately 3,800 retirees of one of the company’s U.S defined benefit pension plans. This action resulted in a pre-tax settlement loss of $130.1 million for the year ended December 31, 2024.

In March 2023, the company purchased a group annuity contract, with plan assets, for approximately $263 million to transfer projected benefit obligations related to approximately 8,650 retirees of one of the company’s U.S. defined benefit pension plans. This action resulted in a pre-tax settlement loss of $181.0 million for the year ended December 31, 2023.

In November 2023, the company purchased a group annuity contract, with plan assets, for approximately $253 million to transfer projected benefit obligations related to approximately 3,900 retirees of one of the company’s U.S. defined benefit pension plans. This action resulted in a pre-tax settlement loss of $167.2 million for the year ended December 31, 2023.

After considering the most recent group annuity contract purchase, the company has successfully reduced its global defined benefit pension obligations since December 2020 by approximately $2.2 billion, including approximately $1.5 billion in the U.S.

The company will continue to evaluate opportunities for additional reduction of its global defined benefit pension obligations in future periods depending on overall market conditions. Due to the company’s significant pension and postretirement plans accumulated other comprehensive losses, future group annuity contract purchases could result in material non-cash settlement losses.

At the end of each year, the company estimates its future cash contributions to its global defined benefit pension plans based on year-end pension data, assumptions and agreements. In 2024, the company made cash contributions of $21.9 million, primarily for its international defined benefit pension plans. Based on current legislation, global regulations, recent interest rates and expected returns, the company estimates future cash contributions of approximately $92 million in 2025, primarily for its U.S. defined benefit pension plans. The company estimates totaled cash contributions to its U.S. and non-U.S. defined benefit pension plans of approximately $120 million in 2026 and approximately $750 million in the aggregate from 2027 through 2034. If the company is not able to generate sufficient cash flows from operations, it may need to obtain additional funding in order to make these contributions. Any material deterioration in the value of the company’s global defined benefit pension plan assets, as well as changes in pension legislation, volatility in the capital markets, discount rate changes, asset return changes, or changes in economic or demographic trends, could require the company to make cash contributions in different amounts and on a different schedule than previously estimated.

At December 31, 2024, total debt was $493.2 million compared with $504.2 million at December 31, 2023. See Note 15, “Debt,” of the Notes to Consolidated Financial Statements for more detailed discussion of the company’s debt financing agreements including maturities by fiscal year.

The company has commitments under operating leases for certain facilities and equipment used in its operations. As of December 31, 2024, the company’s operating lease liabilities were $43.9 million. The company also has a number of finance leases for equipment, with lease liabilities totaling $2.8 million as of December 31, 2024. See Note 5, “Leases and commitments,” of the Notes to Consolidated Financial Statements for more information pertaining to future minimum lease payments relating to the company’s operating and finance lease obligations.

Additionally, as described in Note 4, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements, the company expects to make payments of approximately $13.0 million in 2025 related to the company’s workforce reduction actions.

The company has a secured revolving credit facility (the Amended and Restated ABL Credit Facility), which was amended in October 2024 (the Amendment). Among other things, the Amendment extended the maturity from October 29, 2025 to October 29, 2027 and reduced the aggregate amount of loans and letters of credit available under the Amended and Restated ABL Credit Facility to $125.0 million (with a limit on letters of credit of $40.0 million), with an accordion feature provision allowing for the aggregate amount available under the credit facility to be increased up to $155.0 million upon the satisfaction of certain specified conditions.

Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. At December 31, 2024, the company had no borrowings and no letters of credit outstanding, and availability under the facility was $117.1 million. Any borrowings under the facility will be subject to variable interest rates.

The Amended and Restated ABL Credit Facility is subject to a springing maturity, under which the Amended and Restated ABL Credit Facility will immediately mature 91 days prior to the maturity of the company’s 6.875% Senior Secured Notes due 2027 (the 2027 Notes) or any date on which contributions to pension funds in the United States in an amount in excess of $100.0 million are required to be paid unless the company is able to meet certain conditions, including that the company has the liquidity (as defined in the Amended and Restated ABL Credit Facility) to cash settle the remaining outstanding balance of the

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2027 Notes or the amount of such pension payments, as applicable, no default or event of default has occurred under the Amended and Restated ABL Credit Facility, the company’s liquidity is above $130.0 million and the company is in compliance with the then applicable fixed charge coverage ratio on a pro forma basis.

The Amended and Restated ABL Credit Facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc. and Unisys AP Investment Company I, each of which is a U.S. corporation that is directly or indirectly owned by the company (the subsidiary guarantors). The facility is secured by the assets of the company and the subsidiary guarantors, other than certain excluded assets, under a security agreement entered into by the company and the subsidiary guarantors in favor of Bank of America, N.A., as agent for the lenders under the credit facility.

The company is required to maintain a minimum fixed charge coverage ratio if the availability under the Amended and Restated ABL Credit Facility falls below the greater of 10% of the lenders’ commitments under the facility and $12.5 million.

The Amended and Restated ABL Credit Facility contains customary representations and warranties, including, but not limited to, that there has been no material adverse change in the company’s business, properties, operations or financial condition. The Amended and Restated ABL Credit Facility includes restrictions on the ability of the company and its subsidiaries to, among other things, incur other debt or liens, dispose of assets and make acquisitions, loans and investments, repurchase its equity, and prepay other debt. These restrictions are subject to several important limitations and exceptions. Events of default include non-payment, failure to comply with covenants, materially incorrect representations and warranties, change of control and default under other debt aggregating at least $50.0 million, subject to relevant cure periods, as applicable.

At December 31, 2024, the company had met all covenants and conditions under its various lending and funding agreements. The company expects to continue to meet these covenants and conditions through at least the next twelve months.

At December 31, 2024, the company had outstanding standby letters of credit and surety bonds totaling approximately $194 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.

From time to time the company may explore a variety of additional debt and equity sources to fund its liquidity and capital needs.

The company may, from time to time, redeem, tender for, or repurchase its securities in the open market or in privately negotiated transactions depending upon availability, market conditions and other factors.

The company does not have any off-balance sheet arrangements that are material or reasonably likely to become material to its financial condition or results of operations.

Critical accounting policies and estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. The company bases its estimates and judgments on historical experience and on other assumptions that it believes are reasonable under the circumstances; however, to the extent there are material differences between these estimates, judgments and assumptions and actual results, the financial statements will be affected. Although there are a number of accounting policies, methods and estimates affecting the company’s financial statements as described in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the following critical accounting policies reflect the significant estimates, judgments and assumptions. The development and selection of these critical accounting policies have been determined by management of the company and the related disclosures have been reviewed with the Audit and Finance Committee of the Board of Directors.

Revenue recognition

Many of the company’s sales agreements contain standard business terms and conditions; however, some agreements contain multiple performance obligations or non-standard terms and conditions. As discussed in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the company enters into arrangements that may include any combination of hardware, software or services. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including how many performance obligations are present in an arrangement, whether they should be treated as separate performance obligations and when to recognize revenue and under what method for each performance obligation.

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Income Taxes

Accounting rules governing income taxes require that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. These rules also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized.

At December 31, 2024 and 2023, the company had deferred tax assets in excess of deferred tax liabilities of $1,236.5 million and $1,263.2 million, respectively. For the reasons cited below, at December 31, 2024 and 2023, management determined that it is more likely than not that $67.9 million and $113.1 million, respectively, of such assets will be realized, resulting in a valuation allowance of $1,168.6 million and $1,150.1 million, respectively.

The company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary. The realization of the company’s deferred tax assets is primarily dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments. See “Risk Factors” (Part I, Item 1A of this Form 10-K). The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to the company’s valuation allowance, except with respect to refundable tax credits and withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly from period to period depending on the geographic distribution of income.

Additionally, it is at least reasonably possible that the company’s judgment about the need for, and level of, existing valuation allowances could change in the near term based on changes in objective evidence such as further sustained income or loss in certain jurisdictions, as well as the other factors discussed above, primarily in certain jurisdictions outside of the United States. As such, the company will continue to monitor income levels and mix among jurisdictions, potential changes to the company’s operating and tax model, and other legislative or global developments in its determination. It is reasonably possible that such changes could result in a material impact to the company’s valuation allowance within the next 12 months.

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 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 ownership change in 2011, 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, 2024 is approximately $405 million. This limitation will be applied 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. federal 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. See Note 7, “Income taxes,” of the Notes to Consolidated Financial Statements.

The company’s provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment and are based on the best information available at the time. The company operates within federal, state and international taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. As a result, the actual income tax liabilities in the jurisdictions with respect to any fiscal year are ultimately determined long after the financial statements have been published.

Pensions

Accounting rules governing defined benefit pension plans require that amounts recognized in financial statements be determined on an actuarial basis. The measurement of the company’s pension obligations, costs and liabilities is dependent on a variety of assumptions selected by the company and used by the company’s actuaries. These assumptions include estimates of the present value of projected future pension payments to plan participants, taking into consideration the likelihood of potential future events such as demographic experience. The assumptions used in developing the required estimates include the following key factors: discount rates, retirement rates, inflation, expected return on plan assets and mortality rates.

As permitted for purposes of computing pension expense, the company uses a calculated value of plan assets (which is further described below). This allows the effects of the performance of the pension plan’s assets on the company’s computation of

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pension income or expense to be amortized over future periods. A substantial portion of the company’s pension plan assets relates to its qualified defined benefit plans in the United States.

Funding requirements for its U.S. qualified pension plans are calculated by the plan’s actuaries based on certain assumptions as permitted under current regulations. Changes to the benefit obligation caused by a 25 basis point change noted below are related to the balance sheet obligation and are not necessarily indicative of the impact on the funding liability.

At the end of each year, the company determines the discount rate to be used to calculate the present value of plan liabilities. Inherent in deriving the discount rate are significant assumptions with respect to the timing and magnitude of expected benefit payment obligations. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the company looks to rates of return on high-quality, fixed-income investments that (a) receive one of the two highest ratings given by a recognized ratings agency and (b) are currently available and expected to be available during the period to maturity of the pension benefits. At December 31, 2024, the company determined this rate to be 6.09% for its U.S. defined benefit pension plans, an increase of 39 basis points from the rate used at December 31, 2023, and 5.10% for the company’s non-U.S. defined benefit pension plans, an increase of 86 basis points from the rate used at December 31, 2023. A change of 25 basis points in the U.S. and non-U.S. discount rates causes a change in 2025 pension expense of approximately $300 thousand in the U.S. and a nominal change in the non-U.S pension expense, and a change in the U.S. and non-U.S. benefit obligation of approximately $35 million and $39 million, respectively. These estimates are intended to be illustrative based on a single 25 basis point change. The sensitivity to rate changes is not linear and additional changes in rates may result in a different impact on the pension liability. The net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, has been deferred, as permitted.

A significant element in determining the company’s pension income or expense is the expected long-term rate of return on plan assets. 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 considers the current expectations for future returns and the actual historical returns of each asset class. Also, because 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 are adjusted to reflect the expected additional returns. For 2025, the company has assumed that the expected long-term rate of return on U.S. plan assets will be 7.00%, and on the company’s non-U.S. plan assets will be 5.32%. A change of 25 basis points in the expected long-term rate of return for the company’s U.S. and non-U.S. pension plans causes a change of approximately $4 million and $4 million, respectively, in 2025 pension expense. The assumed long-term rate of return on assets is applied 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 pension income or expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains or losses affects the calculated value of plan assets and, ultimately, future pension income or expense. At December 31, 2024, for the company’s U.S. qualified defined benefit pension plans, the calculated value of plan assets was $1.61 billion and the fair value was $1.38 billion.

Gains and losses are defined as changes in the amount of either the projected benefit obligation or plan assets resulting from experience different from that assumed and from changes in assumptions. Because gains and losses may reflect refinements in estimates as well as real changes in economic values and because some gains in one period may be offset by losses in another and vice versa, the accounting rules do not require recognition of gains and losses as components of net pension expense of the period in which they arise.

