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Whether yours is a communications, life sciences, healthcare, retail, or travel and transportation enterprise, everyone in the commercial industry is facing similar, formidable business challenges.
With Unisys, you'll have all the solutions and services you need to tackle your most complex business and IT problems, and achieve full digital transformation.
Energize and increase the productivity of your users with a digital workplace that meets their needs and minimizes frustration with IT support.
Hybrid and multi-cloud operations are complex and costly. Increase your chances of success and get the business value you need.
Process millions of transactions daily, seamlessly incorproate contemporary tools and interfaces, and keep your business-critical apps secure.
Keep your customers and your reputation safe while simplifying your IT ecosystem. Neutralize threats before they become a crisis.
Unlock the value of your data to identify new markets, uncover new opportunities and reach new heights.
Apps are at the heart of your business. Deliver results with better customer and user experiences.
Many industries are facing a similar situation: rising costs, demands for IT modernization, and cybersecurity risks. We offer tailored solutions for your industry to address these challenges.
1. Summary of significant accounting policies
Principles of consolidation The consolidated financial statements include the accounts of all majority-owned subsidiaries.
Use of estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions about future events. These estimates and assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and the reported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, inventories, outsourcing assets, marketable software, goodwill and other long-lived assets, legal contingencies, indemnifications, and assumptions used in the calculation for systems integration projects, income taxes and retirement and other post-employment benefits, among others. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Cash equivalents All short-term investments purchased with a maturity of three months or less and certificates of deposit which may be withdrawn at any time at the discretion of the company without penalty are classified as cash equivalents.
Inventories Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out method.
Properties Properties are carried at cost and are depreciated over the estimated lives of such assets using the straight-line method. The estimated lives used, in years, are as follows: buildings, 20 -- 50; machinery and office equipment, 4 -- 7; rental equipment, 4; and internal-use software, 3 -- 10.
Advertising costs All advertising costs are expensed as incurred. The amount charged to expense during 2014, 2013 and 2012 was $8.0 million, $2.5 million and $3.1 million, respectively.
Shipping and handling Costs related to shipping and handling is included in cost of revenue.
Revenue recognition Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is probable.
Revenue from hardware sales with standard payment terms is recognized upon the passage of title and the transfer of risk of loss. Outside the United States, the company recognizes revenue even if it retains a form of title to products delivered to customers, provided the sole purpose is to enable the company to recover the products in the event of customer payment default and the arrangement does not prohibit the customer's use of the product in the ordinary course of business.
Revenue from software licenses with standard payment terms is recognized at the inception of the initial license term and upon execution of an extension to the license term.
The company also enters into multiple-element arrangements, which may include any combination of hardware, software or services. For example, a client may purchase an enterprise server that includes operating system software. In addition, the arrangement may include post-contract support for the software and a contract for post-warranty maintenance for service of the hardware. These arrangements consist of multiple deliverables, with hardware and software delivered in one reporting period and the software support and hardware maintenance services delivered across multiple reporting periods. In another example, the company may provide desktop managed services to a client on a long term multiple year basis and periodically sell hardware and software products to the client. The services are provided on a continuous basis across multiple reporting periods and the hardware and software products are delivered in one reporting period. To the extent that a deliverable in a multiple-deliverable arrangement is subject to specific guidance, that deliverable is accounted for in accordance with such specific guidance. Examples of such arrangements may include leased hardware which is subject to specific leasing guidance or software which is subject to specific software revenue recognition guidance.
In these transactions, the company allocates the total revenue to be earned under the arrangement among the various elements based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or the best estimated selling price (ESP) if neither VSOE nor TPE is available. VSOE of selling price is based upon the normal pricing and discounting practices for those products and services when sold separately. TPE of selling price is based on evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. ESP is established considering factors such as margin objectives, discounts off of list prices, market conditions, competition and other factors. ESP represents the price at which the company would transact for the deliverable if it were sold by the company regularly on a standalone basis.
As mentioned above, some of the company's multiple-element arrangements may include leased hardware which is subject to specific leasing guidance. Revenue under these arrangements is allocated considering the relative selling prices of the lease and non-lease elements. Lease deliverables include hardware, financing, maintenance and other executory costs, while non-lease deliverables generally consist of non-maintenance services. The amount of revenue allocated to the lease deliverables begins by allocating revenue to maintenance and other executory costs plus a profit thereon. These elements are generally recognized over the term of the lease. The remaining amounts are allocated to the hardware and financing elements. The amount allocated to hardware is recognized as revenue monthly over the term of the lease for those leases which are classified as operating leases and at the inception of the lease term for those leases which are classified as sales-type leases. The amount of finance income attributable to sales-type leases is recognized on the accrual basis using the effective interest method.
For multiple-element arrangements that involve the licensing, selling or leasing of software, for software and software-related elements, the allocation of revenue is based on VSOE. There may be cases in which there is VSOE of fair value of the undelivered elements but no such evidence for the delivered elements. In these cases, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered elements equals the total arrangement consideration less the aggregate VSOE of fair value of the undelivered elements.
For multiple-element arrangements that include products or services that (a) do not include the licensing, selling or leasing of software, or (b) contain software that is incidental to the products or services as a whole or (c) contain software components that are sold, licensed or leased with tangible products when the software components and non-software components (i.e., the hardware and software) of the tangible product function together to deliver the tangible product's essential functionality (e.g., sales of the company's enterprise-class servers including hardware and software), or some combination of the above, the allocation of revenue is based on the relative selling prices of each of the deliverables in the arrangement based on the selling price hierarchy, discussed above.
For multiple-element arrangements that include both software and non-software deliverables, the company allocates arrangement consideration to the software group and to the non-software group based on the relative selling prices of the deliverables in the arrangement based on the selling price hierarchy discussed above. For the software group, arrangement consideration is further allocated using VSOE as described above.
The company recognizes revenue on delivered elements only if: (a) any undelivered products or services are not essential to the functionality of the delivered products or services, (b) the company has an enforceable claim to receive the amount due in the event it does not deliver the undelivered products or services, (c) there is evidence of the selling price for each undelivered products or services, and (d) the revenue recognition criteria otherwise have been met for the delivered elements. Otherwise, revenue on delivered elements is recognized as the undelivered elements are delivered.
The company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A delivered element constitutes a separate unit of accounting when it has standalone value and there is no customer-negotiated refund or return right for the delivered elements. If these criteria are not met, the deliverable is combined with the undelivered elements and the allocation of the arrangement consideration and revenue recognition are determined for the combined unit as a single unit.
Revenue from hardware sales and software licenses with extended payment terms is recognized as payments from customers become due (assuming that all other conditions for revenue recognition have been satisfied).
Revenue for operating leases is recognized on a monthly basis over the term of the lease and for sales-type leases at the inception of the lease term.
Revenue from equipment and software maintenance and post-contract support is recognized on a straight-line basis as earned over the terms of the respective contracts. Cost related to such contracts is recognized as incurred.
Revenue and profit under systems integration contracts are recognized either on the percentage-of-completion method of accounting using the cost-to-cost method, or when services have been performed, depending on the nature of the project. For contracts accounted for on the percentage-of-completion basis, revenue and profit recognized in any given accounting period are based on estimates of total projected contract costs. The estimates are continually reevaluated and revised, when necessary, throughout the life of a contract. Any adjustments to revenue and profit resulting from changes in estimates are accounted for in the period of the change in estimate. When estimates indicate that a loss will be incurred on a contract upon completion, a provision for the expected loss is recorded in the period in which the loss becomes evident.
Revenue from time and materials service contracts and outsourcing contracts is recognized as the services are provided using either an objective measure of output or on a straight-line basis over the term of the contract.
Income taxes Income taxes are based on income before taxes for financial reporting purposes and reflect a current tax liability for the estimated taxes payable in the current-year tax return and changes in deferred taxes. Deferred tax assets or liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax laws and rates. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the asset will not be realized. The company has elected the policy of not providing for intra-period tax allocations between pretax earnings and other comprehensive income in instances where there is no net tax provision. This determination is made for each tax jurisdiction.
