Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business NCR is a leading software- and services-led enterprise provider in the financial, retail, hospitality, and telecommunications and technology industries. NCR is a global company that is headquartered in Atlanta, Georgia. NCR offers a range of solutions that help businesses of all sizes run the store, run the restaurant and run self-service banking channels. Our portfolio includes digital first offerings for banking, restaurants and retailers, as well as payments processing, multi-vendor connected device services, automated teller machines (ATMs), point of sale (POS) terminals and self-service technologies. We also resell third-party networking products and provide related service offerings in the telecommunications and technology sectors. Our solutions are also designed to support our transition to an as-a-Service company and enable us to be the technology-based service provider of choice to our customers.
Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported.
Although our estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. In particular, a number of estimates have been and will continue to be affected by the ongoing novel coronavirus (COVID-19) pandemic. The severity, magnitude and duration of the COVID-19 pandemic, and the resulting economic consequences, are uncertain, rapidly changing and difficult to predict. As a result, our accounting estimates and assumptions may change over time as a consequence of the effects of the COVID-19 pandemic. Such changes could result in future impairments of goodwill, intangible assets, long-lived assets, incremental credit losses on accounts receivable and decreases in the carrying amount of our tax assets.
Subsequent Events The Company evaluated subsequent events through the date that our Consolidated Financial Statements were issued. Other than the items discussed below and within the notes to the Consolidated Financial Statements, no matters were identified that required adjustment of the Consolidated Financial Statements or additional disclosure.
Announced proposed transaction with Cardtronics On January 25, 2021, NCR entered into a definitive agreement with to acquire all outstanding shares of Cardtronics plc for $39.00 per share. The transaction is subject to regulatory approval and customary closing conditions, including approval by Cardtronics' shareholders, and is expected to close in mid-2021. Cardtronics is the world's largest non-bank ATM operator and service provider enabling cash transactions by converting digital currency into physical cash at over 285,000 ATMs across 10 countries in North America, Europe, Asia-Pacific, and Africa.
Completed acquisitions of Freshop On January 6, 2021, NCR completed its acquisition of Freshop, Inc., for which we purchased all outstanding shares and as a result Freshop will become a wholly-owned subsidiary of NCR in the first quarter of 2021. Freshop is a leading provider of digital online ordering platforms which provides retailers the ability to quickly deploy "buy-online, pickup-in-store" capabilities.
Completed acquisition of Terafina On February 5, 2021, NCR completed its acquisition of Terafina, Inc., for which we purchased all outstanding shares and as a result Terafina will become a wholly-owned subsidiary of NCR in the first quarter of 2021. Terafina is a leading solution provider for customer account opening and onboarding across digital, branch and call center channels.
Basis of Consolidation The consolidated financial statements include the accounts of NCR and its majority-owned subsidiaries. Long-term investments in affiliated companies in which NCR owns between 20% and 50%, and therefore, exercises significant influence, but which it does not control, are accounted for using the equity method. Investments in which NCR does not exercise significant influence (generally, when NCR has an investment of less than 20% and no significant influence, such as representation on the investee’s board of directors) are accounted for using the cost method. All significant inter-company transactions and accounts have been eliminated. In addition, the Company is required to determine whether it is the primary beneficiary of economic income or losses that may be generated by variable interest entities in which the Company has such an interest. In circumstances where the Company determined it is the primary beneficiary, consolidation of that entity would be required. For the periods presented, no variable interest entities have been consolidated.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Reclassifications Certain prior-period amounts have been reclassified in the accompanying Consolidated Financial Statements and Notes thereto in order to conform to the current period presentation.
Revenue Recognition The Company records revenue, net of sales tax, when the following five steps have been completed:
•Identification of the contract(s) with a customer
•Identification of the performance obligation(s) in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, we satisfy performance obligations
The Company records revenue when, or as, performance obligations are satisfied by transferring control of a promised good or service to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for products and services. The Company evaluates the transfer of control primarily from the customer’s perspective where the customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service.
NCR enters contracts that include multiple distinct performance obligations, including hardware, software, professional consulting services, installation services and maintenance support services. A promise to a customer is considered distinct when the product or service is both capable of being distinct, and distinct in the context of the contract. For these arrangements, the Company allocates the transaction price, at contract inception, to each distinct performance obligation on a relative standalone selling price basis. The primary method used to estimate standalone selling price is the price that the Company charges for that good or service when the Company sells it separately in similar circumstances to similar customers.
For hardware products, control is generally transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the products, which generally coincides with when the customer has assumed title and risk of loss of the goods sold. In certain instances, customer acceptance is required prior to the passage of title and risk of loss of the delivered products. In such cases, revenue is not recognized until customer acceptance is obtained. Delivery, acceptance, and transfer of title and risk of loss generally occur in the same reporting period. NCR's customers may request that delivery and passage of title and risk of loss occur on a bill and hold basis. For the period ending December 31, 2020 and 2019, the revenue recognized from bill and hold transactions approximated 1% of total revenue. Hardware products may also be provided as a service when included in a package sold with software and services. In these instances, revenue is recognized in accordance with the lease accounting standard and depending on the terms and conditions included in the contract may be either sales-type leases or operating leases. Revenue from hardware sales-type leases is recognized at the beginning of the lease term and revenue from operating leases is recognized on a straight-line basis over the term of the contract.
Software products may be sold as perpetual licenses, term-based licenses, cloud-enabled and software as a service (SaaS). Perpetual license revenue is recognized at a point in time when control transfers to the customer and reported within product revenue. Control is typically transferred when the customer takes possession of, or has access to, the software. Term-based license revenue is recognized at a point in time upon the commencement of the committed term of the contract, concurrent with the possession of the license, and reported within product revenue. The committed term of the contract is typically one month to one year due to customer termination rights. If the amount of consideration the Company expects to be paid in exchange for the licenses depends on customer usage, revenue is recognized when the usage occurs.
Software as a service primarily consists of fees to provide our customers access to our platform and cloud-based applications for a specified contract term. Revenue from SaaS contracts is recognized as variable consideration directly allocated based on customer usage or on a ratable basis over the contract term beginning on the date that our service is made available to the customer. SaaS is reported as part of our services revenue.
The Company sells some product solutions that include a combination of cloud-enabled and on-premise term-based software licenses for a specified contract term. Significant judgment is required to determine if the services and products represent distinct promises to the customer or if they should be combined into one performance obligation. When they are combined into one performance obligation, revenue is recognized ratably over the contract term for which the service is provided.
In addition to SaaS, our services revenue includes professional consulting, installation and maintenance support. Professional consulting primarily consists of software implementation, integration, customization and optimization services. Revenue from professional consulting contracts is recognized when the services are completed or customer acceptance of the service is
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
received, if required. For installation and maintenance, control is transferred as the services are provided or ratably over the service period, or, if applicable, after customer acceptance of the service. We apply the ‘as invoiced’ practical expedient, for performance obligations satisfied over time, if the amount we may invoice corresponds directly with the value to the customer of the Company’s performance to date. This expedient permits us to recognize revenue in the amount we invoice the customer.
The nature of our arrangements gives rise to several types of variable consideration including service level agreement credits, stock rotation rights, trade-in credits and volume-based rebates. At contract inception, we include this variable consideration in our transaction price when there is a basis to reasonably estimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the expected value method and a portfolio approach, based on historical experience, anticipated performance and our best judgment at the time. These estimates are reassessed at each reporting date. Because of our confidence in estimating these amounts, they are included in the transaction price of our contracts and the associated remaining performance obligations.
Payment terms with our customers are established based on industry and regional practices and generally do not exceed 30 days. We do not typically include extended payment terms in our contracts with customers. As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. If the period between transfer of the promised product or service and payment is more than one year, the Company analyzes whether a significant financing component is present. If so, the Company adjusts the total consideration to reflect the significant financing component.
The Company also does not adjust the transaction price for taxes collected from customers, as those amounts are netted against amounts remitted to government authorities.
We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products, rather than as a separate performance obligation. Accordingly, we record amounts billed for shipping and handling costs as a component of net product sales, and classify such costs as a component of cost of products.
In addition to the standard product warranty, the Company periodically offers extended warranties to its customers in the form of product maintenance services. For maintenance contracts that have been combined with product contracts under the revenue guidance, the Company defers revenue at an amount based on the relative standalone selling price allocation, and recognizes the deferred revenue over the service term. For non-combined maintenance contracts, NCR defers the stated amount of the separately priced service and recognizes the deferred revenue over the service term.
Remaining Performance Obligations Remaining performance obligations represent the transaction price of orders for which products have not been delivered or services have not been performed. As of December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $3.6 billion. The Company expects to recognize revenue on approximately three-quarters of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter. The majority of our professional services are expected to be recognized over the next 12 months but this is contingent upon a number of factors, including customers’ needs and schedules.
The Company has made two elections which affect the value of remaining performance obligations described above. We do not disclose remaining performance obligations for SaaS contracts where variable consideration is directly allocated based on usage or when the original expected length is one year or less.
Warranty and Sales Returns Provisions for product warranties and sales returns and allowances are recorded in the period in which NCR becomes obligated to honor the related right, which generally is the period in which the related product revenue is recognized. The Company accrues warranty reserves based upon historical factors such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts. When a sale is consummated, a warranty reserve is recorded based upon the estimated cost to provide the service over the warranty period. The Company accrues sales returns and allowances using percentages of revenue to reflect the Company’s historical average of sales return claims.
Research and Development Costs Research and development costs primarily include payroll and benefit-related costs, contractor fees, facilities costs, infrastructure costs, and administrative expenses directly related to research and development support and are expensed as incurred, except certain software development costs are capitalized after technological feasibility of the software is established.
Advertising Advertising costs are recognized in selling, general and administrative expenses when incurred.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Stock-based Compensation Stock-based compensation represents the costs related to share-based awards granted to employees and non-employee directors. The Company’s outstanding stock-based compensation awards are classified as equity. The Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost over the requisite service period. See Note 7, "Stock Compensation Plans" for further information on NCR’s stock-based compensation plans.
Income Taxes Income tax expense is provided based on income before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These deferred taxes are determined based on the enacted tax rates expected to apply in the periods in which the deferred assets or liabilities are expected to be settled or realized. NCR records valuation allowances related to its deferred income tax assets when it is more likely than not that some portion or all of the deferred income tax assets will not be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being sustained upon examination by authorities. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law and until such time that the related tax benefits are recognized.
Earnings Per Share Basic earnings per share (EPS) is calculated by dividing net income, less any dividends, accretion or decretion, redemption or induced conversion on our Series A Convertible Preferred Stock, by the weighted average number of shares outstanding during the reported period.
In computing diluted EPS, we evaluate and reflect the maximum potential dilution, for each issue or series of issues of potential common shares in sequence from the most dilutive to the least dilutive. We adjust the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends (declared or cumulative undeclared) applicable to the Series A Convertible Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A Convertible Preferred Stock to its redemption price, or recorded upon a redemption or induced conversion. We adjust the denominator used in the basic EPS computation, subject to anti-dilution requirements, to include the dilution from potential shares resulting from the issuance of the Series A Convertible Preferred Stock, restricted stock units, and stock options.
The holders of Series A Convertible Preferred Stock and unvested restricted stock units do not have nonforfeitable rights to common stock dividends or common stock dividend equivalents. Accordingly, the Series A Convertible Preferred Stock and unvested restricted stock units do not qualify as participating securities. See Note 7, "Stock Compensation Plans" for share information on NCR’s stock compensation plans.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
The components of basic earnings (loss) per share are as follows:
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In millions, except per share amounts
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Year ended December 31
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2020
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2019
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2018
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Numerator:
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Income (loss) from continuing operations
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$
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(7)
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$
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614
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$
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(36)
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Series A convertible preferred stock dividends
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(31)
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(110)
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(49)
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Net income (loss) from continuing operations attributable to NCR common stockholders
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(38)
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504
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(85)
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Loss from discontinued operations, net of tax
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(72)
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(50)
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(52)
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Net income (loss) attributable to NCR common stockholders
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$
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(110)
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$
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454
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$
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(137)
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Denominator:
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Basic weighted average number of shares outstanding
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128.4
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122.1
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118.4
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Basic earnings (loss) per share:
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From continuing operations
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$
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(0.30)
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$
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4.13
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$
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(0.72)
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From discontinued operations
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(0.56)
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(0.41)
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(0.44)
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Total basic earnings (loss) per share
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$
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(0.86)
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$
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3.72
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$
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(1.16)
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The components of diluted earnings (loss) per share are as follows:
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In millions, except per share amounts
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Year ended December 31
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2020
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2019
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2018
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Numerator:
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Income (loss) from continuing operations
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$
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(7)
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$
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614
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$
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(36)
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Series A convertible preferred stock dividends
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(31)
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(76)
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(49)
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Net income (loss) from continuing operations attributable to NCR common stockholders
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(38)
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538
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(85)
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Loss from discontinued operations, net of tax
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(72)
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(50)
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(52)
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Net income (loss) attributable to NCR common stockholders
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$
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(110)
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$
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488
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$
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(137)
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Denominator:
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Basic weighted average number of shares outstanding
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128.4
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122.1
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118.4
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Dilutive effect of as-if Series A Convertible Preferred Stock
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—
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19.5
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—
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Dilutive effect of employee stock options and restricted stock units
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—
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3.6
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—
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Weighted average diluted shares
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128.4
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145.2
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118.4
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Diluted earnings (loss) per share:
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From continuing operations
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$
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(0.30)
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$
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3.71
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$
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(0.72)
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From discontinued operations
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(0.56)
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|
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(0.35)
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(0.44)
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Total diluted earnings (loss) per share
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$
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(0.86)
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|
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$
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3.36
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$
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(1.16)
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For 2020, due to the net loss attributable to NCR common stockholders, potential common shares that would cause dilution, such as Series A Convertible Preferred Stock, restricted stock units and stock options, have been excluded from the diluted share count because their effect would been anti-dilutive. The weighted average outstanding shares of common stock were not adjusted by 9.1 million for the as-if converted Series A Convertible Preferred Stock because the effect would be anti-dilutive. Refer to Note 11, "Series A Convertible Preferred Stock" for additional discussion related to the transaction impacting the
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Series A Convertible Preferred Stock. Additionally, for 2020, weighted average restricted stock units and stock options of 11.2 million were excluded from the diluted share count because their effect would have been anti-dilutive.
For 2019, it is more dilutive to assume the portion of the Series A Convertible Preferred Stock that was redeemed was not converted to common stock. Therefore, weighted average outstanding shares of common stock were not adjusted by 5.7 million for the as-if converted Series A Convertible Preferred Stock that was redeemed because the effect would be anti-dilutive. Refer to Note 11, "Series A Convertible Preferred Stock" for additional discussion related to the transaction impacting the Series A Convertible Preferred Stock. Additionally, for 2019, weighted average restricted stock units and stock options of 4.3 million were excluded from the diluted share count because their effect would have been anti-dilutive.
For 2018, due to the net loss attributable to NCR common stockholders, potential common shares that would cause dilution, such as Series A Convertible Preferred Stock, restricted stock units and stock options, have been excluded from the diluted share count because their effect would been anti-dilutive. The weighted average outstanding shares of common stock were not adjusted by 28.3 million for the as-if converted Series A Convertible Preferred Stock because the effect would be anti-dilutive. Additionally, for 2018, weighted average restricted stock units and stock options of 5.6 million were excluded from the diluted share count because their effect would have been anti-dilutive.
Cash and Cash Equivalents All short-term, highly liquid investments having original maturities of three months or less, including time deposits, are considered to be cash equivalents. The Company has restricted cash on deposit with a bank as collateral for letters of credit, funds held for clients as well as cash included in settlement processing assets.
The reconciliation of cash, cash equivalents and restricted cash in the Consolidated Statements of Cash Flows is as follows:
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In millions
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Balance Sheet Location
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|
December 31, 2020
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December 31, 2019
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December 31, 2018
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Cash and cash equivalents
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Cash and cash equivalents
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$
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338
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$
|
509
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$
|
464
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Restricted cash
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Other assets
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9
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7
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12
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Funds held for client
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Other current assets
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44
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32
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46
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Cash included in settlement processing assets
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Other current assets
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15
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15
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10
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Total cash, cash equivalents and restricted cash
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$
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406
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$
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563
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$
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532
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Accounts Receivable, net Accounts receivable, net includes amounts billed and currently due from customers as well as amounts unbilled that typically result from sales under contracts where revenue recognized exceeds the amount billed to the customer and where the Company has an unconditional right to consideration. The amounts due are stated at their net estimated realizable value.
Allowance for Credit Losses on Accounts Receivable Allowances for credit losses on accounts receivable are recognized when reasonable and supportable forecasts affect the expected collectability. This requires us to make our best estimate of the current expected losses inherent in our accounts receivable at each balance sheet date. These estimates require consideration of historical loss experience, adjusted for current conditions, forward looking indicators, trends in customer payment frequency and judgments about the probable effects of relevant observable data, including present and future economic conditions and the financial health of specific customers and market sectors. This policy is applied consistently among all of our operating segments.
Our allowance for credit losses as of December 31, 2020 and January 1, 2020 was $51 million and $44 million, respectively. For the year ended December 31, 2020, our allowance for credit losses charged to expense was $33 million. We increased our allowance for credit losses in the year ended December 31, 2020 by $10 million based upon current forecasts that reflect increased economic uncertainty resulting from the COVID-19 pandemic. The Company recorded $26 million of write-offs against the reserve for the year ended December 31, 2020.
Inventories Inventories are stated at the lower of cost or net realizable value, using the average cost method. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventories. Service parts are included in inventories and include reworkable and non-reworkable service parts. The Company regularly reviews inventory quantities on hand, future purchase commitments with suppliers and the estimated utility of inventory. If the review indicates a reduction in utility below carrying value, inventory is reduced to a new cost basis. Excess and obsolete write-offs are established based on forecasted usage, orders, technological obsolescence and inventory aging.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Contract Assets and Liabilities Contract assets include unbilled amounts where right to payment is not solely subject to the passage of time. Amounts may not exceed their net realizable value. Contract liabilities consist of advance payments, billings in excess of revenue recognized and deferred revenue.
Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. If the net position is a contract asset, the current portion is included in other current assets and the non-current portion is included in other assets in the Consolidated Balance Sheet. If the net position is a contract liability, the current portion is included in contract liabilities and the non-current portion is included in other liabilities in the Consolidated Balance Sheet.
The following table presents the net contract asset and contract liability balances:
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In millions
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Location in the Consolidated Balance Sheet
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|
December 31, 2020
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|
December 31, 2019
|
Current portion of contract assets
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Other current assets
|
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$
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—
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$
|
9
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Current portion of contract liabilities
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Contract liabilities
|
|
$
|
507
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|
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$
|
502
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Non-current portion of contract liabilities
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Other liabilities
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$
|
80
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|
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$
|
81
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During the twelve months ended December 31, 2020 and 2019, the Company recognized $407 million and $341 million, respectively, in revenue that was included in contract liabilities as of January 1, 2019 and 2018, respectively.
Deferred Commissions Our incremental costs of obtaining a contract, which consist of certain sales commissions, primarily for our SaaS revenue, are deferred and amortized on a straight-line basis over the period of expected benefit. We determined the period of expected benefit by taking into consideration customer contracts, the estimated life of the customer relationship, including renewals when the renewal commission is not commensurate with the initial commission, the expected life of the underlying technology and other factors. We classify deferred commissions as current or non-current based on the timing of when we expect to recognize the expense. The current and non-current portions of deferred commissions are included in other current assets and other assets, respectively, in the Consolidated Balance Sheets. Amortization of deferred commissions is included in selling, general and administrative expenses in the Consolidated Statements of Operations.
Set-up Fees and Costs Fees for the design, configuration, implementation and installation related to the software applications that are provided as a service are recognized over the contract term, which is generally 5 years. The related costs incurred that are determined to be incremental and recoverable contract-specific costs are deferred and amortized over the period of benefit, which is generally 7 years.
Settlement Processing Assets and Obligations Funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants. Depending on the type of transaction, either the credit card interchange system or the debit network is used to transfer the information and funds between the sponsoring bank and card issuing bank to complete the link between merchants and card issuers. In certain of our processing arrangements, merchant funding primarily occurs after the sponsoring bank receives the funds from the card issuer through the card networks, creating a net settlement obligation on the Company’s Consolidated Balance Sheet. In a limited number of other arrangements, the sponsoring bank funds the merchants before it receives the net settlement funds from the card networks, creating a net settlement asset on the Company’s Consolidated Balance Sheet. Additionally, certain of the Company’s sponsoring banks collect the gross revenue from the merchants, pay the interchange fees and assessments to the credit card associations, collect their fees for processing and pay the Company a net residual payment representing the Company’s fees for the services. In these instances, the Company does not reflect the related settlement processing assets and obligations in its Consolidated Balance Sheet.
Settlement processing assets consist of our portion of settlement assets due from customers and receivables from merchants for the portion of the discount fee related to reimbursement of the interchange expense, our receivable from the processing bank for transactions we have funded merchants in advance of receipt of card association funding, restricted cash balances that are not yet due to merchants, merchant reserves held, sponsoring bank reserves and exception items, such as customer chargeback amounts receivable from merchants. Settlement processing obligations consist primarily of merchant reserves, our liability to the processing bank for transactions for which we have received funding from the members but have not funded merchants and exception items. Settlement processing assets are recorded within other current assets and settlement processing liabilities are recorded within other current liabilities in the Consolidated Balance Sheet. As of December 31, 2020 and 2019, settlement processing assets were $33 million and $33 million, respectively, and settlement processing liabilities were $31 million and $31
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
million, respectively. Settlement receivables are generally collected within four business days. Settlement obligations are generally paid within three business days, regardless of when the related settlement receivables are collected.
Capitalized Software Certain direct development costs associated with internal-use software are capitalized within other assets and amortized over the estimated useful lives of the resulting software. NCR typically amortizes capitalized internal-use software on a straight-line basis over four to seven years beginning when the asset is substantially ready for use, as this is considered to approximate the usage pattern of the software. When it becomes probable that internal-use software being developed will not be completed or placed into service, the internal-use software is reported at the lower of the carrying amount or fair value.
Costs incurred for the development of software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established. These costs are included within other assets and are amortized on a sum-of-the-years' digits or straight-line basis over the estimated useful lives ranging from three to five years, using the method that most closely approximates the sales pattern of the software. Amortization begins when the product is available for general release. Costs capitalized include direct labor and related overhead costs. Costs incurred prior to technological feasibility or after general release are expensed as incurred. NCR performs periodic reviews to ensure that unamortized program costs remain recoverable from future revenue. If future revenue does not support the unamortized program costs, the amount by which the unamortized capitalized cost of a software product exceeds the net realizable value is written off.
The following table identifies the activity relating to total capitalized software:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
|
2019
|
|
2018
|
Beginning balance as of January 1
|
$
|
413
|
|
|
$
|
325
|
|
|
$
|
366
|
|
Capitalization
|
232
|
|
|
238
|
|
|
170
|
|
Amortization
|
(171)
|
|
|
(148)
|
|
|
(160)
|
|
Impairment
|
(32)
|
|
|
(2)
|
|
|
(51)
|
|
Ending balance as of December 31
|
$
|
442
|
|
|
$
|
413
|
|
|
$
|
325
|
|
During the year ended December 31, 2020 and 2018, we recorded the write-off of certain internal- and external-use software capitalization projects that are no longer considered strategic and as a result, the projects have been abandoned.
Goodwill and Other Intangible Assets Goodwill represents the excess of purchase price over the fair value of the net tangible and identifiable intangible assets of businesses acquired. Goodwill is tested at the reporting unit level for impairment on an annual basis during the fourth quarter or more frequently if certain events occur indicating that the carrying value of goodwill may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a decline in expected cash flows, a significant adverse change in legal factors or in the business climate, a decision to sell a business, unanticipated competition, or slower growth rates, among others.