At a minimum, amortization of an unrecognized net gain or loss must be included as a component of net pension expense for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the calculated value of plan assets. If amortization is required, the minimum amortization is that excess above the 10 percent divided by the average remaining life expectancy of the plan participants. For the company’s U.S. qualified defined benefit pension plans and non-U.S. pension plans, that period is approximately 14 and 21 years, respectively. At December 31, 2024, the estimated unrecognized loss for the company’s U.S. qualified defined benefit pension plans and non-U.S. pension plans was approximately $1.00 billion and $490 million, respectively.

For the year ended December 31, 2024, the company recognized consolidated pension expense of $182.8 million (which included $130.6 million of settlement losses) compared with $391.3 million for the year ended December 31, 2023 (which included $348.9 million of settlement losses). For 2025, the company expects to recognize pension expense of approximately $87.0 million. See Note 17, “Employee plans,” of the Notes to Consolidated Financial Statements.

Goodwill

The company reviews goodwill for impairment annually in the fourth quarter using data as of September 30 of that year, as well as whenever there are events or changes in circumstances (triggering events), which indicate that the carrying amount may not be recoverable.

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The company initially assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This qualitative assessment considers all relevant factors specific to the reporting units, including macroeconomic conditions, industry and market considerations, overall financial performance, changes in share price and relevant entity-specific events.

If, after completing the qualitative assessment, the company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the company proceeds to perform a subsequent quantitative goodwill impairment test. Alternatively, the company may elect to bypass the qualitative assessment and perform the quantitative impairment test. The quantitative goodwill impairment test compares each reporting unit’s fair value to its carrying value. If the reporting unit’s fair value exceeds its carrying value, no further procedures are required. However, if a reporting unit’s fair value is less than its carrying value, then an impairment charge is recorded in the amount of the excess.

When the company performs the quantitative goodwill impairment test for a reporting unit, it estimates the fair value of the reporting unit using both the income approach and the market approach. The methodology used to determine the fair values using the income and market approaches, as described below, are weighted to determine the fair value for each reporting unit.

The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, the method used is the discounted cash flow method. The company starts with a forecast of all expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then a reporting unit-specific discount rate is applied to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include the amount and timing of projected net cash flows, long-term growth rate and the discount rate. Cash flow projections are based on management’s estimates of economic and market conditions, which drive key assumptions of revenue growth rates and operating margins. The discount rate, in turn, is based on various market factors and specific risk characteristics of each reporting unit.

The market approach relies primarily on external information for estimating the fair value. Some of the more significant estimates and assumptions inherent in this approach include the selection of appropriate guideline companies and the selected performance metric used in this approach.

Estimating the fair value of reporting units requires the use of estimates and significant judgments about key assumptions. There are a number of factors, including potential events and changes in circumstances that could change in future periods, including: projected operating results; valuation multiples exhibited by the company and by companies considered comparable to the reporting units; and other macro-economic factors that could impact the discount rate. It is reasonably possible that the judgments and estimates described above could change in future periods, which could have a significant impact on the fair value of the related reporting units.

During the third quarter of 2024, the company reviewed its estimated long-term expected future cash flows for its DWS reporting unit as operating results were below estimated forecast due to the impact of the slower pace of client signings driven by the current economic environment and industry dynamics. Based on this, the company concluded that a triggering event existed and conducted a quantitative goodwill assessment for the DWS reporting unit as of September 30, 2024. The fair value of the DWS reporting unit was estimated using a combination of discounted cash flows and market-based valuation methodologies as noted above. Based on the goodwill impairment analysis performed during the third quarter of 2024, the carrying value of the DWS reporting unit exceeded its respective fair value, resulting in the recognition of a goodwill impairment charge of $39.1 million.

During the fourth quarter of 2024, the company performed a quantitative goodwill impairment test for each reporting unit. The quantitative assessment indicated that the DWS reporting unit had a fair value that equaled its carrying value and all the other reporting units’ fair values exceeded their carrying values, as such no additional impairment charge was recognized as of December 31, 2024. The CA&I reporting unit had a fair value in excess of book value, including goodwill, of 10%. The fair value of the reporting units was estimated using a combination of discounted cash flows and market-based valuation methodologies as noted above. These methodologies involve significant assumptions that are subject to variability.

The company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the significant assumptions noted above, including changes to U.S. treasury rates and equity risk premiums, tax rates, recent market valuations from transactions by comparable companies, volatility in the company’s market capitalization, and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances or in the inputs and assumptions used in estimating the fair value of the reporting units, could require the company to record an additional non-cash impairment charge.

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Goodwill by reporting unit at December 31, 2024, was as follows:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(For a discussion of 2022 compared with 2021, refer to Part II, Item 7 contained in the company’s Form 10-K for the fiscal year ended December 31, 2022.)

Overview

In 2023, the company recorded a net loss attributable to Unisys Corporation of $430.7 million, or $6.31 per diluted share, compared with a loss of $106.0 million, or $1.57 per diluted share, in 2022. Included in the 2023 results were defined benefit pension plan settlement losses of $348.9 million compared with zero in 2022.

During 2023, the company purchased two group annuity contracts, with pension plan assets, for approximately $516 million to transfer projected benefit obligations related to approximately 12,550 retirees of the company’s U.S. defined benefit pension plans. As a result of these actions, the company recorded pre-tax settlement losses of $348.2 million for the year ended December 31, 2023.

Additionally in 2023, the company recorded cost-reduction charges and other costs of $9.3 million compared with $54.9 million in 2022.

Results of operations

Company results

Revenue for 2023 was $2.02 billion compared with $1.98 billion for 2022, an increase of 1.8%. Foreign currency fluctuations had a negligible impact on revenue in 2023 compared with 2022.

Revenue from international operations for both 2023 and 2022 was $1.13 billion. Foreign currency had a negligible impact on international revenue in 2023 compared with 2022. Revenue from U.S. operations was $889.0 million for 2023 compared with $854.9 million for 2022, an increase of 4.0%.

During 2023, the company recognized cost-reduction charges and other costs of $9.3 million. The net charges related to workforce reductions were $8.3 million, principally related to severance costs, and were comprised of: (a) a charge of $15.2 million and (b) a credit of $6.9 million for changes in estimates. In addition, the company recorded net charges of $1.0 million comprised of charges of $4.7 million primarily related to professional fees and other expenses related to cost-reduction efforts and a credit of $3.7 million for net foreign currency gains related to exiting foreign countries. See Note 4, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements for details of the cost reduction activities.

During 2022, the company recognized cost-reduction charges and other costs of $54.9 million. The net charges related to workforce reductions were $7.5 million, principally related to severance costs, and were comprised of: (a) a charge of $7.1 million and (b) a charge of $0.4 million for changes in estimates. In addition, the company recorded charges of $47.4 million comprised of $35.8 million for asset impairments, $8.7 million for other expenses related to cost-reduction efforts and $2.9 million for net foreign currency losses related to exiting foreign countries.

The cost reduction charges (credits) were recorded in the following statement of income (loss) classifications:

Gross profit and gross profit margin were $551.3 million and 27.4% in 2023, respectively, and $529.6 million and 26.7% in 2022, respectively. The increase in gross profit and gross profit margin in 2023 were primarily due lower cost reduction charges in 2023 and gross profit improvement in the Cloud, Applications & Infrastructure Solutions (CA&I) segment, partially offset by lower gross profit in Enterprise Computing Solutions (ECS) segment.

Selling, general and administrative expenses were $450.3 million in 2023 (22.3% of revenue) and $453.2 million in 2022 (22.9% of revenue).

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Research and development (R&D) expenses in 2023 were $24.1 million compared with $24.2 million in 2022.

In 2023, the company reported an operating profit of $76.9 million compared with an operating profit of $52.2 million in 2022. The increase in 2023 was primarily driven by higher gross profit as discussed above.

Interest expense was $30.8 million in 2023 compared with $32.4 million in 2022.

Other (expense), net was expense of $393.9 million in 2023 compared with expense of $82.4 million in 2022. Other (expense), net in 2023 includes $348.9 million of pension settlement losses. See Note 6, “Other (expense), net,” of the Notes to Consolidated Financial Statements for details of other (expense), net.

Pension expense in 2023 was $391.3 million compared with $47.1 million in 2022. Pension expense in 2023 included $348.9 million of settlement losses primarily related to the company’s U.S. defined benefits plans. See Note 17, “Employee plans,” of the Notes to Consolidated Financial Statements for details of the settlement losses.

The loss before income taxes in 2023 was $347.8 million compared with a loss of $62.6 million in 2022. Included in the loss in 2023 were $348.9 million of settlement losses related to the company’s defined benefit pension plans.

The provision for income taxes in 2023 was $79.3 million compared with a provision of $42.3 million in 2022. The change in the tax provision is described below.

The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary. The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to the company’s valuation allowance, except with respect to refundable tax credits and withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly period to period depending on the geographic distribution of income.

The realization of the company’s net deferred tax assets as of December 31, 2023, is primarily dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in that period and could have a significant impact on that period’s earnings. During 2023, the company determined that a portion of its non-U.S. net deferred tax assets required an additional valuation allowance. The net change in the valuation allowance impacting the effective tax rate in 2023 was approximately $2.1 million, primarily in Latin America. During 2022, the company determined that a portion of its non-U.S. net deferred tax assets no longer required a valuation allowance. The net change in the valuation allowances impacting the effective tax rate in 2022 was approximately $9.8 million of a tax benefit, primarily in the United Kingdom and other foreign jurisdictions.

In 2021, the Organization for Economic Cooperation and Development introduced a framework to implement a global minimum corporate tax of 15%, referred to as Pillar Two, effective January 1, 2024, and onward. While it is uncertain whether the U.S. will enact legislation to adopt Pillar Two, certain countries in which the company operates have adopted legislation, and other countries are in the process of introducing legislation to implement this minimum tax directive. Pillar Two is not expected to have a material effect on the company’s global effective tax rate and its consolidated financial statements.

Net loss attributable to Unisys Corporation for 2023 was $430.7 million, or $6.31 per diluted share, compared with a net loss of $106.0 million, or $1.57 per diluted share in 2022. Included in the loss in 2023 was $348.9 million of after-tax settlement losses related to the company’s defined benefit pension plans.

Segment results

The company’s reportable segments are as follows:

•Digital Workplace Solutions (DWS), which provides modern and traditional workplace solutions;

•Cloud, Applications & Infrastructure Solutions (CA&I), which provides digital platform, applications and infrastructure solutions; and

•Enterprise Computing Solutions (ECS), which provides solutions that harness secure, continuous high-intensity computing and enable digital services through software-defined operating environments.

The accounting policies of each segment are the same as those followed by the company as a whole. The company evaluates segment performance based on gross profit exclusive of the service costs component of postretirement income or expense, restructuring charges, amortization of purchased intangibles and unusual and nonrecurring items, which are included in other gross profit.

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Corporate assets are principally cash and cash equivalents, prepaid postretirement assets and deferred income taxes. The expense or income related to corporate assets and centrally incurred costs are allocated to the business segments. See Note 20, “Segment information,” of the Notes to Consolidated Financial Statements.

Information by reportable segment is presented below:

DWS revenue was $546.1 million in 2023 and $509.9 million in 2022. The increase in revenue in 2023 was primarily driven by new business with existing clients. Foreign currency fluctuations had a negligible impact on DWS revenue in 2023 compared with 2022. Gross profit percent was 14.0% in both 2023 and 2022.

CA&I revenue was $531.0 million in 2023 and $520.3 million in 2022. Foreign currency fluctuations had a negligible impact on CA&I revenue in 2023 compared with 2022. Gross profit percent was 15.4% in 2023 and 9.1% in 2022. The increase in revenue and gross profit percent in 2023 compared with 2022 was primarily due to certain prior year contract exits and new business with existing clients.

ECS revenue was $648.0 million in 2023 and $669.7 million in 2022. Foreign currency fluctuations had a negligible impact on ECS revenue in 2023 compared with 2022. Gross profit percent was 61.2% in 2023 and 64.5% in 2022. The decrease in revenue and gross profit percent was driven by the timing of software license renewals.

New accounting pronouncements

See Note 2, “Recent accounting pronouncements and accounting changes,” of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on the company’s consolidated financial statements.

Financial condition

The company’s principal sources of liquidity are cash on hand, cash from operations and its revolving credit facility, discussed below. The company and certain international subsidiaries have access to uncommitted lines of credit from various banks. The company believes that it will have adequate sources of liquidity to meet its expected cash requirements through at least the next twelve months.