The company recognizes penalties and interest accrued related to income tax liabilities in provision for income taxes in its consolidated statements of income.
Marketable software The cost of development of computer software to be sold or leased, incurred subsequent to establishment of technological feasibility, is capitalized and amortized to cost of sales over the estimated revenue-producing lives of the products, but not in excess of three years following product release. The company performs quarterly reviews to ensure that unamortized costs remain recoverable from future revenue.
Internal-use software The company capitalizes certain internal and external costs incurred to acquire or create internal-use software, principally related to software coding, designing system interfaces, and installation and testing of the software. These costs are amortized in accordance with the fixed asset policy described above.
Outsourcing assets Costs on outsourcing contracts are generally expensed as incurred. However, certain costs incurred upon initiation of an outsourcing contract (principally initial customer setup) are deferred and expensed over the initial contract life. Fixed assets and software used in connection with outsourcing contracts are capitalized and depreciated over the shorter of the initial contract life or in accordance with the fixed asset policy described above.
Recoverability of outsourcing assets is subject to various business risks. The company quarterly compares the carrying value of the outsourcing assets with the undiscounted future cash flows expected to be generated by the outsourcing assets to determine if there is impairment. If impaired, the outsourcing assets are reduced to an estimated fair value on a discounted cash flow basis. The company prepares its cash flow estimates based on assumptions that it believes to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.
Translation of foreign currency The local currency is the functional currency for most of the company's international subsidiaries, and as such, assets and liabilities are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated at average exchange rates during the year. Translation adjustments resulting from changes in exchange rates are reported in other comprehensive income (loss). Exchange gains and losses on intercompany balances are reported in other income (expense), net.
For those international subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency, and as such, nonmonetary assets and liabilities are translated at historical exchange rates, and monetary assets and liabilities are translated at current exchange rates. Exchange gains and losses arising from translation are included in other income (expense), net.
Stock-based compensation plans Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. The company recognizes compensation expense for the fair value of stock options, which have graded vesting, on a straight-line basis over the requisite service period. The company estimates the fair value of stock options using a Black-Scholes valuation model. The expense is recorded in selling, general and administrative expenses.
Retirement benefits Accounting rules covering defined benefit pension plans and other postretirement benefits require that amounts recognized in financial statements be determined on an actuarial basis. A significant element in determining the company's retirement benefits expense or income is the expected long-term rate of return on plan assets. This expected return is an assumption as to the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected pension benefit obligation. The company applies this assumed long-term rate of return to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over four years. This produces the expected return on plan assets that is included in retirement benefits expense or income. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset losses or gains affects the calculated value of plan assets and, ultimately, future retirement benefits expense or income.
At December 31 of each year, the company determines the fair value of its retirement benefits plan assets as well as the discount rate to be used to calculate the present value of plan liabilities. The discount rate is an estimate of the interest rate at which the retirement benefits could be effectively settled. In estimating the discount rate, the company looks to rates of return on high-quality, fixed-income investments currently available and expected to be available during the period to maturity of the retirement benefits. The company uses a portfolio of fixed-income securities, which receive at least the second-highest rating given by a recognized ratings agency.
Fair value measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the company assumes that the transaction is an orderly transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (for example, a forced liquidation or distress sale). The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1 -- Quoted prices (unadjusted) in active markets for identical assets or liabilities that the company can access at the measurement date; Level 2 -- Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 -- Unobservable inputs for the asset or liability. The company has applied fair value measurements to its long-term debt (see note 8), derivatives (see note 11) and to its postretirement plan assets (see note 16).
Noncontrolling interest The company owns a fifty-one percent interest in Intelligent Processing Solutions Ltd. (iPSL), a U.K. business processing outsourcing joint venture. The remaining interests, which is reflected as a noncontrolling interest in the company's financial statements, are owned by three financial institutions for which iPSL performs services.
2. Earnings per common share
The following table shows how the earnings per common share attributable to Unisys Corporation were computed for the three years ended December 31, 2014.
In 2014, 2013 and 2012, the following weighted-average number of stock options and restricted stock units were antidilutive and therefore excluded from the computation of diluted earnings per common share (in thousands): 1,929; 2,142; and 2,261, respectively. In 2014 and 2013, the following weighted-average mandatory convertible preferred stock was antidilutive and therefore excluded from the computation of diluted earnings per share (in thousands): 1,171 and 6,913, respectively.
3. Goodwill
Goodwill is reviewed annually for impairment and whenever events or circumstances occur indicating that goodwill may be impaired. The company performed its annual impairment test in the fourth quarter of 2014, which indicated that goodwill was not impaired.
Changes in the carrying amount of goodwill by segment for the years ended December 31, 2014 and 2013 were as follows:
4. Recent accounting pronouncements and accounting changes
Effective January 1, 2014, the company adopted the Financial Accounting Standards Board (FASB) accounting guidance on reporting discontinued operations. The new guidance is aimed at reducing the frequency of disposals reported as discontinued operations by focusing on strategic shifts that have or are expected to have a major effect on an entity's operations and financial results. Such a shift could include the disposal of a major line of business, a major geographical area, a major equity method investment or other major parts of the entity. In another change from current U.S. GAAP, the guidance permits companies to have continuing cash flows and significant continuing involvement with the disposed component. The guidance does not change the presentation requirements for discontinued operations in the statement of income. The guidance requires expanded disclosures for discontinued operations and new disclosures for individually material disposals that do not meet the definition of a discontinued operation. Since the company did not dispose of any operations in 2014, adoption of the guidance did not have an impact on the company's consolidated financial statements.
Effective January 1, 2013, the company adopted the FASB's authoritative guidance that requires companies to disclose the following: (a) for items reclassified out of accumulated other comprehensive income (AOCI) and into net income in their entirety, the effect of the reclassification on each affected income statement line item; and (b) for AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures. The new standard was required to be applied prospectively. Other than additional disclosure, the adoption of the new standard did not have an impact on the company's consolidated financial statements.
In May of 2014, the FASB issued a new revenue recognition standard entitled "Revenue from Contracts with Customers." The objective of the standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows from a contract with a customer. The standard is effective for annual reporting periods beginning after December 15, 2016, which for the company is January 1, 2017. Earlier application is not permitted. The standard allows for either "full retrospective" adoption, meaning the standard is applied to all periods presented, or "modified retrospective" adoption, meaning the standard is applied only to the most current period presented in the financial statements. The company is currently assessing which method it will choose for adoption, and is evaluating the impact of the adoption on its consolidated results of operations and financial position.
5. Accounts receivable
Accounts receivable consist principally of trade accounts receivable from customers and are generally unsecured and due within 30 to 90 days. Credit losses relating to these receivables consistently have been within management's expectations. Expected credit losses are recorded as an allowance for doubtful accounts in the consolidated balance sheets. Estimates of expected credit losses are based primarily on the aging of the accounts receivable balances. The company records a specific reserve for individual accounts when it becomes aware of a customer's inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position. The collection policies and procedures of the company vary by credit class and prior payment history of customers.
Revenue recognized in excess of billings on services contracts, or unbilled accounts receivable, was $100.1 million and $125.0 million at December 31, 2014 and 2013, respectively.
At December 31, 2014, receivables under sales-type leases before the allowance for unearned income were collectible as follows (in millions): 2015, $32.5; 2016, $27.6; 2017, $23.1; 2018, $22.9; 2019, $7.1; and $2.6 thereafter.
Unearned income, which is deducted from accounts and notes receivable, was $11.8 million and $10.5 million at December 31, 2014 and 2013, respectively. The allowance for doubtful accounts, which is reported as a deduction from accounts and notes receivable, was $30.1 million and $28.3 million at December 31, 2014 and 2013, respectively. The provision for doubtful accounts, which is reported in selling, general and administrative expenses in the consolidated statements of income, was expense (income) of $2.7 million, ($0.6) million and ($2.7) million, in 2014, 2013 and 2012, respectively.
