UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the fiscal year ended December 31, 2023 |
For the fiscal year ended December 31, 2017Commission File Number | | | | | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________ |
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| Commission File Number: 001-00395 |
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NCR VOYIX CORPORATION
(Exact name of registrant as specified in its charter)
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| Maryland | | 31-0387920 |
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Maryland | | 31-0387920 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer
Identification No.)
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864 Spring Street NW
Atlanta, GA 30308
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (937) 445-5000(800) 225-5627
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | VYX | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” or "emergingand “emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | þ | | | Accelerated filer | o |
| Non-accelerated filer | o | | (Do not check if a smaller reporting company) | Smaller reporting company | o |
| | | | Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. þ
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ
The aggregate market value of voting stockand non-voting common equity held by non-affiliates of the registrant as of June 30, 2017,2023, the last business day of NCR Voyix Corporation’s most recently completed second fiscal quarter, was approximately $5.0$2.2 billion.
As of February 14, 2018,March 11, 2024, there were approximately 118.4 million144,290,210 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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| Part III: | Portions of the Registrant’s Definitive Proxy Statement for its Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after the Registrant’s fiscal year end of December 31, 20172023 are incorporated by reference into Part III of this Report. |
TABLE OF CONTENTS
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This Report contains trademarks, service marks and registered marks of NCR Voyix Corporation and its subsidiaries, and of other companies, as indicated. Unless otherwise indicated, the terms “NCR Voyix,” “NCR,” the “Company,” “we,” “us,” and “our” refer to NCR Voyix Corporation and its subsidiaries.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.1995 (the “Act”). Forward-looking statements use words such as “expect,” “anticipate,” “outlook,” “intend,” “plan,” “confident,” “believe,” “will,” “should,” “would,” “potential,” “positioning,” “proposed,” “planned,” “objective,” “likely,” “could,” “provisional”“may,” and words of similar meaning.meaning, as well as other words or expressions referencing future events, conditions or circumstances. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act. Statements that describe or relate to ourthe Company’s plans, goals, intentions, strategies, or financial outlook, and statements that do not relate to historical or current fact, are examples of forward-looking statements. Examples of forward-looking statements in this Annual Report include, without limitation, statements regarding: the estimated or anticipated future results and benefits of the Company’s plans and operations; the Company’s expectations of demand for its solutions and the impact thereof on the Company's financial results in 2024; the Company’s ability to deliver increased value to customers and stockholders; statements regarding the spin-off of NCR Atleos, including, but not limited to, statements regarding the future commercial or financial performance of the Company following such transaction, and value creation and the ability to innovate and drive growth generally as a result of such transaction; and the Company’s ability to offset losses incurred from fraudulent ACH disbursements from a Company bank account identified in February 2024 through cooperation with law enforcement and the Company’s banks or through insurance proceeds. Forward-looking statements are based on our current beliefs, expectations and assumptions, which may not prove to be accurate, and involve a number of known and unknown risks and uncertainties, many of which are out of ourthe Company’s control. Forward-looking statementstatements are not guarantees of future performance, and there are a number of important factors that could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements, including those factors listedrelating to:
•Strategy and Technology: challenges with transforming and growing our business, including our ability to attract new customers, increase use of our platform by existing customers and cross-sell additional products and solutions; development and introduction of new, competitive solutions on a timely, cost-effective basis; our ability to compete effectively against new and existing competitors; our ability to maintain a consistently high level of customer service; our ability to successfully manage our profitability and cost reduction initiatives; integration of acquisitions and management of other strategic transactions;
•Spin-Off of NCR Atleos: the potential strategic benefits, synergies or opportunities expected from the spin-off of NCR Atleos may not be realized or may take longer to realize than expected; any unforeseen tax liabilities or impacts resulting from the spin-off; requests, requirements or penalties imposed by any governmental authorities related to certain existing liabilities;
•Business Operations: domestic and global economic and credit conditions; downturn or consolidation in Item 1A “Risk Factors,”the financial services industry; difficulties and Item 7, “Management's Discussionrisks associated with developing and Analysisselling complex new solutions and enhancements, including those using artificial intelligence; risks and uncertainties associated with our payments-related business; disruptions in our data center hosting and public cloud facilities; any failures or delays in our efforts to modernize our information technology infrastructure;retention and attraction of Financial Conditionkey employees; defects, errors, installation difficulties or development delays; failure of third-party suppliers; a major natural disaster or catastrophic event; geopolitical and Resultsmacroeconomic challenges or events or acts of Operations,"terrorism; environmental exposures from historical manufacturing activities;
•Data Privacy & Security: the impact of cybersecurity incidents on our business, including the April 2023 ransomware incident, and efforts to prevent or mitigate such incidents and any related impacts on our operations; and efforts to comply with applicable data protection and data privacy laws;
•Finance and Accounting: our level of indebtedness; the terms governing our indebtedness; incurrence of additional debt or other liabilities or obligations; access to the capital markets and other sources of financing; our cash flow sufficiency to service our indebtedness; interest rate risks and increased costs of borrowings; the terms governing our trade receivables facility; the impact of certain changes in control relating to acceleration of our indebtedness, our obligations under other financing arrangements, or required repurchase of our senior unsecured notes; any lowering or withdrawal of the ratings assigned to our debt securities by rating agencies; unforeseen tax liabilities or changes in tax law; our failure to maintain effective internal control over financial reporting and disclosure controls and procedures and our ability to remediate material weaknesses in our internal control over financial reporting; and write down of the value of certain significant assets;
•Law and Compliance: allegations or claims by third parties that our products or services infringe on intellectual property rights of others, including claims against our customers and claims by our customers to defend and indemnify them with
respect to such claims; protection of our intellectual property; changes to our tax rates and additional income tax liabilities; and uncertainties regarding regulations, lawsuits and other related matters;
•Governance: rights, preferences and privileges of our Series A Convertible Preferred (“Series A”) stockholders compared to the rights of our common stockholders; the impact of the terms of our Series A stock relating to voting power, share dilution and market price of our common stock; and actions or proposals from stockholders that do not align with our business strategies or the interests of our other stockholders.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. Additional information concerning these and other factors can be found in the Company’s filings with the U.S. Securities and Exchange Commission, including this Annual Reportannual report on Form 10-K.10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Any forward-looking statement speaks only as of the date on which it is made. We doThe Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.otherwise, except as required by law.
PART I
Unless the context indicates otherwise, references in this report to “we,” “us,” “our,” the “Company,” and “NCR Voyix” mean NCR Voyix Corporation and its consolidated subsidiaries and references to “NCR Atleos” mean NCR Atleos Corporation and NCR Atleos’s consolidated subsidiaries.
Item 1. BUSINESS
General
Businesses
NCRThe Company, which was originally incorporated in 1884, is a leading global provider of omni-channeldigital commerce solutions for retail stores, restaurants and financial institutions. Headquartered in Atlanta, Georgia, we are a software and services-led enterprise technology provider of run-the-store capabilities for retail and restaurants and cloud-based digital solutions for financial institutions, serving businesses of all sizes. Our software platforms, which run in the cloud and include microservices and APIs that enrich the interactionsintegrate with our customers’ systems, and our As-a-Service solutions enable end-to-end technology-based operations solution for our customers. Our offerings include digital first software and services offerings for retailers, restaurants and financial institutions, as well as payments acceptance solutions, multi-vendor connected device services, self-checkout (“SCO”) kiosks and related technologies, point of businesses with their customers.sale (“POS”) terminals and other self-service technologies. Our solutions are designed to allow businesses inenable retailers, restaurants and financial institutions to seamlessly transact and engage with their customers and end users.
On October 16, 2023, we completed the financial services, retail, hospitality, travelspin-off of our ATM-focused business, which included our self-service banking, payments & network and telecommunications and technology industries to deliver a rich, integrated and personalized experience to consumers across physical and digital commerce channels. Our offerings include a portfolio of omni-channel platform software and other software applications, industry-focused hardware and smart-edge devices including automated teller machines (ATMs), point of sale (POS) terminals and devices and self-service kiosks, and a complete suite of consulting, implementation, maintenance, support and managed services. We also resell third-party networking products and provide related service offerings in the telecommunications and technology sectors. Our solutions create value for our customers by increasing productivity and allowing them to address consumer demand for convenience, value and individual service across different commerce channels.
Industries Served
NCR provides specific solutions for customers of varying sizes in a range of industries such as financial services, retail, hospitality, travel and telecommunications and technology. NCR’s solutions are built on a foundation of long-established industry knowledge and expertise, omni-channel platform and other software, industry-focused hardware and smart-edge devices, and global implementation, consulting, maintenance, support and managed services.
Company History
NCR was originally incorporated in 1884 and was abusinesses, into an independent publicly traded company, onNCR Atleos Corporation (such transaction, the New York Stock Exchange prior to its merger with“Spin-Off”). The Spin-Off was effected through a wholly-owned subsidiary of AT&T Corp. (AT&T) on September 19, 1991. On December 31, 1996, AT&T distributed all of its interest in NCR to its stockholders. NCR common stock is listed on the New York Stock Exchange and trades under the symbol “NCR”.
On September 30, 2007, NCR completed the spin-off of its Teradata Data Warehousing business through thepro rata distribution of a tax-free stock dividend toall outstanding shares of NCR stockholders. NCR distributed one share of common stock of Teradata Corporation for each share of NCRAtleos common stock to NCR stockholdersholders of recordthe Company’s common stock as of the close of business on September 14, 2007.
On August 24, 2011,October 2, 2023. In connection with the Spin-Off, the Company changed its name from NCR completedCorporation to NCR Voyix Corporation. Additionally, starting on October 17, 2023, the acquisitionCompany’s common stock began trading on the New York Stock Exchange under the stock symbol “VYX.” The Company retains no ownership interest in NCR Atleos. The historical financial results of Radiant Systems, Inc. (Radiant). The acquisition was completed through a tender offer and subsequent merger. Radiant was a leading provider of technology solutions for managing siteNCR Atleos are reflected as discontinued operations in the hospitalityCompany’s consolidated financial statements.
In connection with and specialty retail industries.
On February 6, 2013,upon completion of the Spin-Off, the Company and NCR completedAtleos entered into various agreements to effect the acquisition of Retalix Ltd. (Retalix). Retalix was a leading global provider of innovative retail softwareSpin-Off and was subsequently integrated into NCR's omni-channel solution offerings forgovern the retail industry.
On January 10, 2014,relationship between the Company and NCR completed its acquisition of Digital Insight Corporation (Digital Insight). The Digital Insight acquisitionAtleos after the Spin-Off. Such agreements include the separation and subsequent integration extended NCR's existing capabilities indistribution agreement, transition services agreement, tax matters agreement, employee matters agreement, patent and technology cross-license agreement, trademark license and use agreement, master services agreement, manufacturing services agreement and various other transaction agreements. Under these agreements, we continue to provide certain products and services to NCR Atleos following the financialSpin-Off and utilize certain products and services industry to form a complete enterprise software platform across both physical and digital channels.provided by NCR Atleos.
Operating Segments
We categorize ourPrior to the Spin-Off, the Company managed and reported operations intoin the following segments: Retail, Hospitality, Digital Banking, Payments & Network, and Self-Service Banking. Following the Spin-Off, the Company manages and reports operations in three reportable segments: Software, Servicessegments – Retail, Restaurants (formerly reported as Hospitality) and Hardware.Digital Banking.
The information required by Item 1 with respect•Retail - Our Retail segment is focused on serving retailers of all sizes, from local businesses to our reportable segments and financial information regarding our geographic areas and those reportable segments can be found in Item 7 of Part II of this Report under “Revenue and Operating Income by Segment” as well as in Item 8 of Part II of this Report as part of Note 12, “Segment Information and Concentrations”some of the Notesmost recognized brands in the world. Our software and solutions connect to Consolidated Financial Statements and in Item 1A of this Report under "Multinational Operations," and is incorporated herein by reference.
Products and Services
We sell a portfolio of software, services, and hardwaremodern technology platform that combineallows retailers to provide businesses with solutions to connect, interact and transact withrun their stores like they run their digital channels, improving the experience for their customers. Our offerings fall into the following categories:
Software Solutions
Our software offerings include industry-based software platforms such as our Cx Banking self-service ATM software application suite (providing ATM management systems) for financial services, our Retail ONE and Aloha Enterprise software application suites for the retail and hospitality industries, and NCR Silver, a cloud-based POS system for small businesses. We also provide a portfolio of other industry-oriented software applications, which include cash management software, video banking software, fraud and loss prevention applications, check and document imaging, remote-deposit capture, and customer-facing mobile and digital banking applications, such as web-enablement and bill payment (including mobile bill payment), for the financial services industry; and secure electronic and mobile paymentThese solutions sector-specific point of sale software applications for quick-service restaurants, gas stations and other businesses, and back-office inventory and store and restaurant management applications, for the retail and hospitality industries. We also provide in-depth industry and solution based consulting and professional services focused on solution implementation, integration, customization and optimization, and cloud hosting services. Our software platforms and applications, which are delivered on software as a service (SaaS), enterprise license and other bases, are designed to work seamlessly together, with our hardware products, or as stand-alone solutions. Our software solutions deliver a consistent and rich consumer experience across channels, while enabling businesses to digitize and automate labor-intensive processes, reduce costs and increase productivity.
Services
Services are an essential and integrated component of NCR’s complete solution offerings to help companies increase availability and security of consumer touchpoints, improve operational efficiency, sales productivity, customer satisfaction and enhance the customer experience. Wepurchasing decisions; provide global end-to-end services from assessment and preparation, to staging, installation and implementation, and maintenance and support. We also provide systems management and complete managed services for our product offerings. We also provide Predictive Services, a managed services offering, which is designed to predict and address information technology issues quickly before they happen. In addition, we provide installation, maintenance and managed services for third party networking products to a broad base of customers in the telecommunications and technology sectors, and we service third party computer hardware from select manufacturers who value and leverage our global service capability.
Hardware Products
We provide financial institutions, retailers and independent deployers with a suite of financial-oriented self-service hardware products. Our financial services hardware products include multi-function ATMs, interactive teller machines (ITMs), thin-client ATMs, cash dispensers, cash recycling ATMs and hardware for check and image processing. Our financial services hardware products are designed to quickly, reliably and securely process consumer banking transactions while providing low cost of ownership, efficiency and a modernized consumer experience. We also provide retail- and hospitality-oriented hardware products such as point of sale terminals, self-checkout kiosks, ordersecure checkout processes and payment kiosks, bar code scanners, printerssystems; and peripherals, to retailers,increase service levels.
•Restaurants - Our Restaurants segment is focused on serving restaurants and food service companiesestablishments of all sizes, ranging from small and entertainmentmedium-sized businesses to some of the world’s top global food service enterprises. Our solution portfolio spans across table-service, quick-service and sports venues worldwide.fast casual industries, providing competitive end-to-end solutions to “run-the-restaurant.” Our retail and hospitality hardware products aresolution portfolio offers cloud-based, platform-enabled technology that is designed to improve operational efficiency, increase customer satisfaction, streamline order and transaction processing and reduce operating costs. In addition, we deliver service support, allowing our customers to focus on their core competencies. Our end-to-end services are a strong differentiating factor within the market.
•Digital Banking - Our Digital Banking segment serves financial institutions by delivering software solutions which enable a fully integrated digital experience for consumer and business customers across all channels. We serve banks and credit unions in the United States with our cloud-based software solutions including account opening, account management, transaction processing, imaging, and branch services, among others. We are unique in our ability to offer unified banking solutions across digital (application and browser), in-branch and via interactive teller machines (“ITMs”).
Corporate and Other includes income and expenses related to corporate functions that are not specifically attributable to any of our three individual reportable segments along with certain non-strategic businesses that are considered immaterial operating segment(s), certain countries which are expected to transfer to NCR Atleos during 2024, and commercial agreements with NCR Atleos.
Our strategy to expand our customer portfolio and convert customers to our platform, which will enable us to derive a greater portion of revenue and profit from subscription-based (recurring) revenue, is built on the following foundational pillars:
•Focus on our customers. We encourage our employees to treat every customer as if they are our only customer. If we provide better service and quality products than our competitors, it is our belief that our customers will likely buy more from NCR Voyix. We act as strategic advisors to our clients, helping them reshape and reinvent their business. This customer focus leads to increased access to higher level customer contacts, earlier entrance into the sales cycles, and additional opportunities for upselling and cross-selling as a software and services-led company. Our customer engagement teams consult with our clients to identify their most urgent business needs and to develop ROI-driven models with targeted delivery of additional modules or services.
•Leverage our brand (and global distribution). We have rebranded from NCR to NCR Voyix, leveraging one of the best-known and respected brands in the industries we serve. Our brand represents our industry-specific expertise and longevity as enterprise technology experts. We bring over 140 years of experience across restaurants, retail and banking industries. We invest in our brand and go-to-market strategies, and consider our branding to be a strong competitive differentiation with significant equity in worldwide markets.
•Support our customers through innovation. We invest in research and development to bring new solutions to market and elevate product quality. The Company focuses on its commerce platform, which enables our next-generation retail architecture, including our unique retail cloud-based point of sale solution, and our bundled solutions focused on the restaurant industry, and our digital banking platform. Customer needs drive the investment in innovative solutions and partnerships are leveraged to embed technology-based offerings within our software. We also prioritize improvements in how we go to market with software-as-a-service (“SaaS”) and packaging solutions as all-in-one bundles designed around a software platform, making it easier for our customers to buy and for our teams to sell.
•Allocate our capital strategically through a cost-disciplined approach to operations. We prioritize the allocation of capital to the prospects that provide other self-service kiosks,the best opportunities to attract and retain customers, deliver long-term growth for the company and deliver strategic value for shareholders. Based on our strategy, we will prioritize investments in our technology, repayment of debt and the repurchase of shares. We may also pursue acquisitions and/or divestitures. Similarly, we seek to be disciplined in our cost management through ongoing initiatives that benefit both our long-term relationships with our customers as well as the growth and profitability targets of the company through streamlining and simplifying our product offering, increasing process automation and workforce optimization.
Products and Services
Retail & Restaurants
Given the increased adoption of digital solutions to “Run-the-Store” for retailers and restaurants around the world, and the ability to provide such solutions through one integrated technology platform, we sometimes collectively refer to our Retail and Restaurants segments as self-check in/out kioskour Commerce business. This reference is often used in such instances where the strategic approach to providing our solutions for airlines, hotelsto our retail and casinos that allow guestsrestaurant customers is generally very similar, as when our customers are connected to check in/out without assistance, wayfindingour shared NCR Voyix Commerce Platform or when investments and expanded capabilities can be leveraged across clients or industries.
We offer cloud-based, platform-enabled software and services to help enable our retail and restaurant customers to digitally augment their operations. The NCR Voyix Commerce Platform provides retailers and restaurants with end-to-end solutions, (locating products or navigating through large, complex buildingsincluding cloud-based software and campuses), digital signage, billservices, store operations capabilities, strategic services, consumer applications and integrated payment kiosksacceptance solutions, and gift registries.in-store hardware to support their business needs. These platform-delivered solutions create pleasant and convenient experiences for consumers and enable our customers to improve operational efficiency, increase customer satisfaction, streamline order and transaction processing and reduce operating costs. The wide array of general commerce and industry-specific modules available via our platform can be bundled or purchased stand-alone, which enables our clients to better serve their end-users. The bundling of services further increases the value that we bring to our customers and promotes long-term customer relationships as customers come to rely upon us across multiple facets of their business. In addition we resellto simplifying our customers operations, our bundled solutions often result in cost savings compared with sourcing technology from multiple vendors or developing and maintaining these in-house.
Retail
Our platform-led SaaS and Services capabilities focus on digitally transforming retail store systems. This includes store operations, consumer engagement (e.g., eCommerce and loyalty programs), back office data processing and insights, payments, third party networking products to a broad base of customersAPI integration for partner ecosystems, and physical endpoints in the telecommunicationsform of hardware. Our software applications include point of sale software, self-checkout, frictionless software, and retail-specific edge application infrastructure management platform. These services allow for deploying and orchestrating virtualized and containerized microservices to all of the various touch points in a store, fuel controller, pharmacy and kitchen software, loyalty and promotions, mobile ordering, back office applications including inventory, transaction and consumer data insights, cash office, and value-added payment solutions. In addition, our services offering includes artificial intelligence (“AI”) and data analytics, onboarding and implementation, managed services, systems integration, custom application management and development and hardware services. Our hardware offerings consist of fixed and mobile point-of-sale and consumer display terminals, self-checkout terminals and ordering kiosks and peripherals and digital signage.
Restaurants
For the restaurant industry, we provide technology sectors.solutions that enhance operational efficiency, improve customer satisfaction, streamline order and transaction processing, and reduce operating costs. Our suite of solutions caters to table-service, quick-service, and fast casual restaurants of all sizes. We offer cloud-based and platform-enabled software applications for point-of-sale, back office, payment processing, kitchen production, restaurant management, eCommerce, mobile ordering and consumer marketing and loyalty. Our services capabilities include AI and data analytics, technology deployment and implementation, support and managed services, which help reduce the complexities of restaurant operations. We also provide restaurant-oriented hardware products such as POS terminals, kitchen display systems, handheld devices, printers and peripherals.
Digital Banking
Target MarketsWe offer cloud-based, platform-enabled digital banking, sales and account opening, and transactions and servicing solutions that provide banks and credit unions with a fully integrated consumer experience across the digital and physical channels.
Our digital banking solutions cater to both consumer and business digital banking. Our consumer digital banking offering provides flexibility, security and a unique bank brand experience. Our offerings consist of promotion programs, money management and financial wellness tools, administrative portal, core and card processor integration, digital chat and Zelle integration. Our business digital banking offering delivers intuitive, responsive and omnichannel experiences for business end-customers, along with funds and transaction enablement solutions (e.g. bill pay, internal transfers, domestic and international wires, ACH, recurring payments), risk management tools for fraud prevention and native business mobile banking applications.
Our sales and account opening software unifies the sales and onboarding experience for multiple bank products either via digital, in-branch or in-call center channels, or across multiple channels for a single applicant. Additionally, our channel services platform (“CSP”) provides transactions and servicing solutions, enabling financial institutions to access a deeper understanding of customer behavior and implement a digital first platform strategy. The CSP offers banking channel services, pre-staging, imaging, digital integration, interactive and connected services and an API toolkit. Through our developer portal, our Digital Banking customers gain access to integrations with over 200 solutions via our API toolkit.
Our Sales and Distribution Channels
We have established a strong network of sales and distribution channels within each of our segments to drive growth in our customer base. Leveraging our brand recognition and our global distribution network, we target both new and existing customers representing a wide variety of sizes, industries and geographies. We make strategic investments in new products, capabilities and market leading services to support our offerings across segments, shaping our growth strategy.
NCR provides its software, services and hardwareRetail
In our Retail segment, we offer platform-led solutions to an array of customers, connecting retail operations end-to-end and integrating all aspects of varyingtheir operations. Our retail customers span all sizes inacross the financial services, retail, hospitality, travelglobe, which we classify into the following industry verticals: Convenience Fuel Retail, Food Drug Mass Merchant (“FDMM”), and telecommunications and technology industries.
Department Specialty Retail. Our financial solutions primarily serve the financial services industry with particular focus on retail banking, which includes traditional providers of consumer banking and financial services. These solutions also serve the retail markets through convenience banking products for retailers designed to complement their core businesses. Our financial solutions customers are located throughout the world in both developed and emerging markets. We have historically sold most of our financial solutions through a direct sales channel, although a portion of revenue is derived through distributors and value-added resellers.
We provide POS and self-service kiosk solutions to the retail and hospitality industries. RetailFDMM customers include department stores, specialty retailers, mass merchandisers, catalog stores, supermarkets, hypermarkets, grocery stores, drug stores, wholesalers, convenienceand big box retailers. Our solutions are distributed through direct sales and indirect channels such as value-added resellers and systems integrators.
Restaurants
In our Restaurants segment, we offer platform-led solutions to all types of restaurants, enabling them to run their stores, petroleum outletsdrive digital transformation, and smallscale their businesses. HospitalityOur Restaurants customers include retailers,quick service, table service and fast casual restaurants of all sizes, ranging from small-and-medium sized businesses to large multi-national and food service providers,enterprise clients. Similar to the retail segment, our solutions are distributed through direct sales and sportsindirect channel relationships.