Cash and cash equivalents at December 31, 2023 were $387.7 million compared with $391.8 million at December 31, 2022.

As of December 31, 2023, $232.2 million of cash and cash equivalents were held by the company’s foreign subsidiaries and branches operating outside of the U.S. The company may not be able to readily transfer approximately one-third of these funds out of the country in which they are located as a result of local restrictions, contractual or other legal arrangements or commercial considerations. Additionally, any transfers of these funds to the U.S. in the future may require the company to accrue or pay withholding or other taxes on a portion of the amount transferred. See Note 7, “Income taxes,” of the Notes to Consolidated Financial Statements regarding the company’s intention to indefinitely reinvest earnings of foreign subsidiaries.

During 2023, cash provided by operating activities was $74.2 million compared with cash provided by operations of $12.7 million during 2022. The increase in operating cash in 2023 was primarily due to improvements in working capital.

Cash used for investing activities during 2023 was $69.6 million compared with cash used for investing activities of $131.4 million during 2022. Net proceeds from investments were $11.2 million in 2023 compared with net purchases of $44.3 million in 2022. Proceeds from investments and purchases of investments represent derivative financial instruments used to manage the company’s currency exposure to market risks from changes in foreign currency exchange rates. In addition, capital additions of properties were $21.3 million in 2023 compared with $31.0 million in 2022, capital additions of outsourcing assets were $11.4 million in 2023 compared with $8.6 million in 2022 and the investment in marketable software was $46.0 million in 2023 compared with $46.3 million in 2022.

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Cash used for financing activities during 2023 was $17.3 million compared with cash used for financing activities of $21.6 million during 2022.

In March 2023, the company purchased a group annuity contract, with plan assets, for approximately $263 million to transfer projected benefit obligations related to approximately 8,650 retirees of one of the company’s U.S. defined benefit pension plans. This action resulted in a pre-tax settlement loss of $181.0 million for the year ended December 31, 2023.

In November 2023, the company purchased a group annuity contract, with plan assets, for approximately $253 million to transfer projected benefit obligations related to approximately 3,900 retirees of one of the company’s U.S. defined benefit pension plans. This action resulted in a pre-tax settlement loss of $167.2 million for the year ended December 31, 2023.

After considering these most recent group annuity contract purchases, the company has successfully reduced its global defined benefit pension obligations since December 2020 by approximately $2.0 billion, including approximately $1.3 billion in the U.S. The company will continue to evaluate opportunities for additional reduction of its global defined benefit pension obligations in future periods depending on overall market conditions. Due to the company’s significant postretirement plans accumulated other comprehensive losses, future group annuity contract purchases could result in material non-cash settlement losses.

At the end of each year, the company estimates its future cash contributions to its U.S. qualified defined benefit pension plans based on year-end pension data and assumptions. In 2023, we made cash contributions of $42.4 million, primarily for our international defined benefit pension plans. Based on current legislation, global regulations, recent interest rates and expected returns, the company estimates future cash contributions of approximately $21 million in 2024, primarily for our international defined benefit pension plans. The company estimates that cash contributions to its U.S. defined benefit pension plans will begin to increase in 2025, increasing the total estimated contributions for the company’s U.S. and non-U.S. defined benefit pension plans to approximately $110 million in 2025 and approximately $770 million in the aggregate from 2026 through 2033. If the company is not able to generate sufficient cash flows from operations, we may need to obtain additional funding in order to make these contributions. Any material deterioration in the value of the company’s U.S. qualified defined benefit pension plan assets, as well as changes in pension legislation, volatility in the capital markets, discount rate changes, asset return changes, or changes in economic or demographic trends, could require the company to make cash contributions to its U.S. qualified defined benefit pension plans in different amounts and on a different schedule than previously contemplated.

At December 31, 2023, total debt was $504.2 million compared with $513.1 million at December 31, 2022. See Note 15, “Debt,” of the Notes to Consolidated Financial Statements for more detailed discussion of the company’s debt financing agreements including maturities by fiscal year.

The company has commitments under operating leases for certain facilities and equipment used in its operations. As of December 31, 2023, the company’s operating lease liabilities were $44.7 million. The company also has a number of finance leases for equipment, with lease liabilities totaling $0.3 million as of December 31, 2023. See Note 5, “Leases and commitments,” of the Notes to Consolidated Financial Statements for more information pertaining to future minimum lease payments relating to the company’s operating and finance lease obligations.

Additionally, as described in Note 4, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements, the company expects to make payments of approximately $9.4 million in 2024 related to the company’s workforce reduction actions.

In March 2021, the company completed the conversion of $84.2 million aggregate principal amount of Convertible Senior Notes due 2021 (the 2021 Notes) that remained outstanding for a combination of cash and shares of the company’s common stock. As a result of the conversion of the outstanding 2021 Notes, the company delivered to the holders (i) aggregate cash payments totaling approximately $86.5 million, which included an aggregate cash payment for outstanding principal of approximately $84.2 million, an aggregate cash payment for accrued interest of approximately $2.3 million and a nominal cash payment in lieu of fractional shares, and (ii) the issuance of 4,537,123 shares of the company’s common stock. The issuance of the common stock was made in exchange for the 2021 Notes pursuant to an exemption from the registration requirements provided by Section 3(a)(9) of the Securities Act of 1933, as amended.

The company has a secured revolving credit facility (the Amended and Restated ABL Credit Facility), which matures on October 29, 2025, and provides for revolving loans and letters of credit up to an aggregate amount of $145.0 million (with a limit on letters of credit of $40.0 million), with an accordion feature provision allowing for the aggregate amount available under the credit facility to be increased up to $175.0 million upon the satisfaction of certain specified conditions. The Amended and Restated ABL Credit Facility was amended on June 2, 2023, primarily to replace the reference rate from the London Interbank Offered Rate to the Secured Overnight Financing Rate. Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. At December 31, 2023, the company had no borrowings and $7.1 million of letters of credit outstanding, and availability under the facility was $88.6 million net of letters of credit issued. Any borrowings under the facility will be subject to variable interest rates.

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The Amended and Restated ABL Credit Facility is subject to a springing maturity, under which the Amended and Restated ABL Credit Facility will immediately mature 91 days prior to any date on which contributions to pension funds in the United States in an amount in excess of $100.0 million are required to be paid unless the company is able to meet certain conditions, including that the company has the liquidity (as defined in the Amended and Restated ABL Credit Facility) to cash settle the amount of such pension payments, no default or event of default has occurred under the Amended and Restated ABL Credit Facility, the company’s liquidity is above $130.0 million and the company is in compliance with the then applicable fixed charge coverage ratio on a pro forma basis.

The Amended and Restated ABL Credit Facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc. and Unisys AP Investment Company I, each of which is a U.S. corporation that is directly or indirectly owned by the company (the subsidiary guarantors). The facility is secured by the assets of the company and the subsidiary guarantors, other than certain excluded assets, under a security agreement entered into by the company and the subsidiary guarantors in favor of JPMorgan Chase Bank, N.A., as agent for the lenders under the credit facility.

The company is required to maintain a minimum fixed charge coverage ratio if the availability under the Amended and Restated ABL Credit Facility falls below the greater of 10% of the lenders’ commitments under the facility and $14.5 million.

The Amended and Restated ABL Credit Facility contains customary representations and warranties, including, but not limited to, that there has been no material adverse change in the company’s business, properties, operations or financial condition. The Amended and Restated ABL Credit Facility includes restrictions on the ability of the company and its subsidiaries to, among other things, incur other debt or liens, dispose of assets and make acquisitions, loans and investments, repurchase its equity, and prepay other debt. These restrictions are subject to several important limitations and exceptions. Events of default include non-payment, failure to comply with covenants, materially incorrect representations and warranties, change of control and default under other debt aggregating at least $50.0 million, subject to relevant cure periods, as applicable.

At December 31, 2023, the company had met all covenants and conditions under its various lending and funding agreements. The company expects to continue to meet these covenants and conditions through at least the next twelve months.

At December 31, 2023, the company had outstanding standby letters of credit and surety bonds totaling approximately $232 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.

From time to time the company may explore a variety of additional debt and equity sources to fund its liquidity and capital needs.

The company may, from time to time, redeem, tender for, or repurchase its securities in the open market or in privately negotiated transactions depending upon availability, market conditions and other factors.

The company does not have any off-balance sheet arrangements that are material or reasonably likely to become material to its financial condition or results of operations.

Critical accounting policies and estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. The company bases its estimates and judgments on historical experience and on other assumptions that it believes are reasonable under the circumstances; however, to the extent there are material differences between these estimates, judgments and assumptions and actual results, the financial statements will be affected. Although there are a number of accounting policies, methods and estimates affecting the company’s financial statements as described in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the following critical accounting policies reflect the significant estimates, judgments and assumptions. The development and selection of these critical accounting policies have been determined by management of the company and the related disclosures have been reviewed with the Audit and Finance Committee of the Board of Directors.

Revenue recognition

Many of the company’s sales agreements contain standard business terms and conditions; however, some agreements contain multiple performance obligations or non-standard terms and conditions. As discussed in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the company enters into arrangements that may include any combination of hardware, software or services. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including how many performance obligations are present in an arrangement, whether

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they should be treated as separate performance obligations and when to recognize revenue and under what method for each performance obligation.

Income Taxes

Accounting rules governing income taxes require that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. These rules also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized.

At December 31, 2023 and 2022, the company had deferred tax assets in excess of deferred tax liabilities of $1,263.2 million and $1,218.9 million, respectively. For the reasons cited below, at December 31, 2023 and 2022, management determined that it is more likely than not that $113.1 million and $108.4 million, respectively, of such assets will be realized, resulting in a valuation allowance of $1,150.1 million and $1,110.5 million, respectively.

The company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary. The realization of the company’s deferred tax assets is primarily dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments. See “Risk Factors” (Part I, Item 1A of this Form 10-K). The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to the company’s valuation allowance, except with respect to refundable tax credits and withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly from period to period depending on the geographic distribution of income.

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 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 ownership change in 2011, 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, 2023 is approximately $488 million. This limitation will be applied 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. federal 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. See Note 7, “Income taxes,” of the Notes to Consolidated Financial Statements.

The company’s provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment and are based on the best information available at the time. The company operates within federal, state and international taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. As a result, the actual income tax liabilities in the jurisdictions with respect to any fiscal year are ultimately determined long after the financial statements have been published.

Pensions

Accounting rules governing defined benefit pension plans require that amounts recognized in financial statements be determined on an actuarial basis. The measurement of the company’s pension obligations, costs and liabilities is dependent on a variety of assumptions selected by the company and used by the company’s actuaries. These assumptions include estimates of the present value of projected future pension payments to plan participants, taking into consideration the likelihood of potential future events such as demographic experience. The assumptions used in developing the required estimates include the following key factors: discount rates, retirement rates, inflation, expected return on plan assets and mortality rates.

As permitted for purposes of computing pension expense, the company uses a calculated value of plan assets (which is further described below). This allows the effects of the performance of the pension plan’s assets on the company’s computation of pension income or expense to be amortized over future periods. A substantial portion of the company’s pension plan assets relates to its qualified defined benefit plans in the United States.

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Funding requirements for its U.S. qualified pension plans are calculated by the plan’s actuaries based on certain assumptions as permitted under current regulations. Changes to the benefit obligation caused by a 25 basis point change noted below are related to the balance sheet obligation and are not necessarily indicative of the impact on the funding liability.

At the end of each year, the company determines the discount rate to be used to calculate the present value of plan liabilities. Inherent in deriving the discount rate are significant assumptions with respect to the timing and magnitude of expected benefit payment obligations. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the company looks to rates of return on high-quality, fixed-income investments that (a) receive one of the two highest ratings given by a recognized ratings agency and (b) are currently available and expected to be available during the period to maturity of the pension benefits. At December 31, 2023, the company determined this rate to be 5.70% for its U.S. defined benefit pension plans, a decrease of 34 basis points from the rate used at December 31, 2022, and 4.24% for the company’s non-U.S. defined benefit pension plans, a decrease of 56 basis points from the rate used at December 31, 2022. A change of 25 basis points in the U.S. and non-U.S. discount rates causes a change in 2024 pension expense of approximately $500 thousand and $800 thousand, respectively, and a change of approximately $42 million and $48 million, respectively, in the benefit obligation. These estimates are intended to be illustrative based on a single 25 basis point change. The sensitivity to rate changes is not linear and additional changes in rates may result in a different impact on the pension liability. The net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, has been deferred, as permitted.