6. Income taxes
Following is the total income before income taxes and the provision for income taxes for the three years ended December 31, 2014.
Following is a reconciliation of the provision for income taxes at the United States statutory tax rate to the provision for income taxes as reported:
The 2013 and 2012 provision for income taxes included $11.4 million and $9.2 million, respectively, due to a reduction in the UK income tax rate. The rate reductions were enacted in the third quarters of 2013 and 2012, and reduced the rate from 26% to 24% effective April 1, 2012, to 23% effective April 1, 2013, to 21% effective April 1, 2014 and to 20% effective April 1, 2015. The tax provisions were caused by a write down of the UK net deferred tax assets.
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities at December 31, 2014 and 2013 were as follows:
At December 31, 2014, the company has U.S. Federal ($431.6 million), state and local ($204.5 million), and foreign ($247.2 million) tax loss carryforwards, the total tax effect of which is $883.3 million. These carryforwards will expire as follows (in millions): 2015, $11.1; 2016, $8.7; 2017, $11.9; 2018, $24.6; 2019, $8.4; and $818.6 thereafter. The company also has available tax credit carryforwards of approximately $333.5 million, which will expire as follows (in millions): 2015, $7.5; 2016, $10.5; 2017, $48.2; 2018, $20.8; 2019, $20.6; and $225.9 thereafter.
Failure to achieve forecasted taxable income might affect the ultimate realization of the company's net deferred tax assets. Factors that may affect the company's ability to achieve sufficient forecasted taxable income include, but are not limited to, the following: increased competition, a decline in sales or margins, loss of market share, the impact of the economic environment, delays in product availability and technological obsolescence.
Cumulative undistributed earnings of foreign subsidiaries, for which no U.S. income or foreign withholding taxes have been recorded, approximated $1,279.7 million at December 31, 2014. As the company currently intends to indefinitely reinvest all such earnings, no provision has been made for income taxes that may become payable upon distribution of such earnings, and it is not practicable to determine the amount of the related unrecognized deferred income tax liability.
Cash paid for income taxes, net of refunds, during 2014, 2013 and 2012 was $73.9 million, $63.8 million and $39.9 million, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
The company recognizes penalties and interest accrued related to income tax liabilities in the provision for income taxes in its consolidated statements of income. At December 31, 2014 and 2013, the company had an accrual of $1.6 million and $2.1 million, respectively, for the payment of penalties and interest.
At December 31, 2014, all of the company's liability for unrecognized tax benefits, if recognized, would affect the company's effective tax rate. Within the next 12 months, the company believes that it is reasonably possible that the amount of unrecognized tax benefits may significantly change; however, various events could cause this belief to change in the future.
The company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Several U.S. state and foreign income tax audits are in process. The company is under an audit in India, for which years prior to 2006 are closed. For Brazil and the United Kingdom, which are the most significant jurisdictions outside the U.S., the audit periods through 2009 and 2010, respectively, are closed. All of the various ongoing income tax audits throughout the world are not expected to have a material impact on the company's financial position.
Internal Revenue Code Sections 382 and 383 provide annual limitations with respect to the ability of a corporation to utilize its net operating loss (as well as certain built-in losses) and tax credit carryforwards, respectively (Tax Attributes), against future U.S. taxable income, if the corporation experiences an "ownership change." In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. The company regularly monitors ownership changes (as calculated for purposes of Section 382). The company has determined that, for purposes of the rules of Section 382 described above, an ownership change occurred in February 2011. Any future transaction or transactions and the timing of such transaction or transactions could trigger additional ownership changes under Section 382.
As a result of the ownership change, utilization of the company's Tax Attributes will be subject to an overall annual limitation of $70.6 million. This limitation will be applied first to any recognized built in losses, then to any net operating losses, and then to any other Tax Attributes. Any unused limitation may be carried over to later years. As of December 31, 2013, due to the ownership change in 2011, the Section 382 limitation and accompanying built in losses caused the company to reduce its deferred tax assets and related valuation allowance by $389.6 million. 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.
7. Properties
Properties comprise the following:
8. Debt
Long-term debt is comprised of the following:
All $210.0 million of 6.25% long-term debt matures in 2017. Capital leases maturities in 2015, 2016, 2017, 2018, 2019 and thereafter are $1.8 million, $2.6 million, $2.7 million, $2.4 million, $1.3 million and $3.2 million, respectively.
Cash paid for interest during 2014, 2013 and 2012 was $13.2 million, $12.9 million and $42.5 million, respectively. Capitalized interest expense during 2014, 2013 and 2012 was $4.0 million, $3.2 million and $5.3 million, respectively.
The company has a secured revolving credit facility, expiring in June 2018, which provides for loans and letters of credit up to an aggregate amount of $150 million (with a limit on letters of credit of $100 million). Borrowing limits under the credit agreement are based upon the amount of eligible U.S. accounts receivable. At December 31, 2014, the company had no borrowings and $18.8 million of letters of credit outstanding under the facility. At December 31, 2014, availability under the facility was $100.0 million net of letters of credit issued. Borrowings under the facility will bear interest based on short-term rates. The credit agreement contains customary representations and warranties, including that there has been no material adverse change in the company's business, properties, operations or financial condition. The company is required to maintain a minimum fixed charge coverage ratio if the company's availability under the credit facility falls below the greater of 12.5% of the lenders' commitments under the facility and $18.75 million. The credit agreement allows the company to pay dividends on its capital stock in an amount up to $22.5 million per year unless the company is in default and to, among other things, repurchase its equity, prepay other debt, incur other debt or liens, dispose of assets and make acquisitions, loans and investments, provided the company complies with certain requirements and limitations set forth in the agreement. Events of default include non-payment, failure to comply with covenants, materially incorrect representations and warranties, change of control and default under other debt aggregating at least $50 million. The credit facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc., Unisys AP Investment Company I and any future material domestic subsidiaries. The facility is secured by the assets of Unisys Corporation and the subsidiary guarantors, other than certain excluded assets. The company may elect to prepay or terminate the credit facility without penalty.
At December 31, 2014, the company has met all covenants and conditions under its various lending agreements. The company expects to continue to meet these covenants and conditions.
The company's principal sources of liquidity are cash on hand, cash from operations and its revolving credit facility, discussed above. The company and certain international subsidiaries have access to uncommitted lines of credit from various banks.
The company's anticipated future cash expenditures include anticipated contributions to its defined benefit pension plans. The company believes that it has adequate sources of liquidity to meet its expected 2015 cash requirements.
9. Other liabilities
Other accrued liabilities (current) are comprised of the following:
10. Rental expense and commitments
Rental expense, less income from subleases, for 2014, 2013 and 2012 was $83.7 million, $85.3 million and $84.7 million, respectively. Income from subleases, for 2014, 2013 and 2012 was $8.5 million, $7.4 million and $8.5 million, respectively.
Minimum net rental commitments under noncancelable operating leases, including idle leases, outstanding at December 31, 2014, substantially all of which relate to real properties, were as follows: 2015, $58.2 million; 2016, $47.2 million; 2017, $38.9 million; 2018, $26.6 million; 2019, $19.9 million; and $34.3 million thereafter. Such rental commitments have been reduced by minimum sublease rentals of $32.0 million, due in the future under noncancelable subleases.
At December 31, 2014, the company had outstanding standby letters of credit and surety bonds totaling approximately $343 million related to performance and payment guarantees. On the basis of experience with these arrangements, the company believes that any obligations that may arise will not be material. In addition, at December 31, 2014, the company had deposits and collateral of approximately $58 million in other long-term assets, principally related to collateralized letters of credit, and to tax and labor contingencies in Brazil.