In the evaluation of goodwill for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If under the quantitative assessment the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, is determined based on the amount by which the carrying amount exceeds the fair value up to the total value of goodwill assigned to the reporting unit. Fair values of the reporting units are estimated using a weighted methodology considering the output from both the income and market approaches. The income approach incorporates the use of discounted cash flow (DCF) analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including revenue growth, operating income margin and discount rate. Several of these assumptions vary among reporting units. The cash flow forecasts are generally based on approved strategic operating plans. The market approach is performed using the Guideline Public Companies (GPC) method which is based on earnings multiple data. We perform a reconciliation between our market capitalization and our estimate of the aggregate fair value of the reporting units, including consideration of a control premium. Refer to Note 2, "Goodwill and Purchased Intangible Assets" for further discussion.
Acquired intangible assets other than goodwill are amortized over their weighted average amortization period unless they are determined to be indefinite. Acquired intangible assets are carried at cost, less accumulated amortization. For intangible assets
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
purchased in a business combination, the estimated fair values of the assets received are used to establish the carrying value. The fair value of acquired intangible assets is determined using common techniques, and the Company employs assumptions developed using the perspective of a market participant.
Property, Plant and Equipment Property, plant and equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the related assets primarily on a straight-line basis. Machinery and other equipment are depreciated over 3 to 20 years and buildings over 25 to 45 years. Leasehold improvements are depreciated over the life of the lease or the asset, whichever is shorter. Assets classified as held for sale are not depreciated. Upon retirement or disposition of property, plant and equipment, the related cost and accumulated depreciation or amortization are removed from the Company’s accounts, and a gain or loss is recorded. Depreciation expense related to property, plant and equipment was $88 million, $79 million, and $81 million for the years ended December 31, 2020, 2019, and 2018, respectively.
Valuation of Long-Lived Assets Long-lived assets such as property, plant and equipment and finite-lived intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable or in the period in which the held for sale criteria are met. For assets held and used, this analysis consists of comparing the asset’s carrying value to the expected future cash flows to be generated from the asset on an undiscounted basis. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash flows, or external appraisals, as applicable. Long-lived assets are reviewed for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified. Refer to Note 2, "Goodwill and Purchased Intangible Assets" for further discussion.
Leasing We adopted the new leasing standard using the modified retrospective approach with an effective date of January 1, 2019. Periods prior to 2019 were not recast under the new standard and, therefore, those amounts are not presented in Note 10, "Leasing".
Lessee We lease property, vehicles and equipment under operating and financing leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. Leases with a lease term 12 months or less at inception are not recorded on our Consolidated Balance Sheet and are expensed on a straight-line basis over the lease term in our Consolidated Statement of Operations. Our leases may include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. Our incremental borrowing rate is based on a credit-adjusted risk-free rate at commencement date, which best approximates a secured rate over a similar term of lease. Additionally, we do not separate lease and non-lease components for any asset classes, except for those leases embedded in certain service arrangements. Fixed and in-substance fixed payments are included in the recognition of the operating and financing assets and lease liabilities, however, variable lease payments, other than those based on a rate or index, are recognized in the Consolidated Statements of Operations in the period in which the obligation for those payments is incurred. The Company’s variable lease payments generally relate to payments tied to various indices, non-lease components and payments above a contractual minimum fixed payment.
Lessor We have various arrangements for certain point-of-sale equipment under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.
Pension, Postretirement and Postemployment Benefits NCR has significant pension, postretirement and postemployment benefit costs, which are developed from actuarial valuations. Actuarial assumptions are established to anticipate future events and are used in calculating the expense and liabilities relating to these plans. These factors include assumptions the Company makes about interest rates, expected investment return on plan assets, rate of increase in healthcare costs, involuntary turnover rates, and rates of future compensation increases. In addition, NCR also uses subjective factors, such as withdrawal rates and mortality rates to develop the Company’s valuations. NCR generally reviews and updates these assumptions on an annual basis. NCR is required to consider current market conditions, including changes in interest rates, in making these assumptions. The actuarial assumptions that NCR uses may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension, postretirement or postemployment benefits expense, and the related assets and liabilities, the Company has recorded or may record.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Environmental and Legal Contingencies In the normal course of business, NCR is subject to various proceedings, lawsuits, claims and other matters, including, for example, those that relate to the environment and health and safety, labor and employment, employee benefits, import/export compliance, intellectual property, data privacy and security, product liability, commercial disputes and regulatory compliance, among others. Additionally, NCR is subject to diverse and complex laws, regulations, and standards including those relating to corporate governance, public disclosure and reporting, environmental safety and the discharge of materials into the environment, product safety, import and export compliance, data privacy and security, antitrust and competition, government contracting, anti-corruption, and labor and human resources, which are rapidly changing and subject to many possible changes in the future. Compliance with these laws and regulations, including changes in accounting standards, taxation requirements, and federal securities laws among others, may create a substantial burden on, and substantially increase the costs to NCR or could have an impact on NCR’s future operating results. NCR believes that the amounts provided in its Consolidated Financial Statements are adequate in light of the probable and estimable liabilities. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various lawsuits, claims, legal proceedings and other matters, including the Fox River and Kalamazoo River environmental matters discussed in Note 9, "Commitments and Contingencies" and to comply with applicable laws and regulations, will not exceed the amounts reflected in NCR’s Consolidated Financial Statements or will not have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows. Any costs that may be incurred in excess of those amounts provided as of December 31, 2020 cannot currently be reasonably determined or are not currently considered probable.
Legal fees and expenses related to loss contingencies are typically expensed as incurred, except for certain costs associated with NCR’s environmental remediation obligations. Costs and fees associated with litigating the extent and type of required remedial actions and the allocation of remediation costs among potentially responsible parties are typically included in the measurement of the environmental remediation liabilities.
Foreign Currency For many NCR international operations, the local currency is designated as the functional currency. Accordingly, assets and liabilities are translated into U.S. Dollars at year-end exchange rates, and revenue and expenses are translated at average exchange rates prevailing during the year. Currency translation adjustments from local functional currency countries resulting from fluctuations in exchange rates are recorded in other comprehensive income. Remeasurement adjustments are recorded in other income (expense), net.
Derivative Instruments In the normal course of business, NCR enters into various financial instruments, including derivative financial instruments. The Company accounts for derivatives as either assets or liabilities in the Consolidated Balance Sheets at fair value and recognizes the resulting gains or losses as adjustments to earnings or other comprehensive income. For derivative instruments that are designated and qualify as hedging instruments, the Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. Hedging activities are transacted only with highly rated institutions, reducing exposure to credit risk in the event of nonperformance. Additionally, the Company completes assessments related to the risk of counterparty nonperformance on a regular basis.
The accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company has designated the hedging instrument, based on the exposure being hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments designated as fair value hedges, the effective portion of the hedge is recorded as an offset to the change in the fair value of the hedged item, and the ineffective portion of the hedge, if any, is recorded in the Consolidated Statement of Operations. For derivative instruments designated as cash flow hedges and determined to be highly effective, the gains or losses are deferred in other comprehensive income and recognized in the determination of income as adjustments of carrying amounts when the underlying hedged transaction is realized, canceled or otherwise terminated. When hedging certain foreign currency transactions of a long-term investment nature (net investments in foreign operations) gains and losses are recorded in the currency translation adjustment component of accumulated other comprehensive loss. Gains and losses on foreign exchange contracts that are not used to hedge currency transactions of a long-term investment nature, or that are not designated as cash flow or fair value hedges, are recognized in other (expense), net as exchange rates change.
Fair Value of Assets and Liabilities Fair value is defined as an exit price, representing an amount that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance prioritizes the inputs used to measure fair value into the following three-tier fair value hierarchy:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities
•Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or inputs, other than quoted prices in active markets, that are observable either directly or indirectly
•Level 3: Unobservable inputs for which there is little or no market data
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes to the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
NCR measures its financial assets and financial liabilities at fair value based on one or more of the following three valuation techniques:
•Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
•Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).
•Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option pricing and excess earnings models).
We regularly review our investments to determine whether a decline in fair value, if any, below the cost basis is other than temporary. If the decline in the fair value is determined to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in the Consolidated Statement of Operations. For qualifying investments in debt or equity securities, a temporary impairment charge would be recognized in other comprehensive income (loss).
Recent Accounting Pronouncements
Issued
In August 2020, the Financial Accounting Standards Board ("FASB") issued an accounting standards update with new guidance for convertible preferred stock, which eliminates considerations related to the beneficial conversion feature model. The standard also requires an average stock price when calculating the denominator for diluted earnings per share to be used for stock units where the settlement of the number of shares is based on the stock price. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted no earlier than fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The adoption of this accounting standards update is not expected to have a material effect on the Company's net income, cash flows, earnings per share or financial condition.
Adopted
In June 2016, the FASB issued an accounting standards update with new guidance on accounting for credit losses on financial instruments. The new guidance includes an impairment model for estimating credit losses that is based on expected losses, rather than incurred losses. This accounting standards update is effective prospectively for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted. The adoption of this accounting standards update did not have a material effect on the Company's net income, cash flows or financial condition.
In August 2018, the FASB issued an accounting standards update with new guidance on fair value measurement disclosure requirements that requires the disclosure of additions to and transfers into and out of Level 3 of the fair value hierarchy. This accounting standards update also requires disclosure about the uncertainty in measurement as of the reporting date. The new standard became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted. The adoption of this accounting standards update did not have a material impact on the financial statement disclosures.
In August 2018, the FASB issued an accounting standards update related to accounting for implementation costs incurred in a cloud computing arrangement that is also a service contract. If a cloud computing arrangement also includes an internal-use
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
software, an intangible asset is recognized, and a liability is recognized for any payments related to the software license. However, if a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract and any fees associated with the service are expensed as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The adoption of this accounting standards update did not have a material effect on the Company's net income, cash flows or financial condition.
In December 2019, the FASB issued an accounting standards update with new guidance that removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This accounting standards update also adds guidance to reduce complexity in certain areas, including recognizing measures for the accounting for income taxes. This accounting standards update is effective for fiscal years and interim periods beginning after December 15, 2020, with early adoption permitted. The adoption of this accounting standards update did not have a material impact on the Company's net income, cash flows or financial condition.
In March 2020, the SEC adopted final rules, effective January 4, 2021, that, among other things, amend the financial disclosure requirements of Regulation S-X under the Securities Act for guaranteed securities registered with the SEC. As permitted by such rules, the Company is voluntarily complying with the rules in advance of the effective date. Accordingly, we are no longer required to provide, and are not providing, supplemental guarantor information for NCR International, Inc.'s SEC registered guarantee of the 5.00% and 6.375% senior unsecured notes given that NCR International, Inc.'s reporting obligations with respect to guarantees under Section 15(d) of the Exchange Act have been automatically suspended.
2. GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill by Segment The carrying amounts of goodwill by segment as of December 31, 2020, 2019, and 2018 are included in the tables below. Foreign currency fluctuations are included within other adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
December 31, 2020
|
In millions
|
Goodwill
|
|
Accumulated Impairment Losses
|
|
Total
|
|
Additions
|
|
Impairment
|
|
Other
|
|
Goodwill
|
|
Accumulated Impairment Losses
|
|
Total
|
Banking
|
$
|
1,774
|
|
|
$
|
(101)
|
|
|
$
|
1,673
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
|
$
|
1,772
|
|
|
$
|
(101)
|
|
|
$
|
1,671
|
|
Retail
|
638
|
|
|
(34)
|
|
|
604
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
643
|
|
|
(34)
|
|
|
609
|
|
Hospitality
|
402
|
|
|
(23)
|
|
|
379
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
404
|
|
|
(23)
|
|
|
381
|
|
T&T
|
187
|
|
|
(11)
|
|
|
176
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
187
|
|
|
(11)
|
|
|
176
|
|
Total goodwill
|
$
|
3,001
|
|
|
$
|
(169)
|
|
|
$
|
2,832
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
3,006
|
|
|
$
|
(169)
|
|
|
$
|
2,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
December 31, 2019
|
In millions
|
Goodwill
|
|
Accumulated Impairment Losses
|
|
Total
|
|
Additions
|
|
Impairment
|
|
Other
|
|
Goodwill
|
|
Accumulated Impairment Losses
|
|
Total
|
Banking
|
$
|
1,718
|
|
|
$
|
(101)
|
|
|
$
|
1,617
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
1,774
|
|
|
$
|
(101)
|
|
|
$
|
1,673
|
|
Retail
|
571
|
|
|
(34)
|
|
|
537
|
|
|
67
|
|
|
—
|
|
|
—
|
|
|
638
|
|
|
(34)
|
|
|
604
|
|
Hospitality
|
385
|
|
|
(23)
|
|
|
362
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
402
|
|
|
(23)
|
|
|
379
|
|
T&T
|
187
|
|
|
(11)
|
|
|
176
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
187
|
|
|
(11)
|
|
|
176
|
|
Total goodwill
|
$
|
2,861
|
|
|
$
|
(169)
|
|
|
$
|
2,692
|
|
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
3,001
|
|
|
$
|
(169)
|
|
|
$
|
2,832
|
|
In early 2020, there was significant market volatility driven by the COVID-19 pandemic that resulted in uncertainty around our full year revenue and operating income expectations. As a result, we withdrew our full year outlook for 2020 on March 31, 2020, which was previously provided during our fourth quarter 2019 earnings conference call on February 11, 2020. Given the rapidly changing environment, we considered if there was an indication the carrying value of net assets were in excess of the fair value for each of our reporting units. This consideration included the expected impacts to the current year cash flows, the potential impacts to future cash flows as well as the excess of the fair value over the carrying value from the prior year annual assessment. As a result, we determined there was an indication that the carrying value of the net assets assigned to the Hospitality reporting unit may not be recoverable. Based on the assessment completed as of March 31, 2020, it was determined the fair value of the Hospitality reporting unit was greater than the carrying value.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
As discussed in Note 1, “Basis of Presentation and Significant Accounting Policies” NCR completed the annual goodwill impairment test during the fourth quarter of 2020. The Company elected to perform a qualitative assessment for the Banking, Retail, and T&T reporting units and a quantitative analysis for the Hospitality reporting unit. Based on the qualitative assessments completed, it was determined that the fair value of the Banking, Retail and T&T reporting units were substantially in excess of the carrying value.
For the quantitative assessment of the Hospitality reporting unit, the fair value was estimated using a weighted methodology considering the output from both the income and market approaches. The income approach incorporates the use of discounted cash flow (DCF) analysis. A number of significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including revenue growth, operating income margin and discount rate. The market approach is performed using the Guideline Public Companies (GPC) method which is based on earnings multiple data of peer companies.
The Company expects the COVID-19 pandemic to have a significant impact to the Hospitality customers in the table service market, travel and entertainment market and small and medium business market in the near term. However, the expectation is the long term growth strategy will remain intact. Based on the quantitative assessment completed for the annual goodwill impairment test, the Company determined the fair value of the Hospitality reporting unit continues to be greater than the carrying value. However, if the actual results or the anticipated timing of the recovery from the COVID-19 pandemic differ from our expectations for the Hospitality, or any, reporting unit, there is a possibility we would have to perform an interim impairment test in 2021, which could lead to an impairment of goodwill or other assets.
During the year ended December 31, 2018, the Company recorded impairment charges of $146 million under the previous segment reporting structure where it was determined there was an indication that the carrying value of the net assets assigned to the Hardware reporting unit may not be recoverable. These charges were recorded in the line item asset impairment charges in our Consolidated Statement of Operations for the year ended December 31, 2018.
Identifiable Intangible Assets NCR's purchased intangible assets, reported in intangibles, net in the Consolidated Balance Sheets, were specifically identified when acquired, and are deemed to have finite lives. The gross carrying amount and accumulated amortization for NCR’s identifiable intangible assets were as set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
Period
(in Years)
|
|
December 31, 2020
|
|
December 31, 2019
|
In millions
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
Identifiable intangible assets
|
|
|
|
|
|
|
|
|
|
Reseller & customer relationships
|
1 - 20
|
|
$
|
740
|
|
|
$
|
(324)
|
|
|
$
|
735
|
|
|
$
|
(270)
|
|
Intellectual property
|
2 - 8
|
|
531
|
|
|
(418)
|
|
|
529
|
|
|
(397)
|
|
Customer contracts
|
8
|
|
89
|
|
|
(89)
|
|
|
89
|
|
|
(89)
|
|
Tradenames
|
1 - 10
|
|
77
|
|
|
(74)
|
|
|
78
|
|
|
(68)
|
|
Total identifiable intangible assets
|
|
|
$
|
1,437
|
|
|
$
|
(905)
|
|
|
$
|
1,431
|
|
|
$
|
(824)
|
|
The aggregate amortization expense (actual and estimated) for identifiable intangible assets for the following periods is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2020
|
|
For the years ended December 31 (estimated)
|
In millions
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
Amortization expense
|
|
$
|
81
|
|
|
$
|
72
|
|
|
$
|
68
|
|
|
$
|
66
|
|
|
$
|
59
|
|
|
$
|
51
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
3. BUSINESS COMBINATIONS AND DIVESTITURES
2020 Acquisition
Acquisition of Origami
On June 6, 2019, our subsidiary, NCR Brasil Ltda. (NCR Brasil) entered into a definitive agreement with OKI Electric Industry Co., Ltd. and its Brazilian subsidiary, OKI Brasil Industria e Comércio de Produtos e Tecnologia em Automação S.A. (OKI Brasil), to purchase OKI Brasil's IT services and select software assets for use in the financial, retail and other industries. Neither OKI Brasil's manufacturing operations nor its printing business in Brazil were included in the acquisition. On April 9, 2020, NCR Brasil completed this acquisition through the purchase of 100% of the quotas of Origami Brasil Tecnologia e Serviços em Automação Ltda. (Origami), which became a wholly-owned subsidiary of NCR Brasil. The purchase price was approximately $5 million, of which $2 million is payable in cash within two years of the acquisition date, subject to certain conditions, and the remaining $3 million is payable in cash within six years of the acquisition date, subject to purchase price adjustments.
The fair value of consideration transferred to acquire Origami was allocated to the identifiable assets and liabilities assumed based upon their estimated fair values as of the date of acquisition as set forth below. The acquisition has resulted in a bargain purchase gain based on the purchase price being limited mostly to the net assets of the business excluding cash and investments. The bargain purchase gain has been recorded in other income (expense), net within the Consolidated Statement of Operations.
|
|
|
|
|
|
In millions
|
Fair Value
|
Cash acquired
|
$
|
1
|
|
Investments acquired
|
9
|
|
Tangible assets acquired
|
18
|
|
Bargain purchase gain on business acquisition
|
(7)
|
|
Liabilities assumed
|
(16)
|
|
Total purchase consideration
|
$
|
5
|
|
The operating results of Origami have been included within NCR's results as of the closing date of the acquisition. Supplemental pro forma information and actual revenue and earnings since the acquisition date have not been provided as this acquisition did not have a material impact on the Company's Consolidated Statements of Operations.
2019 Acquisitions
Acquisition of D3 Technology, Inc.
On July 1, 2019, NCR completed its acquisition of D3 Technology, Inc. (D3), a leading provider of online and mobile banking for the Large Financial Institution market, for approximately $84 million, of which $83 million was paid in cash. The remaining $1 million was payable within 12 months from the date of acquisition and paid in 2020. The D3 acquisition further expands our digital banking strategy as we extend our market share in large domestic banks and international banks. As a result of the acquisition, D3 became a wholly-owned subsidiary of NCR.
Recording of Assets Acquired and Liabilities Assumed The fair value of consideration transferred to acquire D3 was allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition as set forth below.
The final allocation of the purchase price for D3 is as follows:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
In millions
|
Fair Value
|
Cash acquired
|
$
|
9
|
|
Tangible assets acquired
|
6
|
|
Acquired intangible assets other than goodwill
|
20
|
|
Acquired goodwill
|
51
|
|
Deferred tax assets
|
6
|
|
Liabilities assumed
|
(8)
|
|
Total purchase consideration
|
$
|
84
|
|
Goodwill represents the future economic benefits arising from other assets acquired that could not be individually separately recognized. The goodwill arising from the acquisition consists of revenue synergies expected from combining the operations of NCR and D3. It is expected that none of the goodwill recognized in connection with the acquisition will be deductible for tax purposes. The goodwill arising from the acquisition has been allocated to our Banking segment. Refer to Note 2, "Goodwill and Purchased Intangible Assets" for the carrying amounts of goodwill by segment.
The following table sets forth the components of the intangible assets acquired as of the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Weighted Average Amortization Period (1)
|
|
(In millions)
|
|
(In years)
|
Direct customer relationships
|
$
|
7
|
|
|
11
|
Technology - Software
|
11
|
|
|
5
|
Tradenames
|
2
|
|
|
7
|
Total acquired intangible assets
|
$
|
20
|
|
|
|
(1) Determination of the weighted average period of the individual categories of intangible assets was based on the nature of applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with definite lives is recognized over the period of time the assets are expected to contribute to future cash flows.
In connection with the closing of the acquisition, the Company incurred approximately $1 million of transaction costs, which has been included within selling, general and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2019.
The operating results of D3 have been included within NCR's results as of the closing date of the acquisition. Supplemental pro forma information and actual revenue and earnings since the acquisition date have not been provided as this acquisition did not have a material impact on the Company's Consolidated Statements of Operations.
Acquisition of Zynstra Ltd.
On December 21, 2019, NCR completed its acquisition of Zynstra, Ltd. (Zynstra), a leading provider of edge virtualization technology, for approximately $134 million, of which $112 million was paid in cash. The remaining $22 million was paid in 2020. The Zynstra acquisition further expands our digital retail strategy as we further enhance our next generation store architecture. As a result of the acquisition, Zynstra became a wholly-owned subsidiary of NCR.
Recording of Assets Acquired and Liabilities Assumed The fair value of consideration transferred to acquire Zynstra was allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition as set forth below.
The final allocation of the purchase price for Zynstra is as follows:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
In millions
|
Fair Value
|
Cash acquired
|
$
|
1
|
|
Tangible assets acquired
|
1
|
|
Acquired intangible assets other than goodwill
|
76
|
|
Acquired goodwill
|
66
|
|
Deferred tax liability
|
(9)
|
|
Liabilities assumed
|
(1)
|
|
Total purchase consideration
|
$
|
134
|
|
Goodwill represents the future economic benefits arising from other assets acquired that could not be individually separately recognized. The goodwill arising from the acquisition consists of revenue and cost synergies expected from combining the operations of NCR and Zynstra. It is expected that none of the goodwill recognized in connection with the acquisition will be deductible for tax purposes. The goodwill arising from the acquisition has been allocated to our Retail segment. Refer to Note 2, "Goodwill and Purchased Intangible Assets" for the carrying amounts of goodwill by segment.
The following table sets forth the components of the intangible assets acquired as of the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Weighted Average Amortization Period (1)
|
|
(In millions)
|
|
(In years)
|
Technology - Software
|
$
|
75
|
|
|
8
|
Tradenames
|
1
|
|
|
1
|
Total acquired intangible assets
|
$
|
76
|
|
|
|
(1) Determination of the weighted average period of the individual categories of intangible assets was based on the nature of applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with definite lives is recognized over the period of time the assets are expected to contribute to future cash flows.
In connection with the closing of the acquisition, the Company incurred approximately $2 million of transaction costs, which has been included within selling, general and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2019.
The operating results of Zynstra have been included within NCR's results as of the closing date of the acquisition. Supplemental pro forma information and actual revenue and earnings since the acquisition date have not been provided as this acquisition did not have a material impact on the Company's Consolidated Statements of Operations.