A significant element in determining the company’s pension income or expense is the expected long-term rate of return on plan assets. 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 considers the current expectations for future returns and the actual historical returns of each asset class. Also, because 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 are adjusted to reflect the expected additional returns. For 2024, the company has assumed that the expected long-term rate of return on U.S. plan assets will be 7.00%, and on the company’s non-U.S. plan assets will be 4.82%. A change of 25 basis points in the expected long-term rate of return for the company’s U.S. and non-U.S. pension plans causes a change of approximately $5 million and $4 million, respectively, in 2024 pension expense. The assumed long-term rate of return on assets is applied 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 pension income or expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains or losses affects the calculated value of plan assets and, ultimately, future pension income or expense. At December 31, 2023, for the company’s U.S. qualified defined benefit pension plans, the calculated value of plan assets was $2.08 billion and the fair value was $1.82 billion.

Gains and losses are defined as changes in the amount of either the projected benefit obligation or plan assets resulting from experience different from that assumed and from changes in assumptions. Because gains and losses may reflect refinements in estimates as well as real changes in economic values and because some gains in one period may be offset by losses in another and vice versa, the accounting rules do not require recognition of gains and losses as components of net pension expense of the period in which they arise.

At a minimum, amortization of an unrecognized net gain or loss must be included as a component of net pension expense for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the calculated value of plan assets. If amortization is required, the minimum amortization is that excess above the 10 percent divided by the average remaining life expectancy of the plan participants. For the company’s U.S. qualified defined benefit pension plans and the company’s non-U.S. pension plans, that period is approximately 14 and 21 years, respectively. At December 31, 2023, the estimated unrecognized loss for the company’s U.S. qualified defined benefit pension plans and the company’s non-U.S. pension plans was $1.02 billion and $400 million, respectively.

For the year ended December 31, 2023, the company recognized consolidated pension expense of $391.3 million (which includes $348.9 million of settlement losses) compared with $47.1 million for the year ended December 31, 2022. For 2024, the company expects to recognize pension expense of approximately $57.7 million. See Note 17, “Employee plans,” of the Notes to Consolidated Financial Statements.

Goodwill

The company reviews goodwill for impairment annually in the fourth quarter using data as of September 30 of that year, as well as whenever there are events or changes in circumstances (triggering events), which indicate that the carrying amount may not be recoverable.

The company initially assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This qualitative assessment considers all relevant factors specific to the reporting units, including macroeconomic conditions, industry and market considerations, overall financial performance, changes in share price and relevant entity-specific events.

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If, after completing the qualitative assessment, the company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the company proceeds to perform a subsequent quantitative goodwill impairment test. Alternatively, the company may elect to bypass the qualitative assessment and perform the quantitative impairment test. The quantitative goodwill impairment test compares each reporting unit’s fair value to its carrying value. If the reporting unit’s fair value exceeds its carrying value, no further procedures are required. However, if a reporting unit’s fair value is less than its carrying value, then an impairment charge is recorded in the amount of the excess.

When the company performs the quantitative goodwill impairment test for a reporting unit, it estimates the fair value of the reporting unit using both the income approach and the market approach. The methodology used to determine the fair values using the income and market approaches, as described below, are weighted to determine the fair value for each reporting unit.

The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, the method used is the discounted cash flow method. The company starts with a forecast of all expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then a reporting unit-specific discount rate is applied to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include the amount and timing of projected net cash flows, long-term growth rate and the discount rate. Cash flow projections are based on management’s estimates of economic and market conditions, which drive key assumptions of revenue growth rates and operating margins. The discount rate, in turn, is based on various market factors and specific risk characteristics of each reporting unit.

The market approach relies primarily on external information for estimating the fair value. Some of the more significant estimates and assumptions inherent in this approach include the selection of appropriate guideline companies and the selected performance metric used in this approach.

Estimating the fair value of reporting units requires the use of estimates and significant judgments about key assumptions. There are a number of factors, including potential events and changes in circumstances that could change in future periods, including: projected operating results; valuation multiples exhibited by the company and by companies considered comparable to the reporting units; and other macro-economic factors that could impact the discount rate. It is reasonably possible that the judgments and estimates described above could change in future periods, which could have a significant impact on the fair value of the related reporting units.

During the fourth quarter of 2023, the company performed a quantitative goodwill impairment test for each reporting unit. The quantitative assessment indicated that each reporting unit’s fair value exceeded its carrying value, as such no impairment charge was recognized as of December 31, 2023. We estimated the fair value of the reporting units using a combination of discounted cash flows and market-based valuation methodologies as noted above. These methodologies involve significant assumptions that are subject to variability.

Based on the annual impairment analysis performed during the fourth quarter of 2023, all reporting units had a fair value in excess of book value. The reporting units that were closest to impairment were the CA&I and DWS reporting units with fair value in excess of book value, including goodwill, of 10% and 16%, respectively. All other reporting units had a fair value substantially in excess of book value.

The company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the significant assumptions noted above, including changes to U.S. treasury rates and equity risk premiums, tax rates, recent market valuations from transactions by comparable companies, volatility in the company’s market capitalization, and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances or in the inputs and assumptions used in estimating the fair value of the reporting units, could require the company to record a non-cash impairment charge.

Goodwill by reporting unit at December 31, 2023, was as follows:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(For a discussion of 2021 compared with 2020, refer to Part II, Item 7 contained in the company’s Form 10-K for the fiscal year ended December 31, 2021.)

Overview

In 2022, the company recorded a net loss attributable to Unisys Corporation of $106.0 million, or $1.57 per diluted share, compared with a loss of $448.5 million, or $6.75 per diluted share, in 2021.

In 2022, the company recorded cost-reduction charges and other costs of $54.9 million compared with $23.2 million in 2021. Included in the 2021 results were defined benefit pension plan settlement losses of $499.4 million compared with zero in 2022. The provision for income tax comparison for 2022 compared with 2021 was impacted by a $51.5 million tax benefit recorded in 2021 related to the pension plan settlement losses compared with zero in 2022.

Results of operations

Company results

Revenue for 2022 was $1.98 billion compared with $2.05 billion for 2021, a decrease of 3.6%. Foreign currency fluctuations had a 3.7-percentage-point negative impact on revenue in the current year compared with the year-ago period.

Revenue from international operations for 2022 was $1.13 billion compared with $1.20 billion for 2021, a decrease of 6.1% principally due to decreases in Europe and Asia/Pacific. Foreign currency had a 6.4-percentage-point negative impact on international revenue in 2022 compared with 2021. Revenue from U.S. operations was $854.9 million for 2022 compared with $856.2 million for 2021, a decrease of 0.2%.

During 2022, the company recognized cost-reduction charges and other costs of $54.9 million. The net charges related to work-force reductions were $7.5 million, principally related to severance costs, and were comprised of: (a) a charge of $7.1 million and (b) a charge of $0.4 million for changes in estimates. In addition, the company recorded net charges of $47.4 million comprised of $35.8 million for asset impairments, $8.7 million for other expenses related to cost-reduction efforts and $2.9 million for net foreign currency losses related to exiting foreign countries. See Note 5, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements for details of the cost reduction activities.

During 2021, the company recognized cost-reduction charges and other costs of $23.2 million. The net charges related to work-force reductions were $0.4 million, principally related to severance costs, and were comprised of: (a) a charge of $12.3 million and (b) a credit of $11.9 million for changes in estimates. In addition, the company recorded charges of $22.8 million comprised of $12.6 million for asset impairments, $6.2 million for other expenses related to cost-reduction efforts and $4.0 million for net foreign currency losses related to exiting foreign countries.

The cost reduction charges (credits) were recorded in the following statement of income (loss) classifications:

Gross profit and gross profit margin were $529.6 million and 26.7% in 2022, respectively, and $572.0 million and 27.8% in 2021, respectively. The decrease in gross profit and gross profit margin in 2022 was primarily due to higher cost-reduction charges in the current year compared with the year-ago period and the impact from non-strategic contracts exited in 2021.

Selling, general and administrative expenses were $453.2 million in 2022 (22.9% of revenue) and $389.5 million in 2021 (19.0% of revenue). The change was primarily due to increased investments in marketing and higher cost-reduction charges and other expenses.

Research and development (R&D) expenses in 2022 were $24.2 million compared with $28.5 million in 2021.

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In 2022, the company reported an operating profit of $52.2 million compared with an operating profit of $154.0 million in 2021. The decrease in 2022 was primarily driven by increased investments in marketing and higher cost-reduction charges and other non-recurring expenses.

Interest expense was $32.4 million in 2022 compared with $35.4 million in 2021.

Other (expense), net was expense of $82.4 million in 2022 compared with expense of $580.3 million in 2021. Other (expense), net in 2021 includes $499.4 million of pension settlement losses. See Note 7, “Other (expense), net,” of the Notes to Consolidated Financial Statements for details of other (expense), net.

Pension expense in 2022 was $47.1 million compared with $553.9 million in 2021. Pension expense in 2021 included $499.4 million of settlement losses related to defined benefits plans in the Netherlands, the United States and Switzerland. See Note 18, “Employee plans,” of the Notes to Consolidated Financial Statements for details of the settlement losses.

The loss from continuing operations before income taxes in 2022 was $62.6 million compared with a loss of $461.7 million in 2021, which included $499.4 million of settlement losses related to the company’s defined benefit pension plans. Additionally, 2022 was impacted by investments in marketing and higher cost-reduction charges and other non-recurring expenses.

The provision for income taxes in 2022 was $42.3 million compared with a benefit of $11.9 million in 2021. The change in the tax provision (benefit) is described below.

The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary. The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to the company’s valuation allowance, except with respect to refundable tax credits and withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly period to period depending on the geographic distribution of income.

The realization of the company’s net deferred tax assets as of December 31, 2022 is primarily dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in that period and could have a significant impact on that period’s earnings. As a result of its projections of future taxable income during 2022, the company has determined that a portion of its non-U.S. net deferred tax assets no longer requires a valuation allowance. The net change in the valuation allowances impacting the effective tax rate in 2022 was approximately $9.8 million of a tax benefit, primarily in the United Kingdom and other foreign jurisdictions.

The benefit from income tax benefits in 2021 included $51.5 million related to the pension plan settlement losses in the Netherlands and Switzerland. In addition, in June 2021, the UK enacted an income tax rate increase from 19% to 25% for the fiscal year beginning April 1, 2023. The UK rate increase resulted in a deferred tax benefit of $17.7 million in 2021.

Net loss from continuing operations attributable to Unisys Corporation for 2022 was $106.0 million, or $1.57 per diluted share, compared with a net loss of $448.5 million, or $6.75 per diluted share in 2021. Included in the loss in 2021 was $447.9 million of after tax settlement losses related to the company’s defined benefit pension plans.

Segment results

In January 2022, the company changed the grouping of certain immaterial revenue streams. As a result, certain prior period segment revenue as well as the related cost of sales amounts have been reclassified to be comparable to the current period’s presentation. In addition, during 2022, the company renamed its Cloud and Infrastructure Solutions segment as Cloud, Applications & Infrastructure Solutions to better represent the nature of the segment’s operations. There was no change to the composition of the segment or its historical results.

The company’s reportable segments are as follows:

•Digital Workplace Solutions (DWS), which provides modern and traditional workplace solutions;

•Cloud, Applications & Infrastructure Solutions (CA&I), which provides digital platform, applications, and infrastructure solutions; and

•Enterprise Computing Solutions (ECS), which provides solutions that harness secure, continuous high-intensity computing and enable digital services through software-defined operating environments.

The accounting policies of each segment are the same as those followed by the company as a whole. Intersegment sales and transfers are priced as if the sales or transfers were to third parties. Accordingly, the ECS segment records intersegment revenue and manufacturing profit on hardware and software shipments to customers under contracts of other segments. These segments, in turn, record customer revenue and marketing profits on such shipments of company hardware and software to customers. In

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the company’s consolidated statements of income, the manufacturing costs of products sourced from the ECS segment and sold to other segments’ customers are reported in cost of revenue for these other segments.