11. Financial instruments and concentration of credit risks
Due to its foreign operations, the company is exposed to the effects of foreign currency exchange rate fluctuations on the U.S. dollar, principally related to intercompany account balances. The company uses derivative financial instruments to reduce its exposure to market risks from changes in foreign currency exchange rates on such balances. The company enters into foreign exchange forward contracts, generally having maturities of one month, which have not been designated as hedging instruments. At December 31, 2014 and 2013, the notional amount of these contracts was $403.9 million and $482.6 million, respectively, and the fair value of such contracts was a net gain of $5.3 million and a net gain of $1.7 million, respectively, of which a gain of $6.1 million and $2.0 million, respectively, has been recognized in "Prepaid expenses and other current assets" and a loss of $0.8 million and $0.3 million, respectively, has been recognized in "Other accrued liabilities." Changes in the fair value of these instruments was a gain of $17.3 million, a loss of $7.3 million and a loss of $0.4 million, respectively, for years ended December 31, 2014, 2013 and 2012, which has been recognized in earnings in "Other income (expense), net" in the company's consolidated statement of income. The fair value of these forward contracts is based on quoted prices for similar but not identical financial instruments; as such, the inputs are considered Level 2 inputs.
Financial instruments also include temporary cash investments and customer accounts receivable. Temporary investments are placed with creditworthy financial institutions, primarily in money market funds, time deposits and certificate of deposits which may be withdrawn at any time at the discretion of the company without penalty. At December 31, 2014 and 2013, the company's cash equivalents principally have maturities of less than one month or can be withdrawn at any time at the discretion of the company without penalty. Due to the short maturities of these instruments, they are carried on the consolidated balance sheets at cost plus accrued interest, which approximates market value. Realized gains or losses during 2014, 2013 and 2012, as well as unrealized gains or losses at December 31, 2014 and 2013, were immaterial. Receivables are due from a large number of customers that are dispersed worldwide across many industries. At December 31, 2014 and 2013, the company had no significant concentrations of credit risk with any one customer. At December 31, 2014 and 2013, the company had approximately $94 million and $79 million, respectively, of receivables due from various U.S. federal governmental agencies. At December 31, 2014 and 2013, the carrying amount of cash and cash equivalents approximated fair value; and the carrying amount of long-term debt was less than the fair value, which is based on market prices (Level 2 inputs), of such debt by approximately $9 million and $15 million, respectively.
12. Foreign currency translation
Due to inflation rates in recent years, the company's Venezuelan subsidiary has applied highly inflationary accounting beginning January 1, 2010. For those international subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency, and as such, nonmonetary assets and liabilities are translated at historical exchange rates, and monetary assets and liabilities are translated at current exchange rates. Exchange gains and losses arising from translation are included in other income (expense), net. Effective February 13, 2013, the Venezuelan government devalued its currency, the bolivar, by resetting the official exchange rate from 4.30 to the U.S. dollar to 6.30 to the U.S. dollar. As a result, the company recorded a pretax foreign exchange loss in 2013 of $6.5 million.
In January of 2014, the Venezuelan government announced that the exchange rate to be applied to the settlement of certain transactions, including foreign investments and royalties, would be changed to the Complementary System of Foreign Currency Administration (SICAD I) auction rate. As a result, the company changed the exchange rate used to remeasure its Venezuelan subsidiary's financial statements in U.S. dollars from the official rate of 6.3 bolivars to the new SICAD I rate. At December 31, the SICAD I exchange rate used was 12.0 bolivars to the U.S. dollar. The changes in the rate resulted in the company recording a pretax foreign exchange loss in 2014 of $7.4 million. The company believes that using the SICAD I exchange rate is economically representative of what it might expect to receive in a dividend transaction.
At December 31, 2014, the company's operations in Venezuela had net monetary assets denominated in local currency equivalent to approximately $8 million. As indicated above, the SICAD I exchange rate is determined by periodic auctions and, therefore, the potential exists for it to change significantly in future quarters. Additionally, the Venezuelan government may make further changes or introduce new exchange rate mechanisms, which could result in further changes in the exchange rate used by the company to remeasure its Venezuelan subsidiary's financial statements in U.S. dollars.
During the years ended December 31, 2014, 2013 and 2012, the company recognized foreign exchange (losses) gains in "Other income (expense), net" in its consolidated statements of income of ($7.0) million, $10.4 million and ($8.1) million, respectively.
13. Litigation and contingencies
There are various lawsuits, claims, investigations and proceedings that have been brought or asserted against the company, which arise in the ordinary course of business, including actions with respect to commercial and government contracts, labor and employment, employee benefits, environmental matters, intellectual property, and non-income tax and employment compensation in Brazil. The company records a provision for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any provisions are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information and events pertinent to a particular matter.
The company believes that it has valid defenses with respect to legal matters pending against it. Based on its experience, the company also believes that the damage amounts claimed in the lawsuits disclosed below are not a meaningful indicator of the company's potential liability. Litigation is inherently unpredictable, however, and it is possible that the company's results of operations or cash flow could be materially affected in any particular period by the resolution of one or more of the legal matters pending against it.
In April 2007, the Ministry of Justice of Belgium sued Unisys Belgium SA-NV, a Unisys subsidiary (Unisys Belgium), in the Court of First Instance of Brussels. The Belgian government had engaged the company to design and develop software for a computerized system to be used to manage the Belgian court system. The Belgian State terminated the contract and in its lawsuit has alleged that the termination was justified because Unisys Belgium failed to deliver satisfactory software in a timely manner. It claims damages of approximately 28 million Euros. Unisys Belgium filed its defense and counterclaim in April 2008, in the amount of approximately 18.5 million Euros. The company believes it has valid defenses to the claims and contends that the Belgian State's termination of the contract was unjustified.
In December 2007, Lufthansa AG sued Unisys Deutschland GmbH, a Unisys subsidiary (Unisys Germany), in the District Court of Frankfurt, Germany, for allegedly failing to perform properly its obligations during the initial phase of a 2004 software design and development contract relating to a Lufthansa customer loyalty program. Under the contract, either party was free to withdraw from the project at the conclusion of the initial design phase. Rather than withdraw, Lufthansa instead terminated the contract and failed to pay the balance owed to Unisys Germany for the initial phase. Lufthansa's lawsuit alleges that Unisys Germany breached the contract by failing to deliver a proper design for the new system and seeks approximately 21.4 million Euros in damages. The company believes it has valid defenses and filed its defense and a counterclaim in the amount of approximately 1.5 million Euros. In July 2013, the District Court issued a decision finding Unisys Germany liable for failing to perform its obligations under the initial phase of the contract. It also dismissed Unisys Germany's counterclaim. The District Court did not conduct the damage phase of the proceeding. Unisys Germany appealed the decision on liability in August 2013. In December 2014, the Appellate Court found that Lufthansa was not entitled to terminate the contract for breach and dismissed Lufthansa's 21.4 million Euros damages claim. It also dismissed Unisys Germany's 1.5 million Euros counterclaim, finding the contract required Unisys Germany to return to Lufthansa a 2.2 million Euros advance payment that Lufthansa made upon contract signing. Accordingly, the Appellate Court entered a judgment against Unisys Germany for 2.2 million Euros plus interest (currently estimated to be approximately 1.16 million Euros). Under the judgment, the court also awarded costs of approximately 240,000 Euros to Unisys. In January 2015, the parties agreed to settle the case by waiving their rights to seek permission from Germany's highest court to appeal and Unisys paying the amount due under the judgment. Unisys may either pay Lufthansa cash or, subject to further agreement of the parties, credits on a new project involving Unisys and Lufthansa.
The company's Brazilian operations, along with those of many other companies doing business in Brazil, are involved in various litigation matters, including numerous governmental assessments related to indirect and other taxes, as well as disputes associated with former employees and contract labor. The tax-related matters pertain to value added taxes, customs, duties, sales and other non-income related tax exposures. The labor-related matters include claims related to compensation matters. The company believes that appropriate accruals have been established for such matters based on information currently available. At December 31, 2014, excluding those matters that have been assessed by management as being remote as to the likelihood of ultimately resulting in a loss, the amount related to unreserved tax-related matters, inclusive of any related interest, is estimated to be up to approximately $127 million.