Other 2019 acquisitions
During the year ended December 31, 2019, the Company completed four acquisitions of local resellers in the hospitality industry for an aggregate purchase consideration of approximately $20 million, plus related acquisition costs. Approximately $2 million was withheld by the Company as a source of recovery for possible claims and payments under the related acquisition agreements and will be paid to the respective sellers pursuant to the terms of such agreements. Goodwill recognized related to these acquisitions was $17 million, all of which is expected to be deductible for tax purposes. The goodwill arising from these acquisitions has been allocated to the Hospitality segment. As a result of these acquisitions, NCR recorded $6 million related to identifiable intangible assets consisting primarily of customer relationships, which have a weighted-average amortization period of 8 years. Supplemental pro forma information and actual revenue and earnings since the acquisition dates have not been provided as these acquisitions did not have a material impact, individually or in the aggregate, on the Company's Consolidated Statements of Operations.
2018 Acquisitions
Acquisition of JetPay Corporation
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
On December 6, 2018, NCR completed its acquisition of JetPay Corporation (JetPay), for which it purchased (i) all outstanding shares of common stock at a price of $5.05 per share, (ii) shares of Series A Preferred Stock at $5.05 per share, (iii) shares of Series A-1 Convertible Preferred Stock at a price of $600 per share, (iv) shares of Series A-2 Convertible Preferred Stock of JetPay at a price of $600 per share, and (v) transaction costs paid on behalf of the seller for an aggregate purchase price of $193 million which was paid in cash. As a result of the acquisition, JetPay became a wholly-owned subsidiary of NCR.
JetPay is a provider of end-to-end payment processing and human capital management solutions. The acquisition is consistent with NCR's continued transformation to a software- and services-driven business. JetPay complements and extends our existing capabilities by allowing us to monetize transactions via payments.
Recording of Assets Acquired and Liabilities Assumed The fair value of consideration transferred to acquire JetPay was allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition as set forth below.
The final allocation of the purchase price for JetPay is as follows:
|
|
|
|
|
|
In millions
|
Fair Value
|
Cash acquired
|
$
|
50
|
|
Tangible assets acquired
|
30
|
|
Acquired intangible assets other than goodwill
|
104
|
|
Acquired goodwill
|
96
|
|
Deferred tax liabilities
|
(11)
|
|
Liabilities assumed
|
(76)
|
|
Total purchase consideration
|
$
|
193
|
|
Goodwill represents the future economic benefits arising from other assets acquired that could not be individually separately recognized. The goodwill arising from the acquisition consists of revenue synergies expected from combining the operations of NCR and JetPay. It is expected that none of the goodwill recognized in connection with the acquisition will be deductible for tax purposes. The goodwill arising from the acquisition has been allocated to our Retail and Hospitality segments. Refer to Note 2, "Goodwill and Purchased Intangible Assets" for the carrying amounts of goodwill by segment.
The following table sets forth the components of the intangible assets acquired as of the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Weighted Average Amortization Period (1)
|
|
(In millions)
|
|
(In years)
|
Direct customer relationships
|
$
|
64
|
|
|
17
|
Technology - Software
|
39
|
|
|
9
|
Tradenames
|
1
|
|
|
1
|
Total acquired intangible assets
|
$
|
104
|
|
|
|
(1) Determination of the weighted average period of the individual categories of intangible assets was based on the nature of applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with definite lives is recognized over the period of time the assets are expected to contribute to future cash flows.
In connection with the closing of the acquisition, the Company incurred approximately $4 million of transaction costs, which has been included within selling, general and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2018.
Unaudited Pro forma Information The following unaudited pro forma information presents the consolidated results of NCR and JetPay for the years ended December 31, 2018. The unaudited pro forma information is presented for illustrative purposes only. It is not necessarily indicative of the results of operations of future periods, or the results of operations that actually would have been realized had the entities been a single company during the periods presented or the results that the combined company will experience after the acquisition. The unaudited pro forma information does not give effect to the potential impact of current
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the acquisition. The unaudited pro forma information also does not include any integration costs or remaining future transaction costs that the companies may incur related to the acquisition as part of combining the operations of the companies.
The unaudited pro forma consolidated results of operations for the year ended December 31, 2018, as if the acquisition had occurred on January 1, 2017, is as follows:
|
|
|
|
|
|
|
|
|
In millions
|
|
2018
|
Revenue
|
|
$
|
6,468
|
|
Net income attributable to NCR
|
|
$
|
(46)
|
|
The unaudited pro forma results for the year ended December 31, 2018 include:
•$4 million, net of tax, in additional amortization expense for acquired intangible assets;
•$4 million, net of tax, in eliminated transaction costs as if those costs were incurred in the prior year period; and
•$7 million, net of tax, in additional interest expense from the incremental borrowings under the senior secured credit facility.
Other 2018 acquisitions
During the third quarter of 2018, we completed the acquisition of Zipscene, LLC which aggregates and enriches data from hospitality customers to provide marketing insights back to our customers and will enable us to increase data monetization. During the fourth quarter of 2018, we completed its acquisition of StopLift Checkout Vision Systems ("StopLift"). StopLift designs artificial intelligence technology which identifies fraudulent behavior at the POS and in SCO systems.
4. SEGMENT INFORMATION AND CONCENTRATIONS
The Company manages and reports its business in the following segments:
•Banking - We offer solutions to customers in the financial services industry that power their digital transformation through software, services and hardware to deliver differentiated experiences for their customers and improve efficiency for the financial institution. Our managed services and ATM-as-a-Service help banks run their end-to-end ATM channel, positioning NCR as a strategic partner. We augment these solutions by offering a full line of software, services and hardware including interactive teller machines (ITM), and recycling, multi-function and cash dispense ATMs. NCR's digital banking solutions enable anytime-anywhere convenience for a financial institution’s consumer and business customers. We also help institutions implement their Digital First platform strategy by providing solutions for banking channel services, transaction processing, imaging, and branch services.
•Retail - We offer software-defined solutions to customers in the retail industry, leading with digital to connect retail operations end to end to integrate all aspects of a customer’s operations in indoor and outdoor settings from POS, to payments, inventory management, fraud and loss prevention applications, loyalty and consumer engagement. These solutions are designed to improve operational efficiency, selling productivity, customer satisfaction and purchasing decisions; provide secure checkout processes and payment systems; and increase service levels. These solutions include retail-oriented technologies such as comprehensive API-point of sale retail software platforms and applications, hardware terminals, self-service kiosks including self-checkout (SCO), payment processing solutions, and bar-code scanners.
•Hospitality - We offer technology solutions to customers in the hospitality industry, including table-service, quick-service and fast casual restaurants of all sizes, that are designed to improve operational efficiency, increase customer satisfaction, streamline order and transaction processing and reduce operating costs. Our portfolio includes cloud-based software applications for point-of-sale, back office, payment processing, kitchen production, restaurant management and consumer engagement. We also provide hospitality-oriented hardware products such as POS terminals, order and payment kiosks, bar code scanners, printers and peripherals. And finally, we help reduce the complexities of running the restaurant through our services capabilities including strategic advisory, technology deployment and implementation, hardware and software maintenance and managed services.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
•Telecommunications and Technology (T&T) - We offer maintenance, managed and professional services using solutions such as remote management and monitoring services, which are designed to improve operational efficiency, network availability and end-user experience, to customers in the telecommunications and technology industry. We also provide such services to end users on behalf of select manufacturers leveraging our global service capability, and resell third party networking products to customers in a variety of industries.
These segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in assessing segment performance and in allocating the Company's resources. Management evaluates the performance of the segments based on revenue and segment operating income. Assets are not allocated to segments, and thus are not included in the assessment of segment performance, and consequently, we do not disclose total assets by reportable segment.
The accounting policies used to determine the results of the operating segments are the same as those utilized for the consolidated financial statements as a whole. Inter-segment sales and transfers are not material.
To maintain operating focus on business performance, non-operational items are excluded from the segment operating results utilized by our chief operating decision maker in evaluating segment performance and are separately delineated to reconcile back to total reported income from operations.
The following table presents revenue and operating income by segment for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
2018
|
Revenue by segment
|
|
|
|
|
|
|
Banking
|
|
$
|
3,098
|
|
|
$
|
3,512
|
|
|
$
|
3,183
|
|
Retail
|
|
2,080
|
|
|
2,217
|
|
|
2,097
|
|
Hospitality
|
|
684
|
|
|
843
|
|
|
817
|
|
T&T
|
|
345
|
|
|
343
|
|
|
308
|
|
Consolidated revenue
|
|
$
|
6,207
|
|
|
$
|
6,915
|
|
|
$
|
6,405
|
|
Operating income by segment
|
|
|
|
|
|
|
Banking
|
|
$
|
381
|
|
|
$
|
514
|
|
|
$
|
412
|
|
Retail
|
|
116
|
|
|
144
|
|
|
142
|
|
Hospitality
|
|
7
|
|
|
56
|
|
|
85
|
|
T&T
|
|
26
|
|
|
44
|
|
|
49
|
|
Subtotal - segment operating income
|
|
530
|
|
|
758
|
|
|
688
|
|
Other adjustments(1)
|
|
309
|
|
|
147
|
|
|
497
|
|
Income from operations
|
|
$
|
221
|
|
|
$
|
611
|
|
|
$
|
191
|
|
(1) The following table presents the other adjustments for NCR for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
2018
|
Transformation and restructuring costs
|
|
$
|
227
|
|
|
$
|
58
|
|
|
$
|
223
|
|
Acquisition-related amortization of intangibles
|
|
81
|
|
|
86
|
|
|
85
|
|
Acquisition-related costs
|
|
1
|
|
|
3
|
|
|
6
|
|
Asset impairment charges
|
|
—
|
|
|
—
|
|
|
183
|
|
Total other adjustments
|
|
$
|
309
|
|
|
$
|
147
|
|
|
$
|
497
|
|
The following table presents revenue from products and services for NCR for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
2018
|
Recurring revenue (1)
|
|
$
|
3,338
|
|
|
$
|
3,182
|
|
|
$
|
2,970
|
|
All other products and services
|
|
2,869
|
|
|
3,733
|
|
|
3,435
|
|
Consolidated revenue
|
|
$
|
6,207
|
|
|
$
|
6,915
|
|
|
$
|
6,405
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
(1) Recurring revenue includes all revenue streams from contracts where there is a predictable revenue pattern that will occur at regular intervals with a relatively high degree of certainty. This includes hardware and software maintenance revenue, cloud revenue, payment processing revenue, and certain professional services arrangements as well as term-based software license arrangements that include customer termination rights.
Revenue is attributed to the geographic area to which the product is delivered or in which the service is provided. The following table presents revenue by geographic area for NCR for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
%
|
|
2019
|
|
%
|
|
2018
|
|
%
|
Revenue by Geographic Area
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,065
|
|
|
49
|
%
|
|
$
|
3,481
|
|
|
50
|
%
|
|
$
|
3,076
|
|
|
48
|
%
|
Americas (excluding United States)
|
|
617
|
|
|
10
|
%
|
|
693
|
|
|
10
|
%
|
|
631
|
|
|
10
|
%
|
Europe, Middle East and Africa
|
|
1,679
|
|
|
27
|
%
|
|
1,843
|
|
|
27
|
%
|
|
1,751
|
|
|
27
|
%
|
Asia Pacific
|
|
846
|
|
|
14
|
%
|
|
898
|
|
|
13
|
%
|
|
947
|
|
|
15
|
%
|
Consolidated revenue
|
|
$
|
6,207
|
|
|
100
|
%
|
|
$
|
6,915
|
|
|
100
|
%
|
|
$
|
6,405
|
|
|
100
|
%
|
The following table presents property, plant and equipment by geographic area as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
Property, plant and equipment, net
|
|
|
|
|
United States
|
|
$
|
244
|
|
|
$
|
280
|
|
Americas (excluding United States)
|
|
14
|
|
|
14
|
|
Europe, Middle East and Africa
|
|
75
|
|
|
74
|
|
Asia Pacific
|
|
40
|
|
|
45
|
|
Consolidated property, plant and equipment, net
|
|
$
|
373
|
|
|
$
|
413
|
|
Concentrations No single customer accounts for more than 10% of NCR’s consolidated revenue and accounts receivable as of December 31, 2020 and 2019. As of December 31, 2020 and 2019, NCR is not aware of any significant concentration of business transacted with a particular customer that could, if suddenly eliminated, have a material adverse effect on NCR’s operations. NCR also lacks a concentration of available sources of labor, services, licenses or other rights that could, if suddenly eliminated, have a material adverse effect on its operations.
A number of NCR’s products, systems and solutions rely primarily on specific suppliers for microprocessors and other component products, manufactured assemblies, operating systems, commercial software and other central components. NCR also utilizes contract manufacturers in order to complete manufacturing activities. There can be no assurances that any sudden impact to the availability or cost of these technologies or services would not have a material adverse effect on NCR’s operations.
5. DEBT OBLIGATIONS
The following table summarizes the Company's short-term borrowings and long-term debt:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
In millions, except percentages
|
Amount
|
Weighted-Average Interest Rate
|
|
Amount
|
Weighted-Average Interest Rate
|
Short-Term Borrowings
|
|
|
|
|
|
Current portion of Senior Secured Credit Facility (1)
|
$
|
8
|
|
2.65%
|
|
$
|
8
|
|
4.30%
|
Trade Receivables Securitization Facility (1)
|
—
|
|
—%
|
|
270
|
|
2.65%
|
Other (1)
|
—
|
|
—%
|
|
4
|
|
2.82%
|
|
Total short-term borrowings
|
$
|
8
|
|
|
|
$
|
282
|
|
|
Long-Term Debt
|
|
|
|
|
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
Term loan facility (1)
|
$
|
733
|
|
2.65%
|
|
$
|
740
|
|
4.30%
|
|
Revolving credit facility (1)
|
75
|
|
2.40%
|
|
265
|
|
3.76%
|
Senior Notes:
|
|
|
|
|
|
|
5.00% Senior Notes due 2022
|
—
|
|
|
|
600
|
|
|
|
6.375% Senior Notes due 2023
|
—
|
|
|
|
700
|
|
|
|
8.125% Senior Notes due 2025
|
400
|
|
|
|
—
|
|
|
|
5.750% Senior Notes due 2027
|
500
|
|
|
|
500
|
|
|
|
5.000% Senior Notes due 2028
|
650
|
|
|
|
—
|
|
|
|
6.125% Senior Notes due 2029
|
500
|
|
|
|
500
|
|
|
|
5.250% Senior Notes due 2030
|
450
|
|
|
|
—
|
|
|
Deferred financing fees
|
(40)
|
|
|
|
(32)
|
|
|
Other (1)
|
2
|
|
7.68%
|
|
4
|
|
0.05%
|
|
Total long-term debt
|
$
|
3,270
|
|
|
|
$
|
3,277
|
|
|
(1) Interest rates are weighted average interest rates as of December 31, 2020 and 2019.
Senior Secured Credit Facility On August 28, 2019, the Company entered into an amended and restated senior secured credit agreement with and among certain subsidiaries of NCR (the Foreign Borrowers), the lenders party thereto and JPMorgan Chase Bank, NA (JPMCB) as the administrative agent, refinancing its term loan facility and revolving credit facility thereunder (the Senior Secured Credit Facility). The Senior Secured Credit Facility consists of a term loan facility in an original aggregate principal amount of $750 million, of which $741 million was outstanding as of December 31, 2020. Additionally, the Senior Secured Credit Facility provides for a five-year revolving credit facility with an aggregate principal amount of $1.1 billion, of which $75 million was outstanding as of December 31, 2020. The revolving credit facility also allows a portion of the availability to be used for letters of credit, and, as of December 31, 2020, outstanding letters of credit were $26 million.
Up to $400 million of the revolving credit facility is available to the Foreign Borrowers, as long as there is availability under the revolving credit facility. Term loans were made to the Company in U.S. Dollars, and loans under the revolving credit facility are available in U.S. Dollars, Euros and Pound Sterling.
The outstanding principal balance of the term loan facility is required to be repaid in equal quarterly installments of 0.25% of the original aggregate principal amount that began with the fiscal quarter ending December 31, 2019, with the balance being due at maturity on August 28, 2026 and may be repaid and reborrowed prior to maturity, subject to the satisfaction of customary conditions. Borrowings under the revolving portion of the credit facility are due August 28, 2024. Revolving loans outstanding under the Senior Secured Credit Facility denominated in U.S. Dollars bear interest at the Company's option at (a) London Inter-bank Offered Rate (LIBOR), plus a margin ranging from 1.25% to 2.25% or (b) a base rate equal to the highest of (i) the federal funds rate plus 0.50%, (ii) the rate of interest last quoted by the Wall Street Journal as the “prime rate” and (iii) the one-month LIBOR rate plus 1.00% (the Base Rate), plus, a margin ranging from 0.25% to 1.25%, in each case, depending on the Company’s consolidated leverage ratio. Revolving loans denominated in Euro bear interest at the EURIBOR, plus a margin ranging from 1.25% to 2.25% depending on the Company’s consolidated leverage ratio. The terms of the Senior Secured Credit Facility also require certain other fees and payments to be made by the Company, including a commitment fee on the undrawn portion of the revolving credit facility. Term loans outstanding under the Senior Secured Credit Facility bear interest, at NCR's option, at LIBOR plus 2.50% per annum or the Base Rate plus a 1.50% margin per annum. In the event that LIBOR is no longer available or in certain other circumstances as described in the Senior Secured Credit Facility, the Senior Secured Credit Facility provides a mechanism for determining an alternative rate of interest. There is no assurance that any such
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, LIBOR.
The obligations of the Company and Foreign Borrowers under the Senior Secured Credit Facility are guaranteed by the Company's wholly-owned subsidiary, NCR International, Inc (the Guarantor Subsidiary). The Senior Secured Credit Facility and such guarantee are secured by a first priority lien and security interest in certain equity interests owned by the Company and the Guarantor Subsidiary in certain of their respective domestic and foreign subsidiaries, and a perfected first priority lien and security interest in substantially all of the Company's U.S. assets and the assets of the Guarantor Subsidiary, subject to certain exclusions. These security interests would be released if the Company achieves an “investment grade” rating and will remain released so long as the Company maintains that rating.
The Senior Secured Credit Facility includes affirmative and negative covenants that restrict or limit the ability of the Company and its subsidiaries to, among other things, incur indebtedness; create liens on assets; engage in certain fundamental corporate changes or changes to the Company's business activities; make investments; sell or otherwise dispose of assets; engage in sale-leaseback or hedging transactions; repurchase stock, pay dividends or make similar distributions; repay other indebtedness; engage in certain affiliate transactions; or enter into agreements that restrict the Company's ability to create liens, pay dividends or make loan repayments. The Senior Secured Credit Facility also includes a financial covenant that requires the Company to maintain:
•a consolidated leverage ratio on the last day of any fiscal quarter, not to exceed (i) in the case of any fiscal quarter ending on or prior to March 31, 2021, (a) the sum of 4.50 and an amount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00, and (ii) in the case of any fiscal quarter ending after March 31, 2021 and on or prior to March 31, 2023, (a) the sum of 4.25 and an amount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00; and (iii) in the case of any fiscal quarter ending after March 31, 2023, (a) the sum of 4.00 and an amount (not to exceed 0.50) to reflect debt used to reduce our unfunded pension liabilities to (b) 1.00.
The Company has the option to elect to increase the maximum permitted leverage ratio by 0.25 in connection with the consummation of any material acquisition (as defined in the Senior Secured Credit Facility) for four fiscal quarters, but in no event will the maximum permitted leverage ratio, inclusive of all increases, exceed 4.75 to 1.00. At December 31, 2020, the maximum consolidated leverage ratio under the Senior Secured Credit Facility was 4.60 to 1.00.
The Senior Secured Credit Facility also includes provisions for events of default, which are customary for similar financings. Upon the occurrence of an event of default, the lenders may, among other things, terminate the loan commitments, accelerate all loans and require cash collateral deposits in respect of outstanding letters of credit. If the Company is unable to pay or repay the amounts due, the lenders could, among other things, proceed against the collateral granted to them to secure such indebtedness.
On January 14, 2021, the Company obtained a waiver to the Senior Secured Credit Facility, pursuant to which the lenders under the revolving credit facility agreed to waive certain automatic events of default that had occurred due to an administrative error in the then-current terms of the Senior Secured Credit Facility that did not reflect the intention of the parties. The administrative error related to not treating our Series A Convertible Preferred Stock as indebtedness for purposes of the total leverage ratio calculations in the Company’s compliance certificates and resulted in the Company underpaying certain interest and other amounts with respect to its revolving credit facility. The January 14, 2021 waiver eliminated the automatic events of default that would have existed related to such interest underpayment for the quarter ended December 31, 2019, the quarter ended March 31, 2020, the quarter ended June 30, 2020, the quarter ended September 30, 2020 and the quarter ended December 31, 2020 periods. On January 22, 2021, the Company entered into a third amendment to the Senior Secured Credit Facility, pursuant to which the lenders under the revolving credit facility agreed that, thereafter, our Series A Convertible Preferred Stock would not be treated as indebtedness for purposes of the leverage ratio calculations under the revolving credit facility.
On February 4, 2021, the Company entered into a fourth amendment to the Senior Secured Credit Facility. Pursuant to such amendment, upon the closing of the proposed Cardtronics transaction, the maximum permitted total leverage ratio of the Company will be increased initially to 5.50 to 1.00, subject to further modification as set forth in the amendment. In addition, certain technical and other changes to the Senior Secured Credit Facility, including amendments to the definition of "Permitted Acquisition" set forth therein, are now operative.
On February 16, 2021, the Company entered into (a) an amended and restated commitment letter (the Commitment Letter), with certain financial institutions party thereto (the Commitment Parties), (b) an incremental term loan A facility agreement (the
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Incremental Term Agreement) with the Commitment Parties and the Guarantor Subsidiary and (c) an incremental revolving facility agreement (the Incremental Revolving Agreement) with certain financial institutions, the Guarantor Subsidiary and certain of the Foreign Borrowers.
Pursuant to and subject to the Commitment Letter and the Incremental Term Agreement, in connection with the proposed Cardtronics transaction, the Commitment Parties have committed to provide the following: (i) a senior secured incremental term loan A facilities under the Senior Secured Credit Facility, in an aggregate principal amount of $1.455 billion, (ii) a senior secured incremental term loan B facility under the Senior Secured Credit Facility, in an aggregate principal amount of $245 million and (iii) a senior secured bridge facility (a portion of which may be unsecured) in an aggregate principal amount of $1.00 billion. The credit facilities will be available to the Company subject to certain conditions precedent, including, among other things, the closing of the proposed Cardtronics transaction. Pursuant to the terms of the Incremental Term Agreement, subject to the satisfaction of certain customary conditions, $200 million of the $1.455 billion term loan A facility will convert into revolving credit commitments under the Senior Secured Credit Facility (the Additional Revolving Commitments) on or about the date that is 3 business days after the closing of the initial funding of the term loan A facilities. The bridge facility will be available to the Company if, and to the extent, the securities referred to in the following paragraph are not issued on or prior to the closing of the proposed Cardtronics transaction.
On February 16, 2021, the Company also entered into an amended and restated engagement letter (the Engagement Letter) with certain financial institutions (which may be affiliates of the Commitment Parties) with respect to certain potential securities offerings in connection with the proposed Cardtronics transaction. To the extent that the Company consummates one or more such securities offerings on or prior to the closing of the proposed Cardtronics transaction, the Company expects to correspondingly reduce the commitments with respect to the senior secured bridge facility. Any offer or sale of any such securities will be made pursuant to the applicable offering document for such securities.
Pursuant to the Incremental Revolving Agreement, the lenders party thereto have agreed to provide the Company and the Foreign Borrowers with a $1.1 billion revolving credit facility under the Senior Secured Credit Facility to replace the Company’s existing senior credit revolving credit facility, which will be available to the Company upon the satisfaction of certain customary conditions precedent and conditions subsequent, including the closing of the proposed Cardtronics transaction and subject to increase in connection with the conversion of a portion of the term loan A facility into Additional Revolving Commitments.