Digital Banking
Within the Digital Banking segment, we provide cloud-based digital solutions and entertainment venues (including stadiums, arenastechnology to banks and cinemas) and small businesses. We also provide our self-service solutionscredit unions of all sizes, ranging from $100 million to customers$100 billion in assets under management, including money center banks, to improve the travel industry, including airlines, airports, car rental companies, and hotel/lodging operators. POS and self-service kioskend-user experience with their financial institutions across all banking channels. Our solutions are sold through a direct sales force and through relationshipsindirect channels with value-added resellers, distributors, dealers and other indirect sales channels.referral partners.
We provide service and support for our products and solutions through services contracts with our customers. We have also established managed services contracts with key customers and continue to pursue additional managed services relationships. Longer term managed services arrangements can help improve the efficiency and performance of a customer’s business, and also increase the strategic and financial importance of its relationship with NCR. We also service competing technologies—for example, ToshibaTec retail technologies and Diebold Nixdorf ATMs. The primary sales channel for our services is our direct sales teams, which exist across all geographies where we operate around the world. Our services professionals provide these services directly to end customers.
Competition
We face a diverse group of competitors in the Retail, Restaurants and Digital Banking industries in which we sell our digital-first portfolio of software, services and hardware solutions. The primaryhardware. Competitive factors of competition can vary by geographic area where we operate around the world, but typically include:include product value and quality, of the solutions or products; total cost of ownership;ownership, industry knowledge, of the vendor; the vendor’s ability to provide andend-to-end solution support, a total end-to-end solution; the vendor’s ability to integrate new and existing systems; fit of the vendor’ssystem integration capabilities, strategic visionalignment with the customer’s strategic direction;customers and quality of the vendor’s consulting, deployment and support services.
service quality.
In the financial services industry,our Retail and Restaurants segments, we face a variety of competitors including ATM manufacturers such as Diebold Nixdorf Incorporated and Nautilus Hyosung, and ATM network operators such as Cardtronics plc, as well as many other regional firms, across all geographies where we operate around the world. Other competitors vary by product, service offering and geographic area, and include, among others, Fidelity National Information Services, First Data Corporation, Euronet Worldwide, Inc., Q2 Holdings and ACI Worldwide.
We also face a variety of competitors in the retail and hospitality industries across all geographies where we operate around the world. Our competitors vary by market segment, product, service offering and geographic area, and include ToshibaTec,Aptos, Inc., Block Inc., Diebold Nixdorf, Fujitsu, Hewlett-Packard Inc., Honeywell,Flooid, Fujitsu Limited, GK Software SE, HP Inc., Lightspeed, Olo Inc., Oracle Manhattan AssociatesCorporation, PAR Technology Corporation, Revel Systems, Inc., SAP SE, Toast, Inc., Toshiba Tec Corporation, and Datalogic,Upserve, Inc., among others.
We face a diverse group of competitors in the travel industry. Competitors in the travel industry include Embross, SITA and IER, among others.
We face competition for services from other technology and service providers, as well as from independent service operators, in all geographies where we operate around the world. The primary services competitors are the companies identified above, as global technology providers continue to focus on services as a core business strategy. We also compete with a range of regionalcertain global enterprise technology companies including IBM Corporation, and local independent service operators across our various geographies.CompuCom to provide technology and support services.
Primary competitors in the Digital Banking segment include firms like Alkami (ALKT), Fidelity National Information Services (FIS), Fiserv (FI), MeridianLink (MLNK), Q2 Holdings (QTWO), and other fintech providers.
Research and Development
We remain focused on designing and developing solutions that anticipate our customers’ changing technologicalevolving needs as well as consumer preferences. Our expenses for research and development were $256$185 million in 2017, $2422023, $147 million in 2016,2022, and $230$195 million in 2015.2021. We anticipate that we will continue to have significant research and development expenditures in the future in order to provide a continuing flow of innovative, high-quality products and services and to help maintain and enhance our competitive position. Information regarding the accounting and costs included in research and development activities is included in Note 1, “Basis of Presentation and Significant Accounting Policies”, of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report under "Research“Research and Development Costs,"” and is incorporated herein by reference.
Patents and TrademarksIntellectual Property
NCR seeksWe seek patent protection for itsour innovations including improvements, associated with its(including improvements) related to our software, hardware, services, products, solutions, creations and developments where such protection is likely to provide meaningful value to NCR.us. Following the Spin-Off of NCR ownsAtleos, we own approximately 1,275850 patents in the U.S.United States and numerous other patents in foreign countries. The foreign patents are generally counterparts of NCR’sour U.S. patents. Many of the patents owned by NCR are licensed to others, and NCR is licensed under certain patents owned by others. NCR looks to monetize its patents to drive additional value from its patent portfolio. NCRWe also hashave numerous patent applications pending in the U.S.United States and in foreign countries. NCR’sOur portfolio of patents and patent applications is of significant value to NCR.us. As appropriate, the Company looks to drive additional value, including through monetization, of its patent portfolio.
NCR hasWe have registered certainand unregistered trademarks, andincluding service marks, in the U.S.United States and in a number of foreign countries. NCR considers theWe consider our trademarks associated with “NCR” and NCR logo marks and many of its, especially “NCR Voyix”, as well as our other trademarks, and service marks to have significant value to NCR.us. Loss of the Company’s right to use “NCR Voyix” or its “NCR Voyix” trademark or failure to register that trademark could be material.
In addition to developing our intellectual property portfolio, we license intellectual property rights from third parties as we deem appropriate. We have also granted and plan to continue to grant licenses to others under our intellectual property rights when we consider these arrangements to be in our interest.
Seasonality
Our sales arehave been historically seasonal, with lower revenue in the first quarterhalf and higher revenue in the fourth quartersecond half of each year. Such seasonality, as well as recurring annual cash-related items also causescause our working capital cash flow requirements to vary from quarter to quarter depending on variability in the volume, timing and mix of sales. In addition, revenue in the third month of each quarter is typically higher than in the first and second months. Information regarding seasonalityHowever, as we continue to transition our revenue mix towards more recurring software and its potential impact onservices revenue, our business is included in Item 1Asales have become more linear over time.
Manufacturing and Raw Materials
In most cases, there are a number of vendors providing the services and producing the parts and components that we utilize. However, there are some services and components that are purchased from single sources due to price, quality, technology or other reasons. For example,In the past, we depend on computer chipshave been able to obtain an adequate supply of raw materials and microprocessors from Intel and operating systems from Microsoft. Certain parts and components for virtually all materials used in the manufacturingproduction process. We currently believe we have adequate resources of raw materials and components and that our ATMsportfolio of vendors providing services and producing parts has the deliveryresources and facilities to overcome most unforeseen interruptions of manysupply.
As of our retail solutions are also supplied by single sources. In addition, there are a number of key suppliers for our businesses who provide us with critical products for our solutions.
At December 31, 2017, we manufactured our ATMs2023, the Company leverages a network of third-party partner facilities across the globe to manufacture its products in facilities located in Columbus, Georgia, USA; Manaus, Brazil;Chennai, India; Budapest, Hungary; Beijing, China; and Chengalpattu, India. Our self-checkout solutions are manufactured in facilities located in Columbus, Georgia, USA and Budapest, Hungary. Our financial kiosk solutions are manufactured in facilities located in Beijing, China; Budapest, Hungary; Manaus, Brazil; and Chengalpattu, India. Our POS/Display terminals are manufactured in facilities located in Columbus, Georgia, USA; and Budapest, Hungary, and certain hand-held solutions are manufactured in Salzburg, Austria. NCR outsources the manufacturing in all geographic regions of its payment solutions, some POS/Display terminals, printers, bar code scanners and various other kiosks.
Guadalajara, Mexico.
Further information regarding the potential impact of these relationships on our business operations, and regarding sources and availability of raw materials, is also included in Item 1A of this Report under the caption “Reliance on Third Parties,“Business Operations,” and is incorporated herein by reference.
ProductProducts and Services Backlog
Our backlog was approximately $1.37 billion and $1.38 billion at December 31, 2017 and 2016, respectively. The backlogBacklog includes orders confirmed for products scheduled to be shipped, as well as certain professional and transaction services to be provided. Although we believe that the orders included in the backlog are firm commitments, we may allow some orders mayto be canceled by the customer without penalty. Even when penalties for cancellation are provided for in a customer contract, we may elect to permit cancellation of orders without penalty where management believes it is in our best interests to do so. Further, we have a significant portion ofproduct revenue derived from our growing service-basedterm-based software license arrangements that include customer termination rights and services revenue that is recurring or transaction-based business (including our cloud and hosted businesses), for whichwe do not measure backlog information has not historically been measured.for these types of transactions. Therefore, we do not believe that our backlog, as of any particular date, is necessarily indicative of revenue for any future period. However, backlog is included as a component of our remaining performance obligation to the extent we determine that the orders are non-cancelable. Refer to Note 1, “Basis of Presentation and Significant Accounting Policies”, of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additional information on remaining performance obligations.
EmployeesESG
NCR Voyix remains committed to creating positive change that supports an innovative and sustainable future in a responsible way. Our Board of Directors has direct oversight of the Company’s ESG strategy through its Risk Committee and its other standing committees, each of which oversees components of our ESG program, including, business ethics and integrity, data protection, privacy and security, our people, Diversity Equity and Inclusion (“DE&I”) and environmental management.
On
Human Capital Management
As of December 31, 2017, NCR2023, we had approximately 34,00015,500 employees worldwide. We also utilize contractors to support various aspects of our business. As of December 31, 2023, our employees by geographic region included approximately 25% in the Asia Pacific and contractors worldwide.Japan region; 35% in the Europe, Middle East and Africa regions; 5% in the Americas, excluding the United States; and 35% in the United States. We have presence in 31 countries with employees speaking over 27 unique languages throughout.
Environmental Matters
Compliance with federal, state,We have continued our rich legacy of prioritizing investment and local environmental regulations relatingfocus on human capital resources in 2023. We found ways to adapt to a rapidly changing labor market and continued to build a diverse, talented workforce as we build the future of commerce. Prior to the protectionSpin-Off of NCR Atleos, our human resources team took proactive measures to prepare our employees for a successful transition.
Our progress to date includes:
•Welcomed over 475 university hires to NCR Voyix, including both graduates and interns
•Recognized as Top Employer for key, strategic universities/partnerships
•Launched new NCRVoyix.com Careers Pages
•Launched a new Culture Crew, including 30+ Site Engagement Leaders, ambassadors and volunteers
•Examined and took actions on competitive pay supporting workforce changes and our shift to a software platform and payments company, including a targeted global compensation review to drive attraction and retention of talent
•Invested in market-based salary increases for early career software engineering to improve competitiveness
•Improved certain employee benefit programs in many countries
•Partnered with key learning and development platforms to uplevel employee capabilities across the globe
•Provided opportunities for continuous learning through NCR Voyix University, our online education platform for employees
•Supported external development with our tuition assistance program, which supports college and graduate-level education programs developing business-critical skills
•Conducted regular employee performance reviews to manage, engage and reward our employees
As we continue to invest in our people, our current roadmap for future programs includes:
•Working to build on the post Spin-Off company culture, with our NCR Voyix vision, mission and values
•Upskilling talent in software and sales to enable the workforce of the environment could havefuture
•Developing a material adversenew employee value proposition and brand strategy
•Launching new leadership and management development content to upskill our leaders
•Focusing on internal talent mobility to develop and retain recent hires, including university hires
•Reimagining the onboarding experience to ensure all new hires are set up for success
•Driving company engagement and improving employee satisfaction at regional and site levels
Diversity, Equity and Inclusion (DE&I). We believe in the power and value of diversity and strive to build a globally inclusive workplace where all people are treated fairly. We seek to include everyone, lead with empathy, and make our communities better.
We continue to review our DE&I policies, practices and programs to identify opportunities for new inclusive initiatives.
Our progress to date includes:
•Improved our supplier diversity program that utilizes small businesses, as well as minority, women and veteran-owned business enterprises
•Continued to provide corporate funding and oversight of our Business Resource Groups (“BRG”) to boost engagement and increase opportunities for professional development, networking and community impact
•Established collaboration between all business resource groups with a renewed focus on growing employee participation
Our current roadmap for future programs includes:
•Investing in the development of diverse talent through sponsorship initiatives and targeted development
•Launching a series of listening sessions to promote inclusion and to drive action
•Launching a targeted university diversity network to attract, hire, and grow diverse talent through key partnerships
•Restructuring and redeploying a BRG leadership council focused on global inclusion with the mission to inspire action that attracts, develops and retains top diverse talent and fosters an inclusive work environment
Government Regulation
We are subject to a variety of laws and regulations in the United States and other jurisdictions in which we operate or where our products or services are offered. Many of these regulations and laws are evolving and their applicability and scope, as interpreted by courts and regulators, remain uncertain. These regulations and laws involve a variety of matters, including privacy and information security, data and personal information protection, consumer protection laws, anti-corruption laws such as the United States Foreign Corrupt Practices Act and United Kingdom Bribery Act, tax, and environmental sustainability (including climate change). In addition, our Digital Banking business is subject to examination by the Federal Financial Institutions Examination Council (FFIEC).
Any actual or perceived failure to comply with these requirements may result in, among other things, private litigation, regulatory or governmental investigations, administrative enforcement actions, sanctions, civil and criminal liability, monetary penalties, and constraints on our capital expenditures, earningsability to continue to operate our businesses. It is also possible that current or competitive position.future laws or regulations could be interpreted or applied in a manner that would prohibit, alter, or impair our existing offerings, or that could require costly, time-consuming, or otherwise burdensome compliance measures from us. As we continue to grow our business, additional laws, rules and regulations may become relevant. For additional information about government regulation and laws applicable to our business, refer to the risks described in Item 1A of this Report.
Our historical manufacturing activities and operations are subject to a wide range of environmental protection laws and we have investigatory and remedial activities underway at a number of facilities that we currently own or operate, or formerly owned or operated, to comply, or to determine compliance, with such laws. While NCRthe Company does not currently expect to incur material capital expenditures related to compliance with such laws and regulations, and while we believe the amounts provided in our Consolidated Financial Statements are adequate in light of the probable and estimable liabilities in this area, there can be no
assurances that environmental matters will not lead to a material adverse impact on our capital expenditures, earnings or competitive position. A detailed discussion of the current estimated impacts of compliance issues relating to environmental regulations, particularly the Fox River, and Kalamazoo River and Ebina matters, is reported in Item 8 of Part II of this Report as part of Note 9, "Commitments11, “Commitments and Contingencies"Contingencies”, of the Notes to Consolidated Financial Statements and is incorporated herein by reference. Further information regarding the potential impact of compliance with federal, state,governmental laws and local environmental regulations is also included in Item 1A of this Report under the caption “Environmental,” and is incorporated herein by reference.
Executive Officers of the Registrant
The Executive Officers of NCR (as of February 26, 2018) are as follows:
|
| | | | |
Name | | Age | | Position and Offices Held |
William R. Nuti | | 54 | | Chairman of the Board and Chief Executive Officer |
Mark D. Benjamin | | 47 | | President and Chief Operating Officer |
Adrian Button | | 45 | | Senior Vice President, Global Hardware Product Operations |
Daniel W. Campbell | | 57 | | Executive Vice President, Global Sales |
J. Robert Ciminera | | 60 | | Executive Vice President, Global Customer Services |
Robert P. Fishman | | 54 | | Executive Vice President and Chief Financial Officer |
Edward R. Gallagher | | 64 | | Senior Vice President, General Counsel and Corporate Secretary |
Paul Langenbahn | | 49 | | Executive Vice President, Global Software |
Andrea L. Ledford | | 52 | | Executive Vice President, Chief Administration Office, and Chief Human Resources Officer |
Set forth below is a description of the background of each of the Executive Officers.
William R. Nuti is NCR's Chairman of the Board and Chief Executive Officer, and prior to October 2016 Mr. Nuti also served as NCR's President. Mr. Nuti became a director of NCR on August 7, 2005 and became Chairman of the Board on October 1, 2007. Before joining NCR in August 2005, Mr. Nuti served as President and Chief Executive Officer of Symbol Technologies, Inc., an information technology company. Prior to that, he was Chief Operating Officer of Symbol Technologies. Mr. Nuti joined Symbol Technologies in 2002 following a 10 plus year career at Cisco Systems, Inc. where he advanced to the dual role of Senior Vice President of the company's Worldwide Service Provider Operations and U.S. Theater Operations. Prior to his Cisco experience, Mr. Nuti held sales and management positions at IBM, Netrix Corporation and Network Equipment Technologies. Mr. Nuti is also a director of Coach, Inc., where he is a member of its Human Resources Committee, and United Continental Holdings, Inc. where he is a member of its Finance, Compensation and Public Responsibility Committees. Mr. Nuti previously served as a director of Sprint Nextel Corporation. He is also a member of the Georgia Institute of Technology advisory board and a trustee of Long Island University.
Mark D. Benjamin joined NCR as its President and Chief Operating Officer in October 2016. Prior to joining NCR, Mr. Benjamin spent 24 years in a series of global assignments with Automatic Data Processing, Inc. (ADP), which he joined in 1992. At ADP, Mr. Benjamin served from July 2013 to September 2016 as President of ADP’s Global Enterprise Solutions division, leading a team of 20,000 employees, and managing a multi-billion dollar portfolio of businesses serving clients in over 100 countries. Before that, Mr. Benjamin served as President, Employer Services International, from July 2011 to July 2013, as Senior Vice President, Services and Operations - Small Business Services and Total Source, from April 2008 to June 2011, and in various other operations-focused roles. Mr. Benjamin holds a bachelor’s degree in international finance and marketing from the University of Miami.
Adrian Button became NCR’s Senior Vice President, Global Hardware Product Operations, in February 2018, and from July 2017, when he joined NCR, to February 2018, Mr. Button acted as Senior Vice President Global Operations. Before he joined NCR, Mr. Button spent 19 years in various management roles with different divisions of the General Electric Company (GE). Most recently, Mr. Button served from January 2016 to July 2017 as Vice President, Supply Chain, for GE Industrial Solutions, with oversight of the division’s supply chain and service operations across 41 global factories. Prior to that, Mr. Button served as Vice President, Turbomachinery, for GE’s Oil & Gas division from January 2014 to December 2016, as General Manager of Global Operations Leader for GE’s Oil & Gas division from March 2011 to December 2013, and in other operations and supply chain roles with GE Aviation. Mr. Button holds a bachelor’s degree in engineering from the University of Glamorgan, Wales, United Kingdom.
Daniel W. Campbell became NCR’s Executive Vice President, Global Sales, in February 2018. Previously, from July 2015 to February 2018, Mr. Campbell served as a Senior Vice President and General Manager at Virtustream, Inc., which he joined after it was acquired by EMC Corporation (EMC) in July 2015. With Virtustream, Mr. Campbell led the global sales integration with EMC’s sales organization, built a global strategic alliances and channels organization, and co-launched the Virtustream Storage Cloud, an enterprise-class cloud storage platform. Before joining Virtustream, from April 1998 through July 2015, Mr. Campbell served in a series of sales and management roles of increasing responsibility at EMC, including most recently as Senior Vice President, Global Specialty Sales from October 2013 to July 2015, and Chief Operating Officer and Senior Vice President, World Wide Sales, Backup Recovery Systems Division from January 2011 to December 2013. Before joining EMC, Mr. Campbell served in various sales and management roles with Sperry, Unisys, Motorola and Wang.
J. Robert Ciminera became NCR’s Executive Vice President, Global Customer Services in February 2018. Previously, Mr. Ciminera served as NCR’s Executive Vice President, Hardware Product Operations, from January 2017 to February 2018, where he was responsible for NCR’s hardware product portfolio. Before that, Mr. Ciminera served as NCR’s Senior Vice President, Hardware Solutions and Global Operations from October 2015 to January 2017, as NCR’s Senior Vice President, Integrated Supply Chain Operations from May 2014 to October 2015, and as NCR’s Vice President, Strategic Sourcing and Chief Procurement Officer from February 2009, when he joined NCR, through May 2014. Before joining NCR, Mr. Ciminera served in various sourcing, supply chain and product management roles with Avaya, Motorola, Symbol Technologies and other technology companies.
Robert P. Fishman became Executive Vice President and Chief Financial Officer in April 2016, and served as Senior Vice President and Chief Financial Officer from March 2010 to April 2016. Prior to becoming Chief Financial Officer, he was Interim Chief Financial Officer from October 2009 to March 2010, and Vice President and Corporate Controller from January 2007 to October 2009. From September 2005 to January 2007, Mr. Fishman was Assistant Controller and from January 2005 to September 2005, he was Director, Corporate Planning. Mr. Fishman joined NCR in 1993.
Edward R. Gallagher was named Senior Vice President, General Counsel and Secretary of NCR in October 2015, having served as Acting General Counsel since October 2014. His prior position with NCR was Law Vice President, Litigation & Employment Law, commencing in 2003; he has also served in other positions within the NCR Law Department, including Chief Counsel of the former Systemedia Division. Mr. Gallagher joined NCR in 1992. Prior to that, Mr. Gallagher was an attorney in private practice in San Francisco and in Boston. Mr. Gallagher holds a law degree from Yale Law School, as well as a master’s degree from Yale University in political science and international relations. He has an undergraduate degree from the University of South Dakota.
Paul Langenbahn became NCR’s Executive Vice President, Global Software, in January 2017. From April 2014 to December 2016, Mr. Langenbahn served as Senior Vice President and President, Hospitality, and before that, following NCR’s acquisition of Radiant Systems, Inc. in 2011, he served as Vice President, Global Sales, Marketing and Services for NCR’s Hospitality division. Prior to joining NCR in 2011, Mr. Langenbahn was President of Radiant Systems’ Hospitality division, and he held various other leadership roles in sales, professional services, solution management and general management at Radiant Systems, where he was instrumental in the company’s development and growth.
Andrea L. Ledford became Executive Vice President, Chief Administration Office, and Chief Human Resources Officer in February 2016. Previously, Ms. Ledford was Senior Vice President, Corporate Services and Chief Human Resources Officer from November 2013 to January 2016, Senior Vice President and Chief Human Resources Officer, from June 2012 to November 2013, Senior Vice President, Human Resources, from June 2007 to June 2012, and Interim Senior Vice President, Human Resources from February 2007 to June 2007. Prior to assuming this position, she was Vice President, Human Resources, Asia/Pacific, and Europe, Middle East and Africa, from February 2006 to February 2007. Before joining NCR in February 2006, Ms. Ledford was EMEA Leader, Human Resources, at Symbol Technologies, Inc. from 2002 to February 2006 and held a variety of leadership roles at Cisco Systems, Inc. in EMEA, Asia/Pacific and Latin America.
Available Information
NCRThe Company makes available through its website at http://investor.ncr.com,investor.ncrvoyix.com, free of charge, the reports it files with the Securities and Exchange Commission (the “SEC”), including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, definitive proxy statements on Schedule 14A and Current Reports on Form 8-K, and all amendments to such reports and schedules, as soon as reasonably practicable after these reports are electronically filed or furnished to the U.S. Securities and Exchange Commission (SEC)SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act)“Exchange Act”). The SEC also maintains a website (www.sec.gov)(http://www.sec.gov) that contains the reports, proxy statements and information statements, and other information regarding issuers that file or furnish electronically with the SEC. Also, the public may read and copy any materials that NCR files or furnishes with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. NCRVoyix will furnish, without charge to a security holder upon written request, the Notice of Meeting and Proxy Statement for the 20182024 Annual Meeting of Stockholders (the 20182024 Proxy Statement), portions of which are incorporated herein by reference. NCR also will furnish its
Certain materials relating to our corporate governance, including our Code of Conduct at no costapplicable to our directors, senior financial officers and any other exhibit at cost. Document requestsemployees, are also available in the investor relations section of our website. Copies of our filings, specified exhibits and corporate governance materials are also available, free of charge by calling or writing to:
NCR—NCR Voyix—Investor Relations
864 Spring Street NW
Atlanta, GA 30308
Phone: 800-255-5627800-225-5627
E-Mail: investor.relations@ncr.cominvestor.relations@ncrvoyix.com
Website: http://investor.ncr.cominvestor.ncrvoyix.com
NCR'sThe Company’s website, www.ncr.com,www.ncrvoyix.com, contains a significant amount of information about NCR,the Company, including financial and other information for investors. NCR Voyix encourages investors to visit its website regularly, as information may be updated and new information may be posted at any time. The contents of NCR'sthe Company’s website are not incorporated by reference into this Form 10-K and shall not be deemed “filed” under the Exchange Act.
