August 1, 2014
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Attention: Patrick Gilmore, Accounting Branch Chief
Re: Unisys Corporation
Form 10-K for the Fiscal Year Ended December 31, 2013
Filed February 24, 2014
File No. 001-08729
Dear Mr. Gilmore:
On behalf of Unisys Corporation (the "Company"), set forth below are the
Company's responses to the comments of the Staff of the Securities and
Exchange Commission regarding the above referenced filing set forth in
the Staff's letter dated July 22, 2014. For your convenience, we have
repeated each of the comments set forth in the Staff's letter and
followed each comment with the Company's response.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (INCORPORATED BY
REFERENCE FROM THE UNISYS 2013 ANNUAL REPORT TO STOCKHOLDERS, EXHIBIT 13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION, PAGE 21
COMMENT 1
We note your disclosure on pages 7 and 8 regarding system development
activity and customer prepayments. Please tell us whether the customer
prepayments relate to only system development services or if there are
other services being provided. Please tell us whether these services
have standalone value and tell us how you determined that the customer
prepayments should be recognized over the initial contract term. Please
refer to the authoritative guidance you relied upon when determining your
accounting.
RESPONSE TO COMMENT 1
The customer prepayments do not relate to only system development
services but also relate to reimbursement for initial customer setup
costs. Generally, the Company's contracts do not require customer
prepayments. The fees related to such setup costs do not have standalone
value and are therefore deferred. The Company recognizes both the
revenue and cost associated with such customer prepayments over the
initial contract term. For approximately 70% of such contracts with a
customer prepayment balance, the initial contract term is from five and
ten years, and for the remaining contracts, the initial contract term is
from three up to five years.
The Company's policy to defer customer prepayments related to initial
customer setup fees is supported by the interpretive guidance within SAB
Topic 13, which states "the staff believes that up-front fees, even if
nonrefundable, are earned as the products and/or services are delivered
and/or performed over the term of the arrangement or the expected period
of performance and generally should be deferred and recognized
systematically over the periods that the fees are earned" (SAB Topic
13.A, paragraph 3.f Q1 Response). Footnote 39 of SAB Topic 13 expands
on the expected period of performance by stating "the revenue recognition
period should extend beyond the initial contractual period if the
relationship with the customer is expected to extend beyond the initial
term and the customer continues to benefit from the payment of the up-
front fee (e.g., if subsequent renewals are priced at a bargain to the
initial up-front fee)."
Customer prepayments, which are an immaterial portion of the overall
consideration to be paid under the Company's arrangements, are recognized
over the initial contract term. In accordance with SAB Topic 13, for
each contract containing such customer prepayments, the Company evaluates
whether recognition of revenue for such prepayments over a period longer
than the initial contract term should be used.
For the following reasons, the Company recognizes such customer
prepayments over the initial contract term:
a) such contracts are long-term in nature,
b) the contracts do not include bargain renewal options and, with
few exceptions, do not include option periods,
c) given the highly competitive environment in the information
services marketplace (see the Company's MD&A disclosure of the
"Factors that may affect future results" on page 12 of Exhibit
13), there is no assurance that the relationship with the
customer will extend beyond the initial contract term,
d) in those situations where the customer elects to renew or extend
the arrangement, the price is determined based on the current
market rate of the respective service and is not discounted as a
result of the customer prepayment made at the onset of the
original contract, and
e) when an outsourcing contract is renewed or extended, a new
negotiation occurs and the scope and/or pricing of the
arrangement generally changes.
The Company has determined that the difference, if any, between revenue
recognized for customer prepayments over the initial contract term and
that which would have been recognized over a term extending beyond the
initial contract term is insignificant.
NOTE 4. GOODWILL, PAGE 25
COMMENT 2
We note your disclosure that you performed your annual impairment test in
the fourth quarter and that goodwill was not impaired. If you performed
a Step 2 quantitative goodwill analysis, please tell us the percentage by
which the fair value of each reporting unit exceeded its carrying value.
To the extent that a reporting unit's estimated fair value is not
substantially in excess of the carrying value and is potentially at risk
of failing step one of your goodwill impairment analysis, please disclose
in future filings, the percentage by which the fair value exceeded the
carrying value as of the date of the most recent test. If you did not
perform a Step 2 quantitative analysis, please tell us how you considered
ASC 350-20-35-8A.
RESPONSE TO COMMENT 2
The Company did not perform a Step 2 quantitative goodwill analysis.
In accordance with ASC 350-20-35-4, the Company performed the first step
of the goodwill impairment test which is used to identify a potential
impairment by comparing the fair value of reporting units with their
carrying amount, including goodwill. The Company determined that the
carrying amount of its reporting units did not exceed their estimated
fair value. Since the carrying amount of both of the Company's reporting
units was negative, the Company then considered ASC 350-20-35-8A in
determining whether it was necessary to perform a Step 2 impairment
analysis. This consideration included an evaluation, using the process
described in ASC 350-20-35-3F through 35-3G, including the events and
circumstances provided in ASC 350-20-35-3C (a) through (g). The Company
also took into consideration whether there were significant differences
between the carrying amount and the estimated fair value of its assets
and liabilities, and the existence of significant unrecognized intangible
assets. As a result of such evaluation, the Company concluded that it
was not more likely than not that goodwill was impaired as of October 1,
2013.
* * *
In addition, the Company acknowledges that:
* the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to Staff comments
do not foreclose the Commission from taking any action with respect to
the filings; and
* the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
The Company hopes that the above is responsive to the Staff's comments.
Very truly yours,
UNISYS CORPORATION
/s/ Janet Brutschea Haugen
Janet Brutschea Haugen
Senior Vice President and Chief Financial Officer