The Company may request, at any time and from time to time, but the lenders are not obligated to fund, the establishment of one or more incremental term loans and/or revolving credit facilities (subject to the agreement of existing lenders or additional financial institutions to provide such term loans and/or revolving credit facilities) with commitments in an aggregate amount not to exceed the greater of (i) $150 million, and (ii) such amount as would not cause the leverage ratio under the Senior Secured Credit Facility, calculated on a pro forma basis including the incremental facility and assuming that it and the revolver are fully drawn, to exceed 3.00 to 1.00, and the proceeds of which can be used for working capital requirements and other general corporate purposes.
Senior Unsecured Notes On August 21, 2019, the Company issued $500 million aggregate principal amount of 5.750% senior unsecured notes due in 2027 (the 5.750% Notes). The 5.750% Notes were sold at 100% of the principal amount with a maturity date of September 1, 2027. The 5.750% Notes were issued without registration rights. The Company has the option to redeem the 5.750% Notes, in whole or in part, at any time on or after September 1, 2022, at a redemption price of 102.875%, 101.438%, and 100% during the 12-month periods commencing on September 1, 2022, 2023 and 2024 and thereafter, respectively, plus accrued and unpaid interest to the redemption date. Prior to September 1, 2022, the Company may redeem the 5.750% Notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus a make-whole premium and accrued and unpaid interest to the redemption date.
On August 21, 2019, the Company issued $500 million aggregate principal amount of 6.125% senior unsecured notes due in 2029 (the 6.125% Notes). The 6.125% Notes were sold at 100% of the principal amount with a maturity date of September 1, 2029. The 6.125% Notes were issued without registration rights. The Company has the option to redeem the 6.125% Notes, in whole or in part, at any time on or after September 1, 2024, at a redemption price of 103.063%, 102.042%, 101.021% and 100% during the 12-month periods commencing on September 1, 2024, 2025, 2026 and 2027 and thereafter, respectively, plus accrued and unpaid interest to the redemption date. Prior to September 1, 2024, the Company may redeem the 6.125% Notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus a make-whole premium and accrued and unpaid interest to the redemption date.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
On April 13, 2020, the Company issued $400 million aggregate principal amount of 8.125% senior unsecured notes due in 2025 (the 8.125% Notes). The 8.125% Notes were sold at 100% of the principal amount with a maturity date of April 15, 2025. The Company has the option to redeem the 8.125% Notes, in whole or in part, at any time on or after April 15, 2022, at a redemption price of 104.063%, 102.031%, and 100% during the 12-month periods commencing on April 15, 2022, 2023 and 2024 and thereafter, respectively, plus accrued and unpaid interest to the redemption date. Prior to April 15, 2022, the Company may redeem some or all of the 8.125% Notes by paying a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus the Applicable Premium, as defined in the Indenture, as of, and accrued and unpaid interest to, but excluding, the redemption date (subject to the right of holders of record of the Notes on the relevant record date to receive interest due on the relevant interest payment date).
On August 20, 2020, the Company issued $650 million aggregate principal amount of 5.000% senior unsecured notes due in 2028 (the 5.000% Notes) and $450 million aggregate principal amount of 5.250% senior unsecured notes due in 2030 (the 5.250% Notes). Interest is payable on the 5.000% and 5.250% Notes semi-annually in arrears at interest rates of 5.000% and 5.250%, respectively, on April 1 and October 1 of each year beginning April 1, 2021. The 5.000% and 5.250% Notes were sold at 100% of the principal amount and with maturity dates of October 1, 2028 and October 1, 2030, respectively.
At any time and from time to time, prior to October 1, 2023, the Company may redeem up to a maximum of 40% of the original aggregate principal amount of either the 5.000% or 5.250% Notes with the proceeds of one or more equity offerings, at a redemption price equal to 105.000%, with respect to the 5.000% Notes, and 105.250%, with respect to the 5.250% Notes, of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to, but not including, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided that: (i) at least 55% of the original aggregate principal amount of the 5.000% or 5.250% Notes remains outstanding; and (ii) such redemption occurs within 180 days of the completion of such equity offering.
Prior to October 1, 2023, with respect to the 5.000% Notes, or October 1, 2025, with respect to the 5.250% Notes, the Company may redeem some or all of such series of Notes by paying a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus the Applicable Premium, as defined in the Indenture, as of, and accrued and unpaid interest to, but excluding, the redemption date (subject to the right of holders of record of the Notes on the relevant record date to receive interest due on the relevant interest payment date).
The Company has the option to redeem the 5.000% Notes, in whole or in part, at any time on or after October 1, 2023, at a redemption price of 102.500%, 101.250%, and 100% during the 12-month periods commencing on October 1, 2023, 2024 and 2025 and thereafter, respectively, plus accrued and unpaid interest to the redemption date.
The Company has the option to redeem the 5.250% Notes, in whole or in part, at any time on or after October 1, 2025, at a redemption price of 102.625%, 101.750%, 100.875%, and 100% during the 12-month periods commencing on October 1, 2025, 2026, 2027 and 2028 and thereafter, respectively, plus accrued and unpaid interest to the redemption date.
On September 19, 2020, the Company used the proceeds from the offering of the 5.000% and 5.250% Notes, together with other cash on hand, to redeem and satisfy and discharge all of its outstanding $600 million aggregate principal amount of 5.000% senior unsecured notes due in 2022 and $700 million aggregate principal amount of 6.375% senior unsecured notes due in 2023. These 5.00% notes were redeemed at 100% plus accrued and unpaid interest. These 6.375% notes were redeemed at a premium of 102.125% plus accrued and unpaid interest. As a part of our debt extinguishment, we recognized a loss of $20 million, which includes the write-off of deferred financing fees of $5 million and a cash redemption premium of $15 million.
For the issuance of the 8.125% Notes, the 5.000% Notes and the 5.250% Notes, the Company incurred debt issuance fees of $21 million that have been deferred and will be recognized in interest expense over the term of the indentures.
The senior unsecured notes are guaranteed by the Guarantor Subsidiary, which has guaranteed fully and unconditionally the obligations to pay principal and interest for these senior unsecured notes. The terms of the indentures for these notes limit the ability of the Company and certain of its subsidiaries to, among other things, incur additional debt or issue redeemable preferred stock; pay dividends or make certain other restricted payments or investments; incur liens; sell assets; incur restrictions on the ability of the Company's subsidiaries to pay dividends to the Company; enter into affiliate transactions; engage in sale and leaseback transactions; and consolidate, merge, sell or otherwise dispose of all or substantially all of the Company's or such subsidiaries' assets. These covenants are subject to significant exceptions and qualifications. For example, if these notes are
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
assigned an "investment grade" rating by Moody's or S&P and no default has occurred or is continuing, certain covenants will be terminated.
Trade Receivables Securitization Facility In November 2014, the Company established a revolving trade receivables securitization facility (the A/R Facility) with PNC Bank, National Association (PNC) as the administrative agent, and various lenders. In November 2019, the Company amended the A/R Facility to increase the maximum commitment made available under the Facility and extended the maturity date to November 2021. The amendment also included other modifications including the scope of receivables subject to the facility and related eligibility requirements, the adoption of a new benchmark for determining overnight funding rates and the fees and interest payable to the agent and lenders party thereto. The A/R Facility now provides for up to $300 million in funding based on the availability of eligible receivables and other customary factors and conditions, of which none was outstanding as of December 31, 2020.
Under the A/R Facility, NCR sells and/or contributes certain of its U.S. trade receivables to a wholly-owned, bankruptcy-remote subsidiary as they are originated, and advances by the lenders to that subsidiary are secured by those trade receivables. The assets of this financing subsidiary are restricted as collateral for the payment of its obligations under the A/R Facility, and its assets and credit are not available to satisfy the debts and obligations owed to the creditors of the Company. The Company includes the assets, liabilities and results of operations of this financing subsidiary in its consolidated financial statements. The financing subsidiary owned $428 million and $603 million of outstanding accounts receivable as of December 31, 2020 and 2019, respectively, and these amounts are included in accounts receivable, net in the Consolidated Balance Sheets.
The financing subsidiary will pay annual commitments and other customary fees to the lenders, and advances by a lender under the A/R Facility will accrue interest (i) at a reserve-adjusted LIBOR rate or a base rate equal to the highest of (a) the applicable lender’s prime rate or (b) the federal funds rate plus 0.50%, if the lender is funding as a committed lender under the terms of the A/R Facility, or (ii) based on commercial paper interest rates if the lender is funding as a commercial paper conduit lender. Advances may be prepaid at any time without premium or penalty.
The A/R Facility contains various customary affirmative and negative covenants and default and termination provisions, which provide for the acceleration of the advances under the A/R Facility in circumstances including, but not limited to, failure to pay interest or principal when due, breach of representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness.
Debt Maturities Maturities of debt outstanding, in principal amounts, at December 31, 2020 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31
|
|
|
In millions
|
|
Total
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
Debt maturities
|
|
$
|
3,318
|
|
|
$
|
8
|
|
|
$
|
9
|
|
|
$
|
7
|
|
|
$
|
83
|
|
|
$
|
408
|
|
|
$
|
2,803
|
|
Fair Value of Debt The Company utilized Level 2 inputs, as defined in the fair value hierarchy, to measure the fair value of the long-term debt, which, as of December 31, 2020 and 2019 was $3.49 billion and $3.70 billion, respectively. Management's fair value estimates were based on quoted prices for recent trades of NCR’s long-term debt, quoted prices for similar instruments, and inquiries with certain investment communities.
6. INCOME TAXES
For the years ended December 31, income (loss) from continuing operations before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
2018
|
Income (loss) before income taxes
|
|
|
|
|
|
|
United States
|
|
$
|
(391)
|
|
|
$
|
(25)
|
|
|
$
|
(262)
|
|
Foreign
|
|
332
|
|
|
366
|
|
|
301
|
|
Total income (loss) from continuing operations before income taxes
|
|
$
|
(59)
|
|
|
$
|
341
|
|
|
$
|
39
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
For the years ended December 31, income tax expense (benefit) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
2018
|
Income tax expense (benefit)
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Federal
|
|
$
|
(9)
|
|
|
$
|
1
|
|
|
$
|
18
|
|
State
|
|
—
|
|
|
2
|
|
|
—
|
|
Foreign
|
|
68
|
|
|
78
|
|
|
42
|
|
Deferred
|
|
|
|
|
|
|
Federal
|
|
(108)
|
|
|
(19)
|
|
|
(2)
|
|
State
|
|
(6)
|
|
|
—
|
|
|
1
|
|
Foreign
|
|
2
|
|
|
(335)
|
|
|
14
|
|
Total income tax expense (benefit)
|
|
$
|
(53)
|
|
|
$
|
(273)
|
|
|
$
|
73
|
|
The following table presents the principal components of the difference between the effective tax rate and the U.S. federal statutory income tax rate for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
2018
|
Income tax expense (benefit) at the U.S. federal tax rate of 21%
|
|
$
|
(12)
|
|
|
$
|
72
|
|
|
$
|
8
|
|
Foreign income tax differential
|
|
—
|
|
|
5
|
|
|
20
|
|
State and local income taxes (net of federal effect)
|
|
(4)
|
|
|
3
|
|
|
2
|
|
Other U.S. permanent book/tax differences
|
|
2
|
|
|
3
|
|
|
—
|
|
Meals and entertainment expense
|
|
1
|
|
|
2
|
|
|
2
|
|
Executive compensation
|
|
10
|
|
|
9
|
|
|
4
|
|
Employee share-based payments
|
|
3
|
|
|
2
|
|
|
3
|
|
Impact of intangible asset transfer
|
|
—
|
|
|
(245)
|
|
|
—
|
|
Gains/losses on distributions/entity liquidations
|
|
2
|
|
|
(12)
|
|
|
—
|
|
Foreign derived intangible income deduction
|
|
—
|
|
|
(7)
|
|
|
(1)
|
|
Change in branch tax status
|
|
—
|
|
|
(17)
|
|
|
(9)
|
|
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
30
|
|
Research and development tax credits
|
|
(7)
|
|
|
(5)
|
|
|
(6)
|
|
Foreign tax law changes
|
|
(4)
|
|
|
5
|
|
|
—
|
|
U.S. valuation allowance (1)
|
|
(37)
|
|
|
(16)
|
|
|
16
|
|
U.S tax reform
|
|
—
|
|
|
—
|
|
|
37
|
|
Foreign valuation allowance
|
|
6
|
|
|
(74)
|
|
|
2
|
|
Change in liability for unrecognized tax benefits (1)
|
|
(12)
|
|
|
4
|
|
|
(23)
|
|
Prior period adjustments
|
|
—
|
|
|
(1)
|
|
|
(11)
|
|
Other, net
|
|
(1)
|
|
|
(1)
|
|
|
(1)
|
|
Total income tax expense (benefit)
|
|
$
|
(53)
|
|
|
$
|
(273)
|
|
|
$
|
73
|
|
(1) Does not include the impact of items included in the U.S. Tax Reform category
NCR's tax provisions include a provision for income taxes in certain tax jurisdictions where its subsidiaries are profitable, but reflect only a portion of the tax benefits related to certain foreign subsidiaries' tax losses due to the uncertainty of the ultimate realization of future benefits from these losses. During 2020, our tax rate was impacted by a $48 million benefit from the release of a valuation allowance against U.S. foreign tax credits and the re-establishment of expected foreign tax credit offsets to unrecognized tax benefits. During 2019, the tax rate was impacted by the transfer of certain intangible assets among our wholly-owned subsidiaries, creating a net tax benefit of $264 million. The tax rate was also impacted by foreign valuation allowance releases of $74 million. During 2018, the tax rate was impacted by a $37 million expense relating to the Tax Cuts and Jobs Act of 2017 enacted on December 22, 2017.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
In the first quarter of 2020, the Company identified and recorded income tax benefits of $5 million related to an error in the calculation of the permanent differences on executive stock compensation and the write-off of income tax payables incorrectly recorded in prior periods. In the fourth quarter of 2020, the Company identified and recorded income tax expense to correct for errors which originated in prior periods totaling $10 million, which included $6 million related to an error in the calculation of the provision for unrecognized tax benefits. The Company corrected for these immaterial errors as out of period adjustments in the periods identified which resulted in a net $5 million out of period adjustment for the year ended December 31, 2020.
NCR did not provide additional U.S. income tax or foreign withholding taxes, if any, on approximately $3.4 billion of undistributed earnings of its foreign subsidiaries, given the intention continues to be that those earnings are reinvested indefinitely. The amount of unrecognized deferred tax liability associated with these indefinitely reinvested earnings is approximately $200 million. The unrecognized deferred tax liability is made up of a combination of U.S. and state income taxes and foreign withholding taxes.
We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence. This evidence includes historical taxable income/loss, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies.
Deferred income tax assets and liabilities included in the Consolidated Balance Sheets as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
Deferred income tax assets
|
|
|
|
|
Employee pensions and other benefits
|
|
$
|
229
|
|
|
$
|
243
|
|
Other balance sheet reserves and allowances
|
|
272
|
|
|
182
|
|
Tax loss and credit carryforwards
|
|
667
|
|
|
625
|
|
Capitalized research and development
|
|
44
|
|
|
47
|
|
Lease liabilities
|
|
91
|
|
|
104
|
|
Intangibles
|
|
123
|
|
|
127
|
|
Property, plant and equipment
|
|
11
|
|
|
11
|
|
Other
|
|
13
|
|
|
9
|
|
Total deferred income tax assets
|
|
1,450
|
|
|
1,348
|
|
Valuation allowance
|
|
(341)
|
|
|
(352)
|
|
Net deferred income tax assets
|
|
1,109
|
|
|
996
|
|
Deferred income tax liabilities
|
|
|
|
|
Right of use assets
|
|
90
|
|
|
102
|
|
Capitalized software
|
|
78
|
|
|
98
|
|
Total deferred income tax liabilities
|
|
168
|
|
|
200
|
|
Total net deferred income tax assets
|
|
$
|
941
|
|
|
$
|
796
|
|
NCR has previously recorded valuation allowances related to certain deferred tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. The recorded valuation allowances cover deferred tax assets, primarily tax loss carryforwards and branch basket foreign tax credits, in tax jurisdictions where there is uncertainty as to the ultimate realization of those tax losses and credits. As of December 31, 2020, the Company's net deferred tax assets (without valuation allowances) in the U.S. totaled approximately $469 million. For the three year period ended December 31, 2020, the U.S. had a cumulative net loss from continuing operations before income taxes, as adjusted for permanent differences, which is generally considered a negative indicator of the Company's ability to realize the benefits of those assets. However, the Company evaluated the realizability of the U.S. net deferred tax assets by weighing positive and negative evidence, including our history of U.S. pre-tax income adjusted for permanent differences, the impact of the COVID-19 pandemic on our U.S. results in 2020 and in the near-term, projected U.S. taxable income, and the length of time over which the Company's deferred tax assets relating to net operating losses, general basket foreign tax credits, interest limitation carryforward, research and development credits and a variety of temporary differences may be realized. A specific focus of the evaluation was the realizability of the
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Company's general basket foreign tax credit carryforwards, which expire on or before December 31, 2025. Through this assessment, realization of the related benefits was determined to be more likely than not. If the Company is unable to generate sufficient future U.S. taxable income of the proper source in the time period within which the temporary differences underlying our deferred tax assets become deductible, or before the expiration of our loss and credit carryforwards, additional valuation allowances could be required in the future.
As of December 31, 2020, NCR had U.S. federal, U.S. state (tax effected), and foreign tax attribute carryforwards of approximately $1.6 billion. The net operating loss carryforwards that are subject to expiration will expire in the years 2021 through 2039. This includes U.S. tax credit carryforwards of $279 million, which expire in the years 2021 through 2040. As a result of stock ownership changes our U.S. tax attributes could be subject to limitations under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, if further material stock ownership changes occur.
The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
2018
|
Gross unrecognized tax benefits - January 1
|
|
$
|
121
|
|
|
$
|
110
|
|
|
$
|
196
|
|
Increases related to tax positions from prior years
|
|
15
|
|
|
7
|
|
|
9
|
|
Decreases related to tax positions from prior years
|
|
(6)
|
|
|
(4)
|
|
|
(50)
|
|
Increases related to tax provisions taken during the current year
|
|
6
|
|
|
14
|
|
|
9
|
|
Settlements with tax authorities
|
|
(23)
|
|
|
(5)
|
|
|
(45)
|
|
Lapses of statutes of limitation
|
|
(10)
|
|
|
(1)
|
|
|
(9)
|
|
Total gross unrecognized tax benefits - December 31
|
|
$
|
103
|
|
|
$
|
121
|
|
|
$
|
110
|
|
Of the total amount of gross unrecognized tax benefits as of December 31, 2020, $61 million would affect NCR’s effective tax rate if realized. The Company’s liability arising from uncertain tax positions is recorded in income tax accruals and other current liabilities in the Consolidated Balance Sheets.
We recognized interest and penalties associated with uncertain tax positions as part of the provision for income taxes in our Consolidated Statements of Operations of $5 million of benefit, $2 million of expense, and $9 million of benefit for the years ended December 31, 2020, 2019, and 2018, respectively. The gross amount of interest and penalties accrued as of December 31, 2020 and 2019 was $30 million and $35 million, respectively.
In the U.S., NCR files consolidated federal and state income tax returns where statutes of limitations generally range from three to five years. U.S. federal tax years remain open from 2017 forward. Years beginning on or after 2001 are still open to examination by certain foreign taxing authorities, including India, Egypt, and other major taxing jurisdictions.
During 2021, the Company expects to resolve certain tax matters related to U.S. and foreign jurisdictions. As of December 31, 2020, we estimate that it is reasonably possible that unrecognized tax benefits may decrease by $10 million to $13 million in the next 12 months due to the resolution of these tax matters.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
7. STOCK COMPENSATION PLANS
The Company recognizes all share-based payments as compensation expense in its financial statements based on their fair value. As of December 31, 2020, the Company’s stock-based compensation consisted of restricted stock units, employee stock purchase plan and stock options. The Company recorded stock-based compensation expense for the years ended December 31 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
|
2019
|
|
2018
|
Restricted stock units
|
$
|
78
|
|
|
$
|
94
|
|
|
$
|
65
|
|
Employee stock purchase plan
|
6
|
|
|
4
|
|
|
4
|
|
Stock options
|
24
|
|
|
9
|
|
|
4
|
|
Stock-based compensation expense
|
108
|
|
|
107
|
|
73
|
|
Tax benefit
|
(13)
|
|
(12)
|
|
(10)
|
|
Total stock-based compensation (net of tax)
|
$
|
95
|
|
|
$
|
95
|
|
|
$
|
63
|
|
Approximately 30 million shares remain authorized to be issued under the 2017 Stock Incentive Plan (SIP). Details of the Company's stock-based compensation plans are discussed below.
Restricted Stock Units
The SIP provides for the grant of several different forms of stock-based compensation, including restricted stock units. Restricted stock units can have service-based and/or performance-based vesting with performance goals being established by the Compensation and Human Resource Committee of the Company’s Board of Directors. Any grant of restricted stock units is generally subject to a vesting period of 12 months to 48 months, to the extent permitted by the SIP. Performance-based grants conditionally vest upon achievement of future performance goals based on performance criteria such as the Company’s achievement of specific return on capital and/or other financial metrics (as defined in the SIP) during the performance period. Performance-based grants must be earned, based on performance, before the actual number of shares to be awarded is known. The Compensation and Human Resource Committee considers the likelihood of meeting the performance criteria based upon estimates and other relevant data, and certifies performance based on its analysis of achievement against the performance criteria. A recipient of restricted stock units does not have the rights of a stockholder and is subject to restrictions on transferability and risk of forfeiture. Other terms and conditions applicable to any award of restricted stock units will be determined by the Compensation and Human Resource Committee and set forth in the agreement relating to that award.
The following table reports restricted stock unit activity during the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares in thousands
|
|
Number of Units
|
|
Weighted Average Grant-Date Fair Value per Unit
|
Unvested shares as of January 1
|
|
4,456
|
|
|
$
|
28.18
|
|
Shares granted
|
|
5,391
|
|
|
$
|
26.50
|
|
Shares vested
|
|
(2,642)
|
|
|
$
|
28.03
|
|
Shares forfeited
|
|
(547)
|
|
|
$
|
28.57
|
|
Unvested shares as of December 31
|
|
6,658
|
|
|
$
|
26.84
|
|
Stock-based compensation expense is recognized in the financial statements based upon fair value. The total fair value of units vested and distributed in the form of NCR common stock was $77 million in 2020, $86 million in 2019, and $90 million in 2018. As of December 31, 2020, there was $88 million of unrecognized compensation cost related to unvested restricted stock unit grants. The unrecognized compensation cost is expected to be recognized over a remaining weighted-average period of 0.9 years. The weighted average grant date fair value for restricted stock unit awards granted in 2019 and 2018 was $24.31 and $26.25, respectively.
The following table represents the composition of restricted stock unit grants in 2020:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares in thousands
|
|
Number of Units
|
|
Weighted Average Grant-Date Fair Value
|
Service-based units
|
|
825
|
|
|
$
|
30.43
|
|
Performance-based units
|
|
4,566
|
|
|
$
|
25.79
|
|
Total restricted stock units
|
|
5,391
|
|
|
$
|
26.50
|
|
On July 1, 2020, the Company granted market-based restricted stock units with 50% of the award vesting on January 1, 2022 and 50% of the award vesting on January 1, 2023. The number of awards that vest are subject to the performance of the Company's stock price from the date of grant to January 1, 2022. The fair value was determined to be $21.74 based on using a Monte-Carlo simulation model and will be recognized over the requisite service period. The table below details the assumptions used in determining the fair value of the market-based restricted stock units.
|
|
|
|
|
|
|
For the twelve months ended December 31, 2020
|
Dividend yield
|
—
|
%
|
Risk-free interest rate
|
0.16
|
%
|
Expected volatility
|
53.64
|
%
|
Expected volatility for the market-based restricted stock units is calculated as the historical volatility of the Company’s stock over a period of three years, as management believes this is the best representation of prospective trends. The risk-free interest rate was determined based on a blend of the one and two year U.S. Treasury yield curves in effect at the time of the grant.