Item 1A. RISK FACTORS
The risks and uncertainties described below are certain of the risks and uncertainties facing our business. These risks and uncertainties, together with other risks and uncertainties not currently known or not currently deemed material, could materially and adversely affect our business, financial condition, results of operations, could cause actual results to differ materially from our expectations and projections, and could cause the market value of our stock to decline. You should consider these risk factors when reading the rest of this Annual Report on Form 10-K, including “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this document. These risk factors may not include all of the important factors that could affect our business or our industry or that could cause our future financial results to differ materially from historic or expected results or cause the market price of our common stock to fluctuate or decline.
Economic Pressures. RISK FACTOR SUMMARY
The following is a summary of certain risks and uncertainties that could materially and adversely affect our business, financial condition, and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
Risks Associated with our Strategy & Technology
•If we do not successfully execute our business strategy, including our strategic initiatives to grow and transform our business, our operating results could be negatively impacted.
•If we do not swiftly and successfully develop and introduce new solutions in the competitive, rapidly changing markets in which we do business, our business results may be impacted.
•If we do not compete effectively within the competitive markets we serve, we may not be successful.
•If we fail to maintain a consistently high level of customer service or if we fail to manage our reputation, our brand, business and financial results may be harmed.
•If we are unable to successfully manage our profitability and cost reduction initiatives, our operating results could be adversely affected.
•Our acquisitions, divestitures and other strategic transactions may not produce anticipated results, which could have a material adverse effect on our business, financial condition or results of operations.
Risks Associated with the Spin-Off of NCR Atleos
•We may not achieve some or all of the expected benefits of the Spin-Off of NCR Atleos.
•If the Spin-Off fails to qualify for tax-free treatment, it could result in substantial tax liability for us and our stockholders.
•We may be held liable to NCR Atleos if we fail to perform under our agreements with NCR Atleos, and the performance of such services may negatively affect our business and operations.
•Potential indemnification obligations to NCR Atleos or a refusal of NCR Atleos to indemnify us pursuant to agreements executed in the Spin-Off could materially adversely affect us.
Risks Associated with our Business & Operations
•Data protection, cybersecurity and data privacy issues could negatively impact our business.
•Our business may be negatively affected by domestic and global economic and credit conditions.Our business is sensitive to the strength of domestic and global economic and credit conditions, particularly as they affect, either directly
•A downturn, consolidation or indirectly, the financial services, retail and hospitality sectors of the economy. Economic and credit conditions are influenced by a number of factors, including political conditions, consumer confidence, unemployment levels, interest rates, tax rates, commodity prices and government actions to stimulate economic growth. The imposition or threat of protectionist trade policies or import or export tariffs, global and regional market conditions and spending trendsdecrease in technology spend in the financial services industry could harm our digital banking business.
•Disruptions in our data center hosting and retail industries,public cloud facilities could adversely affect our business.
•If we are unable to maintain and update our information technology systems to meet the needs of our business, our business could be adversely impacted.
•If we do not retain key employees, or attract quality new comprehensive U.S. tax legislation, modifiedand replacement employees, we may not be able to meet our business objectives.
•Defects, errors, installation difficulties or new globaldevelopment delays could expose us to potential liability, harm our reputation and negatively impact our business.
•If third party suppliers upon which we rely are not able to fulfill our needs, our ability to timely bring our products to market could be affected.
•Our payments-related business subjects us to additional regulatory requirements and other risks and uncertainties that could be costly and difficult to comply with or regionalthat could harm our business.
•Our international operations subject us to additional risks that can adversely affect our business, financial condition and results of operations.
•Our risk management efforts may not be fully effective in mitigating our risk exposure, which could expose us to losses and liability and otherwise harm our business.
•A major natural disaster or catastrophic event could have a materially adverse effect on our business, financial condition and results of operations, or have other adverse consequences.
•Our historical manufacturing activities subject us to environmental exposures.
Risks Associated with our Finance & Accounting
•Our level of indebtedness could limit our financial and operating activities and adversely affect our ability to incur additional debt to fund future needs.
•The terms of the documents governing our indebtedness include financial and other covenants that could restrict or limit our financial and business operations.
•Despite our current levels of debt, we may still incur substantially more debt, including secured debt, and other liabilities, which would increase the risks described in these risk factors relating to indebtedness.
•If we are unable to continue to access or renew financing sources and obtain capital, our ability to maintain and grow our business may be impaired.
•Our cash flows may not be sufficient to service our indebtedness, and if we are unable to satisfy our obligations under our indebtedness, we may be required to seek other financing alternatives, which may not be successful.
•Borrowings under our senior secured credit facilities bear interest at a variable rate, which could cause our debt service obligations or other costs of capital under our senior secured credit facilities to increase significantly.
•The terms governing our trade agreements,receivables facility, including the determination bylength of term, financial and other covenants, and obligations to remit collections on the United Kingdom to exit the European Unionsold receivables could restrict or otherwise limit our financial and business operations.
(EU), uncertainty over further potential•Certain changes in Eurozone participation and fluctuationscontrol may result in oil and commodity prices, among other things, have created a challenging and unpredictable environment in which to market the products and servicesan acceleration of our various businesses acrossindebtedness or our different geographiesobligations under other financing arrangements, or may require us to repurchase our senior unsecured notes or our Series A Convertible Preferred Stock.
•A lowering or withdrawal of the ratings assigned to us or our debt securities by rating agencies may increase our future capital costs and industries. A negative or unpredictable economic climate could create uncertainty or financial pressures that impact the ability or willingness of our customers to make capital expenditures, thereby affecting their decision to purchase or roll out our products or services or, especially with respect to smaller customers, to pay accounts receivable owed to NCR. Additionally, if customers respond to a negative or unpredictable economic climate by consolidation, it could reduce our baseaccess to capital.
•We may be required to write down the value of potential customers. Negativecertain significant assets, which would adversely affect our operating results.
•Our failure to maintain effective internal control over financial reporting or unpredictable global economic conditions also mayour failure to remediate our material weaknesses in our internal control over financial reporting, could have a material adverse effect on our customers’ abilityresults of operations, financial condition and cash flows.
Risks Associated with Law & Compliance
•Failure to obtain financing forprotect intellectual property, and issues related to third party intellectual property can have an adverse effect.
•Changes to our tax rates and additional income tax liabilities could impact profitability.
•We face uncertainties with regard to regulations, lawsuits and other related matters.
Risks Associated with our Governance
•Our Series A Convertible Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the purchaserights of our products and services from third party financing companies,common stockholders, which could adversely affect our operating results.liquidity and financial condition, and may result in the interests of the holders of our Series A Convertible Preferred Stock differing from those of our common stockholders.
•The issuance of shares of our Series A Convertible Preferred Stock reduces the relative voting power of holders of our common stock, and the conversion and sale of those shares would dilute the ownership of such holders and may adversely affect the market price of our common stock.
Business Model.•We could be subject to actions or proposals from stockholders that do not align with our business strategies or the interests of our other stockholders.
STRATEGY AND TECHNOLOGY
If we are unsuccessful in transformingdo not successfully execute our business model,strategy, including our strategic initiatives to grow and transform our business, our operating results could be negatively impacted. In recent years, we We have shifted our business model to become a global technology solutions company that uses software and value-added endpoints, coupled with higher-margin services and a focus on cloud and mobile, to help our customers deliver a rich, integrated and personalized experience to consumers across commerce channels. Our success depends heavilytaken steps toward executing on our abilitystrategy to continuetransform the Company to grow our higher-margina platform-led software and services businesses.business, including the Spin-Off of our ATM-focused business. Our abilityfocus on increased software and services revenue, as well as recurring revenue, includes a shift away from perpetual license-based products that yield revenue recognized at an earlier point in time to grow these businessesa term license model, that includes a termination for convenience which could have a negative impact on our revenue and margin. Successful execution of our strategy depends on a number of different factors including, among others, our ability to attract new customers, maintain existing customers, and attract additional customers to our commerce platform; developing, deploying and supporting the next generation of integrated, platform-baseddigital first software and cloud solutions for the industries we serve; market acceptance of our new and existing software and cloud solutions; adoption by new and existing customers of our payment solutions; enabling our sales force to use a consultative selling model that better incorporates our comprehensive and new solutions; transformingtransform our services performance, capabilities and coverage to improve efficiency,efficiency; incorporate remote diagnostic and other technologies, andsuch as artificial intelligence, that align with and support our new solutions; managingcross-sell
additional products and services to our existing customer base; manage professional services and other costs associated with large solution roll-outs; and integrating, and developing and supporting software gained through acquisitions. In addition, development
Our growth strategy depends, in part, on our ability to attract additional customers to our commerce platform. Our ability to convert existing customers to our platform or attract new customers to commerce platform depends on a number of these businesses may require increased capital and research and development expenses and resource allocation, and while we will seek to havefactors, including the right leveleffectiveness of our sales team, the success of our marketing efforts, our levels of investment in expanding our sales and marketing teams, referrals by existing customers, and the right levelavailability of resources focused on these opportunities, these costs may reduce our gross margins and the return on these investments may be lower, or may develop more slowly, than we expect. competitive technology platforms.
In addition, we continue to pursue initiatives to expandgrowth with small- and medium-sized and mid-market businesses in our customer baseretail and restaurant segments by increasing our use of indirect sales channels, and by developing, marketing and selling solutions aimed at the small- to medium-business market.for such businesses. It is not yet certain whether these initiatives will yield the anticipated benefits, or whether our solutions will be compelling and attractive to small- and medium-sized businesses. If we are not successful in growingattracting additional customers to our higher-margin software and services businesses andcommerce platform, expanding our customer base at the rate that we anticipate, implementing and managing these initiatives, or if the costs to complete these initiatives is higher than anticipated, we may not meet our growth and gross margin projections or expectations, and operating results could be negatively impacted.
Competition.If we do not compete effectively within the technology industry, we will not be successful. We operate in the intensely competitive information technology industry. This industry is characterized by rapidly changing technology, disruptive technological innovation, evolving industry standards, frequent new product introductions, price and cost reductions, and increasingly greater commoditization of products making differentiation difficult. Our traditional competitors include other large companies in the information technology industry, such as: Hewlett-Packard Inc., Diebold Nixdorf, Nautilus Hyosung, ToshibaTec, Micros (Oracle), Fujitsu, Q2 Holdings and ACI Worldwide, some of which have more financial and technical resources, or more widespread distribution and market penetration for their platforms and service offerings, than we do. We also compete with companies in specific industry segments, such as entry-level ATMs, point-of-sale solutions and imaging solutions. In addition, as consumers and customers in the financial services, retail and hospitality industry adopt new alternative technologies such as cashless and other streamlined payment services and automated shopping solutions, we may face competition from other technology companies.
Our future competitive performance and market position depend on a number of factors, including our ability to:
react to competitive product and pricing pressures;
penetrate and meet the changing competitive requirements and deliverables in developing and emerging markets;
exploit opportunities in emerging vertical markets, such as travel and telecommunications and technology;
cross-sell additional products and services to our existing customer base;
rapidly and continually design, develop and market, or otherwise maintain and introduce innovative solutions and related products and services for our customers that are competitive in the marketplace;
react on a timely basis to shifts in market demands and technological innovations, including shifts toward the desire of banks and retailers to provide an omni-channel experience to their customers and the use of mobile devices in transactions and payments;
compete in reverse auctions for new and continuing business;
reduce costs without creating operating inefficiencies or impairing product or service quality;
maintain competitive operating margins;
improve product and service delivery quality; and
effectively market and sell all of our diverse solutions.
Our business and operating performance also could be impacted by external competitive pressures, such as consolidation, increasing price erosion and the entry of new competitors and technologies into our existing product and geographic markets. In addition, our customers sometimes finance our product sales through third party financing companies, and in the case of customer default, these financing companies may be forced to resell this equipment at discounted prices, competing with us and impacting our ability to sell incremental units. The impact of these product and pricing pressures could include lower customer satisfaction, decreased demand for our solutions, loss of market share and reduction of operating profits.
Introduction of New Solutions.If we do not swiftly and successfully develop and introduce new solutions in the competitive, rapidly changing environmentmarkets in which we do business, our business results willmay be impacted.impacted. Our growth and profitability depend on our ability to develop and introduce new solutions in the retail, restaurant and digital banking markets. The development process for our solutions requires high levels of innovation from our product development teams andas well as suppliers of the components embedded or incorporated in our solutions. To support our growth, we expect to continue to spend and may increase our capital expenditures to enhance our products and platform capabilities. In addition, certain of our solutions, including our cloud solutions, may require us to build, lease or expand, and maintain, infrastructure (such as hosting centers) to support them. The development process also can be lengthy and costly, and requires us to commit a significant amount of resources to bring our business solutions to market. In addition, our success may be impacted by safety and security technology and industry standards. We may not be able to anticipate our customers’ needs and technological and industry trends accurately, or to complete development of new solutions efficiently. Further, once we have developed new solutions, if we cannot successfully market and sell those solutions, our business and operating results could be negatively impacted. As we develop, acquire, and introduce new technologies, including those that incorporate artificial intelligence and machine learning, we may be subject to new or heightened legal, ethical, and other challenges, including the ability to innovate as quickly as our competitors as well as increased research and development expenses.
In addition, contract terms, market conditions or customer preferences may affect our ability to limit, sunset or end-of-life our older products in a timely or cost-effective fashion. If any of these risks materialize, we may be unable to introduce new solutions into the market on a timely basis, if at all, and our business and operating results could be impacted. Likewise, we sometimes make assurances to customers regarding the operability and specifications of new technologies, and our results could be impacted if we are unable to deliver such technologies, or if such technologies do not perform as planned. Once we have developed new solutions,
We face extensive competition in our markets and if we cannot successfully marketdo not compete effectively, we may not be successful. The markets in which we compete are characterized by rapid technological advances, intense competition among existing and sell those solutions,emerging competitors, and frequent new product introductions. We face a variety of competitors in the retail, restaurant and digital banking markets and our competitors also include other large companies in the information technology industry, many of which have more financial and technical resources than we do. Our future success depends on our ability to anticipate and identify changes in customer needs and/or relevant technologies, quickly respond to customer requirements, and rapidly and effectively introduce new and innovative products, features, and functions, while maintaining the integrity, quality, and competitiveness of our existing products. If we fail in these efforts, our business, financial condition, and results of operations could suffer, and our ability to achieve and sustain profitability adversely impacted.
Our business and operating performance also could be impacted by external competitive pressures, such as consolidation, increasing price erosion and the entry of new competitors and technologies into our existing product and geographic markets. In addition, our customers sometimes finance our product sales through third-party financing companies, and in the case of customer default, these financing companies may be forced to resell this equipment at discounted prices, competing with us and impacting our ability to sell incremental units. The impact of these product and pricing pressures could include lower customer satisfaction, decreased demand for our solutions, loss of market share and reduction of operating profits.
If we fail to maintain a consistently high level of customer service or if we fail to manage our reputation, our brand, business and financial results may be harmed. We believe our focus on customer service and support is critical to attract and onboard new customers, retain our existing customers and grow our business. If we are unable to maintain a consistently high level of customer service, including through our use of third-party service providers or by leveraging evolving technology such as artificial
intelligence, our ability to grow our operations may be harmed and we may need to hire additional support personnel, which could harm our margins and results of operations. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality customer support, could adversely affect our reputation and brand, our ability to benefit from referrals by existing customers, our ability to sell cross-sell our products and services to existing and prospective customers, and our business, financial condition, or results of operations.
If we are unable to successfully manage our profitability and cost reduction initiatives, our operating results could be impacted.adversely affected. As part of our growth strategy, we have implemented strategic cost initiatives that we believe will drive operating efficiencies and margin expansion and we may engage in similar efforts in the future. As these plans and actions are complex, we may not be able to achieve the operating efficiencies to reduce costs or realize benefits that were anticipated in connection with these initiatives. Further, such benefits may be realized later than expected, and the ongoing difficulties in implementing these measures may be greater than anticipated, which could cause us to incur additional costs or result in business disruptions. If we are unable to execute these initiatives as planned, we may not realize all or any of the anticipated benefits, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our acquisitions, divestitures and other strategic transactions may not produce anticipated results, which could have a material adverse effect on our business, financial condition or results of operations. We have made and expect to continue to make acquisitions, divestitures and other strategic transactions to strengthen our business and grow our Company. For example, we completed the Spin-Off of our ATM-business on October 16, 2023. Such transactions present significant challenges and risks, as the market for acquisitions, divestitures and other strategic transactions is highly competitive, especially in light of industry consolidation, which may affect our ability to complete such transactions. If we are unsuccessful in completing such transactions or if such opportunities for expansion do not arise, our business, financial condition or results of operations could be materially adversely affected. If such transactions are completed, the anticipated growth and other strategic objectives of such transactions may not be fully realized or may take longer to realize than expected, and a variety of factors may adversely affect any anticipated benefits from such transactions. Our acquisitions, divestitures and other strategic transactions face difficulties, including, but not limited to, the following:
•disruption to our business and the successful execution of our growth strategy;
•diversion of management’s focus from other business operations;
•increased capital and research and development expenses and resource allocation;
•delays or difficulties in the assimilation and integration of different business operations, corporate cultures, personnel, infrastructures (such as data centers) and technologies or solutions acquired or licensed, while maintaining quality, and designing and implementing appropriate risk management measures;
•failure to retain key employees and talent associated with the current or acquired business;
•incurring significant transaction fees and costs, impairment charges or other losses related to divestitures;
•assuming unintended liabilities;
•the possibility of conflict with joint venture or alliance partners regarding strategic direction, prioritization of objectives and goals, governance matters or operations.
There is risk that the integration and development of new technology or solutions may take longer than anticipated and may not meet estimated growth projections or expectations, or investment recipients may not successfully execute their business plans. Further, we may not achieve the projected efficiencies and synergies once we have integrated the business into our operations, which may lead to the impairment or write down of assets, and other additional costs not anticipated at the time of acquisition.
In the case of a divestiture, we may have difficulty finding buyers or alternative exit strategies on acceptable terms in a timely manner. We may also dispose of a business at a price or on terms that are less desirable than we had anticipated. In addition, we may experience fewer benefits than expected, and the impact of the divestiture on our financial performance may be larger than projected. The failure of acquisitions, divestitures and other strategic transactions to perform as expected could have a material adverse effect on our business, financial condition or results of operations.
SPIN-OFF OF NCR ATLEOS
The Spin-Off of NCR Atleos may not achieve some or all of the expected benefits and may adversely affect our business. On October 16, 2023, we completed the separation of our ATM business through the Spin-Off of NCR Atleos. We may not be able to achieve the full strategic, financial, operational, and other benefits that are expected to result from the Spin-Off, or such benefits may be delayed. We cannot predict with certainty when the benefits expected from the Spin-Off will occur or the extent to which they will be achieved, or that the costs or dis-synergies of the transaction will not exceed the anticipated amounts. If we fail to
achieve some or all of the benefits expected to result from the Spin-Off, or if such benefits are delayed, our business could be harmed. Following the Spin-Off, we are a smaller company with a less diversified product portfolio and a narrower business focus. As a result, we may be more vulnerable to changing market conditions and the other risks impacting our operations, which could materially and adversely affect our business, financial condition and results of operations.
If the Spin-Off fails to qualify for tax-free treatment, it could result in substantial tax liability for the Company and its stockholders. We received an opinion of counsel to the effect that, for U.S. federal income tax purposes, the Spin-Off qualifies for tax-free treatment under certain sections of the Internal Revenue Code. However, the opinion relies on certain facts, assumptions, representations and undertakings from the Company and NCR Atleos, including those regarding the past and future conduct of the companies’ respective businesses and other matters, and the opinion would not be valid if such assumptions, representations and undertakings were incorrect. Furthermore, the opinion is not binding on the Internal Revenue Service (“IRS”) or the courts. If the Spin-Off is determined to be taxable for U.S. federal income tax purposes, the Company’s stockholders that are subject to U.S. federal income tax and the Company could incur significant U.S. federal income tax liabilities. Even if the Spin-Off otherwise qualifies as a tax-free transaction, the distribution would be taxable to us (but not to our stockholders) in certain circumstances if future significant acquisitions of our stock or the stock of NCR Atleos are determined to be part of a plan or series of related transactions that included the Spin-Off. In this event, the resulting tax liability could be substantial. In connection with the Spin-Off, the Company entered into a Tax Matters Agreement with NCR Atleos, pursuant to which NCR Atleos agreed to not enter into any transaction that could cause the Spin-Off or any related transactions to be taxable to us without our consent and to indemnify us for any tax liability resulting from any such transaction. In addition, these potential tax liabilities may discourage, delay or prevent a change of control of us.
The Company may be held liable to NCR Atleos if it fails to perform under its agreements with NCR Atleos, and the performance of such services may negatively affect the Company’s business and operations. In connection with the Spin-Off, the Company and NCR Atleos entered into a separation and distribution agreement and various other agreements (including a transition services agreement, tax matters agreement, employee matters agreement, patent and technology cross-license agreement, trademark license and use agreement, master services agreement) that provide for the performance of certain services by each company for the benefit of the other for a period of time after the Spin-Off. If the Company does not satisfactorily perform its obligations under these agreements, it may be held liable for any resulting losses suffered by NCR Atleos, subject to certain limits. In addition, during the transition services periods under these agreements, the Company’s management and employees may be required to divert their attention away from its business in order to provide services to NCR Atleos, which could adversely affect the Company’s business.
Potential indemnification obligations to NCR Atleos or a refusal of NCR Atleos to indemnify us pursuant to agreements executed in the Spin-Off could materially adversely affect us. Pursuant to the separation and distribution agreement and certain other agreements the Company entered into with NCR Atleos in connection with the Spin-Off, the Company and NCR Atleos agree to indemnify the other for certain liabilities. The indemnities from NCR Atleos for our benefit may not be sufficient to protect us against the full amount of such liabilities, and NCR Atleos may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from NCR Atleos any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. In addition, our indemnity obligations to NCR Atleos may be significant. Each of these risks could negatively affect our business, financial condition or results of operations.
BUSINESS OPERATIONS
Data Privacy and Cybersecurity.Cybersecurityprotection, cybersecurity and data privacy issues could negatively impact our business.business. Our products and services, including our cloud and hosted solutions as well as our payments and networking solutions, facilitate financial and other transactions for the customers in the industries we serve. As a result, we collect, use, transmit and store certain of the transaction and personal informationdata of our customers and the end-users of our solutions.end-users. We also may have access to transaction and personal informationdata of our customers and their customers through or in the course of servicing our products or third partythird-party products. Additionally, we collect, use and store personal informationdata of our employees and the personnel of our business partners, such as resellers, suppliers and contractors, in the ordinary course of business. While we have programs and measures in place designed to protect and safeguard this data, and while we have implemented access controls designed to limit the risk of unauthorized use or disclosure by employees and contractors, the techniques used to obtain unauthorized access to this data are complex and changing, as are the underlying objectives of the attacker, like targeted business disruption, financial impact, intellectual property theft, political motives, or sophisticated nation-state sponsored and organized cyber-criminal activity, and may be difficult to detect for long periods of time. An attack, disruption, intrusion, denial of service, theft or other breach, or an inadvertent act by an employee or contractor, could result in unauthorized access to, or
disclosure of, this data, resulting in claims, costs and reputational harm that could materially and adverselynegatively affect our operating results. We may also detect, or may receive notice from third parties (including governmental agencies) regarding potential vulnerabilities in our information technology systems, our products, or third partythird-party products used in conjunction with our products.products or our business. In the course of our business activities, the Company contracts with numerous suppliers, vendors and resellers who may experience a cybersecurity, data
protection or privacy issue that could negatively affect our operating results. Even if these potential vulnerabilities do not result in a data breach, their existence can adversely affect customermarketplace confidence and our reputation in the marketplace.reputation. To the extent such vulnerabilities require remediation, such remedial measures could require significant resources and may not be implemented before such vulnerabilities are exploited. As the cybersecurity landscape evolves, we may also find it necessary to make significant further investments to protect datainformation and infrastructure.