The company has been involved in a matter arising from the sale of its Health Information Management (HIM) business to Molina Information Systems, LLC (Molina) under a 2010 Asset Purchase Agreement (APA). The HIM business provided system solutions and services to state governments, including the state of Idaho, for administering Medicaid programs. In August 2012, Molina sued the company in Federal District Court in Delaware alleging breaches of contract, negligent misrepresentation and intentional misrepresentation with respect to the APA and the Medicaid contract with Idaho. Molina sought compensatory damages, punitive damages, lost profits, indemnification, and declaratory relief. Molina alleged losses of approximately $35 million in the complaint. In June 2013, the District Court granted the company's motion to dismiss the complaint and allowed Molina to replead certain claims and file an amended complaint. In August 2013, Molina filed an amended complaint. The company filed a motion to dismiss the amended complaint. On September 2, 2014, the District Court granted the company's motion to dismiss the negligent misrepresentation claim, but denied the company's motion with respect to Molina's intentional misrepresentation and breach of contract claims. The litigation continues on the remaining claims.
With respect to the specific legal proceedings and claims described above, except as otherwise noted, either (i) the amount or range of possible losses in excess of amounts accrued, if any, is not reasonably estimable or (ii) the company believes that the amount or range of possible losses in excess of amounts accrued that are estimable would not be material.
Litigation is inherently unpredictable and unfavorable resolutions could occur. Accordingly, it is possible that an adverse outcome from such matters could exceed the amounts accrued in an amount that could be material to the company's financial condition, results of operations and cash flows in any particular reporting period.
Notwithstanding that the ultimate results of the lawsuits, claims, investigations and proceedings that have been brought or asserted against the company are not currently determinable, the company believes that at December 31, 2014, it has adequate provisions for any such matters.
14. Segment information
The company has two business segments: Services and Technology. The products and services of each segment are marketed throughout the world to commercial businesses and governments. Revenue classifications by segment are as follows: Services -- systems integration and consulting, outsourcing, infrastructure services and core maintenance; Technology -- enterprise-class software and servers and other technology.
The accounting policies of each business segment are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are priced as if the sales or transfers were to third parties. Accordingly, the Technology segment recognizes intersegment revenue and manufacturing profit on hardware and software shipments to customers under Services contracts. The Services segment, in turn, recognizes customer revenue and marketing profit on such shipments of company hardware and software to customers. The Services segment also includes hardware and software products sourced from third parties that are sold to customers through the company's Services channels. In the company's consolidated statements of income, the manufacturing costs of products sourced from the Technology segment and sold to Services customers are reported in cost of revenue for Services.
Also included in the Technology segment's sales and operating profit are sales of hardware and software sold to the Services segment for internal use in Services engagements. The amount of such profit included in operating income of the Technology segment for the years ended December 31, 2014, 2013 and 2012, was $17.0 million, $6.0 million and $11.5 million, respectively. The profit on these transactions is eliminated in Corporate.
The company evaluates business segment performance based on operating income exclusive of pension income or expense, restructuring charges and unusual and nonrecurring items, which are included in Corporate. All other corporate and centrally incurred costs are allocated to the business segments based principally on revenue, employees, square footage or usage.
No single customer accounts for more than 10% of revenue. Revenue from various agencies of the U.S. Government, which is reported in both business segments, was approximately $529 million, $512 million and $523 million in 2014, 2013 and 2012, respectively.
Corporate assets are principally cash and cash equivalents, prepaid postretirement assets and deferred income taxes. The expense or income related to corporate assets is allocated to the business segments.
Customer revenue by classes of similar products or services, by segment, is presented below:
Presented below is a reconciliation of segment operating income to consolidated income before income taxes:
Presented below is a reconciliation of total business segment assets to consolidated assets:
A summary of the company's operations by business segment for 2014, 2013 and 2012 is presented below:
Geographic information about the company's revenue, which is principally based on location of the selling organization, properties and outsourcing assets, is presented below:
15. Sale of business
On March 30, 2012, the company completed the sale of its interest in its South African joint venture and reported a pretax gain of $10.6 million, which was reported as a reduction of selling, general and administrative expense in the company's consolidated statement of income. Since the sale, the company has served this market through a distributor. The joint venture, which had operations in both of the company's reporting segments of Services and Technology, generated 2012 (through the date of sale) revenue and pretax income of $47.6 million and $7.6 million, respectively.
16. Employee plans
Stock plans Under stockholder approved stock-based plans, stock options, stock appreciation rights, restricted stock and restricted stock units may be granted to officers, directors and other key employees. At December 31, 2014, 2.7 million shares of unissued common stock of the company were available for granting under these plans.
As of December 31, 2014, the company has granted non-qualified stock options and restricted stock units under these plans. The company recognizes compensation cost net of a forfeiture rate in selling, general and administrative expenses, and recognizes the compensation cost for only those awards expected to vest. The company estimates the forfeiture rate based on its historical experience and its expectations about future forfeitures.
The company's employee stock option grants include a provision that, if termination of employment occurs after the participant has attained age 55 and completed 5 years of service with the company, the participant shall continue to vest in each of his or her awards in accordance with the vesting schedule set forth in the applicable award agreement. Compensation expense for such awards is recognized over the period to the date the employee first becomes eligible for retirement. Time-based restricted stock unit grants for the company's directors vest upon award and compensation expense for such awards is recognized upon grant.
Options have been granted to purchase the company's common stock at an exercise price equal to or greater than the fair market value at the date of grant, generally have a maximum duration of five years and become exercisable in annual installments over a three-year period following date of grant.
During the years ended December 31, 2014, 2013 and 2012, the company recognized $10.4 million, $12.5 million and $14.3 million of share-based compensation expense, which is comprised of $3.3 million, $3.2 million and $5.4 million of restricted stock unit expense and $7.1 million, $9.3 million and $8.9 million of stock option expense, respectively.
For stock options, the fair value is estimated at the date of grant using a Black-Scholes option pricing model. Principal assumptions used are as follows: (a) expected volatility for the company's stock price is based on historical volatility and implied market volatility, (b) historical exercise data is used to estimate the options' expected term, which represents the period of time that the options granted are expected to be outstanding, and (c) the risk-free interest rate is the rate on zero-coupon U.S. government issues with a remaining term equal to the expected life of the options. The company recognizes compensation expense for the fair value of stock options, which have graded vesting, on the straight-line basis over the requisite service period of the awards. The compensation expense recognized as of any date must be at least equal to the portion of the grant-date fair value that is vested at that date.
The fair value of stock option awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted-average fair values as follows:
A summary of stock option activity for the year ended December 31, 2014 follows (shares in thousands):
The aggregate intrinsic value represents the total pretax value of the difference between the company's closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options that would have been received by the option holders had all option holders exercised their options on December 31, 2014. The intrinsic value of the company's stock options changes based on the closing price of the company's stock. The total intrinsic value of options exercised for the years ended December 31, 2014, 2013 and 2012 was $4.7 million, $7.9 million and $0.9 million, respectively. As of December 31, 2014, $3.2 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.8 years.
Restricted stock unit awards may contain time-based units, performance-based units or a combination of both. Each performance-based unit will vest into zero to 1.5 shares depending on the degree to which the performance goals are met. Compensation expense resulting from these awards is recognized as expense ratably for each installment from the date of grant until the date the restrictions lapse and is based on the fair market value at the date of grant and the probability of achievement of the specific performance-related goals.
A summary of restricted stock unit activity for the year ended December 31, 2014 follows (shares in thousands):
The fair value of restricted stock units is determined based on the trading price of the company's common shares on the date of grant. The aggregate weighted-average grant-date fair value of restricted stock units granted during the years ended December 31, 2014, 2013 and 2012 was $12.8 million, $5.3 million and $3.3 million, respectively. As of December 31, 2014, there was $2.0 million of total unrecognized compensation cost related to outstanding restricted stock units granted under the company's plans. That cost is expected to be recognized over a weighted-average period of 2.1 years. The aggregate weighted-average grant-date fair value of restricted stock units vested during the years ended December 31, 2014, 2013 and 2012 was $3.3 million, $4.5 million and $4.1 million, respectively.