Stock Options
The SIP also provides for the grant of stock options to purchase shares of NCR common stock. The Compensation and Human Resource Committee has discretion to determine the material terms and conditions of option awards under the SIP, provided that (i) the exercise price must be no less than the fair market value of NCR common stock (defined as the closing price) on the date of grant, (ii) the term must be no longer than ten years, and (iii) in no event shall the normal vesting schedule provide for vesting in less than one year. Other terms and conditions of an award of stock options will be determined by the Compensation and Human Resource Committee as set forth in the agreement relating to that award. The Compensation and Human Resource Committee has authority to administer the SIP, except that the Committee on Directors and Governance of the Company’s Board of Directors will administer the SIP with respect to non-employee members of the Board of Directors. New shares of the Company’s common stock are issued as a result of stock option exercises.
During the year ended December 31, 2020, stock options granted were premium-priced stock options with an exercise price equal to either 110% or 115% of the closing stock price on the date of the grant. The weighted average exercise price of the stock options granted in the year ended December 31, 2020 was $36.26. The weighted average fair value of the option grants was $7.64 for the year ended December 31, 2020 based on using a Monte-Carlo simulation model and will be recognized over the requisite service period. These option grants have a 7 year contractual term that vest at the end of 36 months.
During the year ended December 31, 2019, stock compensation expense for stock options was recognized in the financial statements based upon grant date fair value and was computed using the Black-Scholes option-pricing model. The weighted average fair value of option grants were estimated based on the below weighted average assumptions, which was $8.07. The stock options were granted with a 7 year contractual term that will vest over 48 months.
The table below details the assumptions used in determining the fair value of the option grants:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2020
|
For the year ended December 31, 2019
|
Dividend yield
|
—
|
|
—
|
|
Risk-free interest rate
|
1.34
|
%
|
2.50
|
%
|
Expected volatility
|
34.63
|
%
|
34.79
|
%
|
Expected holding period - years
|
3.7
|
3.90
|
Expected volatility is calculated as the historical volatility of the Company’s stock over a period equal to the expected term of the options, as management believes this is the best representation of prospective trends. The Company uses historical data to estimate option exercise and employee terminations within the valuation model. The expected holding period represents the period of time that options are expected to be outstanding. For the options granted during the year ended December 31, 2020, the seven-year U.S. Treasury yield curve was used to determine the risk-free interest rate. For options granted during the year ended December 31, 2019, the risk-free interest rate was determined based on a blend of the three and five-year U.S. Treasury yield curves in effect at the time of grant.
The following table summarizes the Company’s stock option activity for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares in thousands
|
|
Shares Under Option
|
|
Weighted Average Exercise Price per Share
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value
(in millions)
|
Outstanding as of January 1
|
|
4,559
|
|
|
$
|
28.08
|
|
|
|
|
|
Granted
|
|
5,871
|
|
|
$
|
36.26
|
|
|
|
|
|
Exercised
|
|
(105)
|
|
|
$
|
21.82
|
|
|
|
|
|
Forfeited or expired
|
|
(527)
|
|
|
$
|
32.31
|
|
|
|
|
|
Outstanding as of December 31
|
|
9,798
|
|
|
$
|
32.82
|
|
|
5.50
|
|
$
|
50.01
|
|
Fully vested and expected to vest as of December 31
|
|
7,978
|
|
|
$
|
33.78
|
|
|
5.77
|
|
$
|
33.73
|
|
Exercisable as of December 31
|
|
1,820
|
|
|
$
|
28.62
|
|
|
4.35
|
|
$
|
16.28
|
|
As of December 31, 2020, the total unrecognized compensation cost of $43 million related to unvested stock option grants is expected to be recognized over a weighted average period of approximately 1.1 years.
The total intrinsic value of all options exercised was $1 million in 2020, $1 million in 2019, and $4 million in 2018. Cash received from option exercises under all share-based payment arrangements was $2 million in 2020, $2 million in 2019, and $4 million in 2018. There was no tax benefit realized from these exercises in 2020 and 2019. The tax benefit realized from option exercises was $1 million in 2018.
Employee Stock Purchase Plan
The Company's amended Employee Stock Purchase Plan (ESPP) provides employees a 15% discount on stock purchases using a three-month look-back feature where the discount is applied to the stock price that represents the lower of NCR’s closing stock price on either the first day or the last day of each calendar quarter. Participants can contribute between 1% and 10% of their compensation. The amended ESPP was approved by NCR stockholders in 2016 and became effective January 1, 2017.
Employees purchased approximately 1.3 million shares in 2020, 0.8 million shares in 2019, and 0.7 million shares in 2018, for approximately $21 million in 2020, $18 million in 2019 and $17 million in 2018. A total of 4 million shares were originally authorized to be issued under the ESPP before its amendment. Under the amended ESPP, 10 million shares were newly authorized to be issued, plus any shares remaining unissued under the prior ESPP after the last 2016 purchase date. Approximately 7.6 million authorized shares remain unissued under our amended ESPP as of December 31, 2020.
8. EMPLOYEE BENEFIT PLANS
Pension, Postretirement and Postemployment Plans NCR sponsors defined benefit pension plans. NCR’s U.S. pension plan no longer offers additional benefits and is closed to new participants. Internationally, the defined benefit plans are based primarily upon compensation and years of service. Certain international plans also no longer offer additional benefits and are closed to
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
new participants. NCR’s funding policy is to contribute annually no less than the minimum required by applicable laws and regulations. Assets of NCR’s defined benefit plans are primarily invested in corporate and government debt securities, common and commingled trusts, publicly traded common stocks, real estate investments, and cash or cash equivalents.
NCR recognizes the funded status of each applicable plan on the Consolidated Balance Sheets. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. For pension plans, changes in the fair value of plan assets and net actuarial gains or losses are recognized upon remeasurement, which is at least annually in the fourth quarter of each year. For postretirement and postemployment plans, changes to the funded status are recognized as a component of other comprehensive loss in stockholders' equity.
NCR sponsors a U.S. postretirement benefit plan that no longer offers benefits to U.S. participants who had not reached a certain age and years of service with NCR. The plan provides medical care benefits to retirees and their eligible dependents. Non-U.S. employees are typically covered under government-sponsored programs, and NCR generally does not provide postretirement benefits other than pensions to non-U.S. retirees. NCR generally funds these benefits on a pay-as-you-go basis.
NCR offers various postemployment benefits to involuntarily terminated and certain inactive employees after employment but before retirement. These benefits are paid in accordance with NCR’s established postemployment benefit practices and policies. Postemployment benefits include mainly severance as well as continuation of healthcare benefits and life insurance coverage while on disability. NCR provides appropriate accruals for these postemployment benefits. These postemployment benefits are funded on a pay-as-you-go basis.
Pension Plans Reconciliation of the beginning and ending balances of the benefit obligations for NCR's pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
International Pension Benefits
|
|
Total Pension Benefits
|
In millions
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation as of January 1
|
|
$
|
1,954
|
|
|
$
|
1,763
|
|
|
$
|
1,174
|
|
|
$
|
1,092
|
|
|
$
|
3,128
|
|
|
$
|
2,855
|
|
Net service cost
|
|
—
|
|
|
—
|
|
|
6
|
|
|
7
|
|
|
6
|
|
|
7
|
|
Interest cost
|
|
51
|
|
|
66
|
|
|
13
|
|
|
19
|
|
|
64
|
|
|
85
|
|
Amendment
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
—
|
|
Actuarial (gain) loss
|
|
168
|
|
|
229
|
|
|
86
|
|
|
112
|
|
|
254
|
|
|
341
|
|
Benefits paid
|
|
(106)
|
|
|
(104)
|
|
|
(111)
|
|
|
(76)
|
|
|
(217)
|
|
|
(180)
|
|
Plan participant contributions
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Currency translation adjustments
|
|
—
|
|
|
—
|
|
|
72
|
|
|
19
|
|
|
72
|
|
|
19
|
|
Benefit obligation as of December 31
|
|
$
|
2,067
|
|
|
$
|
1,954
|
|
|
$
|
1,246
|
|
|
$
|
1,174
|
|
|
$
|
3,313
|
|
|
$
|
3,128
|
|
Accumulated benefit obligation as of December 31
|
|
$
|
2,067
|
|
|
$
|
1,954
|
|
|
$
|
1,235
|
|
|
$
|
1,163
|
|
|
$
|
3,302
|
|
|
$
|
3,117
|
|
A reconciliation of the beginning and ending balances of the fair value of the plan assets of NCR's pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
International Pension Benefits
|
|
Total Pension Benefits
|
In millions
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of January 1
|
|
$
|
1,377
|
|
|
$
|
1,269
|
|
|
$
|
1,058
|
|
|
$
|
953
|
|
|
$
|
2,435
|
|
|
$
|
2,222
|
|
Actual return on plan assets
|
|
187
|
|
|
212
|
|
|
99
|
|
|
128
|
|
|
286
|
|
|
340
|
|
Company contributions
|
|
70
|
|
|
—
|
|
|
19
|
|
|
23
|
|
|
89
|
|
|
23
|
|
Benefits paid
|
|
(106)
|
|
|
(104)
|
|
|
(111)
|
|
|
(76)
|
|
|
(217)
|
|
|
(180)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
—
|
|
|
—
|
|
|
53
|
|
|
29
|
|
|
53
|
|
|
29
|
|
Plan participant contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Fair value of plan assets as of December 31
|
|
$
|
1,528
|
|
|
$
|
1,377
|
|
|
$
|
1,118
|
|
|
$
|
1,058
|
|
|
$
|
2,646
|
|
|
$
|
2,435
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
The following table presents the funded status and the reconciliation of the funded status to amounts recognized in the Consolidated Balance Sheets and in accumulated other comprehensive loss as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
International Pension Benefits
|
|
Total Pension Benefits
|
In millions
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Funded Status
|
|
$
|
(539)
|
|
|
$
|
(577)
|
|
|
$
|
(128)
|
|
|
$
|
(116)
|
|
|
$
|
(667)
|
|
|
$
|
(693)
|
|
Amounts recognized in the Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
199
|
|
|
$
|
178
|
|
|
$
|
199
|
|
|
$
|
178
|
|
Current liabilities
|
|
—
|
|
|
—
|
|
|
(15)
|
|
|
(13)
|
|
|
(15)
|
|
|
(13)
|
|
Noncurrent liabilities
|
|
(539)
|
|
|
(577)
|
|
|
(312)
|
|
|
(281)
|
|
|
(851)
|
|
|
(858)
|
|
Net amounts recognized
|
|
$
|
(539)
|
|
|
$
|
(577)
|
|
|
$
|
(128)
|
|
|
$
|
(116)
|
|
|
$
|
(667)
|
|
|
$
|
(693)
|
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
—
|
|
|
—
|
|
|
24
|
|
|
20
|
|
|
24
|
|
|
20
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
20
|
|
|
$
|
24
|
|
|
$
|
20
|
|
For pension plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of assets were $2,366 million, $2,363 million, and $1,531 million, respectively, as of December 31, 2020, and $2,222 million, $2,217 million and $1,380 million, respectively, as of December 31, 2019.
The net periodic benefit (income) cost of the pension plans for the years ended December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
U.S. Pension Benefits
|
|
International
Pension Benefits
|
|
Total Pension Benefits
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Net service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
7
|
|
Interest cost
|
51
|
|
|
66
|
|
|
61
|
|
|
13
|
|
|
19
|
|
|
20
|
|
|
64
|
|
|
85
|
|
|
81
|
|
Expected return on plan assets
|
(36)
|
|
|
(43)
|
|
|
(43)
|
|
|
(28)
|
|
|
(31)
|
|
|
(32)
|
|
|
(64)
|
|
|
(74)
|
|
|
(75)
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
18
|
|
|
60
|
|
|
(29)
|
|
|
16
|
|
|
15
|
|
|
(16)
|
|
|
34
|
|
|
75
|
|
|
(45)
|
|
Net periodic benefit (income) cost
|
$
|
33
|
|
|
$
|
83
|
|
|
$
|
(11)
|
|
|
$
|
8
|
|
|
$
|
11
|
|
|
$
|
(20)
|
|
|
$
|
41
|
|
|
$
|
94
|
|
|
$
|
(31)
|
|
Actuarial losses in 2020 and 2019 were primarily due to a decrease in the discount rate. Actuarial gains in 2018 were due to an increase in the discount rate as well as a favorable impact from a mortality update in the United Kingdom.
The weighted average rates and assumptions used to determine benefit obligations as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
International Pension Benefits
|
|
Total Pension Benefits
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Discount rate
|
|
2.4
|
%
|
|
3.1
|
%
|
|
0.9
|
%
|
|
1.4
|
%
|
|
1.8
|
%
|
|
2.5
|
%
|
Rate of compensation increase
|
|
N/A
|
|
N/A
|
|
0.9
|
%
|
|
0.9
|
%
|
|
0.9
|
%
|
|
0.9
|
%
|
The weighted average rates and assumptions used to determine net periodic benefit (income) cost for the years ended December 31 were as follows:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
International
Pension Benefits
|
|
Total Pension Benefits
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Discount rate - Service Cost
|
|
N/A
|
|
N/A
|
|
N/A
|
|
0.7
|
%
|
|
1.6
|
%
|
|
1.4
|
%
|
|
0.7
|
%
|
|
1.6
|
%
|
|
1.4
|
%
|
Discount rate - Interest Cost
|
|
2.7
|
%
|
|
3.8
|
%
|
|
3.2
|
%
|
|
1.2
|
%
|
|
1.8
|
%
|
|
1.6
|
%
|
|
2.1
|
%
|
|
3.1
|
%
|
|
2.6
|
%
|
Expected return on plan assets
|
|
2.8
|
%
|
|
3.6
|
%
|
|
3.1
|
%
|
|
2.6
|
%
|
|
3.2
|
%
|
|
3.0
|
%
|
|
2.7
|
%
|
|
3.4
|
%
|
|
3.1
|
%
|
Rate of compensation increase
|
|
N/A
|
|
N/A
|
|
N/A
|
|
0.9
|
%
|
|
1.0
|
%
|
|
0.9
|
%
|
|
0.9
|
%
|
|
1.0
|
%
|
|
0.9
|
%
|
The weighted-average cash balance interest crediting rate for the Company's cash balance defined benefit plans was 1.1% and 1.2% for the years ended December 31, 2020 and 2019, respectively.
The discount rate used to determine U.S. benefit obligations as of December 31, 2020 was derived by matching the plans’ expected future cash flows to the corresponding yields from the Aon Hewitt AA Bond Universe Curve. This yield curve has been constructed to represent the available yields on high-quality, fixed-income investments across a broad range of future maturities. International discount rates were determined by examining interest rate levels and trends within each country, particularly yields on high-quality, long-term corporate bonds, relative to our future expected cash flows.
NCR employs a building block approach as its primary approach in determining the long-term expected rate of return assumptions for plan assets. Historical market returns are studied and long-term relationships between equities and fixed income are preserved consistent with the widely accepted capital market principle that assets with higher volatilities generate higher returns over the long run. Current market factors, such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The expected long-term portfolio return is established for each plan via a building block approach with proper rebalancing consideration. The result is then adjusted to reflect additional expected return from active management net of plan expenses. Historical plan returns, the expectations of other capital market participants, and peer data may be used to review and assess the results for reasonableness and appropriateness.
Plan Assets The weighted average asset allocations as of December 31, 2020 and 2019 by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Fund
|
|
International Pension Fund
|
|
|
Actual Allocation of Plan Assets as of December 31
|
|
Target Asset Allocation
|
|
Actual Allocation of Plan Assets as of December 31
|
|
Target Asset Allocation
|
|
|
2020
|
|
2019
|
|
|
2020
|
|
2019
|
|
Equity securities
|
|
—
|
%
|
|
—
|
%
|
|
0 - 0%
|
|
19
|
%
|
|
23
|
%
|
|
12 - 27%
|
Debt securities
|
|
94
|
%
|
|
99
|
%
|
|
95 - 100%
|
|
58
|
%
|
|
56
|
%
|
|
54 - 72%
|
Real estate
|
|
—
|
%
|
|
—
|
%
|
|
0 - 2%
|
|
14
|
%
|
|
12
|
%
|
|
6 - 14%
|
Other
|
|
6
|
%
|
|
1
|
%
|
|
0 - 3%
|
|
9
|
%
|
|
9
|
%
|
|
4 - 9%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
The fair value of plan assets as of December 31, 2020 and 2019 by asset category is as follows:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
In millions
|
Notes
|
Fair Value as of December 31, 2020
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
Not Subject to Leveling
|
|
Fair Value as of December 31, 2020
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
Not Subject to Leveling
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
1
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
57
|
|
$
|
57
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government securities
|
2
|
|
221
|
|
—
|
|
221
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Corporate debt
|
3
|
|
1,011
|
|
—
|
|
1,011
|
|
—
|
|
—
|
|
|
104
|
|
—
|
|
104
|
|
—
|
|
—
|
|
Other types of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
4
|
|
5
|
|
—
|
|
—
|
|
—
|
|
5
|
|
|
10
|
|
—
|
|
—
|
|
—
|
|
10
|
|
Common and commingled trusts - Equities
|
4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
149
|
|
—
|
|
—
|
|
—
|
|
149
|
|
Common and commingled trusts - Bonds
|
4
|
|
167
|
|
—
|
|
—
|
|
—
|
|
167
|
|
|
515
|
|
—
|
|
—
|
|
—
|
|
515
|
|
Common and commingled trusts - Short Term Investments
|
4
|
|
94
|
|
—
|
|
—
|
|
—
|
|
94
|
|
|
40
|
|
—
|
|
—
|
|
—
|
|
40
|
|
Common and commingled trusts - Balanced
|
4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
90
|
|
—
|
|
—
|
|
—
|
|
90
|
|
Partnership/joint venture interests - Real estate
|
5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Partnership/joint venture interests - Other
|
5
|
|
2
|
|
—
|
|
—
|
|
—
|
|
2
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Mutual funds
|
4
|
|
28
|
|
28
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Insurance products
|
4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
1
|
|
—
|
|
1
|
|
—
|
|
—
|
|
Real estate and other
|
5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
152
|
|
—
|
|
—
|
|
152
|
|
—
|
|
Total
|
|
$
|
1,528
|
|
$
|
28
|
|
$
|
1,232
|
|
$
|
—
|
|
$
|
268
|
|
|
$
|
1,118
|
|
$
|
57
|
|
$
|
105
|
|
$
|
152
|
|
$
|
804
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
In millions
|
Notes
|
Fair Value as of December 31, 2019
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
Not Subject to Leveling
|
|
Fair Value as of December 31, 2019
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
Not Subject to Leveling
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
1
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
53
|
|
$
|
53
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government securities
|
2
|
|
209
|
|
—
|
|
209
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Corporate debt
|
3
|
|
934
|
|
—
|
|
934
|
|
—
|
|
—
|
|
|
103
|
|
—
|
|
103
|
|
—
|
|
—
|
|
Other types of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
4
|
|
12
|
|
—
|
|
—
|
|
—
|
|
12
|
|
|
10
|
|
—
|
|
—
|
|
—
|
|
10
|
|
Common and commingled trusts - Equities
|
4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
184
|
|
—
|
|
—
|
|
—
|
|
184
|
|
Common and commingled trusts - Bonds
|
4
|
|
157
|
|
—
|
|
—
|
|
—
|
|
157
|
|
|
470
|
|
—
|
|
—
|
|
—
|
|
470
|
|
Common and commingled trusts - Short Term Investments
|
4
|
|
19
|
|
—
|
|
—
|
|
—
|
|
19
|
|
|
21
|
|
—
|
|
—
|
|
—
|
|
21
|
|
Common and commingled trusts - Balanced
|
4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
85
|
|
—
|
|
—
|
|
—
|
|
85
|
|
Partnership/joint venture interests - Real estate
|
5
|
|
1
|
|
—
|
|
—
|
|
—
|
|
1
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Partnership/joint venture interests - Other
|
5
|
|
2
|
|
—
|
|
—
|
|
—
|
|
2
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Mutual funds
|
4
|
|
43
|
|
43
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Insurance products
|
4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
1
|
|
—
|
|
1
|
|
—
|
|
—
|
|
Real estate and other
|
5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
131
|
|
—
|
|
—
|
|
131
|
|
—
|
|
Total
|
|
$
|
1,377
|
|
$
|
43
|
|
$
|
1,143
|
|
$
|
—
|
|
$
|
191
|
|
|
$
|
1,058
|
|
$
|
53
|
|
$
|
104
|
|
$
|
131
|
|
$
|
770
|
|
Notes:
1.Common stocks are valued based on quoted market prices at the closing price as reported on the active market on which the individual securities are traded.
2.Government securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar securities, the security is valued under a discounted cash flows approach that maximizes observable inputs, such as current yields on similar instruments but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks.
3.Corporate debt is valued primarily based on observable market quotations for similar bonds at the closing price reported on the active market on which the individual securities are traded. When such quoted prices are not available, the bonds are valued using a discounted cash flows approach using current yields on similar instruments of issuers with similar credit ratings.
4.Common/collective trusts and registered investment companies (RICs) such as mutual funds are valued using a Net Asset Value (NAV) provided by the manager of each fund. The NAV is based on the underlying net assets owned by the fund, divided by the number of shares or units outstanding. The fair value of the underlying securities within the fund, which are generally traded on an active market, are valued at the closing price reported on the active market on which those individual securities are traded. For investments not traded on an active market, or for which a quoted price is not publicly available, a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches, are employed by the fund manager or independent third party to value investments.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
5.Partnership/joint ventures are valued based on the fair value of the underlying securities within the fund, which include investments both traded on an active market and not traded on an active market. For those investments that are traded on an active market, the values are based on the closing price reported on the active market on which those individual securities are traded. For investments not traded on an active market, or for which a quoted price is not publicly available, a variety of unobservable valuation methodologies, including discounted cash flow, market multiples and cost valuation approaches, are employed by the fund manager to value investments.
The following table presents the reconciliation of the beginning and ending balances of those plan assets classified within Level 3 of the valuation hierarchy. When the determination is made to classify the plan assets within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.
|
|
|
|
|
|
|
|
|
In millions
|
|
|
|
International Pension Plans
|
Balance, December 31, 2018
|
|
|
|
$
|
129
|
|
Realized and unrealized gains and losses, net
|
|
|
|
2
|
|
Purchases, sales and settlements, net
|
|
|
|
—
|
|
Transfers, net
|
|
|
|
—
|
|
Balance, December 31, 2019
|
|
|
|
$
|
131
|
|
Realized and unrealized gains and losses, net
|
|
|
|
21
|
|
Purchases, sales and settlements, net
|
|
|
|
—
|
|
Transfers, net
|
|
|
|
—
|
|
Balance, December 31, 2020
|
|
|
|
$
|
152
|
|
Investment Strategy NCR has historically employed a total return investment approach, whereby a mix of fixed-income, equities and real estate investments are used to maximize the long-term return of plan assets subject to a prudent level of risk. The risk tolerance is established for each plan through a careful consideration of plan liabilities, plan funded status and corporate financial condition. To reduce volatility in the value of assets held by the U.S. pension plan, the asset allocation has been and continues to be a portfolio comprising a substantial portion of fixed income assets as of December 31, 2020. However, as we review the plan's funding requirements, we may, in consultation with an independent advisor on asset allocation strategy investment policy and objectives, choose to rebalance the asset allocation to capture additional returns to reduce future cash funding requirements.