Like most companies, the Company is regularly the subject of cyberattacks, which may involve personal data. Most cyberattacks are detected, prevented or mitigated by the Company’s various information technology and data protections, including but not limited to firewalls, intrusion prevention systems, denial of service detection, anomaly based detection, anti-virus/anti-malware, endpoint encryption and detection and response software, Security Information and Event Management (“SIEM”) system, identity management technology, security analytics, encryption and multi-factor authentication. There can be no assurance that our protections will be successful.
On April 13, 2023, the Company determined that a single data center outage impacting certain of its commerce customers was caused by a cyber ransomware incident. Upon such determination, the Company immediately started contacting customers, enacted its cybersecurity protocol and engaged outside experts to contain the incident and begin the recovery process. Following an extensive investigation which included Company experts, external forensic cybersecurity experts and federal law enforcement, among others, the Company concluded that this incident impacted operations for some customers only with respect to specific Aloha cloud-based services and Counterpoint. Functionality has been fully restored to customers, and we built a new cloud environment to host the affected applications.
We have incurred certain expenses related to the cyber ransomware incident and may incur additional costs relating to this incident in the future, including payment of damages or other costs to customers or others, any of which could materially and adversely impact our business, financial condition or results of operations. We continue to assess the incident and cannot definitively determine, at this time, the full extent of the impact from such event on our business, results of operations or financial condition or whether such impact will ultimately have a material adverse effect. With regard to this incident, factors that could cause actual results to differ materially from those expressed or implied include (i) future claims from customers or other third parties, (ii) legal, reputational and financial risks resulting from the incident, (iii) the effectiveness of business continuity plans and cybersecurity risk management policies during the incident, (iv) the possibility that we will identify materially adverse findings arising from this incident that are not known to us on the date hereof.
The Company has established relationships with cybersecurity firms and internal cybersecurity experts, which it engages in connection with certain suspected incidents. The costs arising from those engagements, which depending on the incident may include both investigatory and remedial efforts, have not to date been material to the Company. The Company also regularly undergoes evaluation of its protections against incidents, including both self-assessments and expert third-party assessments, and it regularly enhances those protections, both in response to specific threats and as part of the Company’s efforts to stay current with advances in cybersecurity defense. When the Company experiences a confirmed cybersecurity incident it generally performs root cause analyses and in appropriate instances will implement additional controls based on those analyses. There can be no assurance that the Company or its cybersecurity consultants will be able to prevent or remediate all future incidents or that the cost associated with responding to any such incident will not be significant.
The personal information and other data that we process and store also is increasinglyare subject to the data security and data privacy obligations and laws of many jurisdictions, including the United Stateswhich are growing in complexity and sophistication as data becomes more enriched and technology and the EU and its member states.global data protection landscape evolves. These laws may provide a private right of action for individuals alleging a breach of privacy rights, which may increase the likelihood of, and risks associated with, data breach litigation. These laws may also conflict with one another, and many of them are subject to frequent modification and differing interpretations. The laws include the EU’s General Data Protection Regulation (GDPR), which goes into effect in May 2018. The GDPR is expected to impose a significant compliance burden on many companies with operations inand include, for example, the EU,European Union’s (“EU”) General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act and it includes fines of up to 20 million Euros or up to 4% of the annual global revenues of the infringer for failures to comply. The laws also cover the transfer of personal information, including transfers of employee information between us and our subsidiaries, across international borders, including with respect to the EU, Australia and Japan.Brazilian General Data Protection Law. Complying with these evolving and varying requirementsstandards could require significant expense and effort, and could require us to change our business practices or the functionality of our products and services in a manner adverse to our customers and our business. In addition, violations of these laws can result in significant fines, penalties, claims by regulators or other third parties,third-party lawsuits alleging significant damages, and damage to our brand and business. The GDPR, for example, includes fines of up to €20 million or up to 4% of the annual global revenues of the infringer for failure to comply, and grants corrective powers to supervisory authorities including the ability to impose a limit on processing of personal data. The laws also cover the transfer of personal, financial and business information, including transfers of employee information between us and our subsidiaries, across international borders.
Defects, ErrorsThe regulatory framework governing the collection, processing, storage, use, and Disruptions.sharing of certain information, particularly financial and other personal information, is rapidly evolving and is likely to continue to be subject to uncertainty and varying
interpretations. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform capabilities. Complying with these requirements and changing our policies and practices may be onerous and costly, and we may not be able to respond quickly or effectively to regulatory, legislative, and other developments. These changes may in turn impair our ability to offer our existing or planned features, products, and services, and/or increase our cost of doing business. In addition, any failure or perceived failure by us, or any third parties with which we do business, to comply with our posted privacy statements or notices, changing consumer expectations, evolving laws, rules and regulations, industry standards, or contractual obligations to which we or such third parties are or may become subject, may result in actions or other claims against us by governmental entities or private actors, the expenditure of substantial costs, time, and other resources or the incurrence of significant fines, penalties, or other liabilities. Any such action, particularly to the extent we were found to have engaged in violations or otherwise liable for damages, would damage our reputation and adversely affect our business, financial condition, and results of operations.
The use of artificial intelligence and machine learning technologies, including generative artificial intelligence, has increased rapidly with increasing complexity and changes in the nature of the technology. Our use of artificial intelligence and machine learning is subject to various risks including the use of personal information, flaws in our models or datasets that may result in biased or inaccurate results, ethical considerations regarding artificial intelligence, and our ability to safely deploy and implement governance and controls for artificial intelligence systems. Additionally, laws and regulations related to automated decision making, artificial intelligence (including the EU Artificial Intelligence Regulation) and machine learning are still evolving and there is uncertainty as to new laws and regulations that will be adopted and the application of existing laws and regulations, which may restrict or impose burdensome and costly requirements on our ability to use artificial intelligence and machine learning. Adverse consequences of these risks related to artificial intelligence and machine learning could undermine the decisions, predictions or analysis such technologies produce and subject us to competitive harm, legal liability, heightened regulatory scrutiny and brand or reputational harm.
Our business may be negatively affected by domestic and global economic and credit conditions. Our business is sensitive to the strength of domestic and global economic and credit conditions, particularly as they affect, either directly or indirectly, the financial, retail and restaurant sectors of the economy. Economic and credit conditions are influenced by a number of factors, including political conditions, consumer confidence, unemployment levels, interest rates, tax rates, commodity prices and government actions to stimulate economic growth. The imposition or threat of protectionist trade policies or import or export tariffs, global and regional market conditions and spending trends in the financial, retail and restaurant industries, new tax legislation across multiple jurisdictions, modified or new global or regional trade agreements, fluctuations in oil and commodity prices, among other things, have created a challenging and unpredictable environment in which to market the products and services of our various businesses across our different geographies and industries. A negative or unpredictable economic climate could create uncertainty or financial pressures that impact the ability or willingness of our customers to make capital expenditures, thereby affecting their decision to purchase or roll out our products or services or, especially with respect to smaller customers, to pay accounts receivable owed to the Company. Additionally, if financial institutions respond to a negative or unpredictable economic climate by consolidation, it could reduce our base of potential customers. Negative or unpredictable global economic conditions also may have an adverse effect on our customers’ ability to obtain financing for the purchase of our products and services from third party financing companies or on the number of payment processing transactions which could negatively impact our operating results.
In addition, international, regional or domestic political unrest and the related potential impact on global stability, terrorist attacks and the potential for other hostilities in various parts of the world, public health crises and natural disasters continue to contribute to a climate of economic and political uncertainty that could adversely affect our results of operations and financial condition, including our revenue growth and profitability.
We derive a portion of our revenues from customers in the financial services industry, and any downturn, consolidation or decrease in technology spend in the financial services industry could harm our business. We derive a portion of our revenues from financial institutions, whose industry has experienced significant pressure in recent years due to economic and political uncertainty, liquidity concerns and increased regulation. In the recent past, financial institutions have experienced consolidation, distress and failure, and very few new financial institutions are being created. It is possible these conditions may continue into the future, and even if conditions improve for financial institutions, there can be no guarantee that these conditions will not reoccur. If any of our customers fail or merge with, or are acquired by, other entities, such as financial institutions that have internally developed banking technology solutions or that are not our customers or use our solutions less, our business, financial condition and results of operations could be materially and adversely affected. Financial institutions increasingly face competition from non-depository institutions or other innovative products or emerging technologies, such as cryptocurrencies, which may reduce the number of transactions using their more traditional financial services. It is also possible that consolidation among financial institutions could decrease the number of registered users by causing registered users to opt for fewer and deeper financial institution relationships, and larger financial institutions that result from business combinations could have greater leverage in
negotiating price or other terms with us or could decide to replace some or all of the elements of our solutions. Our business, financial condition and results of operations could also be materially and adversely affected by weak economic conditions in the financial services industry. Any downturn in the financial services industry may cause potential new clients and existing clients to forego or delay purchasing our solutions or reduce the amount of spend with us, which could materially and adversely affect our business, financial condition and results of operations.
Disruptions in our data center hosting and public cloud facilities could adversely affect our business. Our software products are increasingly being offered and provided on a cloud or other hosted basis through data centers operated by the Company or third parties in the United States and other countries. In addition, certain applications and data that we use in our services offerings and our operations may be hosted or stored at such facilities. These facilities may be vulnerable to natural disasters, including those exacerbated by the effects of climate change, telecommunications failures and similar events, or to armed hostilities or intentional acts of misconduct, such as security incidents (including the ransomware incident announced April 17, 2023) or interference (including by disgruntled employees, former employees or contractors). The occurrence of these events or acts, or any other unanticipated problems, at these facilities could result in damage to or the unavailability of these cloud hosting facilities. Such damage or unavailability could, despite existing disaster recovery and business continuity arrangements, interrupt the availability of our cloud offerings for our customers. We have experienced such interruptions and damage or unavailability which interrupt the availability of applications or data necessary to provide services or conduct critical operations. Interruptions in the availability of our data center or cloud offerings or our ability to service our customers could result in the failure to meet contracted up-time or service levels, which could cause us to issue credits or pay damages or penalties or cause customers to terminate or not renew subscriptions. Interruptions could also expose us to liability claims from customers and others, payment of damages or other amounts, negative publicity and the need to engage in costly remediation efforts, any of which could impact our business and reduce our revenue.
If we are unable to maintain and update our information technology systems to meet the needs of our business, our business could be adversely impacted. We rely on our information technology systems and certain third-party systems to effectively operate our business. We are currently in the process of reviewing and modernizing certain of our information technology systems and processes in order to simplify and improve our operations. There is a risk, however, that these efforts could materially and adversely disrupt our operations, could occur over a period longer than planned, or require greater than expected investment and other internal and external resources. It may take longer to realize the intended favorable benefits from these efforts than we expected. Our failure to properly and efficiently maintain and update our information technology systems, or the failure of our information technology systems to perform as we anticipate, could hinder our ability to attract new customers, cause us to incur legal liability, contractual penalties or cause us to lose existing customers, each of which could have a material adverse effect on our business, results of operations and financial condition.
If we do not retain key employees, or attract quality new and replacement employees, we may not be able to meet our business objectives.Our employees are vital to our success, including the successful execution of our transformative business strategy. Therefore, our ability to retain our key business leaders and our highly skilled software development, technical, sales, consulting and other key personnel, including key personnel of acquired businesses, is critical. Maintaining an inclusive culture and work environment is an important factor in attracting employees and retention. The market for highly skilled workers and leaders in our industry is extremely competitive, and we may need to invest significant amounts of cash and equity to attract and retain new employees. We may never realize returns on these investments. Key employees may decide to leave the Company for other opportunities or may be unavailable for health or other reasons. Changes of key business leaders could be disruptive to our business or delay the execution of our strategy, and as a result could cause fluctuation in our stock price. In addition, as our business model evolves, we may need to attract employees with different skill sets, experience and attributes to support that evolution. If we are unable to retain our key personnel, or we are unable to attract highly qualified new and replacement employees by offering competitive compensation, secure work environments, and leadership opportunities now and in the future, our business and operating results could be negatively impacted.
Defects, errors, installation difficulties or development delays could expose us to potential liability, harm our reputation and negatively impact our business. Many of our products are sophisticated and complex, and may incorporate third-party hardware and software. Despite testing and quality control, we cannot be certain that defects or errors will not be found in our products. If our products contain undetected defects or errors, or otherwise fail to meet our customers’ expectations, we could face the loss of customers, liability exposure and additional development costs. If defects or errors delay product installation or make it more difficult, we could experience delays in customer acceptance, or if our products require significant amounts of customer support, it could result in incremental costs to us. In addition, our customers who license and deploy our software may do so in both standard and non-standard configurations in different environments with different computer platforms, system management software and equipment and networking configurations, which may increase the likelihood of technical difficulties. Our products may be integrated with other components or software, and, in the event that there are defects or errors, it may be difficult to determine the origin of such defects or errors. Additionally, damage to, or failure or unavailability of, any significant aspect of our cloud hosting
facilities could interrupt the availability of our cloud offerings, which could cause disruption for our customers, and, in turn, their customers, and expose us to liability. If any of these risks materialize, they could result in additional costs and expenses, exposure to liability claims, diversion of technical and other resources to engage in remediation efforts, loss of customers or negative publicity, each of which could negatively impact our business and operating results.
DisruptionsIf third party suppliers upon which we rely are not able to fulfill our needs, our ability to timely bring our products to market could be affected. There are a number of vendors providing the services and producing the parts and components that we utilize in or in connection with our data center hosting facilities could adversely affect our business. Our software productsproducts. However, there are increasingly being offeredsome services and provided on a cloudcomponents that are licensed or purchased from single sources due to price, quality, technology, functionality or other hosted basis through data centers operated by the Company or third partiesreasons. For example, we depend on transaction processing services from Accenture, computer chips and microprocessors from Intel and operating systems from Microsoft. Certain parts and components used in the United States and other countries.delivery of many of our retail solutions are also supplied by single sources. In addition, certainthere are a number of key suppliers for our businesses that provide us with critical products for our solutions. If we were unable to secure the applicationsnecessary services or maintain current demand, including contract manufacturing, parts, software, components or products from a particular vendor, and data that we use inhad to find an alternative supplier, our services offeringsnew and our operations may be hosted or stored at such facilities. These facilities may be vulnerable to natural disasters, telecommunications failuresexisting product shipments and similar events, or to intentional acts of misconduct, such as security breaches or attacks. The occurrence of any of these events or acts, or any other unanticipated problems, at these facilities could result in damage tosolution deliveries, or the unavailabilityprovision of these cloud hosting facilities. Such damage or unavailabilitycontracted services, could despite existing disaster recoverybe delayed, impacting our business and business continuity arrangements, interrupt the availability of our cloud offerings for our customers. operating results.
We have, from time to time, experiencedformed alliances with third parties that have complementary products, software, services and skills. These alliances represent many different types of relationships, such interruptionsas outsourcing arrangements to manufacture hardware and theysubcontract agreements with third parties to perform services and provide products and software to our customers in connection with our solutions. These alliances introduce risks that we cannot control, such as nonperformance by third parties and difficulties with or delays in integrating elements provided by third parties into our solutions. Lack of information technology infrastructure, shortages in business capitalization, and manual processes and data integrity issues, particularly with smaller suppliers can also create product time delays, inventory and invoicing problems, and staging delays, as well as other operating issues. The failure of third parties to provide high-quality products or services that conform to required specifications or contractual arrangements could impair the delivery of our solutions on a timely basis, create exposure for non-compliance with our contractual commitments to our customers and impact our business and operating results. Also, some of these third parties have access to confidential Company and customer data, personal data, and sensitive data, the integrity and security of which are of significant importance to the Company.
Our payments-related business subjects us to additional regulatory requirements and other risks and uncertainties that could be costly and difficult to comply with or that could harm our business. The majority of the electronic debit networks over which transactions are conducted require sponsorship by a bank, and the financial condition and results of operations of any sponsors and/or the inability to find a replacement may occurcause disruptions to our operations. In addition, bank sponsorship is required in order to process transactions over certain networks and payments solutions depend on our ability to secure these “sponsor” arrangements with financial institutions. Interchange fees may be lowered in some cases at the discretion of the various EFT networks through which transactions are routed, or through potential regulatory changes, thus reducing future revenues and operating profits. Future changes in interchange rates, some of which we have minimal or no control over, could have an adverse impact on our operations and cash flows. Non-compliance with established EFT network rules and regulations could expose us to fines, penalties or other liabilities and could negatively impact results of our operations and new EFT network rules and regulations could require significant amounts of capital to remain in compliance with such rules and regulations. Errors or omissions in the future.settlement of merchant funds could damage relationships with customers and expose us to liability. In addition, anywe are responsible for maintaining accurate bank account information for certain merchant customers and accurate settlements of funds into these accounts based on the underlying transaction activity. We are subject to certain consumer protection requirements such damage or unavailability could interruptas oversight by the availability of applications or data necessary to provide services or conduct critical operations. Interruptions inConsumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) and the availabilitycustomer-facing nature of our cloud offeringspayments-related business subjects us to increased risks of disputes with consumers, including litigation and class action litigation, and significant costs to address such matters.
Our international operations subject us to additional risks that can adversely affect our business, financial condition and results of operations. For the years ended December 31, 2023 and 2022, the percentage of our revenue from outside of the United States was 33%, respectively. Our international operations subject us to a variety of risks and challenges, including:
•the impact of ongoing and future economic and credit conditions on the stability of national and regional economies and industries within those economies;
•political conditions and local regulations that could adversely affect demand for our solutions, our ability to access funds and resources, or our ability to servicesell products in these markets;
•the impact of a downturn in the global economy, or in regional economies, on demand for our customersproducts;
•competitive labor markets and increasing wages in markets that we operate in;
•currency exchange rate fluctuations that could result in lower demand for our products as well as generate currency translation losses;
•limited availability of local currencies to pay vendors, employees and third parties and to distribute funds outside of the failurecountry;
•changes to global or regional trade agreements that could limit our ability to sell products in these markets;
•the imposition of import or export tariffs, taxes, trade policies or import and export controls that could increase the expense of, or limit demand for our products;
•changes to and compliance with a variety of laws and regulations that may increase our cost of doing business or otherwise prevent us from effectively competing internationally;
•government uncertainty or limitations on the ability to enforce legal rights and remedies, including as a result of new, or changes to, laws and regulations;
•reduced protection for intellectual property rights in certain countries;
•implementing and managing systems, procedures and controls to monitor our operations in foreign markets;
•changing competitive requirements and deliverables in developing and emerging markets;
•longer collection cycles and the financial viability and reliability of contracting partners and customers;
•managing a geographically dispersed workforce, work stoppages and other labor conditions or issues;
•disruptions in transportation and shipping infrastructure; and
•the impact of natural disasters, catastrophic events, civil unrest, war and terrorist activity on supply chains, the economy or markets in general, or on our ability, or that of our suppliers, to meet contracted up-timecommitments.
These risks and challenges could result in an increase in our cost of doing business internationally, including shortages and increased costs of products and components, shipping delays, longer payment cycles, increased taxes, and restrictions on the repatriation of funds to the United States. In addition, our business is exposed to health epidemics and pandemics (such as the COVID-19 pandemic), war, terrorism, civil insurrection or service levels,social unrest, and other significant business interruptions that could lead to disruption, instability and volatility in the global economy and negatively impact us, and our suppliers, partners, and customers. We have employees and third-party consultants outside of the U.S. that provide software development and support services. A sustained loss of the software development services provided by international employees and third-party consultants could negatively impact our software development efforts, adversely affect our competitive position, harm our reputation, impede our ability to achieve and maintain profitability, and negatively impact our business, financial condition, and results of operations.
Our risk management efforts may not be fully effective in mitigating our risk exposure, which could cause us to issue credits or pay penalties, or cause customers to terminate or not renew subscriptions. Interruptions could also expose us to losses and liability claims, negative publicity and otherwise harm our business. We provide our customers with the needlatest innovations and technologies required to engagecompete successfully and grow their businesses. Accordingly, our risk management policies, procedures, techniques, and processes may not be sufficient to identify all of the risks to which we are exposed, to enable us to mitigate the risks we have identified, or to identify additional risks to which we may become subject in costly remediation efforts,the future as we expand our product and services offerings. If any of our risk management policies and processes are ineffective, or if we are not successful in identifying and mitigating all risks to which we are or may be exposed, we may suffer uninsured liability or harm to our reputation, or be subject to litigation or regulatory actions, any of which could impactadversely affect our business, financial condition, and results of operations.
A major natural disaster or catastrophic event could have a materially adverse effect on our business, financial condition and results of operations, or have other adverse consequences. Our business, financial condition, results of operations, access to capital markets and borrowing costs may be adversely affected by a major natural disaster or catastrophic event, including civil unrest, geopolitical instability, war, terrorist attack, pandemics or other (actual or threatened) public health emergencies such as the COVID-19 outbreak, or other events beyond our control, and measures taken in response thereto.
A significant natural disaster, such as an earthquake, fire, flood or hurricane could have a material and adverse effect on our business and reduce our revenue.insurance coverage may be insufficient to compensate us for losses that may occur. Global climate change is resulting in certain types of natural disasters occurring more frequently or with more intense effects. We have operations all over the world and our sites in California, Texas, Florida, and India are particularly vulnerable to climate change effects. Acts of terrorism could also cause disruptions in our businesses or those of our customers, consumer demand or the economy as a whole. We may not have sufficient protection or recovery plans in some circumstances. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our headquarters or facilities could result in lengthy interruptions in access to or functionality of our platform or could result in related liabilities, and our business, financial condition or results of operations could be adversely affected.
IndebtednessOur historical manufacturing activities subject us to environmental exposures. Our facilities and Repurchase Obligations.operations are subject to a wide range of environmental protection laws, and we have investigatory and remedial activities underway at a number of facilities that we currently own or operate, or formerly owned or operated, to comply, or to determine compliance, with such laws. In addition, our products are subject to environmental laws in a number of jurisdictions. Given the uncertainties inherent in such activities, there can be no assurances that the costs required to comply with applicable environmental laws will not impact future operating results. We
have also been identified as a potentially responsible party in connection with certain environmental matters, including the Kalamazoo River matter, as further described in Note 11, “Commitments and Contingencies”, of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report; in “Government Regulations” within Item 1 of Part I of this Report; and in “Environmental and Legal Contingencies” within the “Critical Accounting Estimates” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II of this Report, and we incorporate such disclosures by reference and make them a part of this discussion of risk factors.
FINANCE & ACCOUNTING
Our level of indebtedness could limit our financial and operating activities and adversely affect our ability to incur additional debt to fund future needs.At December 31, 2017,2023, we had approximately $3.01$2.6 billion of total indebtedness outstanding. Additionally, atAt December 31, 2017,2023, we had approximately $1.10 billion$351 million of secured debtrevolving credit commitments undrawn and available for borrowing under our senior secured revolving credit facility, and approximately $200 million of secured debt available for borrowing under our trade receivables securitization facility. ThisOur current level of indebtedness could:
•require us to dedicate a substantial portion of our cash flow to the payment of principal and interest, thereby reducing the funds available for operations and future business opportunities;
•make it more difficult for us to satisfy our obligations with respect to our outstanding debt, including obligations to repurchase our senior unsecured notes includingunder our changeindentures following the occurrence of certain changes in control repurchase obligations;control;
•limit our ability to borrow money or otherwise enter into financing arrangements that would provide us with additional moneycapital if needed for other purposes, including working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes, on satisfactory terms or at all;
•limit our ability to adjust to changing economic, business and competitive conditions;
•place us at a competitive disadvantage with competitors who may have less indebtedness or greater access to financing;financing or access to financing on preferential terms;
•make us more vulnerable to an increase in interest rates, a downturn in our operating performance or a decline in general economic, business and other conditions; and
•make us more susceptible to adverse changes in our credit ratings and those of our debt securities, which could impact our ability to obtain financing in the future and increase the cost of such financing.
If compliance with our obligations under our debt obligationsand other financing agreements materially limits our financial or operating activities, or hinders our ability to adapt to changing industry conditions, we may lose market share, our revenue may decline and our operating results may be negatively affected.