Also included in the ECS segment’s sales and gross profit are sales of software and hardware sold to other segments for internal use in their engagements. The amount of such profit included in gross profit of the ECS segment for the year ended December 31, 2021 was $1.4 million. The sale and profit on these transactions is eliminated in consolidation.

The company evaluates segment performance based on gross profit exclusive of the service costs component of postretirement income or expense, restructuring charges, amortization of purchased intangibles and unusual and nonrecurring items, which are included in other gross profit.

Corporate assets are principally cash and cash equivalents, prepaid postretirement assets and deferred income taxes. The expense or income related to corporate assets and centrally incurred costs are allocated to the business segments. See Note 21, “Segment information,” of the Notes to Consolidated Financial Statements.

Information by reportable segment is presented below:

Gross profit percent is as a percent of total revenue.

DWS revenue was $509.9 million in 2022 and $574.5 million in 2021. Revenue in 2022 was negatively impacted by the run-off effect of certain non-strategic contracts that the company exited in 2021. Foreign currency fluctuations had a 3.9-percentage-point negative impact on DWS revenue in 2022 compared with 2021. Gross profit percent was 14.0% in 2022 and 13.8% in 2021.

CA&I revenue was $520.3 million in 2022 and $485.6 million in 2021. The increase in revenue in 2022 compared with 2021 was driven by expansion of the digital platforms and applications solutions and acquired application development solutions. Foreign currency fluctuations had a 2.2-percentage-point negative impact on CA&I revenue in 2022 compared with 2021. Gross profit percent was 9.1% in 2022 and 9.7% in 2021. The decrease in gross profit percent in 2022 compared with 2021 was primarily due to additional expense associated with certain contract exits and higher labor costs.

ECS revenue was $669.7 million in 2022 and $685.7 million in 2021. Foreign currency fluctuations had a 2.4 percentage-point negative impact on ECS revenue in 2022 compared with 2021. Gross profit percent was 64.5% in 2022 and 63.4% in 2021.

New accounting pronouncements

See Note 3, “Recent accounting pronouncements and accounting changes,” of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on the company’s consolidated financial statements.

Financial condition

The company’s principal sources of liquidity are cash on hand, cash from operations and its revolving credit facility, discussed below. The company and certain international subsidiaries have access to uncommitted lines of credit from various banks. The company believes that it will have adequate sources of liquidity to meet its expected cash requirements through at least the next twelve months.

Cash and cash equivalents at December 31, 2022 were $391.8 million compared with $552.9 million at December 31, 2021.

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As of December 31, 2022, $274.0 million of cash and cash equivalents were held by the company’s foreign subsidiaries and branches operating outside of the U.S. The company may not be able to readily transfer approximately one-third of these funds out of the country in which they are located as a result of local restrictions, contractual or other legal arrangements or commercial considerations. Additionally, any transfers of these funds to the U.S. in the future may require the company to accrue or pay withholding or other taxes on a portion of the amount transferred. See Note 8, “Income taxes,” of the Notes to Consolidated Financial Statements regarding the company’s intention to indefinitely reinvest earnings of foreign subsidiaries.

During 2022, cash provided by operating activities was $12.7 million compared with cash provided by operations of $132.5 million during 2021. The decline in operating cash in 2022 was primarily driven by the change in accounts receivable.

Cash used for investing activities during 2022 was $131.4 million compared with cash used for by investing activities of $360.3 million during 2021. Cash usage during 2021, included $239.3 million for acquisitions. Net purchases of investments were $44.3 million in 2022 compared with net purchases of $19.9 million in 2021. Proceeds from investments and purchases of investments represent derivative financial instruments used to manage the company’s currency exposure to market risks from changes in foreign currency exchange rates. In addition, capital additions of properties were $31.0 million in 2022 compared with $27.3 million in 2021, capital additions of outsourcing assets were $8.6 million in 2022 compared with $18.5 million in 2021 and the investment in marketable software was $46.3 million in 2022 compared with $54.4 million in 2021.

Cash used for financing activities during 2022 was $21.6 million compared with cash used for financing activities of $105.5 million during 2021. The decrease in cash used in 2022 was principally due to redemptions of debt in the prior year period.

At the end of each year, the company estimates its future cash contributions to its U.S. qualified defined benefit pension plans based on year-end pension data and assumptions. Any material deterioration in the value of the company’s U.S. qualified defined benefit pension plan assets, as well as changes in pension legislation, discount rate changes, asset return changes, or changes in economic or demographic trends, could require the company to make cash contributions to its U.S. qualified defined benefit pension plans. Based upon our most current estimates as of December 31, 2022, the company does not expect to make mandatory cash contributions to its U.S. qualified defined benefit pension plans until 2025.

In the first quarter of 2023, the company expects to sign an agreement with an insurance company to purchase, with plan assets, a group annuity contract to transfer approximately $250 million of projected benefit obligations related to approximately 8,600 retires of the company’s U.S. defined benefit pension plans. This action is expected to result in a first quarter 2023 non-cash pre-tax settlement loss of approximately $200 million.

As described in Note 18, “Employee plans,” of the Notes to Consolidated Financial Statements, the company expects to make cash contributions of approximately $40 million in 2023, primarily for its international defined benefit pension plans compared with cash contributions of $39.3 million in 2022.

At December 31, 2022, total debt was $513.1 million compared with $529.4 million at December 31, 2021. See Note 16, “Debt,” of the Notes to Consolidated Financial Statements for more detailed discussion of the company’s debt financing agreements including maturities by fiscal year.

The company has commitments under operating leases for certain facilities and equipment used in its operations. As of December 31, 2022, the company’s operating lease liabilities were $55.7 million. The company also has a number of finance leases for equipment, with lease liabilities totaling $1.1 million as of December 31, 2022. See Note 6, “Leases and commitments,” of the Notes to Consolidated Financial Statements for more information pertaining to future minimum lease payments relating to the company’s operating and finance lease obligations.

Additionally, as described in Note 5, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements, the company expects to make payments of approximately $11.7 million in 2023 related to the company’s work-force reduction actions.

In March 2021, the company completed the conversion of $84.2 million aggregate principal amount of Convertible Senior Notes due 2021 (the 2021 Notes) that remained outstanding for a combination of cash and shares of the company’s common stock. As a result of the conversion of the outstanding 2021 Notes, the company delivered to the holders (i) aggregate cash payments totaling approximately $86.5 million, which included an aggregate cash payment for outstanding principal of approximately $84.2 million, an aggregate cash payment for accrued interest of approximately $2.3 million and a nominal cash payment in lieu of fractional shares, and (ii) the issuance of 4,537,123 shares of the company’s common stock. The issuance of the common stock was made in exchange for the 2021 Notes pursuant to an exemption from the registration requirements provided by Section 3(a)(9) of the Securities Act of 1933, as amended.

The company has a secured revolving credit facility (the Amended and Restated ABL Credit Facility) that expires on October 29, 2025 that provides for revolving loans and letters of credit up to an aggregate amount of $145.0 million (with a limit on letters of credit of $40.0 million), with an accordion feature provision allowing for the aggregate amount available under the credit facility to be increased up to $175.0 million upon the satisfaction of certain conditions specified in the Amended and Restated ABL Credit Facility. Availability under the credit facility is subject to a borrowing base calculated by reference to the

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company’s receivables. At December 31, 2022, the company had no borrowings and $6.3 million of letters of credit outstanding, and availability under the facility was $67.9 million net of letters of credit issued. Any borrowings under the facility will be subject to variable interest rates.

The Amended and Restated ABL Credit Facility is subject to a springing maturity, under which the Amended and Restated ABL Credit Facility will immediately mature 91 days prior to any date on which contributions to pension funds in the United States in an amount in excess of $100.0 million are required to be paid unless the company is able to meet certain conditions, including that the company has the liquidity (as defined in the Amended and Restated ABL Credit Facility) to cash settle the amount of such pension payments, no default or event of default has occurred under the Amended and Restated ABL Credit Facility, the company’s liquidity is above $130.0 million and the company is in compliance with the then applicable fixed charge coverage ratio on a pro forma basis.

The Amended and Restated ABL Credit Facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc. and Unisys AP Investment Company I, each of which is a U.S. corporation that is directly or indirectly owned by the company (the subsidiary guarantors). The facility is secured by the assets of the company and the subsidiary guarantors, other than certain excluded assets, under a security agreement entered into by the company and the subsidiary guarantors in favor of JPMorgan Chase Bank, N.A., as agent for the lenders under the credit facility.

The company is required to maintain a minimum fixed charge coverage ratio if the availability under the Amended and Restated ABL Credit Facility falls below the greater of 10% of the lenders’ commitments under the facility and $14.5 million.

The Amended and Restated ABL Credit Facility contains customary representations and warranties, including, but not limited to, that there has been no material adverse change in the company’s business, properties, operations or financial condition. The Amended and Restated ABL Credit Facility includes restrictions on the ability of the company and its subsidiaries to, among other things, incur other debt or liens, dispose of assets and make acquisitions, loans and investments, repurchase its equity, and prepay other debt. These restrictions are subject to several important limitations and exceptions. Events of default include non-payment, failure to comply with covenants, materially incorrect representations and warranties, change of control and default under other debt aggregating at least $50.0 million, subject to relevant cure periods, as applicable.

At December 31, 2022, the company has met all covenants and conditions under its various lending and funding agreements. The company expects to continue to meet these covenants and conditions through at least the next twelve months.

At December 31, 2022, the company had outstanding standby letters of credit and surety bonds totaling approximately $218 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.

From time to time the company may explore a variety of additional debt and equity sources to fund its liquidity and capital needs.

The company may, from time to time, redeem, tender for, or repurchase its securities in the open market or in privately negotiated transactions depending upon availability, market conditions and other factors.

The company does not have any off-balance sheet arrangements that are material or reasonably likely to become material to its financial condition or results of operations

Critical accounting policies and estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. The company bases its estimates and judgments on historical experience and on other assumptions that it believes are reasonable under the circumstances; however, to the extent there are material differences between these estimates, judgments and assumptions and actual results, the financial statements will be affected. Although there are a number of accounting policies, methods and estimates affecting the company’s financial statements as described in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the following critical accounting policies reflect the significant estimates, judgments and assumptions. The development and selection of these critical accounting policies have been determined by management of the company and the related disclosures have been reviewed with the Audit and Finance Committee of the Board of Directors.

Revenue recognition

Many of the company’s sales agreements contain standard business terms and conditions; however, some agreements contain multiple performance obligations or non-standard terms and conditions. As discussed in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the company enters into arrangements that may

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include any combination of hardware, software or services. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including how many performance obligations are present in an arrangement, whether they should be treated as separate performance obligations and when to recognize revenue and under what method for each performance obligation.

Income Taxes

Accounting rules governing income taxes require that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. These rules also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized.

At December 31, 2022 and 2021, the company had deferred tax assets in excess of deferred tax liabilities of $1,218.9 million and $1,332.3 million, respectively. For the reasons cited below, at December 31, 2022 and 2021, management determined that it is more likely than not that $108.4 million and $106.1 million, respectively, of such assets will be realized, resulting in a valuation allowance of $1,110.5 million and $1,226.2 million, respectively.

The company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary. The realization of the company’s deferred tax assets is dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments. See “Item 1A. Risk Factors.” The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to the company’s valuation allowance, except with respect to refundable tax credits and withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly period to period depending on the geographic distribution of income.

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, 2022 is approximately $511.0 million. This limitation will be applied 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. See Note 8, “Income taxes,” of the Notes to Consolidated Financial Statements.

The company’s provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment and are based on the best information available at the time. The company operates within federal, state and international taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. As a result, the actual income tax liabilities in the jurisdictions with respect to any fiscal year are ultimately determined long after the financial statements have been published.

Pensions

Accounting rules governing defined benefit pension plans require that amounts recognized in financial statements be determined on an actuarial basis. The measurement of the company’s pension obligations, costs and liabilities is dependent on a variety of assumptions selected by the company and used by the company’s actuaries. These assumptions include estimates of the present value of projected future pension payments to plan participants, taking into consideration the likelihood of potential future events such as demographic experience. The assumptions used in developing the required estimates include the following key factors: discount rates, retirement rates, inflation, expected return on plan assets and mortality rates.