The investment portfolios contain primarily fixed-income investments, which are diversified across U.S. and non-U.S. issuers, type of fixed-income security (i.e., government bonds, corporate bonds, mortgage-backed securities) and credit quality. The investment portfolios also contain a blend of equity investments, which are diversified across U.S. and non-U.S. stocks, small and large capitalization stocks, and growth and value stocks, primarily of non-U.S. issuers. Where applicable, real estate investments are made through real estate securities, partnership interests or direct investment and are diversified by property type and location. Other assets, such as cash or private equity are used judiciously to improve portfolio diversification and enhance risk-adjusted portfolio returns. Derivatives may be used to adjust market exposures in an efficient and timely manner. Due to the timing of security purchases and sales, cash held by fund managers is classified in the same asset category as the related investment. Rebalancing algorithms are applied to keep the asset mix of the plans from deviating excessively from their targets. Investment risk is measured and monitored on an ongoing basis through regular performance reporting, investment manager reviews, actuarial liability measurements and periodic investment strategy reviews.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Postretirement Plans Reconciliation of the beginning and ending balances of the benefit obligation for NCR's U.S. postretirement plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
In millions
|
|
2020
|
|
2019
|
Change in benefit obligation
|
|
|
|
|
Benefit obligation as of January 1
|
|
$
|
17
|
|
|
$
|
18
|
|
|
|
|
|
|
Interest cost
|
|
—
|
|
|
1
|
|
Actuarial gain
|
|
—
|
|
|
—
|
|
Plan participant contributions
|
|
—
|
|
|
—
|
|
Benefits paid
|
|
(1)
|
|
|
(2)
|
|
Benefit obligation as of December 31
|
|
$
|
16
|
|
|
$
|
17
|
|
The following table presents the funded status and the reconciliation of the funded status to amounts recognized in the Consolidated Balance Sheets and in accumulated other comprehensive loss as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
In millions
|
|
2020
|
|
2019
|
Benefit obligation
|
|
$
|
(16)
|
|
|
$
|
(17)
|
|
Amounts recognized in the Consolidated Balance Sheets
|
|
|
|
|
Current liabilities
|
|
$
|
(2)
|
|
|
$
|
(2)
|
|
Noncurrent liabilities
|
|
(14)
|
|
|
(15)
|
|
Net amounts recognized
|
|
$
|
(16)
|
|
|
$
|
(17)
|
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
Net actuarial loss
|
|
$
|
6
|
|
|
$
|
7
|
|
Prior service benefit
|
|
—
|
|
|
(3)
|
|
Total
|
|
$
|
6
|
|
|
$
|
4
|
|
The net periodic benefit income of the postretirement plan for the years ended December 31 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Postretirement Benefits
|
|
2020
|
|
2019
|
|
2018
|
Interest cost
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
Prior service benefit
|
|
(3)
|
|
|
(5)
|
|
|
(5)
|
|
Actuarial loss
|
|
1
|
|
|
—
|
|
|
1
|
|
Net periodic benefit income
|
|
$
|
(2)
|
|
|
$
|
(4)
|
|
|
$
|
(4)
|
|
The assumptions utilized in accounting for postretirement benefit obligations as of December 31 and for postretirement benefit income for the years ended December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefit Obligations
|
|
Postretirement Benefit Costs
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Discount rate
|
|
1.4
|
%
|
|
2.5
|
%
|
|
3.7
|
%
|
|
2.5
|
%
|
|
3.7
|
%
|
|
3.1
|
%
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Assumed healthcare cost trend rates as of December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Pre-65 Coverage
|
|
Post-65 Coverage
|
|
Pre-65 Coverage
|
|
Post-65 Coverage
|
Healthcare cost trend rate assumed for next year
|
|
6.5
|
%
|
|
5.8
|
%
|
|
6.7
|
%
|
|
5.9
|
%
|
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
|
|
5.0
|
%
|
|
5.0
|
%
|
|
5.0
|
%
|
|
5.0
|
%
|
Year that the rate reaches the ultimate rate
|
|
2027
|
|
2027
|
|
2027
|
|
2027
|
Postemployment Benefits Reconciliation of the beginning and ending balances of the benefit obligation for NCR's postemployment plan was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postemployment Benefits
|
In millions
|
|
2020
|
|
2019
|
Change in benefit obligation
|
|
|
|
|
Benefit obligation as of January 1
|
|
$
|
126
|
|
|
$
|
139
|
|
|
|
|
|
|
Service cost
|
|
42
|
|
|
31
|
|
Interest cost
|
|
3
|
|
|
3
|
|
Amendments
|
|
(4)
|
|
|
—
|
|
Benefits paid
|
|
(39)
|
|
|
(35)
|
|
Foreign currency exchange
|
|
3
|
|
|
(1)
|
|
Actuarial (gain) loss
|
|
7
|
|
|
(11)
|
|
Benefit obligation as of December 31
|
|
$
|
138
|
|
|
$
|
126
|
|
The following table presents the funded status and the reconciliation of the unfunded status to amounts recognized in the Consolidated Balance Sheets and in accumulated other comprehensive loss at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postemployment Benefits
|
In millions
|
|
2020
|
|
2019
|
Benefit obligation
|
|
$
|
(138)
|
|
|
$
|
(126)
|
|
Amounts recognized in the Consolidated Balance Sheets
|
|
|
|
|
Current liabilities
|
|
$
|
(32)
|
|
|
$
|
(30)
|
|
Noncurrent liabilities
|
|
(106)
|
|
|
(96)
|
|
Net amounts recognized
|
|
$
|
(138)
|
|
|
$
|
(126)
|
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
Net actuarial gain
|
|
$
|
(23)
|
|
|
$
|
(38)
|
|
Prior service benefit
|
|
(8)
|
|
|
(6)
|
|
Total
|
|
$
|
(31)
|
|
|
$
|
(44)
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
The net periodic benefit cost of the postemployment plan for the years ended December 31 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Postemployment Benefits
|
2020
|
|
2019
|
|
2018
|
Service cost
|
$
|
42
|
|
|
$
|
31
|
|
|
$
|
43
|
|
Interest cost
|
3
|
|
|
3
|
|
|
3
|
|
Amortization of:
|
|
|
|
|
|
Prior service benefit
|
(2)
|
|
|
(2)
|
|
|
(5)
|
|
Actuarial gain
|
(4)
|
|
|
(3)
|
|
|
(1)
|
|
Net benefit cost
|
$
|
39
|
|
|
$
|
29
|
|
|
$
|
40
|
|
The weighted average assumptions utilized in accounting for postemployment benefit obligations as of December 31 and for postemployment benefit costs for the years ended December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postemployment Benefit Obligations
|
|
Postemployment Benefit Costs
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2018
|
Discount rate
|
|
1.4
|
%
|
|
1.8
|
%
|
|
1.8
|
%
|
|
2.4
|
%
|
|
2.3
|
%
|
Salary increase rate
|
|
2.0
|
%
|
|
1.8
|
%
|
|
1.8
|
%
|
|
1.9
|
%
|
|
1.9
|
%
|
Involuntary turnover rate
|
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
4.3
|
%
|
|
4.8
|
%
|
Cash Flows Related to Employee Benefit Plans
Cash Contributions NCR does not plan to contribute to the U.S. qualified pension plan in 2021, and plans to contribute approximately $25 million to the international pension plans in 2021. The Company also plans to make contributions of approximately $2 million to the U.S. postretirement plan and approximately $39 million to the postemployment plan in 2021.
Estimated Future Benefit Payments NCR expects to make the following benefit payments reflecting past and future service from its pension, postretirement and postemployment plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
U.S. Pension Benefits
|
|
International Pension Benefits
|
|
Total Pension Benefits
|
|
Postretirement Benefits
|
|
Postemployment Benefits
|
Year
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
109
|
|
|
$
|
53
|
|
|
$
|
162
|
|
|
$
|
2
|
|
|
$
|
39
|
|
2022
|
|
$
|
110
|
|
|
$
|
50
|
|
|
$
|
160
|
|
|
$
|
1
|
|
|
$
|
17
|
|
2023
|
|
$
|
112
|
|
|
$
|
49
|
|
|
$
|
161
|
|
|
$
|
1
|
|
|
$
|
16
|
|
2024
|
|
$
|
114
|
|
|
$
|
51
|
|
|
$
|
165
|
|
|
$
|
1
|
|
|
$
|
15
|
|
2025
|
|
$
|
115
|
|
|
$
|
50
|
|
|
$
|
165
|
|
|
$
|
1
|
|
|
$
|
14
|
|
2026-2030
|
|
$
|
571
|
|
|
$
|
242
|
|
|
$
|
813
|
|
|
$
|
3
|
|
|
$
|
62
|
|
Savings Plans U.S. employees and many international employees participate in defined contribution savings plans. These plans generally provide either a specified percent of pay or a matching contribution on participating employees’ voluntary elections. NCR’s matching contributions typically are subject to a maximum percentage or level of compensation. Employee contributions can be made pre-tax, after-tax or a combination thereof. The expense under the U.S. plan was approximately $32 million in 2020, $27 million in 2019, and $27 million in 2018. The expense under international and subsidiary savings plans was $25 million in 2020, $25 million in 2019, and $24 million in 2018.
Amounts to be Recognized The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost (income) during 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
U.S.
Pension Benefits
|
|
International Pension Benefits
|
|
Total
Pension Benefits
|
|
Postretirement Benefits
|
|
Postemployment Benefits
|
Prior service cost (benefit)
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(2)
|
|
Actuarial loss (gain)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
9. COMMITMENTS AND CONTINGENCIES
In the normal course of business, NCR is subject to various proceedings, lawsuits, claims and other matters, including, for example, those that relate to the environment and health and safety, labor and employment, employee benefits, import/export compliance, intellectual property, data privacy and security, product liability, commercial disputes and regulatory compliance, among others. Additionally, NCR is subject to diverse and complex laws and regulations, including those relating to corporate governance, public disclosure and reporting, environmental safety and the discharge of materials into the environment, product safety, import and export compliance, data privacy and security, antitrust and competition, government contracting, anti-corruption, and labor and human resources, which are rapidly changing and subject to many possible changes in the future. Compliance with these laws and regulations, including changes in accounting standards, taxation requirements, and federal securities laws among others, may create a substantial burden on, and substantially increase costs to NCR or could have an impact on NCR's future operating results. The Company has reflected all liabilities when a loss is considered probable and reasonably estimable in the Consolidated Financial Statements. We do not believe there is a reasonable possibility that losses exceeding amounts already recognized have been incurred, but there can be no assurances that the amounts required to satisfy alleged liabilities from such matters will not impact future operating results. Other than as stated below, the Company does not currently expect to incur material capital expenditures related to such matters. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various lawsuits, claims, legal proceedings and other matters, including, but not limited to the Fox River and Kalamazoo River environmental matters and other matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in NCR’s Consolidated Financial Statements or will not have a material adverse effect on its consolidated results of operations, capital expenditures, competitive position, financial condition or cash flows.
Nashville Tornado On March 3, 2020, one of our Global Fulfillment Centers, operated with a third-party logistics partner in Mount Juliet, Tennessee, was severely impacted by tornadoes in the greater Nashville area. We maintain substantial property damage insurance coverage for this Global Fulfillment Center and reached a final settlement with our insurance carrier and claims adjusters as of December 31, 2020. The Company determined approximately $118 million of the inventory to be either a total loss or excess and obsolete as of December 31, 2020 and as such, was written-off with an offsetting insurance receivable recorded, which was included within other current assets in the Consolidated Balance Sheet with no net impact on cost of sales. As of December 31, 2020, we received a total of $102 million as advances from the insurance carrier with $16 million remaining as an insurance receivable. Additionally, our insurance policy also provides for business interruption coverage, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. As of December 31, 2020, the Company has incurred $26 million of other expenses, mainly related to expedite freight, professional services and contractor charges. These costs will be fully recovered based on the final settlement with $8 million cash received during 2020 and the remaining $18 million recorded as an insurance receivable as of December 31, 2020. Final cash payment was received in early January 2021.
Boston Consulting Group On November 6, 2019, Boston Consulting Group, Inc., a former consultant for the Company, commenced a lawsuit against the Company in the United States District Court for the District of New York. The Complaint in the matter alleges the Company breached two consulting agreements and sought in excess of $80 million and other compensatory damages and equitable relief. The Company believed the allegations of money owed were grossly overstated, and the Company vigorously defended this lawsuit. In December 2020, the parties engaged in mediation directed to settlement of this matter, and in January 2021, the parties agreed to a final settlement.
Environmental Matters NCR's facilities and operations are subject to a wide range of environmental protection laws, and NCR has investigatory and remedial activities underway at a number of facilities that it currently owns or operates, or formerly owned or operated, to comply, or to determine compliance, with such laws. Also, NCR has been identified, either by a government agency or by a private party seeking contribution to site clean-up costs, as a potentially responsible party (PRP) at a number of sites pursuant to various state and federal laws, including the Federal Water Pollution Control Act, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and comparable state statutes. Other than the Fox River matter, the Kalamazoo River matter and the Ebina matter discussed below, we currently do not anticipate material expenses and liabilities from these environmental matters.
Fox River NCR is one of eight entities that were formally notified by governmental and other entities, such as local Native American tribes, that they are PRPs for environmental claims (under CERCLA and other statutes) arising out of the presence of polychlorinated biphenyls (PCBs) in sediments in the lower Fox River and in the Bay of Green Bay in Wisconsin. The other Fox River PRPs that received notices include Appleton Papers Inc. (API; now known as Appvion, Inc.), P.H. Glatfelter Company ("Glatfelter"), Georgia-Pacific Consumer Products LP (GP, successor to Fort James Operating Company), and others.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
NCR was identified as a PRP because of alleged PCB discharges from two carbonless copy paper manufacturing facilities it previously owned, which were located along the Fox River. NCR sold its facilities in 1978 to API. The parties have also contended that NCR is responsible for PCB discharges from paper mills owned by other companies because NCR carbonless copy paper "broke" was allegedly purchased by those other mills as a raw material.
The United States Environmental Protection Agency (USEPA) and Wisconsin Department of Natural Resources (together, the Governments) developed clean-up plans for the upper and lower parts of the Fox River and for portions of the Bay of Green Bay. On November 13, 2007, the Governments issued a unilateral administrative order (the 2007 Order) under CERCLA to the eight original PRPs, requiring them to perform remedial work under the Governments’ clean-up plan for the lower parts of the river (operable units 2 through 5). In April 2009, NCR and API formed a limited liability company (the LLC), which entered into an agreement with an environmental remediation contractor to perform the work at the Fox River site. In-water dredging and remediation under the clean-up plan commenced shortly thereafter.
NCR and API, along with B.A.T Industries p.l.c. (BAT), share among themselves a portion of the cost of the Fox River clean-up and natural resource damages (NRD) based upon a 1998 agreement (the Cost Sharing Agreement), a 2005 arbitration award (subsequently confirmed as a judgment), and a September 30, 2014 Funding Agreement (the Funding Agreement). The Cost Sharing Agreement and the arbitration resolved disputes that arose out of the Company's 1978 sale of its Fox River facilities to API. The Cost Sharing Agreement and arbitration award resulted in a 45% share for NCR of the first $75 million of such costs (a threshold that was reached in 2008), and a 40% share for amounts in excess of $75 million. The Funding Agreement arose out of a 2012 to 2014 arbitration dispute between NCR and API, and provides for regular, ongoing funding of NCR incurred Fox River remediation costs via contributions, made to a new limited liability corporation created by the Funding Agreement, by BAT, API and, for 2014, API's indemnitor, Windward Prospects. The Funding Agreement creates an obligation on BAT and API to fund 50% of NCR’s Fox River remediation costs from October 1, 2014 forward (API’s Fox River-related obligations under the Funding Agreement were fully satisfied in 2016); the Funding Agreement also provides NCR contractual avenues for payment of, via direct and third-party sources, (1) the difference between BAT’s and API’s 60% obligation under the Cost Sharing Agreement and arbitration award on the one hand and their ongoing (since September 2014) 50% payments under the Funding Agreement on the other, as well as (2) the difference between the amount NCR received under the Funding Agreement and the amount owed to it under the Cost Sharing Agreement and arbitration award for the period from April 2012 through September 2014. As of December 31, 2020 and 2019, the receivable under the Funding Agreement was approximately $54 million and $53 million, respectively, and was included in other assets in the Consolidated Balance Sheet. The Company anticipates that it will collect sums related to the receivable after 2021, subject and pursuant to the terms of the Funding Agreement and related agreements. This receivable is not taken into account in calculating the Company’s Fox River net reserve.
The Company's litigations relating to contribution and enforcement claims concerning the Fox River have been concluded. A proposed consent decree settlement (the CD settlement) with respect to the contribution action (a case originally filed by NCR and API) and the government enforcement action (a case originally filed by the federal and state governments against several PRPs, including the Company) was successfully negotiated by NCR and the federal and state governments and was approved on August 22, 2017 by the federal district court in Wisconsin that had been presiding over those cases. A final order of dismissal as to the Company in the contribution and government enforcement actions was subsequently entered; one party, Glatfelter, had appealed the approval of the CD settlement. On January 3, 2019, the United States lodged a proposed consent decree with the Wisconsin court, reflecting a settlement reached by the United States, Wisconsin and Glatfelter with respect to Glatfelter’s Fox River liability under the government enforcement action; a component of that settlement was withdrawal of Glatfelter’s appeal opposing the Company’s CD settlement. On March 14, 2019, the Wisconsin court approved the Glatfelter consent decree, and on April 3, 2019, Glatfelter's appeal was dismissed.
The CD settlement has now resolved the remaining Fox River-related contribution and enforcement claims against the Company. The key components of the approved CD settlement include (1) the Company’s commitment to complete the remediation of the Fox River, which has now been completed; (2) the Company’s conditional agreement to waive its contribution claims against the two remaining defendants in the case, GP and Glatfelter; (3) the Company’s agreement not to appeal the trial court’s decision on divisibility of harm; (4) the Governments’ agreement to include in the settlement so-called “contribution protection” in the Company’s favor as to GP’s and Glatfelter’s contribution claims against the Company, the effect of which will be to extinguish those claims; (5) the Governments’ agreement not to pursue the Company for the Governments’ past oversight costs; and (6) the Governments’ agreement to exercise prosecutorial discretion in pursuing other parties for future oversight costs and long-term monitoring and maintenance, with the Company retaining so-called “backstop” liability in the event that the other parties fail to pay future oversight costs or to perform long-term monitoring and maintenance. Additionally, although certain state law claims by GP and Glatfelter against the Company may not be affected directly by the
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
CD settlement, the CD settlement provides that the Company’s contribution claims against those two parties will revive if those parties attempt to assert any claims against the Company relating to the Fox River, including any state law claims.
In the quarter ending September 30, 2017, the remediation general contractor commenced an arbitration against the LLC, in a dispute over contract interpretation. The hearing on this matter was completed in June 2019, and the parties submitted post-trial briefs in August 2019. The amounts claimed by the contractor range from approximately $46 million to approximately $53 million; the Company disputed the claims and contested them vigorously during the hearing. In November 2019, having rejected substantial portions of the claims, the arbitration panel awarded the contractor approximately $10 million. The Company’s indemnitors and co-obligors, described below, were responsible for the majority of the award, with the Company’s share being approximately 25% of the award.
With respect to the Company’s prior dispute with API, which was generally superseded by the Funding Agreement, the Company received timely payments as they came due under the Funding Agreement. Although API filed for bankruptcy protection in October 2017, it had made all of the payments to the Company in connection with the Fox River that are required of it by the Funding Agreement.
NCR's eventual remediation liability, followed by long-term monitoring expected to be performed by others, will depend on a number of factors. In establishing the reserve, NCR attempts to estimate a range of reasonably possible outcomes for each of these factors, although each range is itself uncertain. NCR uses its best estimate within the range, if that is possible. Where there is a range of equally possible outcomes, and there is no amount within that range that is considered to be a better estimate than any other amount, NCR uses the low end of the range. The significant factors include: (1) the total remaining site costs, including the costs associated with decommissioning the site, the expected cost impact of which is expected to be neutral or non-material to the Company, including long-term monitoring following completion of the clean-up, and what parties are assigned to discharge the post-clean-up tasks (as noted, the Company no longer expects to bear long-term monitoring costs); (2) total NRD for the site and the share that NCR will bear (which is now resolved as to the Company); (3) the share of clean-up costs that NCR will bear (which is resolved under the CD settlement); (4) NCR's transaction and litigation costs to defend itself to the extent additional litigation is required with respect to claims brought by the general contractor; and (5) the share of NCR's payments that BAT will bear (which is governed by the Cost Sharing Agreement and the Funding Agreement, BAT has made all of the payments requested of it, and as discussed above; API is in bankruptcy and is not presumed likely to bear further shares of NCR's payments). With respect to NRD, in connection with a certain settlement entered into by other PRPs in 2015, the Government withdrew the NRD claims it had prosecuted on behalf of NRD trustees, including those NRD claims asserted against the Company.
Calculation of the Company's Fox River reserve is subject to several complexities, and it is possible there could be additional changes to some elements of the reserve over upcoming periods, although the Company is unable to predict or estimate such changes at this time. There can be no assurance that the clean-up and related expenditures and liabilities will not have a material effect on NCR's capital expenditures, earnings, financial condition, cash flows, or competitive position. As of December 31, 2020 and 2019, the gross reserve for the Fox River matter was approximately $6 million and $5 million, respectively. As of December 31, 2020 and 2019, the net reserve for the Fox River matter was approximately $28 million and $16 million, respectively. NCR contributes to the LLC to fund remediation activities and generally, by contract, has funded certain amounts of remediation expenses in advance. As of December 31, 2020 and 2019, approximately zero remained from this funding. NCR's reserve for the Fox River matter is reduced as the LLC makes payments to the remediation contractor and other vendors with respect to remediation activities.
Under a 1996 agreement, AT&T Corp. (AT&T) and Nokia (as the successor to Lucent Technologies and Alcatel-Lucent USA) are responsible severally (not jointly) for indemnifying NCR for certain portions of the amounts paid by NCR for the Fox River matter over a defined threshold and subject to certain offsets. (The agreement governs certain aspects of AT&T's divestiture of NCR and of what was then known as Lucent Technologies.) Those companies have made the payments requested of them by the Company on an ongoing basis.
Kalamazoo River In November 2010, USEPA issued a "general notice letter" to NCR with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site (Kalamazoo River site) in Michigan. Three other companies - International Paper, Mead Corporation, and Consumers Energy - also received general notice letters at or about the same time. USEPA asserts that the site is contaminated by various substances, primarily PCBs, as a result of discharges by various paper mills located along the river. USEPA does not claim that the Company made direct discharges into the Kalamazoo River, and NCR never had facilities at or near the Kalamazoo River site, but USEPA indicated that "NCR may be liable under Section 107 of CERCLA ... as an arranger, who by contract or agreement, arranged for the disposal, treatment and/or transportation of
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
hazardous substances at the Site." USEPA stated that it "may issue special notice letters to [NCR] and other PRPs for future RI/FS [remedial investigation / feasibility studies] and RD/RA [remedial design / remedial action] negotiations."