The terms of the documents governing our indebtedness include financial and other covenants that could restrict or limit our financial and business operations.Our credit agreement governing the senior secured credit facilityfacilities and the indentures for our senior unsecured notes include restrictive covenants that, subject to certain exceptions and qualifications, restrict or otherwise limit our ability and the ability of our subsidiaries to, among other things:
•incur additional indebtedness;
•create liens on, sell or otherwise dispose of, our assets;
•engage in certain fundamental corporate changes or changes to our business activities;
•make certain investments or material acquisitions;(including acquisitions);
•engage in sale-leaseback or hedging transactions;
•repurchase our common stock, pay dividends or make similar distributions on our capital stock;
•repay certain indebtedness;
•engage in certain affiliate transactions; and
•enter into agreements that restrict our ability to create liens, pay dividends or make loan repayments.
The senior secured credit facilityagreement and the indentures governing our senior unsecured notes also contain certain affirmative covenants, and the senior secured credit facilityagreement requires us to comply with financial coverage ratios regarding both our interest expense anda leverage ratio that measures our debt relative to our Consolidated EBITDA (as defined in the senior secured credit facility)agreement).
These covenants and restrictions could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise. Additionally, our ability to comply with these covenants may be affected by events beyond our control, including general economic and credit conditions and industry downturns.
In addition, under our trade receivables securitization facility, we are required, among other things, to maintain certain financial tests relating to the three month rolling average ratio of defaults, delinquencies, dilution and days sales outstanding of the receivables pool (as such ratios and tests are described in the agreement governing our trade receivables securitization facility).
If we fail to comply with these covenants and are unable to obtain a waiver or amendment from the applicable lenders,debtholders, an event of default would result under thesethe applicable agreements and under other agreements containing related cross-default provisions.
•Upon an event of default under the senior secured credit facility,agreement, the administrative agent or the required lenders could, among other things, declare outstanding amounts due and payable, refuse to lend additional amounts to us,terminate the commitments under the senior secured credit agreement, or require us to deposit cash collateral in respect of outstanding letters of credit. Upon a bankruptcy or insolvency event of default under the senior secured credit agreement, all outstanding amounts thereunder become due and payable and all commitments thereunder automatically terminate. If we were unable to repay or pay the amounts due, the administrative agent or the lenders could, among other things, proceed against the collateral granted to them to secure such indebtedness, which includes certain of our domestic assets and the equity interests of certain of our domestic and foreign subsidiaries.
•Upon an event of default under the indentures governing our senior unsecured notes, the related trustee or the holders of our senior unsecured notes could declare all outstanding amounts immediately due and payable.
Upon an event of default under our trade receivables securitization facility, the lenders could, among other things, terminate the facility, declare all capital and other obligations to be immediately due and payable, replace us as servicer, take over receivables lock-box accounts and redirect the collections of domestic accounts receivable from those accounts, and exercise available rights against the domestic accounts receivable pledged by NCR Receivables, LLC.
Despite our current levels of debt, we may still incur substantially more debt, including secured debt, and similar liabilities, which would increase the risks described in these risk factors relating to indebtednessindebtedness. Although the agreements governing our senior secured credit facilities and repurchase obligations. The agreements relating to our debt limit, but do not prohibit,senior unsecured notes include restrictions on our ability to incur additional debt, andthose agreements do not prohibit us from incurring additional debt or pursuing other financing arrangements. As a result, the amount of additional debt and other obligations that we could incur could be substantial. In addition, certain types of liabilities are not considered “Indebtedness” under our senior secured credit facilityagreement or the indentures governing our senior unsecured notes, and theour senior secured credit facilityagreement and indentures do not impose any limitation on the amount of liabilities incurred by theour subsidiaries, if any, that might beare designated as “unrestricted subsidiaries” (as defined inunder our senior secured credit agreement or indentures, as applicable. Accordingly, to the indentures). Accordingly,extent permitted under our senior secured credit agreement or indentures governing our unsecured notes, we could incur significant additional debt, liabilities or similar liabilitiesobligations in the future, includingsome of which could constitute secured debt (such as additional debt under our senior secured credit facility, some of which could constitute secured debt.agreement). In addition, if we form or acquire any subsidiaries in the future, those subsidiaries also could incur debt or similar liabilities. If new debt or similar liabilities are added to our current debt levels, the related risks that we now face could increase.
We may, from time to time, seek to opportunistically refinance, amend, reprice and/or otherwise replace any of our debt, obtain additional debt financing or enter into other financing arrangements, reduce or extend our debt, lower our interest payments or the cost of capital available to us under certain types of financing arrangements, or otherwise seek to improve our financial position or the terms of our debt or other financing agreements. These actions may include open market debt repurchases, negotiated repurchases, or other repayments, redemptions or retirements of our debt or other financing arrangements. The amount of debt that may be borrowed or issued, refinanced, and/or repurchased, repaid, redeemed or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with our debt covenants and other considerations. Any such actions could impact our financial condition or results of operations.
If we are unable to continue to access or renew financing sources and obtain capital, our ability to maintain and grow our business may be impaired. We use debt and other sources of financing to maintain and grow our business. There can be no assurance that we will be able to renew our senior secured credit facilities after their current maturity dates on acceptable terms, or at all, or that we will be able to obtain additional or replacement financing on acceptable terms or at all. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, our financial position, our results of operations, and the capacity for additional borrowing or other forms of financing under our existing financing arrangements. If our various financing alternatives were to become limited or unavailable, we may be unable to maintain or grow our business and our operations could be materially adversely affected.
Our cash flows may not be sufficient to service our indebtedness, and if we are unable to satisfy our obligations under our indebtedness, we may be required to seek other financing alternatives, which may not be successful.Our ability to make timely payments of principal and interest on our debt obligations depends on our ability to generate positive cash flows from operations, which is subject to general economic conditions, competitive pressures and certain financial, business and other factors, which may include factors beyond our control. If our cash flows and capital resources are insufficient to make these payments, we may be required to seek additional financing sources, reduce or delay capital expenditures, sell assets or operations or refinance our indebtedness. These actions could have a materialan adverse effect on our business, financial condition and results of operations. In addition, we may not be able to take any of these actions, and, even if successful, these actions may not permit us to meet our scheduled debt
service obligations. Our ability to restructure or refinance our outstanding indebtedness will depend on, among other things, the condition of the capital markets and our financial condition at such time. There can be no assurance that we will be able to restructure or refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot make scheduled payments on our debt, we will be in default and the outstanding principal and interest on our debt could be declared to be due and payable, in which case we could be forced into bankruptcy or liquidation or required to substantially restructure or alter our business operations or debt obligations.
Borrowings under our senior secured credit facility and trade receivables securitization facilityfacilities bear interest at a variable rate which subjects us to interest rate risk, which could cause our debt service obligations or other costs of capital under our senior secured credit facilities to increase significantly.All of our borrowings under our senior secured credit facility and trade receivables securitization facilityfacilities are atpriced using variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on this variable rate indebtedness would increase even thoughif the amount borrowed remainedwere to remain the same. Although we may enter into interest rate swaps or similar instruments to reduce interest rate volatility in connection with our variable rate borrowings,financing arrangements, we cannot provide assurances that we will be able to do so or that such swaps or instruments will be effective.
WeThe terms governing our trade receivables facility, including the length of term, financial and other covenants, and obligations to remit collections on the sold receivables could restrict or otherwise limit our financial and business operations. During 2021, we amended our trade receivables facility to allow, among other things, one of our wholly-owned, bankruptcy remote special purposes entities (an “SPE”) to sell to PNC and other participating financial institutions an undivided ownership interest in a portion of the trade receivables owned by such SPE, in an amount not to exceed $288 million at any point in time. Our trade receivables facility has a term of two years and contains customary termination events, including termination events that are based on the performance of the pool of receivables, including the pool’s satisfaction of certain financial tests relating to the three-month rolling average ratios of defaults, delinquencies, dilution and days’ sales outstanding. If we fail to renew our trade receivable facility or a termination event occurs and we are unable to obtain a waiver or amendment from the applicable purchasers, we would be required to continue remitting collections to the purchasers until the facility was terminated, and we would no longer benefit from the liquidity provided to us by the ability to sell our receivables. Such a result could negatively impact the cash that we have available to use in our financial and business operations. A termination event under the trade receivables facility would also result in an event of default or a termination event under other agreements containing related cross-default provisions.
Certain changes in control may not be ableresult in an acceleration of our indebtedness or our obligations under other financing arrangements, or may require us to raise the funds necessary to finance a required repurchase of our senior unsecured notes or our Series A Convertible Preferred Stock.Upon the occurrence of a change in control under the applicable indenture governing the applicable senior unsecured notes, holders of those notes may require us to repurchase their notes. 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 such date, holders of our Series A Convertible Preferred Stock will have the right to require us to repurchase any or all of our outstanding Series A Convertible Preferred Stock. In addition, upon certain change of control events involving the Company, holders of Series A Convertible Preferred Stock can require us, subject to certain exceptions, to repurchase any or all of their Series A Convertible Preferred Stock.
It is possible that we would not have sufficient funds at the time that we are required to make any such purchase of notes or Series A Convertible Preferred Stock (or both). We cannot assure the holders of the senior unsecured notes and Series A Convertible Preferred Stock that we will have sufficient financial resources, or will be able to arrange financing, to pay the repurchase price in cash with respect to any such notes or Series A Convertible Preferred Stock that holders have requested to be repurchased upon a change in control or scheduled redemption. Our failure to repurchase the senior unsecured notes of a series when required would result in an event of default with respect to such notes which could, in turn, constitute a default under the terms of our other indebtedness, if any. If we are unable to repurchase all shares of Series A Convertible Preferred Stock that holders have requested to be purchased, then we are required to pay dividends on the shares not repurchased at a rate equal to 8.0% per annum, accruing daily from such date until the full purchase price, plus all accrued dividends, are paid in full in respect of such shares of Series A Convertible Preferred Stock.
In addition, a change in control (i) may constitute an event of default under our senior secured credit facility and our trade receivables securitization facilityagreement that would permit the lenders to accelerate the maturity of the borrowings thereunder and/or terminate the commitments under the senior secured revolving credit facility, (ii) may constitute a termination event under our trade receivables facility that would permit the purchasers to declare the capital they have invested in our receivables to be due and wouldowing and (iii) may require us to make a similar change in control offer to holders of our existing senior unsecured notes.
Certain important corporate events, such as leveraged recapitalizationsrecapitalization that would increase the level of our indebtedness, may not constitute a change in control under the indentures governing our securedunsecured notes or the terms of our Series A Convertible Preferred Stock.
A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowingcapital costs and reduce our access to capital.Any rating assigned to our debt could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing.financing or capital from other financing arrangements.
Operating Results Fluctuations.Our revenue,We may be required to write down the value of certain significant assets, which would adversely affect our operating results, and margins could fluctuate forresults. We have a number of reasons, including those described below:
Seasonality. Our sales are historically seasonal, with lower revenue insignificant assets on our balance sheet as of December 31, 2023 and the first quarter and higher revenue in the fourth quartervalue of each year. Such seasonality also causes our working capital cash flow requirementsthese assets can be adversely impacted by factors related to vary from quarter to quarter depending on the variability in the volume, timing and mix of product sales. In addition, revenue in the third month of each quarter is typically higher than in the first and second months, particularly as our business model shifts to include more software and cloud solutions. These factors, among other things, may adversely affect our ability to manage working capital, make our forecasting process more difficult and impact our ability to predict financial results accurately.
Income Taxes. We are a United States based multinational company subject to income taxes in the United States and a number of foreign jurisdictions. Our domestic and international tax liabilities are dependent on the distribution of our earnings among these different jurisdictions, and our provision for income taxes and cash tax liability could be adversely affected if the distribution of earnings is higher than expected in jurisdictions with higher statutory tax rates.
On December 22, 2017, the U.S. President signed into law new legislation, referred to as the Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform"), that significantly revises the Internal Revenue Code of 1986, as amended. Among other things, the new legislation reduces the U.S. corporate income tax rate, subjects interest deductions to potential limitations, alters the expensing of capital expenditures, adopts elements of a territorial tax system, includes a one-time mandatory deemed repatriation tax on accumulated non-U.S. earnings of U.S. entities, and introduces certain anti-base erosion provisions. The legislation will affect our tax position and the cash taxes of our U.S. entities and will have a corresponding impact on our consolidated financial results starting in the fourth quarter of our fiscal year 2017. Notwithstanding the reduction in the corporate income tax rate, we continue to assess the overall impact of the legislation, and there can be no assurances that it will have an overall favorable impact on our business, financial condition or effective tax rate. In addition, the legislation requires interpretations and implementing regulations by the Internal Revenue Service (IRS),operating performance, as well as state tax authorities, and could be subject to potential amendments and technical corrections, anyfactors outside of which could lessen or increase certain adverse impacts of the legislation. If we are unable to manage the adverse impacts of the legislation, they could have a material effect on our financial condition, results of operations and cash flows.
control. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Our deferred tax assets, net of valuation allowances, totaled approximately $608$406 million and $840$461 million at December 31, 20172023 and 2016, respectively, which, for 2017, reflects the remeasurement of our net U.S. deferred tax assets as a result of U.S. Tax Reform.2022, respectively. 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 a deferred tax asset will not be realized. If we are unable to generate sufficient future taxable income, if there is a material change in the actual effective tax rates or if there is a change to the time period within which the underlying temporary differences become taxable or deductible, then we could be required to increase our valuation allowance against our deferred tax assets, which could result in a material increase in our effective tax rate.
The Company 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, including tax loss carryforwards, interest expense carryforwards and foreign tax credits, in tax jurisdictions where there is uncertainty as to the ultimate realization of those tax assets. If we are unable to generate sufficient future 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.
Failure to maintain an effective system of disclosure controls and procedures and internal control over financial reporting, or our failure to remediate our existing material weaknesses in our internal control over financial reporting, could have a material adverse effect on our results of operations, financial condition and cash flows. As a public reporting company, we are required to establish and periodically evaluate our disclosure controls and procedures with respect to information we file with or submit to the SEC and our internal control over financial reporting with respect to our financial statements and related disclosures. In particular, we are required to assess the effectiveness of our internal control over financial reporting at the end of each fiscal year pursuant to Section 404 of the Sarbanes-Oxley Act. If we identify deficiencies in our internal control over financial reporting, we may be unable to accurately report our financial results or report to them within the timeframes required by the SEC. If this occurs, we could become subject to sanctions or investigations by the SEC or other regulatory authorities, or investors and other users of our financial statement may lose confidence in the accuracy and completeness of our financial reports. This may in turn impair our business, restrict our access to the capital markets, and adversely impact our stock price.
In February 2024, we identified fraudulent ACH disbursements from a company bank account. The cumulative amount of these disbursements through December 31, 2023 totaled approximately $23 million, of which approximately $11 million were not correctly recorded in certain of our historical financial statements through September 30, 2023. In connection with our review and assessment of our disclosure controls and procedures and our evaluation of our internal control over financial reporting, management identified material weaknesses in the design and operation of our internal control over financial reporting. Although not materially impacting any previously reported periods, these material weaknesses resulted in immaterial errors in our historical 2022 and 2021 financial statements and the revision of interim periods in 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. We are currently in the process of implementing a remediation plan to address these material weaknesses. If our remediation efforts are insufficient or not completed in a timely manner, or if additional material weaknesses in our internal control over financial reporting are identified or occur in the future, our financial statements may contain material misstatements and we could be required to restate our financial results, which could materially and adversely affect our business, results of operations and financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the material weaknesses, subject us to fines, penalties or judgments, harm our reputation or otherwise cause a decline in investor confidence. See Item 9A of this Report for more information, which is incorporated herein by reference.
LAW & COMPLIANCE
Our inability to protect our intellectual property, and other issues related to our and third party intellectual property, especially third party intellectual property infringement claims, could have a material and adverse effect on our business, results of operations and financial condition. Our continuing ability to be a leading software- and services-led enterprise provider could be negatively affected if we do not protect our intellectual property, especially our software. It is critical to our strategy, and the benefits provided by our innovations and technologies, that we protect and can leverage and rely on our intellectual property, including our intellectual property rights. We protect our innovations and technologies through intellectual property rights, including patents, copyrights, trademarks (including service marks) and trade secret rights. While we have many patents which cover various areas, we are not able to patent all of our innovations and technologies. In addition, it can take multiple years to receive a patent. We primarily rely on our copyrights and trade secret rights, provided under the laws of the United States and internationally, to protect our innovations and technologies. Despite our efforts to protect our innovations and technologies through intellectual property rights and our processes and procedures, such laws, processes and procedures may be insufficient, breached or otherwise fail to prevent unauthorized use, misappropriation or disclosure of our intellectual property, and such laws, processes and procedures may not provide adequate protection or remedies. It is also possible that others can independently develop, obtain or use similar innovations and technologies. To the extent we are not successful in protecting our intellectual property or such protection is insufficient, especially that related to our software, our business could be adversely impacted.
Various factors outside our control pose a threat to our intellectual property. We may fail to obtain or maintain effective or sufficient intellectual property protection, and at least some of our intellectual property rights may be challenged, resulting in reduced protection or being declared invalid or unenforceable. There can be no assurance our intellectual property rights will be sufficient to prevent others from offering competitive products or services or that unauthorized parties will not attempt to copy our innovations or technologies or use, misappropriate or disclose information that we consider confidential or proprietary. It is possible for third parties, including our competitors, to obtain patents relating to innovations and technologies that overlap or compete with our innovations or technologies and for such third parties to assert, and third parties have in the past asserted, that our products and services infringe their patents. Even though we may hold patents covering our innovations and technologies, it is possible for such third-party patents to effectively block the use of our own innovations or technologies. In such cases, those third parties can seek to charge us a licensing fee or preclude the use of our innovations or technologies and file suit against us. Additionally, unauthorized third parties may try to copy or reverse engineer our products or intellectual property or otherwise obtain, misappropriate or use our intellectual property and other information that we regard as confidential or proprietary to create products and services that compete with ours.
Protecting our intellectual property through patents or other intellectual property rights is expensive and time-consuming. We may not be able to obtain protection for at least some of our intellectual property, and where we are successful, it is expensive to obtain and maintain these rights and they can be more limited than desired. The time and cost required to defend our intellectual property rights can be substantial. Possible future changes to U.S. or foreign intellectual property laws and regulations may jeopardize the enforceability, validity or scope of our intellectual property portfolio and harm our ability to obtain protection. We may be unable to obtain trademark protection for our products or services and associated brands, and our existing trademark registrations and applications, and any trademarks that may be used in the future, may not provide us with competitive advantages or distinguish our products or services from those of our competitors. In addition, our trademarks may be contested or found to be unenforceable, weak or invalid, and we may not be able to prevent third parties from infringing or otherwise violating them.
Many of our offerings rely on innovations and technologies developed by others. If we are unable to continue to obtain licenses and rights for such innovations and technologies or substitutes for them, our business could be adversely impacted.
We will not always be able to ensure we have sufficient protection for our intellectual property rights where, for example, we fail to detect or expect unauthorized use of our intellectual property. Intellectual property protection may not be available in every country in which we do business, and the laws in countries outside of the U.S. where we do business or may do business in the future may not recognize intellectual property rights or protect them as would be done under the laws of the United States. Changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to protect our intellectual property rights. Failure to obtain or maintain protection of our confidential information (including trade secrets) or other proprietary information, for example through public disclosure, could harm our competitive position and materially and adversely affect our business, financial condition and results of operations. The above, along with other reasons (such as the patent portfolio of a third party) could result in our inability to enforce or impact the enforcement of our intellectual property rights.
Given our reliance on intellectual property beyond just patents, we also rely in part on non-disclosure or confidentiality agreements with parties who have access to our know-how and confidential information (including trade secrets), including employees, contractors and other third parties, which place restrictions on the use and disclosure of this intellectual property. We also enter into
intellectual property assignment agreements with our employees, contractors and consultants. We cannot guarantee that we have entered into such agreements with all parties necessary to protect our intellectual property or that they will adhere to our confidentiality agreements. Individuals not subject to intellectual property assignments or other agreements assigning intellectual property to us may make adverse ownership claims to our intellectual property. Additionally, these agreements may be insufficient or breached, or this intellectual property, including trade secrets, may be disclosed or become known to third parties, including our competitors, which could cause the loss of this intellectual property. We may not be able to obtain adequate remedies for such infringement, misappropriation or breaches. To the extent our employees, contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to our rights in such intellectual property or our rights in related or resulting intellectual property, including innovations, technologies and know-how. The loss of trade secret and other confidential information protection could make it easier for third parties to compete with our products and services by copying our innovations and technologies, including features and functionality.
To address infringement or misappropriation of our intellectual property, we may need to file lawsuits, which can be expensive, time consuming and distracting to management and the business. Our efforts to enforce our intellectual property rights in this manner may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. From time to time, we receive notices and other communications from third parties, including our customers, regarding third-party claims of infringement of patents and other intellectual property rights. In response to those notices, in appropriate situations, we may have to use our patents in our defense of such claims, subjecting them to the foregoing risks.
A large number of patents and other intellectual property rights exist in our industry, particularly in the digital banking and restaurant spaces. As a result, a significant number of allegations and disputes related to these rights are asserted by both practicing and non-practicing entities (often referred to as “patent trolls”) and individuals who claim to own intellectual property rights alleged to cover our products and services. Accordingly, we may also be faced with, have faced in the past, and currently face intellectual property infringement lawsuits against us. Because we provide indemnification to our customers with respect to claims of intellectual property infringement against the products and services we provide to them, we may be faced with, have faced in the past, and currently face, (i) demands by our customers to defend and indemnify them with respect to intellectual property infringement lawsuits brought by a third party involving our products or services and (ii) defending ourselves in connection with such demands from our customers. The frequency of these lawsuits could increase. While we have a significant patent portfolio that might prove effective in deterring lawsuits brought against us by competitors, that portfolio may provide little deterrence against claims and lawsuits brought by non-practicing entities. This risk may be amplified if the frequency of lawsuits brought by non-practicing entities increases.
Whether intellectual property infringement claims, including for indemnification, have merit or not, they may require significant resources and expenses to analyze, address and defend, and can be disruptive to our business. We may not prevail in a dispute or litigation related to an intellectual property infringement claim, and damages in a successful intellectual property infringement case (including resulting from an indemnity claim from one of our customers) can be significant, and can be trebled if the infringement is found to be willful. In certain circumstances, we could be subject to an injunction that might adversely impact our business. In particular, an injunction could limit our ability to provide one or more of our products and services to the extent we are unable to develop non-infringing alternatives or obtain a license for them on commercially reasonable terms. It could lead us to having to enter into a fee bearing, including royalty bearing, licensing agreement that we would not normally find acceptable; cause a delay to the development of our products or services; require us to stop selling all or a portion of our products and services; require us to redesign at least certain products or services or components of them using alternative non-infringing technologies, processes or practices, which could require significant effort and expense. Accordingly, an adverse outcome in an intellectual property infringement case (including one resulting from our indemnification of one of our customers) may expose us to a loss of our competitive position, expose us to significant liabilities or require us to seek licenses that may not be available on commercially acceptable terms, if at all. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.
Changes to our tax rates and additional income tax liabilities could impact profitability. We are a United States based multinational company subject to income taxes in the United States and a number of foreign jurisdictions. Our domestic and international tax liabilities are dependent on the distribution of our earnings across different jurisdictions, and our provision for income taxes and cash tax liability could be adversely affected if the distribution of earnings is higher than expected in jurisdictions with higher statutory tax rates.
In addition, changes in United States or foreign tax laws and regulations or tax rulings could affect our financial position and results of operations. For example, in light of continuing global fiscal challenges, various levels of government and international
organizations such as the Organization for Economic Co-operation and Development (OECD)(“OECD”) and European Union (EU)EU are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue.revenue and establish minimum levels of corporate income tax. These tax reform efforts, such as the OECD-led BasedBase Erosion and Profit SharingShifting project (BEPS)(“BEPS”), are designed to ensure that corporate entities are taxed on a larger percentage of their earnings. Although some countries have passed tax laws based on findings from the BEPS project, the final nature, timing and extent of any such tax reforms
or other legislative or regulatory actions is unpredictable, and it is difficult to assess their overall effect. But,Additionally, tax law changes that could significantly reduce or limit our ability to utilize our deferred tax assets could have a material impact on our tax rate and cash tax payments. Any of these potential changes could increase our effective tax rate, increase cash tax payments and adversely impact our financial results.
We are also subject to ongoing audits of our income tax returns in various jurisdictions both in the U.S.United States and internationally.internationally and could be subject to additional audits focusing on transfer pricing. While we believe that our tax positions will be sustained, the outcomes of such audits could result in the assessment of additional taxes, which could adversely impact our cash flows and financial results.