As permitted for purposes of computing pension expense, the company uses a calculated value of plan assets (which is further described below). This allows the effects of the performance of the pension plan’s assets on the company’s computation of pension income or expense to be amortized over future periods. A substantial portion of the company’s pension plan assets relates to its qualified defined benefit plans in the United States.

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Funding requirements for its U.S. qualified pension plans are calculated by the plan’s actuaries based on certain assumptions as permitted under current regulations. Changes to the benefit obligation caused by a 25 basis point change noted below are related to the balance sheet obligation and are not necessarily indicative of the impact on the funding liability.

At the end of each year, the company determines the discount rate to be used to calculate the present value of plan liabilities. Inherent in deriving the discount rate are significant assumptions with respect to the timing and magnitude of expected benefit payment obligations. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the company looks to rates of return on high-quality, fixed-income investments that (a) receive one of the two highest ratings given by a recognized ratings agency and (b) are currently available and expected to be available during the period to maturity of the pension benefits. At December 31, 2022, the company determined this rate to be 6.04% for its U.S. defined benefit pension plans, an increase of 286 basis points from the rate used at December 31, 2021, and 4.80% for the company’s non-U.S. defined benefit pension plans, an increase of 307 basis points from the rate used at December 31, 2021. A change of 25 basis points in the U.S. and non-U.S. discount rates causes a change in 2023 pension expense of approximately $400 thousand and $400 thousand, respectively, and a change of approximately $51 million and $46 million, respectively, in the benefit obligation. These estimates are intended to be illustrative based on a single 25 basis point change. The sensitivity to rate changes is not linear and additional changes in rates may result in a different impact on the pension liability. The net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, has been deferred, as permitted.

A significant element in determining the company’s pension income or expense is the expected long-term rate of return on plan assets. 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 considers the current expectations for future returns and the actual historical returns of each asset class. Also, because 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 are adjusted to reflect the expected additional returns. For 2023, the company has assumed that the expected long-term rate of return on U.S. plan assets will be 7.10%, and on the company’s non-U.S. plan assets will be 4.44%. A change of 25 basis points in the expected long-term rate of return for the company’s U.S. and non-U.S. pension plans causes a change of approximately $7 million and $5 million, respectively, in 2023 pension expense. The assumed long-term rate of return on assets is applied 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 pension income or expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains or losses affects the calculated value of plan assets and, ultimately, future pension income or expense. At December 31, 2022, for the company’s U.S. qualified defined benefit pension plans, the calculated value of plan assets was $2.89 billion and the fair value was $2.44 billion.

Gains and losses are defined as changes in the amount of either the projected benefit obligation or plan assets resulting from experience different from that assumed and from changes in assumptions. Because gains and losses may reflect refinements in estimates as well as real changes in economic values and because some gains in one period may be offset by losses in another and vice versa, the accounting rules do not require recognition of gains and losses as components of net pension expense of the period in which they arise.

At a minimum, amortization of an unrecognized net gain or loss must be included as a component of net pension expense for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the calculated value of plan assets. If amortization is required, the minimum amortization is that excess above the 10 percent divided by the average remaining life expectancy of the plan participants. For the company’s U.S. qualified defined benefit pension plans and the company’s non-U.S. pension plans, that period is approximately 14 and 19 years, respectively. At December 31, 2022, the estimated unrecognized loss for the company’s U.S. qualified defined benefit pension plans and the company’s non-U.S. pension plans was $1.80 billion and $800 million, respectively.

For the year ended December 31, 2022, the company recognized consolidated pension expense of $47.1 million compared with $553.9 million for the year ended December 31, 2021 (which includes a $499.4 million settlement losses). For 2023, the company expects to recognize pension expense of approximately $41.5 million. See Note 18, “Employee plans,” of the Notes to Consolidated Financial Statements.

Goodwill

The company reviews goodwill for impairment annually in the fourth quarter using data as of September 30 of that year, as well as whenever there are events or changes in circumstances (triggering events) which indicate that the carrying amount may not be recoverable.

The company initially assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This qualitative assessment considers all relevant factors specific to the reporting units, including macroeconomic conditions, industry and market considerations, overall financial performance, changes in share price and relevant entity-specific events.

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If, after completing the qualitative assessment, the company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the company proceeds to perform a subsequent quantitative goodwill impairment test. Alternatively, the company may elect to bypass the qualitative assessment and perform the quantitative impairment test. The quantitative goodwill impairment test compares each reporting unit’s fair value to its carrying value. If the reporting unit’s fair value exceeds its carrying value, no further procedures are required. However, if a reporting unit’s fair value is less than its carrying value, then an impairment charge is recorded in the amount of the excess.

When the company performs the quantitative goodwill impairment test for a reporting unit, it estimates the fair value of the reporting unit using both the income approach and the market approach. The methodology used to determine the fair values using the income and market approaches, as described below, are weighted to determine the fair value for each reporting unit.

The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, the method used is the discounted cash flow method. The company starts with a forecast of all expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then a reporting unit-specific discount rate is applied to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include the amount and timing of projected net cash flows, long-term growth rate and the discount rate. Cash flow projections are based on management’s estimates of economic and market conditions, which drive key assumptions of revenue growth rates and operating margins. The discount rate in turn is based on various market factors and specific risk characteristics of each reporting unit.

The market approach relies primarily on external information for estimating the fair value. Some of the more significant estimates and assumptions inherent in this approach include the selection of appropriate guideline companies and the selected performance metric used in this approach.

Estimating the fair value of reporting units requires the use of estimates and significant judgments about key assumptions. There are a number of factors including potential events and changes in circumstances that could change in future periods, including: projected operating results; valuation multiples exhibited by the company and by companies considered comparable to the reporting units; and other macro-economic factors that could impact the discount rate. It is reasonably possible that the judgments and estimates described above could change in future periods.

During the fourth quarter of 2022, the company performed a quantitative goodwill impairment test for each reporting unit. The quantitative assessment indicated that each reporting unit’s fair value exceeded its carrying value, as such no impairment charge was recognized as of December 31, 2022. We estimated the fair value of the reporting units using a combination of discounted cash flows and market-based valuation methodologies as noted above. These methodologies involve significant assumptions that are subject to variability.

Based on the annual impairment analysis performed during the fourth quarter of 2022, the reporting unit that was closest to impairment was the CA&I reporting unit with fair value in excess of book value, including goodwill, of 6%. All other reporting units had a fair value substantially in excess of book value.

The company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the significant assumptions noted above, including changes to U.S. treasury rates and equity risk premiums, tax rates, recent market valuations from transactions by comparable companies, volatility in the company’s market capitalization, and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances or in the inputs and assumptions used in estimating the fair value of the reporting units, could require the company to record a non-cash impairment charge.

Goodwill by reporting unit at December 31, 2022, was as follows:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(For a discussion of 2020 compared with 2019, refer to Part II, Item 7 contained in the company’s Form 10-K for the fiscal year ended December 31, 2020.)

Overview

During 2021, the company continued to execute its key strategies including revenue growth and gross profit margin improvement by expanding its solution portfolio organically and through strategic investments/acquisitions while managing the company’s workforce to attract and retain talent in this competitive market. In 2021, revenue increased 1.4% and gross profit improved to 27.8%. Refer to Results of Operations for more information on the company’s financial results.

In January 2021, to simplify and streamline the company’s operations and more effectively address evolving client needs, the company changed its organizational structure. Refer to the Segment Results section for more information on the company’s reportable segments.

One of the key elements of the company’s strategy is to pursue acquisitions. During 2021, the company completed three acquisitions to accelerate its pace of innovation and capitalize on growing and emerging markets. In June and November, the company acquired Unify Square, Inc. (Unify Square) and the Mobinergy group of companies (Mobinergy), respectively, to advance the company’s experience-focused Digital Workplace Solutions set and to deliver higher-value solutions to its clients. In December, the company acquired CompuGain LLC (CompuGain) to enhance the company’s delivery of rapid and agile cloud migration, application modernization and data value realization to its clients. The company funded the cash consideration and acquisition-related costs for all the acquisitions with cash on hand, see Note 4, “Acquisitions,” of the Notes to Consolidated Financial Statements for more information on each acquisition. As disclosed in Note 3, “Recent accounting pronouncements,” of the Notes to Consolidated Financial Statements, the company expects to adopt Accounting Standards Update (ASU) No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, effective January 1, 2022. This guidance requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, as if it originated the contracts. Had the company decided to retrospectively adopt this ASU on January 1, 2021, the difference in the value applied to contract assets and contract liabilities would have been immaterial.

Additionally, as the company continues its efforts to further de-risk its balance sheet, during 2021 the company, through a combination of transfers, annuity purchase arrangements and lump sum payments, settled gross defined benefit pension plan liabilities of approximately $1.2 billion. These actions resulted in pre-tax settlement losses of $499.4 million for the year ended December 31, 2021 related to the company’s plans in the Netherlands, the United States and Switzerland.

•In January 2021, the company purchased a group annuity contract for $279 million to transfer projected benefit obligations related to approximately 11,600 retirees of the company’s U.S. defined benefit pension plans. This action resulted in a pre-tax settlement loss of $158.0 million.

•Effective May 1, 2021, the company’s primary pension plan related to its Dutch subsidiary was transferred to a multi-client circle within a multi-employer fund. This resulted in removing all of the plan’s projected benefit obligations, valued at approximately $553 million, from the company’s balance sheet. This action resulted in a pre-tax settlement loss of $182.5 million.

•In the second quarter of 2021, the company’s Swiss subsidiary transferred its defined benefit pension plan to a multiple-employer collective foundation. This resulted in removing the projected benefit obligations related to retirees under the Swiss plan, valued at approximately $100 million, from the company’s balance sheet. The transfer required a one-time additional contribution of approximately $10 million to the Swiss plan in 2021. This action resulted in a pre-tax settlement loss of $28.8 million.

•On October 14, 2021, the company purchased a group annuity contract for $235 million to transfer projected benefit obligations related to approximately 6,900 retirees of the company’s U.S. defined benefit pension plans. This action resulted in a pre-tax settlement loss of $130.1 million.

On March 3, 2021, the company completed the conversion of $84.2 million aggregate principal amount of Convertible Senior Notes due 2021 (the 2021 Notes) that remained outstanding for a combination of cash and shares of the company’s common stock. See Note 16, “Debt,” of the Notes to Consolidated Financial Statements for details on the conversion.

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Results of operations

Company results

Revenue for 2021 was $2.05 billion compared with $2.03 billion for 2020, an increase of 1.4%. Foreign currency fluctuations had a 2-percentage-point positive impact on revenue in the current year compared with the year-ago period.

Revenue from international operations for 2021 was $1.20 billion compared with $1.24 billion for 2020, a decrease of 3.7% principally due to decreases in Latin America and Asia/Pacific. Foreign currency had a 3-percentage-point positive impact on international revenue in 2021 compared with 2020. Revenue from U.S. operations was $856.2 million for 2021 compared with $781.5 million for 2020, an increase of 9.6%.

During 2021, the company recognized cost-reduction charges and other costs of $23.2 million. The net charges related to work-force reductions were $0.4 million, principally related to severance costs, and were comprised of: (a) a charge of $12.3 million and (b) a credit of $11.9 million for changes in estimates. In addition, the company recorded charges of $22.8 million comprised of $4.0 million for net foreign currency losses related to exiting foreign countries, $12.6 million for asset impairments and $6.2 million for other expenses related to cost-reduction efforts.

During 2020, the company recognized cost-reduction charges and other costs of $95.5 million. The net charges related to work-force reductions were $25.5 million principally, related to severance costs, and were comprised of: (a) a charge of $39.0 million and (b) a credit of $13.5 million for changes in estimates. In addition, the company recorded charges of $70.0 million comprised of $32.3 million for net foreign currency losses related to exiting foreign countries, $24.0 million for asset impairments and $13.7 million for other expenses related to cost-reduction efforts.

The cost reduction charges (credits) were recorded in the following statement of income (loss) classifications:

Gross profit margin was 27.8% in 2021 and 23.8% in 2020. The increase in gross profit margin in 2021 was due in part to improvements in all the company’s segments driven by higher sales of the company’s enterprise software and improvements to efficiency.