Common stock issued upon exercise of stock options or upon lapse of restrictions on restricted stock units is newly issued shares. Cash received from the exercise of stock options was $3.4 million and $4.9 million for the years ended December 31, 2014 and 2013, respectively. During 2014 and 2013, the company did not recognize any tax benefits from the exercise of stock options or upon issuance of stock upon lapse of restrictions on restricted stock units because of its tax position. Any such tax benefits resulting from tax deductions in excess of the compensation costs recognized are classified as financing cash flows.
Defined contribution and compensation plans U.S. employees are eligible to participate in an employee savings plan. Under this plan, employees may contribute a percentage of their pay for investment in various investment alternatives. The company matches 50 percent of the first 6 percent of eligible pay contributed by participants to the plan on a before-tax basis (subject to IRS limits). In 2014, 2013 and 2012, the company funded the match with cash, a combination of cash and company common stock and company common stock, respectively. The charge to income related to the company match for the years ended December 31, 2014, 2013 and 2012, was $10.6 million, $11.8 million and $12.1 million, respectively.
The company has defined contribution plans in certain locations outside the United States. The charge to income related to these plans was $25.2 million, $26.7 million and $30.0 million, for the years ended December 31, 2014, 2013 and 2012, respectively.
The company has non-qualified compensation plans, which allow certain highly compensated employees and directors to defer the receipt of a portion of their salary, bonus and fees. Participants can earn a return on their deferred balance that is based on hypothetical investments in various investment vehicles. Changes in the market value of these investments are reflected as an adjustment to the liability with an offset to expense. As of December 31, 2014 and 2013, the liability to the participants of these plans was $12.1 million and $13.2 million, respectively. These amounts reflect the accumulated participant deferrals and earnings thereon as of that date. The company makes no contributions to the deferred compensation plans and remains contingently liable to the participants.
Retirement benefits For the company's more significant defined benefit pension plans, including the U.S. and the UK, accrual of future benefits under the plans has ceased.
Retirement plans' funded status and amounts recognized in the company's consolidated balance sheets at December 31, 2014 and 2013 follow:
Information for defined benefit retirement plans with an accumulated benefit obligation in excess of plan assets at December 31, 2014 and 2013 follows:
Information for defined benefit retirement plans with a projected benefit obligation in excess of plan assets at December 31, 2014 and 2013 follows:
Net periodic pension cost for 2014, 2013 and 2012 includes the following components:
Weighted-average assumptions used to determine net periodic pension cost for the years ended December 31 were as follows:
Weighted-average assumptions used to determine benefit obligations at December 31 were as follows:
The expected pretax amortization in 2015 of net periodic pension cost is as follows: net loss, $199.3 million; and prior service credit, ($4.4) million. The amortization of these items is recorded as an element of pension expense. In 2014, pension expense included amortization of $149.9 million of net losses and ($2.5) million of prior service credit.
The company's investment policy targets and ranges for each asset category are as follows:
The company periodically reviews its asset allocation, taking into consideration plan liabilities, local regulatory requirements, plan payment streams and then-current capital market assumptions. The actual asset allocation for each plan is monitored at least quarterly, relative to the established policy targets and ranges. If the actual asset allocation is close to or out of any of the ranges, a review is conducted. Rebalancing will occur toward the target allocation, with due consideration given to the liquidity of the investments and transaction costs.
The objectives of the company's investment strategies are as follows: (a) to provide a total return that, over the long term, increases the ratio of plan assets to liabilities by maximizing investment return on assets, at a level of risk deemed appropriate, (b) to maximize return on assets by investing primarily in equity securities in the U.S. and for international plans by investing in appropriate asset classes, subject to the constraints of each plan design and local regulations, (c) to diversify investments within asset classes to reduce the impact of losses in single investments, and (d) for the U.S. plan to invest in compliance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended and any subsequent applicable regulations and laws, and for international plans to invest in a prudent manner in compliance with local applicable regulations and laws.
The company sets the expected long-term rate of return based on the expected long-term return of the various asset categories in which it invests. The company considered the current expectations for future returns and the actual historical returns of each asset class. Also, since the company's investment policy is to actively manage certain asset classes where the potential exists to outperform the broader market, the expected returns for those asset classes were adjusted to reflect the expected additional returns.
In 2015, the company expects to make cash contributions of $128.8 million to its worldwide defined benefit pension plans, which is comprised of $76.2 million primarily for non-U.S. defined benefit pension plans and $52.6 million for the company's U.S. qualified defined benefit pension plan.
As of December 31, 2014, the following benefit payments, which reflect expected future service where applicable, are expected to be paid from the defined benefit pension plans:
Other postretirement benefits A reconciliation of the benefit obligation, fair value of the plan assets and the funded status of the postretirement benefit plan at December 31, 2014 and 2013, follows:
Net periodic postretirement benefit cost for 2014, 2013 and 2012, follows:
The expected pretax amortization in 2015 of net periodic postretirement benefit cost is as follows: net loss, $2.8 million; and prior service cost, $1.1 million.
The company reviews its asset allocation periodically, taking into consideration plan liabilities, plan payment streams and then-current capital market assumptions. The company sets the long-term expected return on asset assumption, based principally on the long-term expected return on debt securities. These return assumptions are based on a combination of current market conditions, capital market expectations of third-party investment advisors and actual historical returns of the asset classes.
In 2015, the company expects to contribute approximately $16 million to its postretirement benefit plan.
A one-percentage-point change in assumed health care cost trend rates would have the following effects (in millions of dollars):
As of December 31, 2014, the following benefits are expected to be paid to or from the company's postretirement plan:
The following provides a description of the valuation methodologies and the levels of inputs used to measure fair value, and the general classification of investments in the company's U.S. and international defined benefit pension plans, and the company's other postretirement benefit plan.
Level 1 -- These investments include cash, common stocks, real estate investment trusts, exchange traded funds, exchange traded futures, and U.S. and UK government securities. These investments are valued using quoted prices in an active market. Payables and receivables are also included as Level 1 investments and are valued at face value.
Level 2 -- These investments include the following:
Pooled Funds -- These investments are comprised of money market funds and fixed income securities. The money market funds are valued at Net Asset Value (NAV) of shares held by the plans at year-end. NAV is a practical expedient for fair value. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding. The fixed income securities are valued based on quoted prices for identical or similar investments in markets that may not be active.
Commingled Funds -- These investments are comprised of debt, equity and other securities and are valued using the NAV provided by trustees of the funds. The NAV is quoted on a private market that is not active. The unit price is based on underlying investments which are traded on markets that may or may not be active.
Other Fixed Income -- These investments are comprised of corporate and government fixed income investments and asset and mortgage backed securities for which there are quoted prices for identical or similar investments in markets that may not be active.
Derivatives -- These investments include forward exchange contracts and options, which are traded on an active market, but not on an exchange; therefore, the inputs may not be readily observable. These investments also include fixed income futures and other derivative instruments.
Level 3 -- These investments include the following:
Real Estate and Private Equity -- These investments represent interests in limited partnerships which invest in privately held companies or privately held real estate or other real assets. Due to the nature of these investments, pricing inputs are not readily observable. Asset valuations are developed by the general partners that manage the partnerships. These valuations are based on property appraisals, utilization of market transactions that provide valuation information for comparable companies, discounted cash flows, and other methods. These valuations are reported quarterly and adjusted as necessary at year end based on cash flows within the most recent period.
Insurance Contracts -- These investments are insurance contracts which are generally invested in fixed income securities. The insurance contracts are carried at book value, are not publicly traded and are adjusted to fair value based on a market value adjustment (MVA) formula determined by the insurance provider. The MVA formula is based on unobservable inputs, which among other items take into consideration the yield earned by contributions during a specified time period, current bond yields and duration. Similar to bonds, as interest rates rise, the market value of the contracts will decrease and as interest rates decline, the market value will increase.