Foreign Currency. Our revenueWe face uncertainties with regard to regulations, lawsuits and operating incomeother related matters. In the normal course of business, we are subject to variability dueproceedings, lawsuits, claims and other matters, including, for example, those that relate to the effects of foreign currency fluctuations against the U.S. Dollar. Overall, we have exposureenvironment, health and safety, labor and employment, employee benefits, import/export compliance, intellectual property, data privacy and security, payments services (such as payment processing and settlement services), product liability, commercial disputes and regulatory compliance, among others. Because such matters are subject to approximately 50 functional currencies. We pay the majority of expenses attributable to our foreign operations in the functional currency of the country in which such operationsmany uncertainties, their outcomes are conducted, and in 2017 a significant portion of our revenue was generated in currencies other than the U.S. Dollar. As a result, significant currency fluctuations could adversely affect our results of operations, including sales and gross margins. For example, an increase in the value of the U.S. Dollar relative to foreign currencies could result in lower revenue and increased losses from currency exchange rates. We endeavor to mitigate some of the effects of currency fluctuations with our hedging strategies; however, the volatility of foreign currency exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy and our derivative instruments may not prove effective in reducing our exposures.
Cost/Expense Reductions. Our success in achieving targeted cost and expense reductions through formal restructuring programs, our continuous improvement programs, our performance improvement programs and other similar programs depends on a number of factors, including our ability to achieve infrastructure rationalizations, drive lower component and product development costs, improve supply chain efficiencies, utilize next-generation technologies, simplify and rationalize product portfolios, and optimize the efficiency of our customer services and professional services consulting resources. If we do not successfully execute on these initiatives or if we experience delays in completing the implementation of these initiatives, our results of operations or financial condition could be adversely affected.
Manufacturing. At December 31, 2017, we manufactured our ATMs in facilities located in Columbus, Georgia, USA; Manaus, Brazil; Budapest, Hungary; Beijing, China; and Chengalpattu, India. Our self-checkout solutions are manufactured in facilities located in Columbus, Georgia, USA and Budapest, Hungary. Our financial kiosk solutions are manufactured in facilities located in Beijing, China; Budapest, Hungary; Manaus, Brazil; and Chengalpattu, India. Our POS/Display terminals are manufactured in facilities located in Columbus, Georgia, USA; and Budapest, Hungary, and certain hand-held solutions are manufactured in Salzburg, Austria. NCR outsources the manufacturing in all geographic regions of its payment solutions, some POS terminals, printers, bar code scanners and various other kiosks. If we develop or experience problems relating to product quality or on-time delivery to customers that we are unable to quickly manage and resolve, whether due to the geographical diversity of our manufacturing base or otherwise, we could experience business interruption that could negatively impact our business and operating results.
Contractual Obligations for Professional Services. Our contracts for professional services consulting work may contemplate that services will be performed over multiple periods, especially in connection with large solution roll-outs. Our profitability under those contracts is largely a function of performing our contractual obligations within the estimated costs and time periods specified. If we exceed these estimated costs or cannot otherwise complete the contracted services within the specified periods, our profitability related to these contracts could be negatively impacted. In addition, if we are unable to maintain appropriate utilization rates for our consultants, we may not be able to sustain profitability on these contracts.
Acquisitions, Divestitures and Alliances. As we selectively acquire and divest technologies, products and businessespredictable and we begin to include or exclude, as the case may be, themust make certain estimates and assumptions in our financial results related to these transactions, our operating results could fluctuate materially, depending on the size, nature, structure and timing of the transactions.
Underfunded Pension Obligation. At December 31, 2017, our obligation for benefits under our pension plans was $3,223 million and our pension plan assets totaled $2,530 million, which resulted in an underfunded pension obligation of $693 million.statements. While we rebalanced our U.S. and international plan assets in order to reduce volatility and made several discretionary contributions to our pension plans, our remaining underfunded pension obligation continues to require ongoing cash contributions. Our underfunded pension obligation also may be affected by future transfers and settlements relating to our international pension plans. For example, in 2015 we completed the transfer of our U.K. London pension plan to an insurer. The pension plan was overfunded, and the transfer resulted in a settlement loss of $427 million in the second quarter of 2015, and an offsetting decrease to prepaid pension costsbelieve that amounts provided in our consolidated balance sheet.
In addition, certain of the plan assets remain subject to financial market risk, and our actuarial and other assumptions underlying our expected future benefit payments, long-term expected rate of return and future funding expectations for our plans depend on, among other things, interest rate levels and trends and capital market expectations. Further volatility in the performance of financial markets,
changes in any of these actuarial assumptions (including those described in our “Critical Accounting Policies and Estimates” section of the “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II of this Report) or changes in regulations regarding funding requirements could require material increases to our expected cash contributions to our pension plans in future years.
See the “Effects of Pension, Postemployment and Postretirement Benefit Plans” and “Financial Condition, Liquidity And Capital Resources” sections of the “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II of this Report and Note 8, “Employee Benefit Plans” in the Notes to the Consolidated Financial Statements includedwith respect to such matters are currently adequate in Item 8light of Part II of this Report for further information regarding the funded status of our pension plansprobable and potential future cash contributions.
Stock-based Compensation. Similar to other companies, we use stock awards as a form of compensation for certain employees and non-employee directors. All stock-based awards areestimable liabilities, there can be no assurances that the amounts required to be recognizedsatisfy alleged liabilities from such matters will not impact future operating results. We are also 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, 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 us, and substantially increase costs to our financial statements based on their fair values. The amount recognized for stock compensation expense could vary depending on a number of assumptionsorganization or changes that may occur. For example, assumptions such as the risk-free rate, expected holding period and expected volatility that drive our valuation model could change. Other examples that could have an impact include changes inon our future operating results.
Additionally, doing business on a worldwide basis requires us and our subsidiaries to comply with the mixlaws and typeregulations of awards, changes inthe U.S. government and various international jurisdictions. For example, our compensation plans, changes in our tax rate, changes in our forfeiture rate, differences in actual results compared to management’s estimates for performance-based awards or an unusually high amount of expirations of stock awards.
Changes in Accounting Principles. We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. These principlesinternational operations are subject to interpretationUnited States and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act (“FCPA”), which generally prohibits U.S. companies or agents acting on behalf of such companies from making improper payments to foreign officials for the purpose of obtaining or keeping business. Our international operations are also subject to economic sanction programs administered by the SECU.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). If we are not in compliance with such laws and various bodies formedregulations, we may be subject to createcriminal and interpret appropriate accounting principlescivil penalties, which may cause harm to our reputation and guidance. Changes in accounting principles mayto our brand and could have an adverse effect on our business, financial condition and results as well as our processes and related controls, and may retroactively affect previously reported results. For additional information regarding updated accounting principles and standards, including the new revenue recognition standard, see Item 7 of Part II of this Report and Note 1, “Basis of Presentation and Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in Item 8 of Part II of this Report.operations.
Activist Stockholders. While we seek to actively engage with stockholders and consider their views on business and strategy, we could be subject to actions or proposals from stockholders or others that do not align with our business strategies or the interests of our other stockholders. Responding to these stockholders could be costly and time-consuming, disrupt our business and operations, and divert the attention of our Board of Directors and senior management. Uncertainties associated with such activities could interfere with our ability to effectively execute our strategic plan, impact customer retention and long-term growth, and limit our ability to hire and retain personnel. In addition, actions of these stockholders may cause periods of fluctuation in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.GOVERNANCE
Series A Convertible Preferred Stock.The issuance of shares of our Series A Convertible Preferred Stock reduces the relative voting power of holders of our common stock, and the conversion and sale of those shares would dilute the ownership of such holders and may adversely affect the market price of our common stock. As of December 31, 2017, 0.8 million shares of our Series A Convertible Preferred Stock were outstanding, representing approximately 18% of our outstanding common stock, including the Series A Convertible Preferred Stock on an as-converted basis. Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 5.5% per annum, payable quarterly in arrears. The dividends are to be paid in-kind, through the issuance of additional shares of Series A Convertible Preferred Stock, for the first sixteen dividend payment dates, and thereafter in cash or in-kind at our option. If we fail to timely declare and pay a dividend, the dividend rate will increase to 8.0% per annum until such time as all accrued but unpaid dividends have been paid in full.
As holders of our Series A Convertible Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our common stock on all matters submitted to a vote of the holders of our common stock, the Series A Convertible Preferred Stock, and the subsequent issuance of additional shares of Series A Convertible Preferred Stock through the payment of in-kind dividends, effectively reduces the relative voting power of the holders of our common stock.
In addition, the conversion of the Series A Convertible Preferred Stock to common stock would dilute the ownership interest of existing holders of our common stock, and any sales in the public market of the common stock issuable upon conversion of the Series A Convertible Preferred Stock would increase the number of shares of our common stock available for public trading, and could adversely affect prevailing market prices of our common stock. Under a customary registration rights agreement, in March 2016 we registered for resale the shares of Series A Convertible Preferred Stock, and the shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock, and in March 2017, entities affiliated with The Blackstone Group L.P. (which we refer to as the Blackstone Purchasers) offered for sale 342,000 shares of Series A Convertible Preferred Stock in an underwritten public offering. Further sales by Blackstone of shares of our Series A Convertible Preferred Stock, or common stock issuable upon conversion of the Series A
Convertible Preferred Stock, in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.
The Blackstone Purchasers and the other holders of our Series A Convertible Preferred Stock may exercise influence over us. As of December 31, 2017, the outstanding shares of our Series A Convertible Preferred Stock represented approximately 18% of our outstanding common stock, including the Series A Convertible Preferred Stock on an as-converted basis. The terms of the Series A Convertible Preferred Stock require the approval of a majority of our Series A Convertible Preferred Stock by a separate class vote for us to:
amend our organizational documents in a manner that would have an adverse effect on the Series A Convertible Preferred Stock; or
issue securities that are senior to, or equal in priority with, the Series A Convertible Preferred Stock.
In addition, our November 2015 Investment Agreement with Blackstone (the Investment Agreement), and the terms of the Series A Convertible Preferred Stock, grant the Blackstone Purchasers certain rights to designate directors to serve on our Board, which directors are elected by a separate class vote of the holders of the Series A Convertible Preferred Stock. For so long as the Blackstone Purchasers beneficially own shares of Series A Convertible Preferred Stock (and/or shares of common stock issued upon conversion of Series A Convertible Preferred Stock) that represent, on an as-converted basis, at least 50% of the Blackstone Purchasers' initial shares of Series A Convertible Preferred Stock on an as-converted basis, the Blackstone Purchasers have the right to designate two directors for election to our Board. For so long as the Blackstone Purchasers beneficially own shares of Series A Convertible Preferred Stock (and/or shares of common stock issued upon conversion of Series A Convertible Preferred Stock) that represent, on an as-converted basis, at least 25% but less than 50% of Blackstone’s initial shares of Series A Convertible Preferred Stock on an as-converted basis, the Blackstone Purchasers will have the right to designate one director for election to our Board.
The directors designated by the Blackstone Purchasers also are entitled to serve on committees of our Board, subject to applicable law and stock exchange rules. Notwithstanding the fact that all directors will be subject to fiduciary duties to us and to applicable law, the interests of the directors designated by the Blackstone Purchasers and elected by the holders of our Series A Convertible Preferred Stock may differ from the interests of our security holders as a whole or of our other directors.
The Investment Agreement also imposes a number of affirmative and negative covenants on us, and gives the Blackstone Purchasers a consent right with respect to certain actions taken by us, including:
entering into material transactions with related parties, or repurchasing or redeeming shares of common stock from related parties, subject to certain exceptions; and
increasing or decreasing the maximum number of directors on our Board to more than eleven persons or to such number as would require the resignation of one of the directors nominated by Blackstone.
As a result, the holders of our Series A Convertible Preferred Stock, and in particular, the Blackstone Purchasers, have the ability to influence the outcome of any matter submitted for the vote of the holders of our common stock. Blackstone and its affiliates are in the business of making or advising on investments in companies, including businesses that may directly or indirectly compete with certain portions of our business, and they may have interests that diverge from, or even conflict with, those of our other stockholders. They may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
Our Series A Convertible Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of our Series A Convertible Preferred Stock including the Blackstone Purchasers, differing from those of our common stockholders. The holders of our Series A Convertible Preferred Stock have the right to receive a liquidation preference entitling them to be paid out of our assets available for distribution to stockholders before any payment may be made to holders of any other class or series of capital stock, an amount equal to the greater of (a) 100% of the liquidation preference thereof plus all accrued dividends or (b) the amount that such holder would have been entitled to receive upon our liquidation, dissolution and winding up if all outstanding shares of Series A Convertible Preferred Stock had been converted into common stock immediately prior to such liquidation, dissolution or winding up.
In addition, dividends on the Series A Convertible Preferred Stock accrue and are cumulative at the rate of 5.5% per annum, payable quarterly in arrears. If we fail to timely declare and pay a dividend, the dividend rate will increase to 8.0% per annum until such time
as all accrued but unpaid dividends have been paid in full. The dividends are to be paid in kind, through the issuance of additional shares of Series A Convertible Preferred Stock,were payable in-kind for the first sixteen dividend payment dates, and thereafterpayments, after which, beginning in the first quarter of 2020, dividends are payable in cash or in-kind at our option.the option of the Company.
The holders of our Series A Convertible Preferred Stock also have certain redemption rights or put rights, including the right to require us to repurchase all or any portion of the Series A Convertible Preferred Stock 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 such date, at 100% of the liquidation preference thereof plus all accrued but unpaid dividends, and the right, subject to certain exceptions, to require us to repurchase all or any portion of the Series A Convertible Preferred Stock upon certain change of control events at the greater of (a) 100% of the liquidation preference thereof plus all accrued but unpaid dividends and (b) 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.
These dividend and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series A Convertible Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. The preferential rights could also result in divergent interests between the holders of our Series A Convertible Preferred Stock and holders of our common stock.
Multinational Operations. Our multinational operations,The issuance of shares of our Series A Convertible Preferred Stock reduces the relative voting power of holders of our common stock, and the conversion and sale of those shares would dilute the ownership of such holders and may adversely affect the market price of our common stock. As of December 31, 2023, approximately 0.3 million shares of our Series A Convertible Preferred Stock were outstanding, representing approximately 10% of our outstanding common stock, including the Series A Convertible Preferred Stock on an as-converted basis. 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 newarrears and emerging markets, expose uspayable in-kind for the first sixteen dividend payments, after which, beginning in the first quarter of 2020, are payable in cash or in-kind at the option of the Company. If we fail to timely declare and pay a dividend, the dividend rate will increase to 8.0% per annum until such time as all accrued but unpaid dividends have been paid in full.
As holders of our Series A Convertible Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our common stock on all matters submitted to a vote of the holders of our common stock, the Series A Convertible Preferred Stock, and the subsequent issuance of additional shares of Series A Convertible Preferred Stock through the payment of in-kind dividends, effectively reduces the relative voting power of the holders of our common stock.
In addition, the conversion of the Series A Convertible Preferred Stock to common stock would dilute the ownership interest of existing holders of our common stock, and any sales in the public market of the common stock issuable upon conversion of the Series A Convertible Preferred Stock would increase the number of shares of our common stock available for public trading, and could adversely affect prevailing market prices of our common stock.
We could be subject to actions or proposals from stockholders that do not align with our business strategies or the interests of our other stockholders. While we seek to actively engage with stockholders and consider their views on business, strategy, and environmental, social and governance issues, responding to these stockholders could be costly and time-consuming, disrupt our business and legal risks. Foroperations, and divert the years ended December 31, 2017 and 2016, the percentageattention of our revenue from outsideBoard of the United States was 50%Directors and 53%, respectively, and we expect our percentage of revenue generated outside the United States to continue to be significant. In addition, we continue to seek to further penetrate existing international markets, and to identify opportunities to enter into or expand our presence in developing and emerging markets. While we believe that our geographic diversity may help to mitigate some riskssenior management. Uncertainties associated with geographic concentrations of operations,such activities could interfere with our ability to manufactureeffectively execute our strategic plan, impact customer retention and sell our solutions internationally, including in newlong-term growth, and emerging markets, is subject to risks, which include, among others:
the impact of ongoing and future economic and credit conditions on the stability of national and regional economies and industries within those economies;
political conditions and local regulations that could adversely affect demand for our solutions, our ability to access funds and resources, or our ability to sell products in these markets;
the impact of a downturn in the global economy, or in regional economies, on demand for our products;
currency exchange rate fluctuations that could result in lower demand for our products as well as generate currency translation losses;
limited availability of local currencies to pay vendors, employees and third parties and to distribute funds outside of the country;
changes to global or regional trade agreements that could limit our ability to sell productshire and retain personnel. In addition, actions of these stockholders may cause periods of fluctuation in these markets;our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1C. CYBERSECURITY
The Company recognizes the impositionimportance of import or export tariffs, taxes, trade policies or importmaintaining cybersecurity measures that are designed to safeguard our information systems and export controls that could increaseto protect the expenseconfidentiality and integrity of or limit demanddata gathered on our people, partners, customers, and business assets.
Our information security program is enterprise-wide and includes cross-functional coordination between various departments across the Company including Information Security, Technology, Privacy, Enterprise Risk Management, and Internal Audit. The structure of our information security program is informed by the National Institute of Standards and Technology (NIST) Cybersecurity Framework to organize processes and tools to identify, protect, detect, respond, and recover from threats and events.
Our information security program employs various information technology and protection methods designed to promote data security including firewalls, intrusion prevention systems, denial of service detection, anomaly-based detection, anti-virus/anti-malware, endpoint encryption and detection and response software, Security Information and Event Management system, identity management technology, security analytics, encryption and multi-factor authentication. Further, we recognize the risks associated with the use of third-party service providers and have processes designed to identify material risks related to third parties.
We conduct periodic reviews and tests of our information security program and also leverage audits by our internal audit team, tabletop exercises, penetration and vulnerability testing, simulations, and other exercises to evaluate the effectiveness of our information security program and attempt to improve our security measures and planning. We collaborate with external experts, including consultants and auditors, in evaluating and testing our information security program. Our employees and certain of our contractors are required to participate in security awareness training at least annually.
The information security program is under the responsibility of the Chief Information Officer (CIO). The CIO is responsible for our products;
changes toleading and complianceimplementing, with a varietycross functional team, our cybersecurity strategy, standards, and risk management policies and procedures.
The Company’s cybersecurity risk management policies and procedures include internal notification procedures which, depending on the level of lawsseverity assigned to the event, may include direct notice to, among others, the Company’s General Counsel and regulationsChief Privacy Officer. Members of the Company’s legal department support efforts to evaluate the materiality of any incidents, determine whether notice to third parties such as regulators, customers or vendors is required, determine whether any prohibition on insider trading is appropriate, and assess whether disclosure to stockholders or governmental filings, including with the SEC, are required. Our internal notification procedures also include notifying various Company Information Technology Services managers, subject matter experts in the Company’s software department and other senior executives, depending on the level of severity assigned to the event.
Our CIO attends regular meetings of the executive officer team, including our Chief Executive Officer, Chief Financial Officer and other senior executive officers, and reports on cybersecurity matters as appropriate.
Our Board of Directors exercises oversight over our risk management process directly, as well as through its various standing committees that may increaseaddress risks inherent in their respective areas of oversight. In particular, our costBoard of doing businessDirectors delegates cybersecurity risk management oversight to the Risk Committee of the Board of Directors. The Risk Committee oversees our cybersecurity processes and policies on risk identification, management, and assessment. The Risk Committee also reviews the adequacy and effectiveness of such policies, as well as the steps taken by management to mitigate or otherwise prevent uscontrol these cybersecurity exposures and to identify future risks. Our CIO reports regularly to the Risk Committee on cybersecurity and information security and the full Board reviews significant cybersecurity matters as appropriate.
For a description of risks from effectively competing internationally;
government uncertainty or limitations on the ability to enforce legal rights and remedies,known cybersecurity threats, including as a result of new,any prior cybersecurity incidents, that have materially affected or changesare reasonably likely to laws and regulations;
reduced protection for intellectual property rights in certain countries;
implementing and managing systems, procedures and controls to monitormaterially affect us, including our operations, in foreign markets;
changing competitive requirements and deliverables in developing and emerging markets;
longer collection cycles and the financial viability and reliability of contracting partners and customers;
managing a geographically dispersed workforce, work stoppages and other labor conditions or issues;
disruptions in transportation and shipping infrastructure; and
the impact of civil unrest relating to war and terrorist activity on the economy or markets in general, or on our ability, or that of our suppliers, to meet commitments.
In addition, as a result of our revenue generated outside of the United States, the amount of cash and cash equivalents that is held by our foreign subsidiaries continues to be significant. U.S. Tax Reform includes a one-time mandatory deemed repatriation tax
("repatriation tax") on accumulated earnings of our foreign subsidiaries. Also, under U.S. Tax Reform, the future earnings accumulated after December 31, 2017 held by our foreign subsidiaries will be currently taxed in the U.S., and as such, distributions of earnings to the U.S. no longer generates additional negative U.S. income tax consequences. However, any distributions of earnings from foreign subsidiaries may be subject to foreign withholding taxes, which would reduce the amount of cash and cash equivalents that are available for our use.
Environmental. Our historical and ongoing manufacturing activities subject us to environmental exposures. Our facilities and operations are subject to a wide range of environmental protection laws, and we have investigatory and remedial activities underway at a number of facilities that we currently own or operate, or formerly owned or operated, to comply, or to determine compliance, with such laws. In addition, our products are subject to environmental laws in a number of jurisdictions. Given the uncertainties inherent in such activities, there can be no assurances that the costs required to comply with applicable environmental laws will not impact future operating results. We have also been identified as a potentially responsible party in connection with certain environmental matters, including the Fox River and Kalamazoo River matters, as further described in Note 9, "Commitments and Contingencies" of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report; in “Environmental Matters” within Item 1 of Part I of this Report; and in “Environmental and Legal Contingencies” within the “Critical Accounting Policies and Estimates” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II of this Report, and we incorporate such disclosures by reference and make them a part of this discussion of risk factors.
Acquisitions, Divestitures and Alliances.If we do not successfully integrate acquisitions or effectively manage alliance activities, we may not drive future growth. As part of our overall solutionsbusiness strategy, we have made, and intend to continue to make, investments in companies, products, services and technologies, either through acquisitions, investments, joint ventures or strategic alliances. Acquisitions and alliance activities inherently involve risks. The risks we may encounter include those associated with:
assimilating and integrating different business operations, corporate cultures, personnel, infrastructures (such as data centers) and technologies or products acquired or licensed;
the potential for unknown liabilities within the acquired or combined business; and
the possibility of conflict with joint venture or alliance partners regarding strategic direction, prioritization of objectives and goals, governance matters or operations.
Further, we may make acquisitions and investments in order to acquire or obtain access to new technology or products that expand our offerings. There is risk that the new technology or products may not perform as anticipated and may not meet estimated growth projections or expectations, or investment recipients may not successfully execute their business plans. There is also risk that key employees of an acquired business may not remain with us as long as expected. In the event that these risks materialize, we may not be able to fully realize the benefit of our investments, and our operating results could be adversely affected. An acquisition or alliance, and the integration of an acquired business, may also disrupt our ongoing business or we may not be able to successfully incorporate acquired products, services or technologies into our solutions and maintain quality. Further, we may not achieve the projected synergies once we have integrated the business into our operations, which may lead to additional costs not anticipated at the time of acquisition.
Circumstances associated with divestitures could adversely affect our results of operations and financial condition. In May 2016, we completed the sale of most of the assets of our Interactive Printer Solutions (IPS) business to Atlas Holdings, LLC, and in June 2012 we completed the divestiture of our entertainment business to Redbox Automated Retail, LLC. We continue to evaluate the strategic fit of our other businesses and products and may decide to sell a business or product based on such an evaluation. Despite a decision to divest a business or product, we may encounter difficulty in finding buyers or executing alternative exit strategies at acceptable prices and terms and in a timely manner. In addition, prospective buyers may have difficulty obtaining financing. Divestitures, including the divestiture of the IPS business, could involve additional risks, including:
difficulties in the separation of operations, services, products and personnel;
the need to provide significant ongoing post-closing transition support to a buyer;
the diversion of management’s attention from other business concerns;
the retention of certain current or future liabilities in order to induce a buyer to complete a divestiture;
the obligation to indemnify or reimburse a buyer for certain past liabilities of a divested business;
the disruption of our business; and
the potential loss of key employees.