Selling, general and administrative expenses were $389.5 million in 2021 (19.0% of revenue) and $369.4 million in 2020 (18.2% of revenue). The increase was primarily due to increased investments in the company’s go-to-market efforts, primarily related to direct sales support and increases to non-cash-based compensation.

Research and development (R&D) expenses in 2021 were $28.5 million compared with $26.6 million in 2020.

In 2021, the company reported an operating profit of $154.0 million compared with an operating profit of $87.0 million in 2020. The increase in 2021 was due in part by improvements in all the company’s segments driven by higher sales of the company’s enterprise software and improvements to efficiency.

Interest expense was $35.4 million in 2021 compared with $29.2 million in 2020. The increase was principally due to the issuance of the 6.875% senior secured notes due 2027 in October 2020.

Other (expense), net was expense of $580.3 million in 2021 compared with expense of $329.6 million in 2020. Other (expense), net in 2021 includes $499.4 million of pension settlement losses compared with $142.1 million in 2020. See Note 7, “Other (expense), net,” of the Notes to Consolidated Financial Statements for details of other (expense), net.

Pension expense for 2021 was $553.9 million compared with $235.3 million in 2020. The increase in 2021 was principally due to $499.4 million of settlement losses in 2021 related to defined benefits plans in the Netherlands, the United States and Switzerland compared to a $142.1 million settlement loss in 2020 related to U.S. defined benefit pension plans. See Note 18, “Employee plans,” of the Notes to Consolidated Financial Statements for details of the settlement losses.

The loss from continuing operations before income taxes in 2021 was $461.7 million compared with a loss of $271.8 million in 2020. Included in the loss in 2021 and 2020 was $499.4 million and $142.1 million, respectively, of settlement losses related to

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the company’s defined benefit pension plans as well as $23.2 million and $95.5 million of cost reduction charges in 2021 and 2020, respectively.

The benefit for income taxes in 2021 was $11.9 million compared with a provision of $45.4 million in 2020. The current period includes income tax benefits of $51.5 million related to the pension plan settlement losses in the Netherlands and Switzerland. In addition, in June 2021 the UK enacted an income tax rate increase from 19% to 25% for the fiscal year beginning April 1, 2023. The UK rate increase resulted in a deferred tax benefit of $17.7 million in 2021.

The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary. The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to the company’s valuation allowance, except with respect to refundable tax credits and withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly period to period depending on the geographic distribution of income.

The realization of the company’s net deferred tax assets as of December 31, 2021 is primarily dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments. It is at least reasonably possible that the company’s judgment about the need for, and level of, existing valuation allowances could change in the near term based on changes in objective evidence such as further sustained income or loss in certain jurisdictions, as well as the other factors discussed above, primarily in certain jurisdictions outside of the United States. As such, the company will continue to monitor income levels and mix among jurisdictions, potential changes to the company’s operating and tax model, and other legislative or global developments in its determination. It is reasonably possible that such changes could result in a material impact to the company’s valuation allowance within the next 12 months. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in such period and could have a significant impact on that period’s earnings.

Net loss from continuing operations attributable to Unisys Corporation for 2021 was $448.5 million, or $6.75 per diluted share, compared with $317.7 million, or $5.05 per diluted share in 2020. Included in the loss in 2021 and 2020 was $447.9 million and $142.1 million, respectively, of after tax settlement losses related to the company’s defined benefit pension plans.

Segment results

In January 2021, the company changed its organizational structure to more effectively address evolving client needs. With these changes, the company changed its reportable segments, but this did not impact the consolidated financial statements as of December 31, 2020.

The company’s reportable segments are as follows:

•Digital Workplace Solutions (DWS), which provides solutions that transform digital workplaces securely and create exceptional end-user experiences;

•Cloud and Infrastructure Solutions (C&I), which provides solutions that drive modern IT service platforms, cloud applications development, intelligent services, and cybersecurity services; and

•Enterprise Computing Solutions (ECS), which provides solutions that harness secure, continuous high-intensity computing and enable digital services through software-defined operating environments.

The accounting policies of each segment are the same as those followed by the company as a whole. Intersegment sales and transfers are priced as if the sales or transfers were to third parties. Accordingly, the ECS segment records intersegment revenue and manufacturing profit on software and hardware shipments to customers under contracts of other segments. These segments, in turn, record customer revenue and marketing profits on such shipments of company hardware and software to customers. In the company’s consolidated statements of income (loss), the manufacturing costs of products sourced from the ECS segment and sold to other segments’ customers are reported in cost of revenue for these other segments.

Also included in the ECS segment’s sales and gross profit are sales of software and hardware sold to other segments for internal use in their engagements. The amount of such profit included in gross profit of the ECS segment for the years ended December 31, 2021 and 2020 was $1.4 million and $7.8 million, respectively. The sale and profit on these transactions is eliminated in Corporate.

The company evaluates segment performance based on gross profit exclusive of the service costs component of postretirement income or expense, restructuring charges, amortization of purchased intangible and unusual and nonrecurring items, which are included in Corporate. Effective for the first quarter of 2021, the company also changed its internal measurement of segment profitability. Prior period amounts have therefore been reclassified to be comparable to the current period’s presentation.

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Corporate assets are principally cash and cash equivalents, prepaid postretirement assets and deferred income taxes. The expense or income related to corporate assets and centrally incurred costs are allocated to the business segments. See Note 21, “Segment information,” of the Notes to Consolidated Financial Statements.

Information by reportable segment is presented below:

Gross profit percent is as a percent of total revenue.

DWS revenue was $567.0 million in 2021 and $588.3 million in 2020. Revenue in 2021 was negatively impacted as the company exited certain non-strategic contracts that were not aligned to its targeted margin profile. Foreign currency fluctuations had a 2-percentage-point positive impact on DWS revenue in 2021 compared with 2020. Gross profit percent was 13.5% in 2021 and 9.4% in 2020. The increase in gross profit in 2021 compared with 2020 was due in part to improvements in efficiency as well as the company’s focus on higher margin solutions.

C&I revenue was $496.5 million in 2021 and $465.2 million in 2020. The increase in revenue in 2021 compared with 2020 was driven by continued momentum with public sector clients as well as other highly-regulated industries. Foreign currency fluctuations had a 2-percentage-point positive impact on C&I revenue in 2021 compared with 2020. Gross profit percent was 11.4% in 2021 and 5.0% in 2020. The increase in gross profit in 2021 compared with 2020 was due in part to improvements in efficiency.

ECS revenue was $677.5 million in 2021 and $659.7 million in 2020. Foreign currency fluctuations had a 2 percentage-point positive impact on ECS revenue in 2021 compared with 2020. Gross profit percent was 63.1% in 2021 and 56.9% in 2020. The increase in revenue and gross profit in 2021 compared with 2020 was due to higher sales of the company’s enterprise software.

New accounting pronouncements

See Note 3, “Recent accounting pronouncements and accounting changes,” of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on the company’s consolidated financial statements.

Financial condition

The company’s principal sources of liquidity are cash on hand, cash from operations and its revolving credit facility, discussed below. The company and certain international subsidiaries have access to uncommitted lines of credit from various banks. The company believes that it will have adequate sources of liquidity to meet its expected cash requirements through at least the next twelve months.

Cash and cash equivalents at December 31, 2021 were $552.9 million compared with $898.5 million at December 31, 2020.

As of December 31, 2021, $326.6 million of cash and cash equivalents were held by the company’s foreign subsidiaries and branches operating outside of the U.S. The company may not be able to readily transfer up to one-third of these funds out of the country in which they are located as a result of local restrictions, contractual or other legal arrangements or commercial considerations. Additionally, any transfers of these funds to the U.S. in the future may require the company to accrue or pay withholding or other taxes on a portion of the amount transferred. See Note 8, “Income taxes,” of the Notes to Consolidated Financial Statements regarding the company’s intention to indefinitely reinvest earnings of foreign subsidiaries.

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During 2021, cash provided by operating activities was $132.5 million compared with cash used for operations of $681.2 million during 2020. The operating cash improvement in 2021 was principally due to lower cash contributions to the company’s postretirement plans of $56.4 million in 2021 compared to $832.2 million in 2020.

Cash used for investing activities during 2021 was $360.3 million compared with cash provided by investing activities of $1,041.6 million during 2020. During 2021, the company purchased Unify Square, Mobinergy and CompuGain for cash of $239.3 million. See Note 4, “Acquisitions,” of the Notes to Consolidated Financial Statements for further information on each acquisition. On March 13, 2020, the company sold its U.S. Federal business and received net cash proceeds of $1,162.9 million. Net purchases of investments were $19.9 million in 2021 compared with net proceeds of $9.3 million in 2020. Proceeds from investments and purchases of investments represent derivative financial instruments used to manage the company’s currency exposure to market risks from changes in foreign currency exchange rates. In addition, capital additions of properties were $27.3 million in 2021 compared with $27.7 million in 2020, capital additions of outsourcing assets were $18.5 million in 2021 compared with $30.1 million in 2020 and the investment in marketable software was $54.4 million in 2021 compared with $72.3 million in 2020.

Cash used for financing activities during 2021 was $105.5 million compared with cash provided by financing activities of $5.1 million during 2020. The cash used in 2021 was principally due to the convertible notes exchange.

The American Rescue Plan Act, which was signed into law in the U.S. on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, the company was not required to make cash contributions in 2021 to its U.S. qualified defined benefit pension plans and did not make the previously-contemplated voluntary $200 million contribution to its U.S. pension plans in 2021. Based on year-end 2021 pension data and actuarial assumptions, which are likely to change in the future, the company is not expected to be required to make future cash contributions to its U.S. qualified defined benefit pension plans for at least the next 10 years.

Any future material deterioration in the value of the company’s U.S. qualified defined benefit pension plan assets, as well as changes in pension legislation, discount rate changes, asset return changes, or changes in economic or demographic trends, could require the company to make cash contributions to its U.S. defined benefit pension plans that are not currently expected.

As described in Note 18, “Employee plans,” of the Notes to Consolidated Financial Statements, the company expects to make cash contributions of approximately $40.2 million in 2022, primarily for its international defined benefit pension plans compared with cash contributions of $52.4 million in 2021.

At December 31, 2021, total debt was $529.4 million compared with $629.9 million at December 31, 2020. The reduction is primarily due to the conversion of the company’s 2021 Notes, which is described below. See Note 16, “Debt,” of the Notes to Consolidated Financial Statements for more detailed discussion of the company’s debt financing agreements including maturities by fiscal year.

The company has commitments under operating leases for certain facilities and equipment used in its operations. As of December 31, 2021, the company’s operating lease liabilities were $81.5 million. The company also have a number of finance leases for equipment, with lease liabilities totaling $2.7 million as of December 31, 2021. See Note 6, “Leases and commitments,” of the Notes to Consolidated Financial Statements for more information pertaining to future minimum lease payments relating to the company’s operating and finance lease obligations.

Additionally as described in Note 5, “Cost-reduction actions,” of the Notes to Consolidated Financial Statements, the company expects to make payments of approximately $14.9 million in 2022 related to the company’s work-force reduction actions and the company expects to make payments of approximately $1.4 million beyond 2022.

On March 3, 2021, the company completed the conversion of $84.2 million aggregate principal amount of the 2021 Notes that remained outstanding for a combination of cash and shares of the company’s common stock. As a result of the conversion of the outstanding 2021 Notes, the company delivered to the holders of such notes (i) aggregate cash payments totaling approximately $86.5 million, which included an aggregate cash payment for outstanding principal of approximately $84.2 million, an aggregate cash payment for accrued interest of approximately $2.3 million and a nominal cash payment in lieu of fractional shares, and (ii) 4,537,123 shares of the company’s common stock in the aggregate. The issuance of the common stock was made in exchange for the 2021 Notes pursuant to an exemption from the registration requirements provided by Section 3(a)(9) of the Securities Act of 1933, as amended.

The company has a secured revolving credit facility (the Amended and Restated ABL Credit Facility) that expires on October 29, 2025 that provides for revolving loans and letters of credit up to an aggregate amount of $145.0 million (with a limit on letters of credit of $40.0 million), with an accordion feature provision allowing for the aggregate amount available under the credit facility to be increased up to $175.0 million upon the satisfaction of certain conditions specified in the Amended and Restated ABL Credit Facility. Availability under the credit facility is subject to a borrowing base calculated by reference to the

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company’s receivables. At December 31, 2021, the company had no borrowings and $5.7 million of letters of credit outstanding, and availability under the facility was $80.4 million net of letters of credit issued.