In connection with the Kalamazoo River site, in December 2010 the Company, along with two other defendants, was sued in federal court by three Georgia-Pacific (GP) affiliate corporations in a private-party contribution and cost recovery action for alleged pollution. The suit, pending in Michigan, asks that the Company and other defendants pay a "fair portion" of these companies’ costs. Various removal and remedial actions remain to be decided upon and performed at the Kalamazoo River site, the total costs for which generally remain undetermined; in 2017, Records of Decisions were issued for two parts of the river, and in 2018 such a decision was issued for another part of the river, but such decisions for the majority of the work are expected to be made only over the next several years. The suit alleges that the Company is liable to the GP entities as an "arranger" under CERCLA. The initial phase of the case was tried in a Michigan federal court in February 2013; on September 26, 2013 the court issued a decision that held NCR was liable as an “arranger” as of at least March 1969. (PCB-containing carbonless copy paper was produced from approximately 1954 to April 1971, and the majority of contamination at the Kalamazoo River site had occurred prior to 1969). NCR preserved its right to appeal the September 2013 decision.
In the 2013 decision the Court did not determine NCR’s share of the overall liability. Relative shares of liability for the four companies were tried to the court in a subsequent phase of the case in December 2015. In a ruling issued on March 29, 2018, the court addressed responsibility for the costs that GP had incurred in the past, totaling to approximately $50 million (GP had sought approximately $105 million, but $55 million of those claims were removed by the court upon motions filed by the Company and other parties); NCR and GP were each assigned a 40% share of those costs, and the other two companies were assigned 15% and 5% as their allocations. The court entered a judgment in the case on June 19, 2018, in which it indicated that it would not allocate future costs, but would enter a declaratory judgment that the four companies together had responsibility for future costs, in amounts and shares to be determined. Cross-proceedings have been commenced to obtain recoveries from the other parties pursuant to the judgment; those proceedings were stayed pending the appeal referenced below.
In July 2018, the Company appealed to the United States Court of Appeals for the Sixth Circuit both the 2013 court decision, which it believes is in conflict with a decision from the Fox River trial court as to Operable Unit 1 of that site and an affirmance of that decision from the Court of Appeals for the Seventh Circuit, and the 2018 court decision, on various legal grounds. The Company filed a bond to stay any execution of the judgment pending the appeal, and its application for a stay was approved by the court and remains stayed until the Company filed its dismissal of the appeal on December 31, 2020 pursuant to a Consent Decree, noted below.
During the pendency of the Sixth Circuit stay, the Company negotiated a settlement of the Kalamazoo River matter with the USEPA and other government agencies having oversight over the river. On December 5, 2019, the Company entered into a Consent Decree, filed with the District Court on December 11, 2019, and on December 2, 2020, the District Court approved the Consent Decree, which has now resolved all litigation associated with the river clean-up, including the Sixth Circuit appeal. The Consent Decree requires the Company to pay GP its 40% share of past costs, to pay the USEPA and state agencies their past and future administrative costs, and to dismiss its Sixth Circuit appeal. The Consent Decree further requires the Company to take responsibility for the remediation of a portion, but not all, of the Kalamazoo River. The Consent Decree further provides the Company protection from other PRPs, including GP, seeking contribution for their costs associated with the clean-up anywhere on the river, thereby resolving the allocation of future costs left unresolved by the June 19, 2019 judgment.
NCR expects to have claims against BAT and API under the Funding Agreement discussed above for the Kalamazoo River remediation expenses. API filed for bankruptcy protection in October 2017, and thus payment of its potential share under the Funding Agreement for so-called “future sites,” which would include the Kalamazoo River site, may be at risk, but as liability under the Cost Sharing Agreement and the Funding Agreement is joint and several, the bankruptcy is not anticipated to affect the Company’s ability to seek that amount from BAT. The Company will also have indemnity or reimbursement claims against AT&T and Nokia under the arrangement discussed above in connection with the Fox River matter after expenses have met a contractual threshold set out in the 1996 agreement referenced above in the Fox River discussion.
As of December 31, 2020, the reserve for Kalamazoo was $164 million as compared to $81 million as of December 31, 2019; that figure is reported on a basis that is net of expected contributions from the Company's co-obligors and indemnitors, subject to when the applicable threshold is reached. While the Company believes its co-obligors' and indemnitors' obligations are as previously reported, the increase in the reserve reflects changes in positions taken by some of those co-obligors and indemnitors with respect to the Kalamazoo River. The contributions from its co-obligors and indemnitors are expected to range from $70 million to $140 million and the Company will continue to pursue such contribution.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
As many aspects of the costs of remediation will not be determined for several years (and thus the high end of a range of possible costs for many areas of the site cannot be quantified at this time), the Company has made what it considers to be reasonable estimates of the low end of a range for such costs where remedies are identified, and/or of the costs of investigations and studies for areas of the river where remedies have not yet been determined, and the reserve is informed by those estimates. The extent of NCR’s potential liability remains subject to many uncertainties, notwithstanding the settlement of this matter and related Consent Decree noted above, particularly inasmuch as remedy decisions and cost estimates will not be generated until times in the future and as most of the work to be performed will take place through the 2030s. Under other assumptions or estimates for possible costs of remediation, which the Company does not at this point consider to be reasonably estimable or verifiable, it is possible that the reserve the Company has taken to discontinued operations reflected in this paragraph could more than approximately double the reflected reserve.
Ebina The Company is engaged in cooperative regulatory compliance activities with the government of Japan in connection with certain environmental contaminants generated in its past operations in that country. The Company has quantities of PCB and other wastes primarily from its former plant at Oiso, Japan, including capsulated undiluted solutions manufactured in the past, capacitors, light ballasts and PCB-affected soil from the Oiso plant that was excavated and placed in steel drums. These wastes are stored in a facility at Ebina, Japan in accordance with Japanese regulations governing such materials. Over the past several years Japan has enacted and amended legislation governing such wastes, and has set a current deadline for treating and disposing of (at government-constructed disposal facilities) the highest-concentration wastes by 2027. Lower-concentration wastes can be and have been disposed of via private contractors, and as of December 31, 2020, NCR had disposed of more than a third of its lower-concentration wastes.
The Company and its consultants have met and communicated regularly with the Japanese agency charged with administration of the law, and are working with that agency on a program to manage disposal of the high-concentration wastes, including tests of technologies to make the disposal more efficient. Pending final government approvals, the Company expects to begin disposal of high-concentration wastes in early 2021, with final deadlines for various of the government-constructed disposal sites currently set for 2022, 2023 and later. Low-concentration wastes are required to be contracted for disposal by 2027, a timetable that the Company expects to meet. In September 2019, the Company’s environmental consultants, following a series of communications and meetings with the Japanese agency, at the Company’s request prepared an estimate of remaining disposal costs over the coming several years. While the estimate is subject to a range of assumptions and uncertainties, including prospects of cost reduction in coordination with the agency as certain field testing to separate high-concentration and low-concentration waste progresses over the coming years, the Company has adjusted its existing reserve for the matter to take into account this cost estimate, and that reserve as of December 31, 2020 and 2019 is $20 million and $19 million, respectively. The Japan environmental waste issue is treated as a compliance matter and not as litigation or enforcement, and the Company has received no threats of litigation or enforcement.
Environmental-Related Insurance Recoveries In connection with the Fox River and other environmental sites, through December 31, 2020, NCR has received a combined gross total of approximately $202 million in settlements reached with various of its insurance carriers. Portions of many of these settlements agreed in the 2010 through 2013 timeframe are payable to a law firm that litigated the claims on the Company's behalf. Some of the settlements cover not only the Fox River but also other environmental sites; some are limited to either the Fox River or the Kalamazoo River site. Some of the settlements are directed to defense costs and some are directed to indemnity; some settlements cover both defense costs and indemnity. The Company does not anticipate that further material insurance recoveries specific to Kalamazoo River remediation costs will be available to it, owing to considerations under applicable Michigan law. Claims with respect to Kalamazoo River defense costs have now been settled, with the amounts of those settlements included in the sum reported above.
Environmental Remediation Estimates It is difficult to estimate the future financial impact of environmental laws, including potential liabilities. NCR records environmental provisions when it is probable that a liability has been incurred and the amount or range of the liability is reasonably estimable; in accordance with accounting guidance, where liabilities are not expected to be quantifiable or estimable for a period of years, the estimated costs of investigating those liabilities are recorded as a component of the reserve for that particular site. Provisions for estimated losses from environmental restoration and remediation are, depending on the site, based generally on internal and third-party environmental studies, estimates as to the number and participation level of other PRPs, the extent of contamination, estimated amounts for attorney and other fees, and the nature of required clean-up and restoration actions. Reserves are adjusted as further information develops or circumstances change. Management expects that the amounts reserved from time to time will be paid out over the period of investigation, negotiation, remediation and restoration for the applicable sites. The amounts provided for environmental matters in NCR's Consolidated Financial Statements are the estimated gross undiscounted amounts of such liabilities, without deductions for indemnity insurance, third-party indemnity claims or recoveries from other PRPs, except as qualified in the following sentences. In those cases where insurance carriers or third-party indemnitors have agreed to pay any amounts and management believes that
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
collectability of such amounts is probable, the amounts are recorded in the Consolidated Financial Statements. For the Fox River and Kalamazoo River sites, as described above, assets relating to the AT&T and Nokia indemnities and to the BAT obligations are recorded as payment is supported by contractual agreements, public filings and/or payment history.
Guarantees and Product Warranties In the ordinary course of business, NCR may issue performance guarantees on behalf of its subsidiaries to certain of its customers and other parties. Some of those guarantees may be backed by standby letters of credit, surety bonds, or similar instruments. In general, under the guarantees, NCR would be obligated to perform, or cause performance, over the term of the underlying contract in the event of an unexcused, uncured breach by its subsidiary, or some other specified triggering event, in each case as defined by the applicable guarantee. NCR believes the likelihood of having to perform under any such guarantee is remote. As of December 31, 2020 and 2019, NCR had no material obligations related to such guarantees, and therefore its Consolidated Financial Statements do not have any associated liability balance.
NCR provides its customers a standard manufacturer’s warranty and records, at the time of the sale, a corresponding estimated liability for potential warranty costs. Estimated future obligations due to warranty claims are based upon historical factors, such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts. When a sale is consummated, the total customer revenue is recognized, provided that all revenue recognition criteria are otherwise satisfied, and the associated warranty liability is recorded using pre-established warranty percentages for the respective product classes.
From time to time, product design or quality corrections are accomplished through modification programs. When identified, associated costs of labor and parts for such programs are estimated and accrued as part of the warranty reserve.
The Company recorded the activity related to the warranty reserve for the years ended December 31 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
|
2019
|
|
2018
|
Warranty reserve liability
|
|
|
|
|
|
Beginning balance as of January 1
|
$
|
21
|
|
|
$
|
26
|
|
|
$
|
26
|
|
Accruals for warranties issued
|
30
|
|
37
|
|
42
|
Settlements (in cash or in kind)
|
(33)
|
|
(42)
|
|
(42)
|
Ending balance as of December 31
|
$
|
18
|
|
|
$
|
21
|
|
|
$
|
26
|
|
In addition, NCR provides its customers with certain indemnification rights. In general, NCR agrees to indemnify the customer if a third party asserts patent or other infringement on the part of its customers for its use of the Company’s products subject to certain conditions that are generally standard within the Company’s industries. On limited occasions the Company will undertake additional indemnification obligations for business reasons. From time to time, NCR also enters into agreements in connection with its acquisition and divestiture activities that include indemnification obligations by the Company. The fair value of these indemnification obligations is not readily determinable due to the conditional nature of the Company’s potential obligations and the specific facts and circumstances involved with each particular agreement. The Company has not recorded a liability in connection with these indemnifications, and no current indemnification instance is material to the Company’s financial position. Historically, payments made by the Company under these types of agreements have not had a material effect on the Company’s consolidated financial condition, results of operations or cash flows.
Purchase Commitments The Company has purchase commitments for materials, supplies, services, and property, plant and equipment as part of the normal course of business. This includes a long-term service agreement with Accenture, under which many of NCR's key transaction processing activities and functions are performed.
10. LEASING
The following table presents our lease balances as of December 31:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
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|
|
In millions
|
Location in the Consolidated Balance Sheet
|
|
December 31, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
|
|
Operating lease assets
|
Operating lease assets
|
|
$
|
344
|
|
|
$
|
391
|
|
Finance lease assets
|
Property, plant and equipment, net
|
|
55
|
|
|
38
|
|
Accumulated Amortization of Finance lease assets
|
Property, plant and equipment, net
|
|
(18)
|
|
|
(5)
|
|
Total leased assets
|
|
|
$
|
381
|
|
|
$
|
424
|
|
Liabilities
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating lease liabilities
|
Other current liabilities
|
|
$
|
85
|
|
|
$
|
91
|
|
Finance lease liabilities
|
Other current liabilities
|
|
15
|
|
|
10
|
|
Noncurrent
|
|
|
|
|
|
Operating lease liabilities
|
Operating lease liabilities
|
|
325
|
|
|
369
|
|
Finance lease liabilities
|
Other liabilities
|
|
23
|
|
|
25
|
|
Total lease liabilities
|
|
|
$
|
448
|
|
|
$
|
495
|
|
The following table presents our lease costs for operating and finance leases:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
For the year ended December 31, 2020
|
|
For the year ended December 31, 2019
|
Operating lease cost
|
$
|
125
|
|
|
$
|
137
|
|
Finance lease cost
|
|
|
|
Amortization of leased assets
|
13
|
|
|
5
|
|
Interest on lease liabilities
|
1
|
|
|
1
|
|
Short-Term lease cost
|
5
|
|
|
5
|
|
Variable lease cost
|
27
|
|
|
30
|
|
Total lease cost
|
$
|
171
|
|
|
$
|
178
|
|
Total rental expense for operating leases was $148 million in 2018.
The following table presents the supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
For the year ended December 31, 2020
|
|
For the year ended December 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
$
|
128
|
|
|
$
|
141
|
|
Operating cash flows from finance leases
|
$
|
2
|
|
|
$
|
1
|
|
Financing cash flows from finance leases
|
$
|
13
|
|
|
$
|
4
|
|
Lease Assets Obtained in Exchange for Lease Obligations
|
|
|
|
Operating Leases
|
$
|
31
|
|
|
$
|
45
|
|
Finance Leases
|
$
|
15
|
|
|
$
|
33
|
|
The following table reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the Consolidated Balance Sheet as of December 31, 2020:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Operating Leases
|
|
Finance Leases
|
2021
|
|
$
|
108
|
|
|
$
|
16
|
|
2022
|
|
77
|
|
|
15
|
|
2023
|
|
51
|
|
|
8
|
|
2024
|
|
42
|
|
|
1
|
|
2025
|
|
35
|
|
|
—
|
|
Thereafter
|
|
240
|
|
|
—
|
|
Total lease payments
|
|
553
|
|
|
40
|
|
Less: Amount representing interest
|
|
(143)
|
|
|
(2)
|
|
Present value of lease liabilities
|
|
$
|
410
|
|
|
$
|
38
|
|
As of December 31, 2020, we have additional operating leases of $74 million, primarily for a real estate lease in Europe, that have not yet commenced. This operating lease is expected to commence in 2021 with a lease term of 10 years.
The following table presents the weighted average remaining lease term and interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Weighted average lease term:
|
|
|
|
|
Operating leases
|
|
8.7 years
|
|
8.9 years
|
Finance leases
|
|
2.7 years
|
|
3.4 years
|
Weighted average interest rates:
|
|
|
|
|
Operating leases
|
|
6.45
|
%
|
|
6.42
|
%
|
Finance leases
|
|
4.59
|
%
|
|
3.72
|
%
|
.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
11. SERIES A PREFERRED STOCK
On December 4, 2015, NCR issued 820,000 shares of Series A Convertible Preferred Stock to certain entities affiliated with the Blackstone Group L.P. (collectively, Blackstone) for an aggregate purchase price of $820 million, or $1,000 per share, pursuant to an Investment Agreement between the Company and Blackstone, dated November 11, 2015. In connection with the issuance of the Series A Convertible Preferred Stock, the Company incurred direct and incremental expenses of $26 million, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. These direct and incremental expenses originally reduced the Series A Convertible Preferred Stock, and will be accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date, March 16, 2024. During the years ended December 31, 2020, 2019 and 2018, the Company paid dividends-in-kind of $10 million, $43 million, and $46 million, respectively, associated with the Series A Convertible Preferred Stock. There were cash dividends of $9 million declared during the year ended December 31, 2020 and there were no cash dividends during the years ended December 31, 2019 and 2018.
In 2017, in connection with the early release of the lock-up included in the Investment Agreement, Blackstone offered for sale 342,000 shares of Series A Convertible Preferred Stock in an underwritten public offering. In addition, Blackstone converted 90,000 shares of Series A Convertible Preferred Stock into shares of our common stock and we repurchased those shares of common stock for $48.47 per share. The underwritten offering and the stock repurchase were consummated on March 17, 2017.
On September 18, 2019, NCR entered into an agreement to repurchase and convert the outstanding 512,221 shares of Series A Convertible Preferred Stock owned by Blackstone. NCR repurchased 237,673 shares of Series A Convertible Preferred Stock for total cash consideration of $302 million. The remaining shares of Blackstone's Series A Convertible Preferred Stock, including accrued dividends, were converted to approximately 9.16 million shares of common stock at a conversion price of $30.00 per share.
For the repurchase of Series A Convertible Preferred Stock, the excess of the fair value of consideration transferred over the carrying value was approximately $67 million, and has been included as a deemed dividend in adjusting the income from common stockholders in calculating earnings per share. In this analysis, we determined the fair value of the consideration transferred was not in excess of the fair value of the redeemed Series A Convertible Preferred Stock. As a result, there was no inducement provided to Blackstone for the conversion of the remaining preferred shares into common stock.
On October 6, 2020, NCR entered into a definitive agreement to repurchase 67,000 shares of Series A Convertible Preferred Stock from two affiliated shareholders for a total cash consideration of $72 million. The transaction closed on October 7, 2020. On October 12, 2020, NCR entered into a definitive agreement to repurchase 65,365 shares of Series A Convertible Preferred Stock owned by two affiliated shareholders for a total cash consideration of $72 million. The transaction closed on October 13, 2020. The excess of the fair value of consideration transferred over the carrying value was approximately $12 million, and has been included as a deemed dividend in adjusting the income from common stockholders in calculating earnings per share.
Dividend Rights The Series A Convertible Preferred Stock ranks senior to the shares of the Company’s common stock, with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Series A Convertible Preferred Stock has a liquidation preference of $1,000 per share. Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 5.5% per annum, which was payable quarterly in arrears and payable in-kind for the first sixteen dividend payments, after which, beginning in the first quarter of 2020, dividends are payable in cash or in-kind at the option of the Company. If the Company does not declare and pay a dividend, the dividend rate will increase to 8.0% per annum until all accrued but unpaid dividends have been paid in full.
Conversion Features The Series A Convertible Preferred Stock is convertible at the option of the holders at any time into shares of common stock at a conversion price of $30.00 per share and a conversion rate of 33.333 shares of common stock per share of Series A Convertible Preferred Stock. As of December 31, 2020 and 2019, the maximum number of common shares that could be required to be issued upon conversion of the outstanding shares of Series A Convertible Preferred Stock was 9.2 million and 13.3 million shares, respectively. The conversion rate is subject to the following customary anti-dilution and other adjustments:
•the issuance of common stock as a dividend or the subdivision, combination, or reclassification of common stock into a greater or lesser number of shares of common stock;
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
•the dividend, distribution or other issuance of rights, options or warrants to holders of Common Stock entitling them to subscribe for or purchase shares of common stock at a price per share that is less than the volume-weighted average price per share of common stock;
•the completion of a tender offer or exchange offer of shares of common stock at a premium to the volume-weighted average price per share of common stock and certain other above-market purchases of common stock;
•the issuance of a dividend or similar distribution in-kind, which can include shares of any class of capital stock, evidences of the Company's indebtedness, assets or other property or securities, to holders of common stock;
•a transaction in which a subsidiary of the Company ceases to be a subsidiary of the Company as a result of the distribution of the equity interests of the subsidiary to the holders of the Company’s common stock; and
•the payment of a cash dividend to the holders of common stock.
At any time after December 4, 2018, all outstanding shares of Series A Convertible Preferred Stock are convertible at the option of the Company if the volume-weighted average price of the common stock exceeds $54.00 for at least 30 trading days in any period of 45 consecutive trading days. The $54.00 may be adjusted pursuant to the anti-dilution provisions above.
The Series A Convertible Preferred Stock, and the associated dividends for the first sixteen payments, did not generate a beneficial conversion feature (BCF) upon issuance as the fair value of the Company's common stock was greater than the conversion price. The Company will determine and, if required, measure a BCF based on the fair value of our stock price on the date dividends are declared subsequent to the sixteenth dividend. If a BCF is recognized, a reduction to retained earnings and the Series A Convertible Preferred Stock will be recorded, and then subsequently accreted through the first redemption date.
Additionally, the Company determined that the nature of the Series A Convertible Preferred Stock was more akin to an equity instrument and that the economic characteristics and risks of the embedded conversion options were clearly and closely related to the Series A Convertible Preferred Stock. As such, the conversion options were not required to be bifurcated from the host under ASC 815, Derivatives and Hedging.
Redemption Rights On any date during the three months commencing on and immediately following March 16, 2024 and the three months commencing on and immediately following every third anniversary of March 16, 2024, holders of Series A Convertible Preferred Stock have the right to require the Company to repurchase all or any portion of the Series A Convertible Preferred Stock at 100% of the liquidation preference thereof plus all accrued but unpaid dividends. Upon certain change of control events involving the Company, holders of Series A Convertible Preferred Stock can require the Company to repurchase, subject to certain exceptions, all or any portion of the Series A Convertible Preferred Stock at the greater of (1) an amount in cash equal to 100% of the liquidation preference thereof plus all accrued but unpaid dividends and (2) the consideration the holders would have received if they had converted their shares of Series A Convertible Preferred Stock into common stock immediately prior to the change of control event.
The Company has the right, upon certain change of control events involving the Company, to redeem the Series A Convertible Preferred Stock at the greater of (1) an amount in cash equal to the sum of the liquidation preference of the Series A Convertible Preferred Stock, all accrued but unpaid dividends and the present value, discounted at a rate of 10%, of any remaining scheduled dividends through the fifth anniversary of the first dividend payment date, assuming the Company chose to pay such dividends in cash (the "make-whole provision") and (2) the consideration the holders would have received if they had converted their shares of Series A Convertible Preferred Stock into common stock immediately prior to the change of control event.
Since the redemption of the Series A Convertible Preferred Stock is contingently or optionally redeemable and therefore not certain to occur, the Series A Convertible Preferred Stock is not required to be classified as a liability under ASC 480, Distinguishing Liabilities from Equity. As the Series A Convertible Preferred Stock is redeemable in certain circumstances at the option of the holder and is redeemable in certain circumstances upon the occurrence of an event that is not solely within our control, we have classified the Series A Convertible Preferred Stock in mezzanine equity in the Consolidated Balance Sheets.
As noted above, the Company determined that the nature of the Series A Convertible Preferred Stock was more akin to an equity instrument. However, the Company determined that the economic characteristics and risks of the embedded put options, call option and make-whole provision were not clearly and closely related to the Series A Convertible Preferred Stock. Therefore, the Company assessed the put and call options further, and determined they did not meet the definition of a derivative under ASC 815, Derivatives and Hedging. Under the same analysis, the Company determined the make-whole provision did meet the definition of a derivative, but that the value of the derivative was minimal due to the expectations surrounding the scenarios under which the call option and make-whole provision would be exercised.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Voting Rights Holders of Series A Convertible Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis. Holders of Series A Convertible Preferred Stock are entitled to a separate class vote with respect to, amendments to the Company’s organizational documents that have an adverse effect on the Series A Convertible Preferred Stock and issuances by the Company of securities that are senior to, or equal in priority with, the Series A Convertible Preferred Stock.