We may not be successful in managing these or any other significant risks that we may encounter in divesting a business or product, which could have a material adverse effect on our business.
Intellectual Property. Our continuing ability to be a leading technology and services solutions provider could be negatively affected if we do not protect intellectual property that drives innovation. It is critical to our continued development of leading technologies that we are able to protect and enhance our proprietary rights in our intellectual property through patent, copyright, trademark and trade secret laws. These efforts include protection of the products and the application, diagnostic and other software we develop. To the extent we are not successful in protecting our proprietary rights, our business could be adversely impacted. Also, many of our offerings rely on technologies developed by others, and if we are unable to continue to obtain licenses for such technologies, our business could be adversely impacted. From time to time, we receive notices from third parties regarding patent and other intellectual property claims. Whether such claims have merit, they may require significant resources to defend. If an infringement claim is successful and we are required to pay damages, or we are unable to license the infringed technology or to substitute similar non-infringing technology, our business could be adversely affected.
Work Environment. Continuous improvement, customer experience, restructuring and cost reduction initiatives could negatively impact productivity and business results. In the past, we have undertaken restructuring plans, and, in addition, as part of our ongoing efforts to optimize our cost structure, from time to time, we shift and realign our internal organizational structure and resources. These activities could temporarily result in reduced productivity levels. If we are not able to timely execute on these initiatives, or if the costs to complete these initiatives is higher than anticipated, our results of operations, or financial condition, could be adversely affected. In addition to these initiatives, we have initiatives to grow and expand our software business, streamline our services business, enable our sales force to better sell our solutions, invest in our software and cloud solutions and improvesee the experience of our customers. We typically have many such initiatives underway. If we are not successful in implementing and managing these various initiatives and minimizing any resulting loss in productivity, we may not be able to achieve targeted cost savings or productivity gains, and our business and operating results could be negatively impacted.
On January 8, 2018, we opened our new world headquarters in Atlanta, Georgia, and are in the process of relocating our headquarters operations to this facility. From time to time we may undertake similar projects with respect to our office, manufacturing or other facilities. Implementation of relocation plans such as these could result in business disruption due to a lack of business continuity, which, among other things, could have a negative impact on our productivity and business and operating results.
If we do not retain key employees, or attract quality new and replacement employees, we may not be able to meet our business objectives. Our employees are vital to our success, including the successful transformation of the Company into a software and solutions driven business. Therefore, our ability to retain our key business leaders and our highly skilled software development, technical, sales, consulting and other key personnel, including key personnel of acquired businesses, is critical. These key employees may decide to leave NCR for other opportunities, or may be unavailable for health or other reasons. In addition, as our business model evolves, we may need to attract employees with different skill sets, experience and attributes to support that evolution. If we are unable to retain our key personnel, or we are unable to attract highly qualified new and replacement employees by offering competitive compensation, secure work environments and leadership opportunities now and in the future, our business and operating results could be negatively impacted.
Our ability to effectively manage our business could be negatively impacted if we do not invest in and maintain reliable technology infrastructure and information systems. It is periodically necessary to add to, replace, upgrade or modify our technology infrastructure and internal information systems. If we are unable to expand, replace, upgrade or modify such systems in a timely and cost-effective manner, especially in light of demands on our information technology resources, our ability to capture and process financial transactions and, therefore, our financial condition, results of operations, or ability to comply with legal and regulatory reporting obligations, may be negatively impacted.
Reliance on Third Parties. If third party suppliers upon which we rely are not able to fulfill our needs, our ability to bring our products to market in a timely fashion could be affected. In most cases, there are a number of vendors providing the services and producing the parts and components that we utilize in or in connection with our products. However, there are some services and components that are licensed or purchased from single sources due to price, quality, technology, functionality or other reasons. For example, we depend on transaction processing services from Accenture, computer chips and microprocessors from Intel and operating systems from Microsoft. Certain parts and components used in the manufacturing of our ATMs and the delivery of many of our retail solutions are also supplied by single sources. In addition, there are a number of key suppliers for our businesses that provide us with critical products for our solutions. If we were unable to secure the necessary services, including contract manufacturing, parts, software, components or products from a particular vendor, and we had to find an alternative supplier, our new and existing product shipments and solution deliveries, or the provision of contracted services, could be delayed, impacting our business and operating results.
We have, from time to time, formed alliances with third parties that have complementary products, software, services and skills. These alliances represent many different types of relationships, such as outsourcing arrangements to manufacture hardware and subcontract agreements with third parties to perform services and provide products and software to our customers in connection with our solutions. For example, we rely on third parties for cash replenishment services for our ATM products. These alliances introduce risks that we cannot control, such as nonperformance by third parties and difficulties with or delays in integrating elements provided by third parties into our solutions. Lack of information technology infrastructure, shortages in business capitalization, and manual processesrisk factor “Data protection, cybersecurity and data integrityprivacy issues of smaller suppliers can also create product time delays, inventory and invoicing problems, staging delays, as well as other operating issues. The failure of third parties to provide high-quality products or services that conform to required specifications or contractual arrangements could impair the delivery of our solutions on a timely basis, create exposure for non-compliance with our contractual commitments to our customers andnegatively impact our business and operating results. Also, some of these third parties have access to confidential NCR and customer data, the integrity and security of which are of significant importance to the Company.
Internal Controls. If we do not maintain effective internal controls, accounting policies, practices, and information systems necessary to ensure reliable reporting of our results, our ability to comply with our legal obligations could be negatively affected. Our internal controls, accounting policies and practices, and internal information systems enable us to capture and process transactions in a timely and accurate manner in compliance with applicable accounting standards, laws and regulations, taxation requirements and federal securities laws and regulations. Our internal controls and policies are being closely monitored by management as we continue to implement a worldwide Enterprise Resource Planning (ERP) system. While we believe these controls, policies, practices and systems are adequate to ensure data integrity, unanticipated and unauthorized actions of employees or contractors (both domestic and international), temporary lapses in internal controls due to shortfalls in transition planning and oversight, or resource constraints, could lead to improprieties and undetected errors that could impact our financial condition, results of operations, or compliance with legal obligations. Moreover, while management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017 (as set forth in “Management’s Report on Internal Control over Financial Reporting” includedbusiness” in Item 9A1A of Part III of this Report), due to their inherent limitations, such controls may not prevent or detect misstatements in our reported financial statements. Such limitations include, among other things, the potential for human error or circumvention of controls. Further, the Company’s internal control over financial reporting is subject to the risk that controls may become inadequate because of a failure to remediate control deficiencies, changes in conditions or a deterioration of the degree of compliance with established policies and procedures.Report.
Contingencies. We face uncertainties with regard to regulations, lawsuits and other related matters. In the normal course of business, we are subject to proceedings, lawsuits, claims and other matters, including, for example, those that relate to the environment, 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. Because such matters are subject to many uncertainties, their outcomes are not predictable and we must make certain estimates and assumptions in our financial statements. While we believe that amounts provided in our Consolidated Financial Statements with respect to such matters are currently adequate in light of the probable and estimable liabilities, there can be no assurances that the amounts required to satisfy alleged liabilities from such matters will not impact future operating results. Additionally, we are 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 us, and substantially increase costs to our organization or could have an impact on our future operating results.
Additionally, doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and regulations of the U.S. government and various international jurisdictions. For example, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act (FCPA), which generally prohibits U.S. companies or agents acting on behalf of such companies from making improper payments to foreign officials for the purpose of obtaining or keeping business. Our international operations are also subject to economic sanction programs administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). If we are not in compliance with such laws and regulations, we may be subject to criminal and civil penalties, which may cause harm to our reputation and to our brand and could have an adverse effect on our business, financial condition and results of operations. See Note 9, "Commitments and Contingencies" of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for information regarding our prior FCPA and OFAC investigations, which disclosures are incorporated by reference and made a part of this discussion of risk factors.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
As of December 31, 2017,2023, NCR Voyix operated 21085 facilities consisting of approximately 5.53.6 million square feet in 6125 countries throughout the world, which are generally used by all of NCR'sNCR Voyix’s operating segments. On a square footage basis, 20% of these facilities are owned and 80% are leased. Within the total facility portfolio, NCRthe Company operates 144 research and development and manufacturing facilities totaling 1.40.2 million square feet, 62%100% of which is leased. The remaining 4.13.4 million square feet of space includes office, repair, and warehousing space and other miscellaneous sites, and is 85%87% leased. NCR also owns 7 land parcels totaling 2.6 million square feet in 2 countries.
NCR Voyix is headquartered in Atlanta, Georgia, USA. Our address at our corporate headquarters is 864 Spring Street Northwest, Atlanta Georgia, 30308, USA.
Item 3. LEGAL PROCEEDINGS
Information regarding legal proceedings is included in Item 8 of Part II of this Report as part of Note 9, "Commitments11, “Commitments and Contingencies"Contingencies”, of the Notes to Consolidated Financial Statements and is incorporated herein by reference.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
| |
Item 5. | MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
NCR Voyix common stock is listed on the New York Stock Exchange (NYSE) and trades under the symbol “NCR”“VYX”. There were approximately 91,45167,453 holders of NCR Voyix common stock as of February 14, 2018. The following table presents the high and low per share prices for NCR common stock for each quarter of 2017 and 2016 as reported on the NYSE.March 11, 2024.
|
| | | | | | | | | | | | | | | | | | |
| | | 2017 | | | | 2016 |
| | | High | | Low | | | | High | | Low |
| 1st quarter | | $ | 49.90 |
| | $ | 40.85 |
| | 1st quarter | | $ | 30.14 |
| | $ | 18.02 |
|
| 2nd quarter | | $ | 45.64 |
| | $ | 38.07 |
| | 2nd quarter | | $ | 31.84 |
| | $ | 25.20 |
|
| 3rd quarter | | $ | 43.24 |
| | $ | 34.17 |
| | 3rd quarter | | $ | 34.99 |
| | $ | 26.21 |
|
| 4th quarter | | $ | 38.13 |
| | $ | 29.20 |
| | 4th quarter | | $ | 42.07 |
| | $ | 29.83 |
|
Dividends
Historically, NCR Voyix has not paid cash dividends and does not anticipate the payment of cash dividends on NCR Voyix common stock in the immediate future. The declaration of dividends is restricted under our senior secured credit facilityfacilities and the terms of the indentures forgoverning our senior unsecured notes, and would be further subject to the discretion of NCR’sNCR Voyix’s Board of Directors.
Stock Performance Graph
The following graph compares the relative investment performance of NCR Voyix stock, the Standard & Poor’s MidCap 400 Stock Index, Standard & Poor’s 500 Information Technology Sector and the Standard & Poor’s 500 Stock Index. This graph covers the five-year period from December 31, 20122018 through December 31, 2017.2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company / Index | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| NCR Voyix Corporation | | $ | 152 | | | $ | 163 | | | $ | 174 | | | $ | 101 | | | $ | 121 | |
| S&P 500 Stock Index | | $ | 131 | | | $ | 156 | | | $ | 200 | | | $ | 164 | | | $ | 207 | |
| S&P 500 Information Technology Sector | | $ | 150 | | | $ | 216 | | | $ | 291 | | | $ | 209 | | | $ | 330 | |
| S&P MidCap 400 Stock Index | | $ | 126 | | | $ | 143 | | | $ | 179 | | | $ | 156 | | | $ | 181 | |
(1)In each case, assumes a $100 investment on December 31, 2018, and reinvestment of all dividends, if any.
|
| | | | | | | | | | | | | | | | | | | | |
| Company / Index | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 |
| NCR Corporation | | $ | 134 |
| | $ | 114 |
| | $ | 96 |
| | $ | 159 |
| | $ | 133 |
|
| S&P 500 Stock Index | | $ | 132 |
| | $ | 151 |
| | $ | 153 |
| | $ | 171 |
| | $ | 208 |
|
| S&P 500 Information Technology Sector | | $ | 128 |
| | $ | 154 |
| | $ | 163 |
| | $ | 186 |
| | $ | 258 |
|
| S&P MidCap 400 Stock Index | | $ | 134 |
| | $ | 147 |
| | $ | 143 |
| | $ | 173 |
| | $ | 201 |
|
| |
(1)
| In each case, assumes a $100 investment on December 31, 2012, and reinvestment of all dividends, if any. |
Purchase of Company Common Stock
On October 19, 2016, the Board approved a share repurchase program, with no expiration from the date of authorization, for the systematic repurchase of the Company’s common stock to offset the dilutive effects of the Company’s employee stock purchase plan, equity awards and in-kind dividends on the Company’s Series A Convertible Preferred Stock. Availability under this program accrues quarterly based on the average value of dilutive issuances during the quarter.
On March 12, 2017, the Board approved a second share repurchase program that provides for the repurchase of up to $300 million of the Company’s common stock. On July 25, 2018, the Board authorized an incremental $200 million of share repurchases under this program.
No shares were repurchased under these programs during the threetwelve months ended December 31, 2017.2023.
As of December 31, 2017, $3002023, approximately $153 million was available for repurchases under the March 2017 program, and approximately $189$919 million was available for repurchases under the October 2016 dilution offset program. The timing and amount of repurchases under these programs depend upon market conditions and may be made from time to time in open market purchases, privately negotiated transactions, accelerated stock repurchase programs, issuer self-tender offers or otherwise. The repurchases will be made in compliance with applicable securities laws and may be discontinued at any time.
The Company occasionally purchases vested restricted stock or exercised stock options at the current market price to cover withholding taxes. For the three months ended December 31, 2017, 209,3532023, 997,097 shares of vested restricted stock were purchased at an average price of $33.86$17.82 per share.
The Company’s ability to repurchase its common stock is restricted under the Company’s senior secured credit facilityfacilities and terms of the indentures forgoverning the Company’s senior unsecured notes, which prohibit certain share repurchases, including during the occurrence of an event of default, and establish limits on the amount that the Company is permitted to allocateuse to share repurchasesrepurchase shares and make other restricted payments. The limitations areThis amount is calculated using formulas based generally on 50% of the Company’s consolidated net income for the period beginning in the thirdfirst quarter of 20122024 through the end of the most recently ended fiscal quarter, subject to certain other adjustments and deductions, with certain prescribed minimums.minimums and its use is subject to customary conditions, including the absence of an event of default. These formulas are described in greater detail in the Company’s senior secured credit facilityfacilities and the indentures forgoverning the Company’s senior unsecured notes, each of which is filed with the SEC.
Item 6. [Reserved]
None.
Item 6. SELECTED FINANCIAL DATA
|
| | | | | | | | | | | | | | | | | | | | |
| In millions, except per share and employee and contractor amounts | | | | | | | | | | |
| For the years ended December 31 | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Continuing Operations (a,d) | | | | | | | | | | |
| Revenue | | $ | 6,516 |
| | $ | 6,543 |
| | $ | 6,373 |
| | $ | 6,591 |
| | $ | 6,123 |
|
| Income from operations | | $ | 676 |
| | $ | 599 |
| | $ | 135 |
| | $ | 353 |
| | $ | 666 |
|
| Interest expense | | $ | (163 | ) | | $ | (170 | ) | | $ | (173 | ) | | $ | (181 | ) | | $ | (103 | ) |
Income tax expense (benefit) (b) | | $ | 242 |
| | $ | 92 |
| | $ | 55 |
| | $ | (48 | ) | | $ | 98 |
|
| Income (loss) from continuing operations attributable to NCR common stockholders | | $ | 237 |
| | $ | 283 |
| | $ | (154 | ) | | $ | 181 |
| | $ | 452 |
|
| (Loss) income from discontinued operations, net of tax | | $ | (5 | ) | | $ | (13 | ) | | $ | (24 | ) | | $ | 10 |
| | $ | (9 | ) |
| Basic earnings (loss) per common share attributable to NCR common stockholders: | | | | | | | | | | |
From continuing operations (a,d) | | $ | 1.05 |
| | $ | 1.86 |
| | $ | (0.94 | ) | | $ | 1.08 |
| | $ | 2.73 |
|
| From discontinued operations | | $ | (0.04 | ) | | $ | (0.10 | ) | | $ | (0.15 | ) | | $ | 0.06 |
| | $ | (0.05 | ) |
| Total basic earnings (loss) per common share | | $ | 1.01 |
| | $ | 1.76 |
| | $ | (1.09 | ) | | $ | 1.14 |
| | $ | 2.68 |
|
Diluted earnings (loss) per common share attributable to NCR common stockholders: (c) | | | | | | | | | | |
From continuing operations (a,d) | | $ | 1.01 |
| | $ | 1.80 |
| | $ | (0.94 | ) | | $ | 1.06 |
| | $ | 2.67 |
|
| From discontinued operations | | $ | (0.04 | ) | | $ | (0.10 | ) | | $ | (0.15 | ) | | $ | 0.06 |
| | $ | (0.05 | ) |
| Total diluted earnings (loss) per common share | | $ | 0.97 |
| | $ | 1.71 |
| | $ | (1.09 | ) | | $ | 1.12 |
| | $ | 2.62 |
|
| Cash dividends per share | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| As of December 31 | | | | | | | | | | |
| Total assets | | $ | 7,654 |
| | $ | 7,673 |
| | $ | 7,635 |
| | $ | 8,566 |
| | $ | 8,061 |
|
| Total debt | | $ | 2,991 |
| | $ | 3,051 |
| | $ | 3,252 |
| | $ | 3,618 |
| | $ | 3,307 |
|
| Series A convertible preferred stock | | $ | 810 |
| | $ | 847 |
| | $ | 798 |
| | $ | — |
| | $ | — |
|
| Total NCR stockholders' equity | | $ | 719 |
| | $ | 695 |
| | $ | 720 |
| | $ | 1,871 |
| | $ | 1,769 |
|
| Number of employees and contractors | | 34,000 |
| | 33,500 |
| | 32,600 |
| | 30,200 |
| | 29,300 |
|
| |
(a)
| Continuing operations excludes the costs and insurance recoveries relating to certain environmental obligations associated with discontinued operations, including those relating to the Fox River, and Kalamazoo River matters. |
| |
(b)
| Income tax expense in 2017 includes a provisional charge of $130 million for the impact of U.S. Tax Reform. See Note 6, "Income Taxes" in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for further discussion. |
| |
(c)
| See Note 1, “Basis of Presentation and Significant Accounting Policies” in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for further discussion of the diluted earnings (loss) per common share attributable to NCR common stockholders from continuing operations, discontinued operations and total. |
| |
(d)
| The following income (expense) amounts, net of tax are included in income from continuing operations attributable to NCR for the years ended December 31: |
|
| | | | | | | | | | | | | | | | | | | | |
| In millions | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Pension mark-to-market adjustments | | $ | (25 | ) | | $ | (78 | ) | | $ | (445 | ) | | $ | (63 | ) | | $ | 65 |
|
| Restructuring/Transformation costs | | (20 | ) | | (21 | ) | | (50 | ) | | (116 | ) | | — |
|
| Acquisition related amortization of intangibles | | (79 | ) | | (83 | ) | | (85 | ) | | (80 | ) | | (48 | ) |
| Acquisition related costs | | (3 | ) | | (5 | ) | | (8 | ) | | (20 | ) | | (36 | ) |
| Divestiture and liquidation losses | | — |
| | (5 | ) | | (29 | ) | | — |
| | — |
|
| Reserve related to subcontract in MEA | | — |
| | — |
| | (13 | ) | | — |
| | — |
|
| OFAC and FCPA investigations | | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
| Japan valuation reserve release | | — |
| | — |
| | — |
| | — |
| | 15 |
|
| Tax reform | | (130 | ) | | — |
| | — |
| | — |
| | — |
|
| Total | | $ | (257 | ) | | $ | (192 | ) | | $ | (630 | ) | | $ | (281 | ) | | $ | (6 | ) |
Index to Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
| |
Item 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
BUSINESS OVERVIEW
This section should be read in conjunction with the audited Consolidated Financial Statements and related Notes included in Item 8 of Part II of this Report. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Forward-Looking Statements” and “Risk Factors” in Item 1A of this Annual Report for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements that could cause future results to differ materially from those reflected in this section.
NCR
Our discussion within MD&A is a leading global providerorganized as follows:
•Overview. This section contains background information on our company, summary of omni-channel technology solutions that enrichsignificant themes and events during the interactionsyear as well as strategic initiatives and trends in order to provide context for management’s discussion and analysis of businesses with their customers. Our solutions are designed to allow businessesour financial condition and results of operations.
•Results of operations. This section contains an analysis of our results of operations presented in the financial services, retail, hospitality, travelaccompanying Consolidated Statements of Operations by comparing the results for the year ended December 31, 2023 to the results for the year ended December 31, 2022 as well as a comparison of the results for the year ended December 31, 2022 to the results for the year ended December 31, 2021.
•Liquidity and telecommunications and technology industries to deliver a rich, integrated and personalized experience to consumers across physical and digital commerce channels. Our offerings include a portfoliocapital resources. This section provides an analysis of omni-channel platform software and other software applications, industry-focused smart-edge devices including automated teller machines (ATMs), point of sale (POS) terminals and devices and self-service kiosks,our cash flows and a complete suitediscussion of consulting, implementation, maintenanceour contractual obligations at December 31, 2023.
•Critical accounting estimates. This section contains a discussion of the accounting policies that we believe are important to our financial condition and managed services. We also resell third-party networking productsresults of operations and provide related service offeringsthat require judgment and estimates on the part of management in their application. In addition, all of our significant accounting policies, including critical accounting policies, are summarized in Note 1, “Basis of Presentation and Significant Accounting Policies”, in the telecommunications and technology sectors. Our solutions create value for our customers by increasing productivity and allowing themNotes to address consumer demand for convenience, value and individual service across different commerce channels.Consolidated Financial Statements in Item 8 of Part II of this Report.
We have three operating segments: Software, Services, and Hardware. Each of our operating segments derives its revenue in each of the sales theaters in which NCR operates.
SIGNIFICANT THEMES AND EVENTS
Our solutions are based on a foundation of long-established industry knowledge and expertise, omni-channel platform and other software, industry-focused hardware and smart-edge devices, and global implementation, consulting, maintenance, support and managed services.
NCR’s reputation is founded upon over 133 years of providing quality products, services and solutions to our customers. At the heart of our customer and other business relationships is a commitment to acting responsibly, ethically and with the highest level of integrity. This commitment is reflected in NCR’s Code of Conduct, which is available on the Corporate Governance page of our website.
2017 OVERVIEW
As more fully discussed in later sections of this MD&A, the following were significant themes and eventshighlights for 2017:the year ended December 31, 2023.
•Revenue was flat year-over-year, and increased$3,830 million, an increase of 1% after adjusting for the divestiture of our Interactive Printer Solutions (IPS) business;compared to prior year
Software◦Recurring revenue increased 3%4% from the prior year driven by cloudand comprised 57% of total consolidated revenue growth of 6%
◦Software and professional services revenue, growth of 5%. Net annual contract value, which is a measure of our net bookings for cloud revenue and is an indicator of potential cloud revenue growth in future periods, grew 46% in 2017;
Services revenue increased 3% and operating margin rate expanded 340 basis points4% from the prior year;year and comprised 72% of total consolidated revenue
Hardware revenue decreased 6%•Adjusted EBITDA of $616 million, up 3% compared to prior year
•Completed the Spin-Off of NCR Atleos on October 16, 2023
STRATEGIC INITIATIVES
As a leading technology company, we seek to maintain our market position by expanding our share of wallet among existing customers and operating margin rate declined 270 basis points fromattracting new customers, leveraging our cloud-based, platform-enabled software and services offerings. We believe there is considerable opportunity to grow with new and existing customers as retailers, restaurants and financial institutions are increasingly adopting technology and support services to enhance and transform their operations. As digital adoption becomes increasingly important for businesses and financial institutions to engage with their end-users, we are investing in innovation to attract and retain customers across our three segments. Our ability to create experiences that ultimately improve end-user satisfaction through a combination of innovation and service is a competitive strength of the prior year;Company. In order to provide long-term value to all our stakeholders, we set complementary business goals and financial strategies. Execution of these is driven by the following key pillars: (i) focus on our customers; (ii) leverage our brand (and global distribution); (iii) support customers through innovation; and (iv) allocate our capital strategically through a cost-disciplined approach to operations. We also plan to continue to improve our execution to drive solid returns and to transform our business to enhance value for all stockholders.