The Amended and Restated ABL Credit Facility is subject to a springing maturity, under which the Amended and Restated ABL Credit Facility will immediately mature 91 days prior to any date on which contributions to pension funds in the United States in an amount in excess of $100.0 million are required to be paid unless the company is able to meet certain conditions, including that the company has the liquidity (as defined in the Amended and Restarted ABL Credit Facility) to cash settle the amount of such pension payments, no default or event of default has occurred under the Amended and Restated ABL Credit Facility, the company’s liquidity is above $130.0 million and the company is in compliance with the then applicable fixed charge coverage ratio on a pro forma basis.

The Amended and Restated ABL Credit Facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc., Unisys AP Investment Company I, CompuGain LLC and CompuGain Public Services, LLC, each of which is a U.S. corporation or limited liability company that is directly or indirectly owned by the company (the subsidiary guarantors). The facility is secured by the assets of the company and the subsidiary guarantors, other than certain excluded assets, under a security agreement entered into by the company and the subsidiary guarantors in favor of JPMorgan Chase Bank, N.A., as agent for the lenders under the credit facility.

The company is required to maintain a minimum fixed charge coverage ratio if the availability under the Amended and Restated ABL Credit Facility falls below the greater of 10% of the lenders’ commitments under the facility and $14.5 million.

The Amended and Restated ABL Credit Facility contains customary representations and warranties, including, but not limited to, that there has been no material adverse change in the company’s business, properties, operations or financial condition. The Amended and Restated ABL Credit Facility includes restrictions on the ability of the company and its subsidiaries to, among other things, incur other debt or liens, dispose of assets and make acquisitions, loans and investments, repurchase its equity, and prepay other debt. These restrictions are subject to several important limitations and exceptions. Events of default include non-payment, failure to comply with covenants, materially incorrect representations and warranties, change of control and default under other debt aggregating at least $50.0 million, subject to relevant cure periods, as applicable.

At December 31, 2021, the company has met all covenants and conditions under its various lending and funding agreements. The company expects to continue to meet these covenants and conditions through at least the next twelve months.

At December 31, 2021, the company had outstanding standby letters of credit and surety bonds totaling approximately $198 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.

The company maintains a shelf registration statement with the Securities and Exchange Commission that covers the offer and sale of debt or equity securities. Subject to the company’s ongoing compliance with securities laws, the company may offer and sell debt and equity securities from time to time under the shelf registration statement. In addition, from time to time the company has explored, and expects to continue to explore, a variety of debt and equity sources to fund its liquidity and capital needs.

The company may, from time to time, redeem, tender for, or repurchase its securities in the open market or in privately negotiated transactions depending upon availability, market conditions and other factors.

Critical accounting policies and estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. The company bases its estimates and judgments on historical experience and on other assumptions that it believes are reasonable under the circumstances; however, to the extent there are material differences between these estimates, judgments and assumptions and actual results, the financial statements will be affected. Although there are a number of accounting policies, methods and estimates affecting the company’s financial statements as described in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the following critical accounting policies reflect the significant estimates, judgments and assumptions. The development and selection of these critical accounting policies have been determined by management of the company and the related disclosures have been reviewed with the Audit and Finance Committee of the Board of Directors.

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Revenue recognition

Many of the company’s sales agreements contain standard business terms and conditions; however, some agreements contain multiple performance obligations or non-standard terms and conditions. As discussed in Note 1, “Summary of significant accounting policies,” of the Notes to Consolidated Financial Statements, the company enters into arrangements that may include any combination of hardware, software or services. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including how many performance obligations are present in an arrangement, whether they should be treated as separate performance obligations and when to recognize revenue and under what method for each performance obligation.

Income Taxes

Accounting rules governing income taxes require that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. These rules also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized.

At December 31, 2021 and 2020, the company had deferred tax assets in excess of deferred tax liabilities of $1,332.3 million and $1,380.8 million, respectively. For the reasons cited below, at December 31, 2021 and 2020, management determined that it is more likely than not that $106.1 million and $109.3 million, respectively, of such assets will be realized, resulting in a valuation allowance of $1,226.2 million and $1,271.5 million, respectively.

The company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary. The realization of the company’s deferred tax assets is dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments. See “Item 1A. Risk Factors.” It is at least reasonably possible that the company’s judgment about the need for, and level of, existing valuation allowances could change in the near term based on changes in objective evidence such as further sustained income or loss in certain jurisdictions, as well as the other factors discussed above, primarily in certain jurisdictions outside of the United States. As such, the company will continue to monitor income levels and mix among jurisdictions, potential changes to the company’s operating and tax model, and other legislative or global developments in its determination. It is reasonably possible that such changes could result in a material impact to the Company’s valuation allowance within the next 12 months.

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, 2021 is approximately $462.4 million. This limitation will be applied 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. See Note 8, “Income taxes,” of the Notes to Consolidated Financial Statements.

The company’s provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment and are based on the best information available at the time. The company operates within federal, state and international taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. As a result, the actual income tax liabilities in the jurisdictions with respect to any fiscal year are ultimately determined long after the financial statements have been published.

Pensions

Accounting rules governing defined benefit pension plans require that amounts recognized in financial statements be determined on an actuarial basis. The measurement of the company’s pension obligations, costs and liabilities is dependent on a variety of assumptions selected by the company and used by the company’s actuaries. These assumptions include estimates of the present value of projected future pension payments to plan participants, taking into consideration the likelihood of potential

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future events such as demographic experience. The assumptions used in developing the required estimates include the following key factors: discount rates, retirement rates, inflation, expected return on plan assets and mortality rates.

As permitted for purposes of computing pension expense, the company uses a calculated value of plan assets (which is further described below). This allows the effects of the performance of the pension plan’s assets on the company’s computation of pension income or expense to be amortized over future periods. A substantial portion of the company’s pension plan assets relates to its qualified defined benefit plans in the United States.

Funding requirements for its U.S. qualified pension plans are calculated by the plan’s actuaries based on certain assumptions as permitted under current regulations. Changes to the benefit obligation caused by a 25 basis point change noted below are related to the balance sheet obligation and are not necessarily indicative of the impact on the funding liability.

At the end of each year, the company determines the discount rate to be used to calculate the present value of plan liabilities. Inherent in deriving the discount rate are significant assumptions with respect to the timing and magnitude of expected benefit payment obligations. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the company looks to rates of return on high-quality, fixed-income investments that (a) receive one of the two highest ratings given by a recognized ratings agency and (b) are currently available and expected to be available during the period to maturity of the pension benefits. At December 31, 2021, the company determined this rate to be 3.18% for its U.S. defined benefit pension plans, an increase of 33 basis points from the rate used at December 31, 2020, and 1.73% for the company’s non-U.S. defined benefit pension plans, an increase of 50 basis points from the rate used at December 31, 2020. A change of 25 basis points in the U.S. and non-U.S. discount rates causes a change in 2022 pension expense of approximately $1 million and $200 thousand, respectively, and a change of approximately $83 million and $102 million, respectively, in the benefit obligation. These estimates are intended to be illustrative based on a single 25 basis point change. The sensitivity to rate changes is not linear and additional changes in rates may result in a different impact on the pension liability. The net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, has been deferred, as permitted.

A significant element in determining the company’s pension income or expense is the expected long-term rate of return on plan assets. 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 considers the current expectations for future returns and the actual historical returns of each asset class. Also, because 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 are adjusted to reflect the expected additional returns. For 2022, the company has assumed that the expected long-term rate of return on U.S. plan assets will be 6.50%, and on the company’s non-U.S. plan assets will be 3.88%. A change of 25 basis points in the expected long-term rate of return for the company’s U.S. and non-U.S. pension plans causes a change of approximately $7 million and $5 million, respectively, in 2022 pension expense. The assumed long-term rate of return on assets is applied 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 pension income or expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains or losses affects the calculated value of plan assets and, ultimately, future pension income or expense. At December 31, 2021, for the company’s U.S. qualified defined benefit pension plans, the calculated value of plan assets was $3.14 billion and the fair value was $3.07 billion.

Gains and losses are defined as changes in the amount of either the projected benefit obligation or plan assets resulting from experience different from that assumed and from changes in assumptions. Because gains and losses may reflect refinements in estimates as well as real changes in economic values and because some gains in one period may be offset by losses in another and vice versa, the accounting rules do not require recognition of gains and losses as components of net pension cost of the period in which they arise.

At a minimum, amortization of an unrecognized net gain or loss must be included as a component of net pension cost for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the calculated value of plan assets. If amortization is required, the minimum amortization is that excess above the 10 percent divided by the average remaining life expectancy of the plan participants. For the company’s U.S. qualified defined benefit pension plans and the company’s non-U.S. pension plans, that period is approximately 14 and 23 years, respectively. At December 31, 2021, the estimated unrecognized loss for the company’s U.S. qualified defined benefit pension plans and the company’s non-U.S. pension plans was $2.10 billion and $850 million, respectively.

For the year ended December 31, 2021, the company recognized consolidated pension expense of $553.9 million (which includes $499.4 million settlement losses), compared with $235.3 million for the year ended December 31, 2020 (which includes a $142.1 million settlement loss). For 2022, the company expects to recognize pension expense of approximately $42.3 million. See Note 18, “Employee plans,” of the Notes to Consolidated Financial Statements.

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Goodwill

The company tests goodwill for impairment annually in the fourth quarter using data as of September 30 of that year, as well as whenever there are events or changes in circumstances (triggering events) which suggest that the carrying amount may not be recoverable.

The company initially assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This qualitative assessment considers all relevant factors specific to the reporting units, including macroeconomic conditions, industry and market considerations, overall financial performance, and relevant entity-specific events.

If, after completing the qualitative assessment, the company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the company proceeds to perform a subsequent quantitative goodwill impairment test. Alternatively, the company may elect to bypass the qualitative assessment and perform the quantitative impairment test. The quantitative goodwill impairment test compares each reporting unit’s fair value to its carrying value. If the reporting unit’s fair value exceeds its carrying value, no further procedures are required. However, if a reporting unit’s fair value is less than its carrying value, then an impairment charge is recorded in the amount of the excess.

When the company performs the quantitative goodwill impairment test for a reporting unit, it estimates the fair value of the reporting unit using both the income approach and the market approach. The methodology used to determine the fair values using the income and market approaches, as described below, are weighted to determine the fair value for each reporting unit.

The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, the method used is the discounted cash flow method. The company starts with a forecast of all expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then a reporting unit-specific discount rate is applied to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include the amount and timing of projected net cash flows, long-term growth rate and the discount rate. Cash flow projections are based on management’s estimates of economic and market conditions, which drive key assumptions of revenue growth rates and operating margins. The discount rate in turn is based on various market factors and specific risk characteristics of each reporting unit.

The market approach relies primarily on external information for estimating the fair value. Some of the more significant estimates and assumptions inherent in this approach include the selection of appropriate guideline companies and the selected performance metric used in this approach.

Estimating the fair value of reporting units requires the use of estimates and significant judgments about key assumptions. There are a number of factors including potential events and changes in circumstances that could change in future periods, including: projected operating results; valuation multiples exhibited by the company and by companies considered comparable to the reporting units; and other macro-economic factors that could impact the discount rate. It is reasonably possible that the judgments and estimates described above could change in future periods.

In January 2021, the company changed its organizational structure to more effectively address evolving client needs. With these changes, the company changed its reportable segments, operating segments and reporting units. The realignment and change was deemed a triggering event, resulting in the company performing an interim quantitative goodwill impairment test on the reporting units impacted by this segment change as of immediately before and immediately after the change. There were no impairment charges resulting from this analysis. As a result of the realignment, goodwill totaling $108.6 million was reallocated as follows: ECS, $98.3 million and Other, $10.3 million.

Goodwill by reporting unit at December 31, 2021, was as follows (dollars in millions):

After performing the annual goodwill impairment qualitative analysis during the fourth quarter of 2021, the company determined it was not necessary to perform the quantitative goodwill impairment test.

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