Commingled Funds -- These investments are commingled funds, which include a fund of hedge funds, and a multi-asset fund. The NAV is quoted on a private market that is not active. The unit price is based on underlying investments, which are valued based on unobservable inputs.
The following table sets forth by level, within the fair value hierarchy, the plans' assets (liabilities) at fair value at December 31, 2014.
Fair Value
Level 1
Level 2
Level 3
The following table sets forth by level, within the fair value hierarchy, the plans' assets (liabilities) at fair value at December 31, 2013.
U.S. Plans
International Plans
The following table sets forth a summary of changes in the fair value of the plans' Level 3 assets for the year ended December 31, 2014.
The following table sets forth a summary of changes in the fair value of the plans' Level 3 assets for the year ended December 31, 2013.
17. Stockholders' equity
The company has 100 million authorized shares of common stock, par value $0.01 per share, and 40 million shares of authorized preferred stock, par value $1 per share, issuable in series.
At December 31, 2014, 6.3 million shares of unissued common stock of the company were reserved for stock-based incentive plans.
On March 1, 2014, all of the outstanding shares of 6.25% mandatory convertible preferred stock (2,587,400 shares) were automatically converted (in accordance with its terms) into 6,912,756 shares of the company's common stock. Because March 1, 2014 was not a business day, the mandatory conversion was effected on Monday, March 3, 2014.
On December 10, 2012, the company announced that its Board of Directors had authorized the company to purchase up to an aggregate of $50 million of the company's common stock and mandatory convertible preferred stock through December 31, 2014. Through December 31, 2014, the company repurchased an aggregate of 2.2 million shares of common stock for approximately $47.3 million. At December 31, 2014, the Board's repurchase authorization expired.
Accumulated other comprehensive income (loss) as of December 31, 2014, 2013 and 2012, is as follows:
Amounts related to postretirement plans not reclassified in their entirety out of accumulated other comprehensive income were as follows:
Amortization of prior service cost*
Curtailment gain*
Income tax benefit
* These items are included in net periodic postretirement cost (see note 16).
The following table summarizes the changes in preferred stock, common stock and treasury stock during the three years ended December 31, 2014:
Report of Management on the Financial Statements
The management of the company is responsible for the integrity of its financial statements. These statements have been prepared in conformity with U.S. generally accepted accounting principles and include amounts based on the best estimates and judgments of management. Financial information included elsewhere in this report is consistent with that in the financial statements.
KPMG LLP, an independent registered public accounting firm, has audited the company's financial statements. Its accompanying report is based on an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).
The Board of Directors, through its Audit and Finance Committee, which is composed entirely of independent directors, oversees management's responsibilities in the preparation of the financial statements and selects the independent registered public accounting firm, subject to stockholder ratification. The Audit and Finance Committee meets regularly with the independent registered public accounting firm, representatives of management, and the internal auditors to review the activities of each and to assure that each is properly discharging its responsibilities. To ensure complete independence, the internal auditors and representatives of KPMG LLP have full access to meet with the Audit and Finance Committee, with or without management representatives present, to discuss the results of their audits and their observations on the adequacy of internal controls and the quality of financial reporting.
Peter Altabef, President and Chief Executive Officer Janet Brutschea Haugen, Senior Vice President and Chief Financial Officer
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Unisys Corporation:
We have audited the accompanying consolidated balance sheets of Unisys Corporation and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, deficit and cash flows for each of the years in the three-year period ended December 31, 2014. We also have audited Unisys Corporation's internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control -- Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Unisys Corporation's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Unisys Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Unisys Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control -- Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP Philadelphia, Pennsylvania February 23, 2015
Report of Management on Internal Control Over Financial Reporting
The management of the company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control -- Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, we concluded that the company maintained effective internal control over financial reporting as of December 31, 2014, based on the specified criteria.
KPMG LLP, an independent registered public accounting firm, has audited the company's internal control over financial reporting as of December 31, 2014, as stated in their report that appears on the preceding page.


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20.28 Questioner: Very good. Then, was the Confederation, shall we say, watching to see and expecting to see a harvest at the end of the 25,000-year period in which a percentage would be harvestable fourth-density positive and a percentage harvestable fourth-density negative?
Ra: I am Ra. This is correct. You may see our role in the first major cycle as that of the gardener who, knowing the season, is content to wait for the spring. When the springtime does not occur, the seeds do not sprout; then it is that the gardener must work in the garden.
18.5 Questioner: Thank you. I have a question here from Jim that I will read verbatim: "Much of the mystic tradition of seeking on Earth holds that belief that the individual self must be erased or obliterated and the material world ignored for an entity to reach 'nirvana,' as it's called, or enlightenment. What is the proper role of the individual self and its worldly activities in aiding an entity to grow more into the Law of One?"
Ra: I am Ra. The proper role of the entity is in this density to experience all things desired, to then analyze, understand, and accept these experiences, distilling from them the love/light within them. Nothing shall be overcome. That which is not needed falls away.
The orientation develops due to analysis of desire. These desires become more and more distorted towards conscious application of love/light as the entity furnishes itself with distilled experience. We have found it to be inappropriate in the extreme to encourage the overcoming of any desires, except to suggest the imagination rather than the carrying out in the physical plane, as you call it, of those desires not consonant with the Law of One; this preserving the primal distortion of free will.
The reason it is unwise to overcome is that overcoming is an unbalanced action creating difficulties in balancing in the time/space continuum. Overcoming thus creates the further environment for holding onto that which apparently has been overcome.
All things are acceptable in the proper time for each entity, and in experiencing, in understanding, in accepting, in then sharing with other-selves, the appropriate description shall be moving away from distortions of one kind to distortions of another which may be more consonant with the Law of One.
It is, shall we say, a shortcut to simply ignore or overcome any desire. It must instead be understood and accepted. This takes patience and experience which can be analyzed with care, with compassion for self and for other-self.
73.23 Questioner: Only if there is anything we can do to improve the comfort of the instrument or the contact, and secondly, is there anything that you wish not published in today's session?
Ra: I am Ra. We call your attention to two items. Firstly, it is well that the candle which spirals 10° each working be never allowed to gutter as this would cause imbalance in the alignment of the appurtenances in their protective role for this instrument. Secondly, we might suggest attention to the neck area so that the cushion upon which it is supported be more comfortable. This difficulty has abbreviated many workings.
We thank you, my friends, for your conscientiousness and your fastidiousness with regard to these appurtenances which, as our workings proceed, seems to be increasing. Secondly, your decisions are completely your own as to that material which you may wish published from this working.
I am Ra. I leave you glorying in the love and in the light of the One Infinite Creator. Go forth, then, rejoicing in the power and in the peace of the One Infinite Creator. Adonai.
1.5 Questioner: Could you give me a little more detail about your role with the Egyptians?
Ra: I am Ra. The identity of the vibration Ra is our identity. We as a group, or what you would call a social memory complex, made contact with a race of your planetary kind which you call Egyptians. Others from our density made contact at the same time in South America, and the so-called "lost cities" were their attempts to contribute to the Law of One.
We spoke to one who heard and understood and was in a position to decree the Law of One. However, the priests and peoples of that era quickly distorted our message, robbing it of the, shall we say, compassion with which unity is informed by its very nature. Since it contains all, it cannot abhor any.
When we were no longer able to have appropriate channels through which to enunciate the Law of One, we removed ourselves from the now hypocritical position which we had allowed ourselves to be placed in. And other myths, shall we say, other understandings having more to do with polarity and the things of your vibrational complex, again took over in that particular society complex.
Does this form a sufficient amount of information, or could we speak further?
66.9 Questioner: Now as the healer approaches an other-self to do the healing we have a situation where the other-self has, through programming of catalyst, possibly created a condition which is viewed as a condition needing healing. What is the situation and what are the ramifications of the healer acting upon a condition of programmed catalyst to bring about healing? Am I correct in assuming that in doing this healing, the programmed catalyst is useful to the one to be healed in that the one to be healed then becomes aware of what it wished to become aware of in programming the catalyst? Is this correct?