12. DERIVATIVES AND HEDGING INSTRUMENTS
NCR is exposed to risks associated with changes in foreign currency exchange rates and interest rates. NCR utilizes a variety of measures to monitor and manage these risks, including the use of derivative financial instruments. NCR has exposure to approximately 50 functional currencies. Since a substantial portion of our operations and revenue occur outside the U.S., and in currencies other than the U.S. Dollar, our results can be significantly impacted, both positively and negatively, by changes in foreign currency exchange rates.
Foreign Currency Exchange Risk The accounting guidance for derivatives and hedging requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets. The Company designates foreign exchange contracts as cash flow hedges of forecasted transactions when they are determined to be highly effective at inception.
Our risk management strategy includes hedging, on behalf of certain subsidiaries, a portion of our forecasted, non-functional currency denominated cash flows for a period of up to 15 months. As a result, some of the impact of currency fluctuations on non-functional currency denominated transactions (and hence on subsidiary operating income, as stated in the functional currency), is mitigated in the near term. The amount we hedge and the duration of hedge contracts may vary significantly. In the longer term (greater than 15 months), the subsidiaries are still subject to the effect of translating the functional currency results to U.S. Dollars. To manage our exposures and mitigate the impact of currency fluctuations on the operations of our foreign subsidiaries, we hedge our main transactional exposures through the use of foreign exchange forward and option contracts. This is primarily done through the hedging of foreign currency denominated inter-company inventory purchases by NCR’s marketing units and the foreign currency denominated inputs to our manufacturing units. The related foreign exchange contracts are designated as highly effective cash flow hedges. The gains or losses on these hedges are deferred in accumulated other comprehensive income (AOCI) and reclassified to income when the underlying hedged transaction is recorded in earnings. As of December 31, 2020, the balance in AOCI related to foreign exchange derivative transactions was zero. The gains or losses from derivative contracts related to inventory purchases are recorded in cost of products when the inventory is sold to an unrelated third party.
We also utilize foreign exchange contracts to hedge our exposure of assets and liabilities denominated in non-functional currencies. We recognize the gains and losses on these types of hedges in earnings as exchange rates change. We do not enter into hedges for speculative purposes.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
The following tables provide information on the location and amounts of derivative fair values in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
December 31, 2020
|
In millions
|
Balance Sheet
Location
|
|
Notional
Amount
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Notional
Amount
|
|
Fair
Value
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Other current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other current liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
—
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Other current assets
|
|
$
|
150
|
|
|
$
|
—
|
|
|
Other current liabilities
|
|
$
|
425
|
|
|
$
|
1
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
1
|
|
Total derivatives
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
December 31, 2019
|
In millions
|
Balance Sheet
Location
|
|
Notional
Amount
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Notional
Amount
|
|
Fair
Value
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Other current assets
|
|
$
|
55
|
|
|
$
|
1
|
|
|
Other current liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
—
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Other current assets
|
|
$
|
71
|
|
|
$
|
1
|
|
|
Other current liabilities
|
|
$
|
264
|
|
|
$
|
1
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
1
|
|
Total derivatives
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
$
|
1
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
The effects of derivative instruments on the Consolidated Statement of Operations for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income (OCI) on Derivative
(Effective Portion)
|
|
Amount of (Gain) Loss Reclassified from AOCI into the Consolidated Statement of Operations
(Effective Portion)
|
Derivatives in Cash Flow Hedging Relationships
|
For the year ended December 31, 2020
|
|
For the year ended December 31, 2019
|
|
For the year ended December 31, 2018
|
Location of (Gain) Loss Reclassified from AOCI into the Consolidated Statement of Operations (Effective Portion)
|
For the year ended December 31, 2020
|
|
For the year ended December 31, 2019
|
|
For the year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
(8)
|
|
|
$
|
6
|
|
|
$
|
11
|
|
Cost of products
|
$
|
7
|
|
|
$
|
(8)
|
|
|
$
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
Amount of Gain (Loss) Recognized in the
Consolidated Statement of Operations
|
Derivatives not Designated as Hedging Instruments
|
Location of Gain (Loss) Recognized in the Consolidated Statement of Operations
|
|
For the year ended December 31, 2020
|
|
For the year ended December 31, 2019
|
|
For the year ended December 31, 2018
|
Foreign exchange contracts
|
Other income (expense), net
|
|
$
|
22
|
|
|
$
|
(8)
|
|
|
$
|
(9)
|
|
Refer to Note 13, “Fair Value of Assets and Liabilities” for further information on derivative assets and liabilities recorded at fair value on a recurring basis.
Concentration of Credit Risk
NCR is potentially subject to concentrations of credit risk on accounts receivable and financial instruments such as hedging instruments and cash and cash equivalents. Credit risk includes the risk of nonperformance by counterparties. The maximum potential loss may exceed the amount recognized on the Consolidated Balance Sheets. Exposure to credit risk is managed through credit approvals, credit limits, selecting major international financial institutions as counterparties to hedging transactions and monitoring procedures. NCR’s business often involves large transactions with customers, and if one or more of those customers were to default on its obligations under applicable contractual arrangements, the Company could be exposed to potentially significant losses. However, management believes that the reserves for potential losses are adequate. As of December 31, 2020 and 2019, NCR did not have any major concentration of credit risk related to financial instruments.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
13. FAIR VALUE OF ASSETS AND LIABILITIES
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities recorded at fair value on a recurring basis as of December 31, 2020 and 2019 are set forth as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Fair Value Measurements Using
|
In millions
|
December 31, 2020
|
|
Quoted Prices
in Active
Markets
for Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
December 31, 2019
|
|
Quoted Prices
in Active
Markets
for Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits held in money market mutual funds (1)
|
$
|
22
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign Investments (2)
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign exchange contracts (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
Total
|
$
|
24
|
|
|
$
|
22
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
15
|
|
|
$
|
2
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (3)
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Total
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
(1) Included in Cash and cash equivalents in the Consolidated Balance Sheet.
(2) Included in Other current assets in the Consolidated Balance Sheet.
(3) Included in Other current liabilities in the Consolidated Balance Sheet.
Deposits Held in Money Market Mutual Funds A portion of the Company’s excess cash is held in money market mutual funds which generate interest income based on prevailing market rates. Money market mutual fund holdings are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy.
Foreign Investments As a result of our acquisition of Origami, as noted within Note 3, "Business Combinations and Divestitures", we acquired investments held in Brazil. The investments include an investment fund similar to a mutual fund as well as certificates of deposit. The investments are valued using observable, either directly or indirectly, inputs for substantially the full term of the assets and are classified within Level 2 of the valuation hierarchy.
Foreign Exchange Contracts As a result of our global operating activities, we are exposed to risks from changes in foreign currency exchange rates, which may adversely affect our financial condition. To manage our exposures and mitigate the impact of currency fluctuations on our financial results, we hedge our primary transactional exposures through the use of foreign exchange forward and option contracts. The foreign exchange contracts are valued using the market approach based on observable market transactions of forward rates and are classified within Level 2 of the valuation hierarchy.
Assets Measured at Fair Value on a Non-recurring Basis
Certain assets have been measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). NCR measures certain assets, including intangible assets and cost and equity method investments, at fair value on a non-recurring basis. These assets are recognized at fair value when initially valued and when deemed to be impaired. Additionally, NCR reviews the carrying values of investments when events and circumstances warrant and considers all available evidence in evaluating when declines in fair value are other-than-temporary declines. NCR carries equity investments in privately-held companies at cost or at fair value when NCR recognizes an other-than-temporary impairment charge. In the year ended December 31, 2020 we recorded an other-than-temporary impairment charge of $7 million in other income (expense), net within the Consolidated Statement of Operations related to the write-off of an equity method investment. No material impairment charges or non-recurring fair value adjustments were recorded during the year ended December 31, 2019. In the year ended December 31, 2018, we recorded $227 million, which included $146 million impairment of goodwill under our
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
previous segment structure, which was assigned to the Hardware reporting unit and $37 million impairment charge related to long-lived assets held and used in our Hardware operations.
14. ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in Accumulated Other Comprehensive Income (AOCI) by Component
The changes in AOCI for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Currency Translation Adjustments
|
|
Changes in Employee Benefit Plans
|
|
Changes in Fair Value of Effective Cash Flow Hedges
|
|
Total
|
Balance at December 31, 2017
|
$
|
(183)
|
|
|
$
|
(15)
|
|
|
$
|
(1)
|
|
|
$
|
(199)
|
|
Impact of adoption of new accounting standard
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Other comprehensive (loss) income before reclassifications
|
(51)
|
|
|
6
|
|
|
11
|
|
|
(34)
|
|
Amounts reclassified from AOCI
|
—
|
|
|
(6)
|
|
|
(8)
|
|
|
(14)
|
|
Net current period other comprehensive (loss) income
|
(51)
|
|
|
—
|
|
|
3
|
|
|
(48)
|
|
Balance at December 31, 2018
|
$
|
(234)
|
|
|
$
|
(14)
|
|
|
$
|
2
|
|
|
$
|
(246)
|
|
Other comprehensive (loss) income before reclassifications
|
(26)
|
|
|
10
|
|
|
5
|
|
|
(11)
|
|
Amounts reclassified from AOCI
|
—
|
|
|
(6)
|
|
|
(6)
|
|
|
(12)
|
|
Net current period other comprehensive (loss) income
|
(26)
|
|
|
4
|
|
|
(1)
|
|
|
(23)
|
|
Balance at December 31, 2019
|
$
|
(260)
|
|
|
$
|
(10)
|
|
|
$
|
1
|
|
|
$
|
(269)
|
|
Other comprehensive (loss) income before reclassifications
|
15
|
|
|
(11)
|
|
|
(7)
|
|
|
(3)
|
|
Amounts reclassified from AOCI
|
—
|
|
|
(5)
|
|
|
6
|
|
|
1
|
|
Net current period other comprehensive (loss) income
|
15
|
|
|
(16)
|
|
|
(1)
|
|
|
(2)
|
|
Balance at December 31, 2020
|
$
|
(245)
|
|
|
$
|
(26)
|
|
|
$
|
—
|
|
|
$
|
(271)
|
|
Reclassifications Out of AOCI
The reclassifications out of AOCI for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2020
|
|
Employee Benefit Plans
|
|
|
|
|
In millions
|
Actuarial Losses Recognized
|
|
Amortization of Prior Service Benefit
|
|
Effective Cash Flow Hedges
|
|
Total
|
Affected line in Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
Cost of products
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
Cost of services
|
(2)
|
|
|
(2)
|
|
|
—
|
|
|
(4)
|
|
|
Selling, general and administrative expenses
|
(1)
|
|
|
(2)
|
|
|
—
|
|
|
(3)
|
|
|
Research and development expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total before tax
|
$
|
(3)
|
|
|
$
|
(4)
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Tax expense
|
|
|
|
|
|
|
1
|
|
|
Total reclassifications, net of tax
|
|
|
|
|
|
|
$
|
1
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2019
|
|
Employee Benefit Plans
|
|
|
|
|
In millions
|
Actuarial Losses Recognized
|
|
Amortization of Prior Service Benefit
|
|
Effective Cash Flow Hedges
|
|
Total
|
Affected line in Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
Cost of products
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8)
|
|
|
$
|
(8)
|
|
|
Cost of services
|
(2)
|
|
|
(3)
|
|
|
—
|
|
|
(5)
|
|
|
Selling, general and administrative expenses
|
(1)
|
|
|
(3)
|
|
|
—
|
|
|
(4)
|
|
|
Research and development expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total before tax
|
$
|
(3)
|
|
|
$
|
(6)
|
|
|
$
|
(8)
|
|
|
$
|
(17)
|
|
|
Tax expense
|
|
|
|
|
|
|
5
|
|
|
Total reclassifications, net of tax
|
|
|
|
|
|
|
$
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2018
|
|
|
Employee Benefit Plans
|
|
|
|
|
In millions
|
Actuarial Losses Recognized
|
|
Amortization of Prior Service Benefit
|
|
Effective Cash Flow Hedges
|
|
Total
|
Affected line in Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
Cost of products
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(7)
|
|
|
$
|
(7)
|
|
|
Cost of services
|
—
|
|
|
(5)
|
|
|
—
|
|
|
(5)
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
|
Research and development expenses
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
Total before tax
|
$
|
—
|
|
|
$
|
(9)
|
|
|
$
|
(7)
|
|
|
$
|
(16)
|
|
|
Tax expense
|
|
|
|
|
|
|
2
|
|
|
Total reclassifications, net of tax
|
|
|
|
|
|
|
$
|
(14)
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
15. REVISIONS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
During 2020, the Company determined there were errors in its previously issued Consolidated Statements of Cash Flows related to the business activities that commenced upon the acquisition of JetPay Corporation (JetPay) in December 2018. As a result of these errors, the Company's cash, cash equivalents and restricted cash within the Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018 and within the Condensed Consolidated Statements of Cash Flows for the interim periods in fiscal 2019 and for the three months ended March 31, 2020, were understated. This also resulted in misclassifications of activities between net cash from operations, investing, and financing activities in each of the periods noted above.
More specifically, the Company determined: (i) the funds held for clients represent cash balances that, based upon the Company's intent, are restricted solely for the purposes of satisfying the obligations to remit funds relating to the Company's payroll and payroll tax filing services, which are classified as client fund obligations; and (ii) there are restricted cash balances included within settlement processing assets that are not yet due to the merchants. Such funds are held in a fiduciary duty, and are not available for the Company to use to fund its cash requirements. As a result, (i) the business acquisition purchase price upon the acquisition of JetPay should have been reflected net of these cash balances and (ii) the restricted cash in all periods should have been presented within cash, cash equivalents and restricted cash within the Consolidated Statement of Cash Flows.
Additionally, the Company determined the presentation of the cash inflow or outflow from client fund obligations should be reflected within financing activities rather than within operating activities beginning in the third quarter of 2019 and through December 31, 2019. However, in analyzing the impact of the change to include funds held for clients within cash, cash equivalents and restricted cash, it was determined the cash inflow or outflow from client funds obligations was incorrect.
The Company assessed the materiality of these errors on the prior period financial statements in accordance with SEC Staff Bulletin No. 99, Materiality, codified in ASC Topic 250, Accounting Changes and Error Corrections. Based on this assessment, the Company determined the impact from these errors was not material to its previously filed annual or interim financial statements. The corrections had no impact on the Company's Consolidated Statements of Income, Consolidated Statements of Comprehensive Income or Consolidated Balance Sheets in previously issued annual or interim financial statements.
However, the Company has revised it's previously issued financial statements to correct these errors within the Consolidated Statements of Cash Flows. The revision for the Consolidated Statement of Cash Flows for the year ended December 31, 2019 is reflected within the accompanying Consolidated Financial Statements.
The changes reflected in our Consolidated Statement of Cash Flows for the year ended December 31, 2019 are reflected in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2019
|
In millions
|
As Reported
|
|
Adjustment
|
|
As Revised
|
Increase (decrease) in other assets and liabilities
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
8
|
|
Net cash provided by (used in) operating activities
|
$
|
628
|
|
|
$
|
6
|
|
|
$
|
634
|
|
Net increase (decrease) in client obligations
|
$
|
(15)
|
|
|
$
|
15
|
|
|
$
|
—
|
|
Net cash provided by (used in) investing activities
|
$
|
(527)
|
|
|
$
|
15
|
|
|
$
|
(512)
|
|
Net increase (decrease) in client obligations
|
$
|
15
|
|
|
$
|
(30)
|
|
|
$
|
(15)
|
|
Net cash provided by (used in) financing activities
|
$
|
(31)
|
|
|
$
|
(30)
|
|
|
$
|
(61)
|
|
Increase (decrease) in Cash, cash equivalents and restricted cash
|
$
|
40
|
|
|
$
|
(9)
|
|
|
$
|
31
|
|
Cash, cash equivalents and restricted cash at the beginning of the period
|
$
|
476
|
|
|
$
|
56
|
|
|
$
|
532
|
|
Cash, cash equivalents and restricted cash at the end of the period
|
$
|
516
|
|
|
$
|
47
|
|
|
$
|
563
|
|
Consistent with the revision to the Consolidated Statement of Cash Flows described above, the Company has revised the reconciliation of cash, cash equivalents and restricted cash included in the Consolidated Statement of Cash Flows for all periods that include a revision. The appropriate changes are reflected in our Consolidated Statement of Cash Flows for the year ended December 31, 2019, and the corrections, as reflected in the table below to include funds held for clients and cash included in settlement processing assets within cash, cash equivalents and restricted cash.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
|
|
|
|
|
|
|
|
In millions
|
|
December 31, 2019
|
Reconciliation of cash, cash equivalents and restricted cash as shown in the Consolidated Statements of Cash Flows
|
|
|
Cash and cash equivalents
|
|
$
|
509
|
|
Restricted cash included in other assets
|
|
7
|
|
Funds held for clients included in other current assets
|
|
32
|
|
Cash included in settlement processing assets included in other current assets
|
|
15
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
563
|
|
16. SUPPLEMENTAL FINANCIAL INFORMATION
The components of other income (expense), net are summarized as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
2018
|
Other income (expense), net
|
|
|
|
|
|
|
Interest income
|
|
$
|
8
|
|
|
$
|
5
|
|
|
$
|
5
|
|
Foreign currency fluctuations and foreign exchange contracts
|
|
(14)
|
|
|
(23)
|
|
|
(26)
|
|
Employee benefit plans
|
|
(31)
|
|
|
(82)
|
|
|
45
|
|
Bank-related fees
|
|
(5)
|
|
|
(7)
|
|
|
(8)
|
|
Gain on equity liquidations
|
|
—
|
|
|
37
|
|
|
—
|
|
Impairment of equity investment
|
|
(7)
|
|
|
—
|
|
|
—
|
|
Bargain purchase gain on acquisition
|
|
7
|
|
|
—
|
|
|
—
|
|
Other, net
|
|
—
|
|
|
(3)
|
|
|
—
|
|
Total other income (expense), net
|
|
$
|
(42)
|
|
|
$
|
(73)
|
|
|
$
|
16
|
|
The components of accounts receivable are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
December 31, 2020
|
|
December 31, 2019
|
Accounts receivable
|
|
|
|
Trade
|
$
|
1,120
|
|
|
$
|
1,482
|
|
Other
|
48
|
|
|
52
|
|
Accounts receivable, gross
|
1,168
|
|
|
1,534
|
|
Less: allowance for credit losses
|
(51)
|
|
|
(44)
|
|
Total accounts receivable, net
|
$
|
1,117
|
|
|
$
|
1,490
|
|
The components of inventory are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
December 31, 2020
|
|
December 31, 2019
|
Inventories
|
|
|
|
Work in process and raw materials
|
$
|
133
|
|
|
$
|
204
|
|
Finished goods
|
135
|
|
|
184
|
|
Service parts
|
333
|
|
|
396
|
|
Total inventories
|
$
|
601
|
|
|
$
|
784
|
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
The components of property, plant and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
December 31, 2020
|
|
December 31, 2019
|
Property, plant and equipment
|
|
|
|
Land and improvements
|
$
|
2
|
|
|
$
|
5
|
|
Buildings and improvements
|
279
|
|
|
274
|
|
Machinery and other equipment
|
713
|
|
|
715
|
|
Finance lease assets
|
55
|
|
|
38
|
|
Property, plant and equipment, gross
|
1,049
|
|
|
1,032
|
|
Less: accumulated depreciation
|
(676)
|
|
|
(619)
|
|
Total property, plant and equipment, net
|
$
|
373
|
|
|
$
|
413
|
|
17. QUARTERLY INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions, except per share amounts
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
2020
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,503
|
|
|
$
|
1,484
|
|
|
$
|
1,589
|
|
|
$
|
1,631
|
|
Gross margin
|
|
$
|
397
|
|
|
$
|
372
|
|
|
$
|
427
|
|
|
$
|
328
|
|
Income from operations
|
|
$
|
77
|
|
|
$
|
89
|
|
|
$
|
118
|
|
|
$
|
(63)
|
|
Income (loss) from continuing operations (attributable to NCR)
|
|
$
|
23
|
|
|
$
|
64
|
|
|
$
|
31
|
|
|
$
|
(125)
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(72)
|
|
Net (loss) income attributable to NCR common stockholders
|
|
$
|
17
|
|
|
$
|
57
|
|
|
$
|
25
|
|
|
$
|
(209)
|
|
Income (loss) per share attributable to NCR common stockholders:
|
|
|
|
|
|
|
|
|
Income (loss) per common share from continuing operations
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.45
|
|
|
$
|
0.19
|
|
|
$
|
(1.06)
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.44
|
|
|
$
|
0.19
|
|
|
$
|
(1.06)
|
|
Net (loss) income per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.45
|
|
|
$
|
0.19
|
|
|
$
|
(1.62)
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.44
|
|
|
$
|
0.19
|
|
|
$
|
(1.62)
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,536
|
|
|
$
|
1,710
|
|
|
$
|
1,783
|
|
|
$
|
1,886
|
|
Gross margin
|
|
$
|
411
|
|
|
$
|
471
|
|
|
$
|
507
|
|
|
$
|
532
|
|
Income (loss) from operations
|
|
$
|
100
|
|
|
$
|
157
|
|
|
$
|
172
|
|
|
$
|
182
|
|
Income (loss) from continuing operations (attributable to NCR)
|
|
$
|
37
|
|
|
$
|
88
|
|
|
$
|
105
|
|
|
$
|
384
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(15)
|
|
|
$
|
(35)
|
|
Net income (loss) attributable to NCR common stockholders
|
|
$
|
24
|
|
|
$
|
76
|
|
|
$
|
11
|
|
|
$
|
343
|
|
Income (loss) per share attributable to NCR common stockholders:
|
|
|
|
|
|
|
|
|
Income (loss) per common share from continuing operations
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.63
|
|
|
$
|
0.21
|
|
|
$
|
2.96
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.58
|
|
|
$
|
0.21
|
|
|
$
|
2.67
|
|
Net income (loss) per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.63
|
|
|
$
|
0.09
|
|
|
$
|
2.69
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.58
|
|
|
$
|
0.09
|
|
|
$
|
2.43
|
|
Operating income for the quarter ended December 31, 2020 was impacted by the following items:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
•Actuarial losses related to the remeasurement of our pension plan assets and liabilities. The actuarial losses included in pension expense recognized in the quarter ended December 31, 2020 decreased net loss attributable to NCR by $29 million, basic earnings per share from continuing operations by $0.22, and diluted earnings per share from continuing operations by $0.22.
•Environmental matters - In the quarter ended December 31, 2020, the loss from discontinued operations was $72 million, net of tax, primarily related to updates in estimates and assumptions for the Fox River and the Kalamazoo River environmental matters. The loss from discontinued operations decreased basic earnings per share by $0.56, and diluted earnings per share by $0.56.
•Cost actions on transformation and strategic initiatives In the quarter ended December 31, 2020, the Company recorded charges related to the cost actions on transformation and strategic initiatives which included (i) inventory related charges to write-down inventory to the lower of cost or net realizable value; (ii) the write-off of internal and external use software capitalization projects that are no longer considered strategic and as a result, the projects have been abandoned; (iii) accruals for settlements of certain legacy matters and (iv) severance amounts that were determined to be probable and reasonably estimable in accordance with ASC 712 Employers' Accounting for Postemployment Benefits. The charges increased net loss attributable to NCR by $165 million, basic earnings per share from continuing operations by $1.28, and diluted earnings per share from continuing operations by $1.28.
Operating income for the quarter ended December 31, 2019 was impacted by actuarial losses related to the remeasurement of our pension plan assets and liabilities. The actuarial losses included in pension expense recognized in the quarter ended December 31, 2019 decreased net income attributable to NCR by $66 million, basic earnings per share from continuing operations by $0.52, and diluted earnings per share from continuing operations by $0.46.
Net income per share in each quarter is computed using the weighted-average number of shares outstanding during that quarter while net income per share for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters’ net income per share will not necessarily equal the full-year net income per share.