Ra: I am Ra. Your thinking cannot be said to be completely incorrect but shows a rigidity which is not apparent in the flow of the experiential use of catalyst.
The role of the healer is to offer an opportunity for realignment or aid in realignment of either energy centers or some connection between the energies of mind and body, spirit and mind, or spirit and body. This latter is very rare.
The seeker will then have the reciprocal opportunity to accept a novel view of the self, a variant arrangement of patterns of energy influx. If the entity, at any level, desires to remain in the configuration of distortion which seems to need healing it will do so. If, upon the other hand, the seeker chooses the novel configuration, it is done through free will.
This is one great difficulty with other forms of energy transfer in that they do not carry through the process of free will as this process is not native to yellow ray.
106.4 Questioner: How serious and critical is this renal problem? Is drinking liquids (I assume water is the best) the only thing we can do for that, or is there something else?
Ra: I am Ra. Note the interrelationship of mind and body complexes. This is one example of such interweaving of the design of catalyst and experience. The period of renal delicacy is serious, but only potentially. Should the instrument desire to leave this incarnational experience the natural and non-energized opportunity to do so has been in-built just as the period during which the same entity did, in fact, leave the incarnational experience and then return by choice was inlaid.
However, the desire to leave and be no more a portion of this particular experiential nexus can and has been energized. This is a point for the instrument to ponder and an appropriate point for the support group to be watchful in regards to care for the instrument. So are mind and body plaited up as the tresses of hair of a maiden.
The nature of this entity is gay and sociable so that it is fed by those things we have mentioned previously: the varieties of experience with other-selves and other locations and events being helpful, as well as the experience of worship and the singing, especially of sacred music. This entity chose to enter a worshipful situation with a martyr's role when first in this geographical location. Therefore, the feeding by worship has taken place only partially. Similarly the musical activities, though enjoyable and therefore of a feeding nature, have not included the aspect of praise to the Creator.
The instrument is in a state of relative hunger for those spiritual homes which it gave up when it felt a call to martyrdom and turned from the planned worship at the location you call the Cathedral of St. Philip. This too shall be healed gradually due to the proposed alteration in location of this group.
27.1 Questioner: This session I thought we would start Book Two of The Law of One, which will focus on what we consider to be the only important aspect of our being.
However, Jim has felt the obligation to ask two questions that were asked of him by Paul Shockley, and I will ask those two first, in case you are able to answer them before we really get started. First question is: Paul Shockley is presenting channeling— correction, Paul Shockley is presently channeling the same source which Edgar Cayce channeled, and Paul has received information that he took part in the design and construction of the Egyptian pyramids. Can you tell us what his role was in that effort?
Ra: I am Ra. This was in your space/time continuum two periods and two lifetimes. The first of a physical nature working with Confederation entities in what you know of as Atlantis, this approximately thirteen thousand [13,000] of your years ago. This memory, shall we say, being integrated into the unconscious of the mind/body/spirit complex of this entity due to its extreme desire to remember the service of healing and polarization possible by the mechanisms of the crystal and the charged healer.
The second experience being approximately one thousand [1,000] of your years later during which experience this entity prepared, in some part, the consciousness of the people of what you now call Egypt, that they were able to offer the calling that enabled those of our social memory complex to walk among your peoples. During this life experience this entity was of a priest and teaching nature and succeeded in remembering in semi-distorted form the learn/teachings of the Atlantean pyramidal experiences. Thus this entity became a builder of the archetypal thought of the Law of One with distortion towards healing which aided our people in bringing this through into a physical manifestation at what you would call a later period in your time measurement.
5.2 Questioner: We have decided to accept, if offered, the honor/duty of learning/teaching the healing process. I would ask as to the first step which we should accomplish in becoming effective healers.
Ra: I am Ra. We shall begin with the first of the three teachings/learnings.
We begin with the mental learn/teachings necessary for contact with intelligent infinity. The prerequisite of mental work is the ability to retain silence of self at a steady state when required by the self. The mind must be opened like a door. The key is silence.
Within the door lies an hierarchical construction you may liken unto geography and in some ways geometry, for the hierarchy is quite regular, bearing inner relationships.
To begin to master the concept of mental discipline it is necessary to examine the self. The polarity of your dimension must be internalized. Where you find patience within your mind you must consciously find the corresponding impatience and vice versa. Each thought that a being has, has in its turn an antithesis. The disciplines of the mind involve, first of all, identifying both those things of which you approve and those things of which you disapprove within yourself, and then balancing each and every positive and negative charge with its equal. The mind contains all things. Therefore, you must discover this completeness within yourself.
The second mental discipline is acceptance of the completeness within your consciousness. It is not for a being of polarity in the physical consciousness to pick and choose among attributes, thus building the roles that cause blockages and confusions in the already-distorted mind complex. Each acceptance smoothes part of the many distortions that the faculty you call judgment engenders.
The third discipline of the mind is a repetition of the first but with the gaze outward towards the fellow entities that it meets. In each entity there exists completeness. Thus, the ability to understand each balance is necessary. When you view patience, you are responsible for mirroring in your mental understanding, patience/impatience. When you view impatience, it is necessary for your mental configuration of understanding to be impatience/patience. We use this as a simple example. Most configurations of mind have many facets, and understanding of either self polarities, or what you would call other-self polarities, can and must be understood as subtle work.
The next step is the acceptance of the other-self polarities, which mirrors the second step.
These are the first four steps of learning mental discipline. The fifth step involves observing the geographical and geometrical relationships and ratios of the mind, the other mind, the mass mind, and the infinite mind.
The second area of learn/teaching is the study/understanding of the body complexes. It is necessary to know your body well. This is a matter of using the mind to examine how the feelings, the biases, what you would call the emotions, affect various portions of the body complex. It shall be necessary to both understand the bodily polarities and to accept them, repeating in a chemical/physical manifestation the work you have done upon the mind bethinking the consciousness.
The body is a creature of the mind's creation. It has its biases. The biological bias must be first completely understood and then the opposite bias allowed to find full expression in understanding. Again, the process of acceptance of the body as a balanced, as well as polarized, individual may then be accomplished.
It is then the task to extend this understanding to the bodies of the other-selves whom you will meet. The simplest example of this is the understanding that each biological male is female; each biological female is male. This is a simple example. However, in almost every case wherein you are attempting the understanding of the body of self or other-self, you will again find that the most subtle discernment is necessary in order to fully grasp the polarity complexes involved.
At this time we would suggest closing the description until the next time of work so that we may devote time to the third area commensurate with its importance.
We can answer a query if it is a short one before we leave this instrument.
Version (?): Lightly Edited, Ra Contact, Relistened, Original
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As the name suggests, Ranbir plays a casanova and the romance quotient is provided by Ranbir's real life romance Deepika Padukone, the cute innocent beauty Minisha Lamba and the sexy Bipasha Basu.
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Starting is always chaotic. There are the rambunctious ideas, the stray thoughts, the millions of directions these thoughts could travel to, and the infinite ways of moving forward. They all buzz together, excited at the possibilities. That's the beginning of any project, any creation, and any story.
Then comes the process of taming these ideas, reigning in the stray thoughts and disciplining the words. However, taming comes at a cost. The cost is sometimes in the form of creative sacrifice. And if that happens then the story might as well end right there, because without the fluidity of ideas, there can be no satisfaction in creating.
Therein begins the fine art of balancing the two. The wild ideas rebel and the disciplined logic analyses them. The chaos continues, giving rise to possibilities and then falls in to place, somehow. It' then that the mad rush slows in to a benevolent trickle. The symphony begins at that time and the chaos is tamed.
In each form of creativity, the process remains the same. Whether I am designing a workshop, writing a story, analysing a message or joining the dots of fragmented voices in my mentoring sessions, I have always gone through the same process of generating ideas, struggling with the chaos, and eventually taming them to their simplest form. The simplest form is simply a narrative that falls in to place, and when it does, it's a traquility. It's magic.