We generated cash flows from operations and free cash flow
We repurchased approximately 7.4 million shares of our common stock for $350 million in the first quarter of 2017 and subsequently announced a new $300 million share repurchase program and a replacement for our dilution offset share repurchase program.
OVERVIEW OF STRATEGIC INITIATIVES AND TRENDS
BUSINESS OVERVIEW
The riseCompany, which, prior to its name change effective October 13, 2023 was known as NCR Corporation, was originally incorporated in 1884 and is a global provider of digital commerce mobile engagementsolutions for retail stores, restaurants and globalizationfinancial institutions. Headquartered in Atlanta, Georgia, we are a software and services-led enterprise technology provider of run-the-store capabilities for retail and restaurants and cloud-based digital solutions for financial institutions, serving businesses of all sizes. Our software platforms, which run in the cloud and include microservices and APIs that integrate with our customers’ systems, and our As-a-Service solutions enable an end-to-end technology-based operations solution for our customers. Our offerings include digital first software and services offerings for retailers, restaurants and financial institutions, as well as payments acceptance solutions, multi-vendor connected device services, self-checkout (“SCO”) kiosks and related technologies, point of sale (“POS”) terminals and other self-service technologies. Our solutions are designed to enable restaurants, retailers, and financial institutions to seamlessly transact and engage with their customers and end users.
Completion of NCR Atleos Spin-Off Transaction
On October 16, 2023, the Company completed the spin-off (“Spin-Off”) of its ATM-focused businesses, including the self-service banking, payments & network and telecommunications and technology businesses, into an independent, publicly traded company, NCR Atleos, on a tax-free basis. Accordingly, the historical financial results of NCR Atleos are reflected as discontinued operations in the Company’s consolidated financial statements. Refer to Note 2, “Discontinued Operations”, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, for additional information.
Ongoing Business Trends
Retail and Restaurants
The global retail and restaurant technology landscape continues to rapidly advance and evolve. Because of this growth, competition also continues to intensify. Business and consumer expectations continue to rise, with a focus on speed, convenience, choice and security. To meet these expectations, financial technology and payments companies are focused on investing in their technology, expanding the use of data and enhancing the customer experience.
Changes in the market present opportunities and risks to our business. NCR Voyix believes the investments we have dramatically alteredmade in our technologies, solutions, and platform along with our scalable, integrated business model positions us well in the relationship betweenmarket and enables us to address the evolving needs of our customers.
NCR Voyix serves customers of all sizes, from small- and medium-sized to large, blue-chip companies that represent some of the world’s leading consumer brands. The restaurant and retail industry are facing a similar challenge of differentiating their customers and associates experience to win in the markets they serve. Creating differentiated experiences will rely on complex technology and services. The NCR Voyix portfolio today for Retail and Restaurants starts with the point-of-sale as the core for all transaction data, inventory data, customer data, pricing, and promotions. Modernizing the point-of-sale and connecting to our commerce platform becomes the critical path for tech modernization in the Retail and Restaurants segments. As we transition customers from legacy technology solutions to a modern cloud-based software platform, we can help them simplify their technology infrastructure by providing end-to-end capabilities to help them more effectively run their entire store or restaurant.
NCR Voyix’s platform-driven technology is comprised largely of a SaaS- and Services-based model and marks a shift from the largely hardware-driven business model of the past. This business model enables NCR Voyix to better serve customers by providing a breadth of purpose-built solutions that are tailored to the unique needs of our Retail and consumer. Increasingly, mega-trendsRestaurant customers.
Financial Institutions and Disruption in the Banking Sector
Our Digital Banking segment delivers consumer-facing SaaS applications that allow financial institutions to deliver a digital-first banking experience to their clients. The NCR Voyix channel services platform creates common experiences across all bank channels and allows our clients to create differentiated experiences for their customers. Growth in our Digital Banking segment is primarily driven by an increase in clients and users through retention, new logos, and growth in average revenue per user (“ARPU”).
Financial institutions continue to implement new capabilities to enhance the customer experience and build their business. Traditional banking products such as big data, the Internet of thingsnew payments, deposits, risk management, lending and investment products, and the cloud
distinctions among the products and services continue to narrow as they seek to serve the same customers. The evolving global regulatory and cybersecurity landscape creates ongoing challenges for financial institutions and are driving heightened interest in solutions to win and retain customers, generate incremental revenue, comply with regulations and enhance operating efficiency.
In addition, digital channels are being enhanced to improve the next generationcustomer experience. These digital channels, in addition to the growing volume and types of changespayment transactions in consumer behavior. Consumers nowthe marketplace, drive increased data and transaction processing needs of financial institutions.
We expect businessesthat financial institutions will continue to provide a rich, integratedinvest to improve the speed, accuracy, reliability, and personalized experience across all commerce channels, including in-store, onlineprotection in order to process transactions, manage information, maintain regulatory compliance and mobile.offer innovative new services to their customers in the evolving marketplace. We believe that investments that facilitate customer interaction with financial institutions will continue to increase and may create revenue opportunities for NCR is atVoyix.
We believe that the forefrontintegration of this shift to an omni-channel experience, assisting businesses of every size in their omni-channel, digital enablement and channel transformation journeys. Our mission is to innovate and enable the next generation of consumer experiences and productivity gains to enrich the interactions of businesses with their customers. To fulfill this mission, we have developed a long-term strategy built on being a global technology solutions company that uses cloud-based and other software, coupled with end-to-end smart-edge hardwareour products and services solutions, tocreates a compelling customer value proposition as we help our customers deliver on the promise of an omni-channel experience.grow their businesses and better manage their cost structure for improved profitability. We believe that our missionscalable and long-term strategydiverse client base, combined with our position NCRas a leading provider of digital banking products and services provides a solid foundation for growth.
During fiscal 2023, certain regional U.S. banks failed, which caused volatility in the global financial markets. These events did not have an impact on our operating results. We continuously monitor and manage balance sheet and operational risks from clients in our portfolio, including their settlement obligations.
Cyber Ransomware Incident
As previously disclosed, on April 13, 2023 the Company determined that a single data center outage impacting certain of its commerce customers was caused by a cyber ransomware incident. Upon such determination, the Company immediately started contacting customers, enacted its cybersecurity protocol and engaged outside experts to continuecontain the incident and begin the recovery process. We concluded that this incident impacted operations for some customers only with respect to drive sustainable revenue, profitspecific Aloha cloud-based services and Counterpoint. Our investigation also concluded no financial reporting systems were impacted.
During the year ended December 31, 2023, we recognized $36 million related to this matter in Cost of services and Selling, general and administrative expenses. As of December 31, 2023, we expect $19 million of these costs to be recovered under our insurance policies and have received $5 million of cash flow,during 2023 and the remaining $14 million is recorded as an insurance receivable. Payments are expected in 2024.
For further information see Item 1C “Cybersecurity” of this Form 10-K.
Revision
In February 2024, the Company identified fraudulent automated clearing house “ACH” disbursements from a company bank account. The cumulative amount of these disbursements totaled $34 million through February 2024, of which approximately $11 million was recovered through the date of this Report. The amount through December 31, 2023 totaled $23 million, of which approximately $11 million was not correctly recorded in certain of our historical financial statements through September 30, 2023. The Company intends to cooperate with law enforcement and its banks to attempt to recover a portion of the fraudulent transfers and to improve valuefile insurance claims for allthe remainder. However, there can be no assurance that the Company will be successful in recovering additional amounts of our stakeholders.
To deliver on our mission and strategy, we are focused on the following main initiatives in 2018:
Strategic and Recurring Revenue - Continuing our focus on cloud, software platform, smart-edge devices and professional and managed services to drive profitable revenue and operating income.
Sales Effectiveness - Providing our sales force with the training, tools, support and coverage model necessary to optimize efficiency and achieve our sales plan.
Services Transformation - Driving performance and sustainable margin improvement by focusing on productivity and efficiency improvements, expanding our remote diagnostics and repair capabilities, creating greater discipline in our product lifecycle management, and employing a higher mix of managed services.
Evolving our Business Model - Continuing the shift in our business model to provide innovative end-to-end solutions for our customers, with best in class support while keeping an efficient cost structure to create competitive advantage.
New Products - Launching new industry products, powered by our platform software with best in class product lifecycle management and go-to-market support, and migrating and releasing existing licensed software products as cloud-based products.
Operating Model Innovation - Eliminating waste, utilizing effective product lifecycle management, increasing productivity, using technology as an enabler, and executing on business process improvements to reduce costs and use savings to invest in strategic initiatives, product innovation and people.
Customer Experience - Improving the customer experience by improving solution quality, availability and security.
Team and Talent - Developing and retaining top talent by deploying competitive recruiting and training programs, evolving our brand, and continuously engaging with employees.
Consistent with the foregoing, we are evaluating certain initiatives focused on realigning resources and optimizing our portfolio of software solutions, accelerating structural changes in our services business and streamlining our hardware operations, particularly in supply chain and manufacturing. In addition, we plan, in pursuing our strategy, to continue to manage our costs effectively, to selectively pursue acquisitions and divestitures that promote our strategy, and to selectively penetrate market adjacencies in single and emerging growth industry segments.
Potentially significant risks to the execution of our initiatives and achievement of our strategy include the strength of demand for automated teller machines and other financial services hardware and its effect on our businesses; domestic and global economic and credit conditions including, in particular, those resultingunauthorized ACH disbursements from the impositionwrongdoers, the Company’s banks or threat of protectionist trade policies or import or export tariffs, global and regional market conditions and spending trendsthe Company’s insurance providers. Although not materially impacting any previously reported periods, the misstatements resulted in the financial services and retail industries, new comprehensive U.S. tax legislation, modified or new global or regional trade agreements, the determination by the United Kingdom to exit the European Union, uncertainty over further potential changes in Eurozone participation and fluctuations in oil and commodity prices; our ability to transform our business model and to sell higher-margin software and services, including our ability to successfully streamline our hardware operations; the success of our restructuring plans and cost reduction initiatives; our ability to improve execution in our sales and services organizations; market acceptance of new solutions and competition in the information technology industry; cybersecurity risks and compliance with data privacy and protection requirements; disruptions in or problems with our data center hosting facilities; defects orimmaterial errors in our products;historical 2022 and 2021 financial statements and the historical seasonalityrevision of interim periods in 2023.
Based on our sales; tax ratespreliminary analysis, there is approximately between $1 million and new US tax legislation;$2 million (based on stock prices as of the date of this report) short-term incentive compensation and foreign currency fluctuations. long-term incentive compensation that is required to be clawed back in the aggregate from 14 current and former executives in accordance with our compensation clawback policy as a result of the revision of financial statements for interim 2023 periods referenced above. See Note 20, “Revised 2023 Quarterly Financial Information (Unaudited)”, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, for additional information related to these revisions.
For further information on potential risks and uncertainties see Part I, Item 1A "Risk Factors."
“Risk Factors” and Item 1C “Cybersecurity”, of this Form 10-K.
Macroeconomic Trends
Given the multinational nature of our business, we are subject to risks and exposures from the evolving macroeconomic environment, including the effects of increased global inflationary pressures and interest rates, fluctuations in foreign currency exchange rates, political economic slowdowns or recessions and geopolitical pressures, including the unknown impacts of current and future trade regulations. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape. For example, foreign currency exchange rate fluctuations negatively impacted our revenue during fiscal 2023 and may continue to negatively impact our financial results in fiscal 2024.
As we continue to execute on our strategy to shift to recurring revenue, our revenues and earnings will become more predictable; however, the broader implications of these macroeconomic events on our business, results of operations and overall financial position, particularly in the short term, remain uncertain.
For further discussion of trends, uncertainties and other factors that could affect our operating results, see the section entitled “Risk Factors” in Part I, Item 1A of this Form 10-K. For further information on exposures to foreign exchange risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”, in this Report.
RESULTS OF OPERATIONS
The following results of operations present the continuing operations of NCR Voyix for the years ended December 31, 2023, 2022 and 2021. All results from NCR Atleos are presented within income (loss) from discontinued operations for these periods.
Key Strategic Financial Metrics
The following tables show our key strategic financial metrics for the years ended December 31, the relative percentage that those amounts represent to total revenue, and the change in those amounts year-over-year.
Recurring revenue as a percentage of total revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percentage of Total Revenue | | Increase (Decrease) |
| (in millions) | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
Recurring revenue(1) | | $ | 2,195 | | | $ | 2,120 | | | $ | 2,069 | | | 57.3 | % | | 55.9 | % | | 56.0 | % | | 4 | % | | 2 | % |
| All other products and services | | 1,635 | | | 1,673 | | | 1,623 | | | 42.7 | % | | 44.1 | % | | 44.0 | % | | (2) | % | | 3 | % |
| Total Revenue | | $ | 3,830 | | | $ | 3,793 | | | $ | 3,692 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 1 | % | | 3 | % |
(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 by type
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percentage of Total Revenue | | Increase (Decrease) |
| (in millions) | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Software and services revenue | | $ | 2,753 | | | $ | 2,649 | | | $ | 2,624 | | | 71.9 | % | | 69.8 | % | | 71.1 | % | | 4 | % | | 1 | % |
| Hardware revenue | | 1,077 | | | 1,144 | | | 1,068 | | | 28.1 | % | | 30.2 | % | | 28.9 | % | | (6) | % | | 7 | % |
| Total Revenue | | $ | 3,830 | | | $ | 3,793 | | | $ | 3,692 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 1 | % | | 3 | % |
Net income (loss) from continuing operations attributable to NCR Voyix and Adjusted EBITDA(2) as a percentage of total revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percentage of Total Revenue | | Increase (Decrease) |
| (in millions) | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net income (loss) from continuing operations attributable to NCR Voyix | | $ | (586) | | | $ | (203) | | | $ | (337) | | | (15.3) | % | | (5.4) | % | | (9.1) | % | | 189 | % | | (40) | % |
Adjusted EBITDA(2) | | $ | 616 | | | $ | 596 | | | $ | 471 | | | 16.1 | % | | 15.7 | % | | 12.8 | % | | 3 | % | | 27 | % |
(2) Refer to our definition of Adjusted EBITDA in the section entitled “Non-GAAP Financial Measures and Use of Certain Terms” below.
Non-GAAP Financial Measures and Use of Certain Terms:
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) Our management uses the non-GAAP measure Adjusted EBITDA because it provides useful information to investors as an indicator of strength and performance of the Company’s ongoing business operations, including funding discretionary spending such as capital expenditures, strategic acquisitions, and other investments. We determine Adjusted EBITDA based on GAAP net income (loss) from continuing operations attributable to NCR Voyix plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization (excluding acquisition-related amortization of intangibles); plus stock-based compensation expense; plus other income (expense); plus pension mark-to-market adjustments and other special items, including amortization of acquisition-related intangibles, separation-related costs, cyber ransomware incident recovery costs, net of insurance recoveries, fraudulent ACH disbursements costs, and transformation and restructuring charges (which includes integration, severance and other exit and disposal costs), among others. The special items are considered non-operational or non-recurring in nature, so are excluded from the Adjusted EBITDA metric utilized by our chief operating decision maker in evaluating segment performance and are separately delineated to reconcile back to total reported income (loss) from continuing operations attributable to NCR Voyix. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by our management to make decisions regarding the segments and to assess our financial performance. Refer to the table below for the reconciliations of net income (loss) from continuing operations attributable to NCR Voyix (GAAP) to Adjusted EBITDA (non-GAAP).
Our definitions and calculations of these non-GAAP measures may differ from similarly-titled measures reported by other companies and cannot, therefore, be compared with similarly-titled measures of other companies. These non-GAAP measures should not be considered as substitutes for, or superior to, results determined in accordance with GAAP.
| | | | | | | | | | | | | | | | | |
| (in millions) | 2023 | | 2022 | | 2021 |
| Net income (loss) from continuing operations attributable to NCR Voyix (GAAP) | $ | (586) | | | $ | (203) | | | $ | (337) | |
| Pension mark-to-market adjustments | 7 | | | (41) | | | (7) | |
Transformation and restructuring costs(1) | 39 | | | 96 | | | 53 | |
Fraudulent ACH disbursements(2) | 23 | | | — | | | — | |
| Acquisition-related amortization of intangibles | 71 | | | 71 | | | 76 | |
Acquisition-related costs(3) | 1 | | | 2 | | | 3 | |
| | | | | |
| | | | | |
Interest expense(4) | 294 | | | 285 | | | 238 | |
| Interest income | (13) | | | (13) | | | (8) | |
Separation costs(5) | 99 | | | — | | | — | |
| Loss on disposal of businesses | 12 | | | — | | | — | |
| Loss on debt extinguishment | 46 | | | — | | | 42 | |
| Depreciation and amortization (excluding acquisition related amortization of intangibles) | 252 | | | 237 | | | 220 | |
| Income tax expense (benefit) | 204 | | | 72 | | | 70 | |
| Stock-based compensation expense | 150 | | | 90 | | | 121 | |
Cyber ransomware incident recovery costs(6) | 17 | | | — | | | — | |
| | | | | |
| Adjusted EBITDA (Non-GAAP) | $ | 616 | | | $ | 596 | | | $ | 471 | |
(1) Represents integration, severance, and other exit and disposal costs, which are considered non-operational in nature.
(2) Represents company identified fraudulent ACH disbursements from a company bank account. Additional details regarding this item are discussed in Note 1, “Basis of Presentation and Significant Accounting Policies”.
(3) Represents professional fees, retention bonuses, and other costs incurred related to acquisitions, which are considered non-operational in nature.
(4) During the three months ended September 30, 2023, it was determined that the transactions underlying the unrealized gains on terminated interest rate swap and cap agreements reported in Accumulated other comprehensive income were probable of not occurring under ASC 815, Derivatives and Hedging. As such, $18 million of unrealized gains were recognized in Interest expense. Refer to Note 15, “Derivatives and Hedging Instruments”.
(5) Represents costs incurred as a result of the Spin-Off. Professional fees to effect the spin-off of NCR Atleos including separation management, organizational design, and legal fees have been classified within discontinued operations through October 16, 2023, the separation date.
(6) Represents expenses to respond to, remediate and investigate the April 13, 2023 cyber ransomware incident as well as settlements with customers impacted by the incident, net of insurance recoveries. Additional details regarding this cyber ransomware incident are discussed in Note 1, “Basis of Presentation and Significant Accounting Policies”.
Consolidated Results
The following table shows our results for the years ended December 31,: the relative percentage that those amounts represent to revenue, and the change in those amounts year-over-year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percentage of Revenue(1) | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Product revenue | $ | 1,239 | | | $ | 1,274 | | | $ | 1,176 | | | 32.3 | % | | 33.6 | % | | 31.9 | % | | (3) | % | | 8 | % |
| Service revenue | 2,591 | | | 2,519 | | | 2,516 | | | 67.7 | % | | 66.4 | % | | 68.1 | % | | 3 | % | | — | % |
| Total revenue | 3,830 | | | 3,793 | | | 3,692 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 1 | % | | 3 | % |
| Product gross margin | 129 | | | 123 | | | 144 | | | 10.4 | % | | 9.7 | % | | 12.2 | % | | 5 | % | | (15) | % |
| Service gross margin | 833 | | | 855 | | | 781 | | | 32.1 | % | | 33.9 | % | | 31.0 | % | | (3) | % | | 9 | % |
| Total gross margin | 962 | | | 978 | | | 925 | | | 25.1 | % | | 25.8 | % | | 25.1 | % | | (2) | % | | 6 | % |
| Selling, general and administrative expenses | 740 | | | 695 | | | 704 | | | 19.3 | % | | 18.3 | % | | 19.1 | % | | 6 | % | | (1) | % |
| Research and development expenses | 185 | | | 147 | | | 195 | | | 4.8 | % | | 3.9 | % | | 5.3 | % | | 26 | % | | (25) | % |
| Income from operations | $ | 37 | | | $ | 136 | | | $ | 26 | | | 1.0 | % | | 3.6 | % | | 0.7 | % | | (73) | % | | 423 | % |
(1) The percentage of revenue is calculated for each line item divided by total revenue, except for product gross margin, service gross margin and total gross margin, which are divided by the related component of revenue.
|
| | | | | | |
| In millions | | 2017 | | 2016 | | 2015 |
| Revenue | | $6,516 | | $6,543 | | $6,373 |
| Gross margin | | 1,864 | | 1,782 | | 1,469 |
| Gross margin as a percentage of revenue | | 28.6% | | 27.2% | | 23.1% |
| Operating expenses | | | | | | |
| Selling, general and administrative expenses | | $932 | | $926 | | $1,042 |
| Research and development expenses | | 256 | | 242 | | 230 |
| Restructuring-related charges | | — | | 15 | | 62 |
| Income from operations | | $676 | | $599 | | $135 |
The following tables show | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percentage of Total Revenue | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Product revenue | $ | 1,239 | | | $ | 1,274 | | | $ | 1,176 | | | 32.3 | % | | 33.6 | % | | 31.9 | % | | (3) | % | | 8 | % |
| Service revenue | 2,591 | | | 2,519 | | | 2,516 | | | 67.7 | % | | 66.4 | % | | 68.1 | % | | 3 | % | | — | % |
| Total revenue | $ | 3,830 | | | $ | 3,793 | | | $ | 3,692 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 1 | % | | 3 | % |
Product revenue includes our hardware and software license revenue by geographic theaterstreams. Service revenue includes hardware and software maintenance revenue, implementation services revenue, cloud revenue, payments processing revenue as well as professional services revenue.
Total revenue increased 1% for the yearsyear ended December 31,: 2023 compared to the year ended December 31, 2022. Product revenue decreased 3% due to a decline in SCO and POS hardware revenues partially offset by an increase in software license revenue. Service revenue increased 3% due primarily to growth in cloud services revenue, hardware maintenance revenue and recurring software related services.
|
| | | | | | | | | | | | |
| In millions | 2017 | % of Total | | 2016 | % of Total | | % Increase (Decrease) | % Increase (Decrease) Adjusted Constant Currency (1) |
| Americas | $ | 3,809 |
| 59% | | $ | 3,743 |
| 57% | | 2% | 4% |
| Europe, Middle East Africa (EMEA) | 1,786 |
| 27% | | 1,896 |
| 29% | | (6)% | (4)% |
| Asia Pacific (APJ) | 921 |
| 14% | | 904 |
| 14% | | 2% | 3% |
| Consolidated revenue | $ | 6,516 |
| 100% | | $ | 6,543 |
| 100% | | —% | 1% |
|
| | | | | | | | | | | | |
| In millions | 2016 | % of Total | | 2015 | % of Total | | % Increase (Decrease) | % Increase (Decrease) Adjusted Constant Currency (1) |
| Americas | $ | 3,743 |
| 57% | | $ | 3,499 |
| 55% | | 7% | 11% |
| Europe, Middle East Africa (EMEA) | 1,896 |
| 29% | | 1,964 |
| 31% | | (3)% | 2% |
| Asia Pacific (APJ) | 904 |
| 14% | | 910 |
| 14% | | (1)% | 1% |
| Consolidated revenue | $ | 6,543 |
| 100% | | $ | 6,373 |
| 100% | | 3% | 7% |
The following table shows ourTotal revenue by segmentincreased 3% for the yearsyear ended December 31:31, 2022 compared to the year ended December 31, 2021. Product revenue increased 8% due to an increase in SCO and POS hardware revenues as well as software license revenue. The change in service revenue was flat comparing the year ended 2022 to 2021.
|
| | | | | | | | | | | | |
| In millions | 2017 | % of Total | | 2016 | % of Total | | % Increase (Decrease) | % Increase (Decrease) Adjusted Constant Currency (1) |
| Software | $ | 1,900 |
| 29% | | $ | 1,841 |
| 28% | | 3% | 3% |
| Services | 2,373 |
| 37% | | 2,306 |
| 35% | | 3% | 3% |
| Hardware | 2,243 |
| 34% | | 2,396 |
| 37% | | (6)% | (2)% |
| Consolidated revenue | $ | 6,516 |
| 100% | | $ | 6,543 |
| 100% | | —% | 1% |
|
| | | | | | | | | | | | |
| In millions | 2016 | % of Total | | 2015 | % of Total | | % Increase (Decrease) | % Increase (Decrease) Adjusted Constant Currency (1) |
| Software | $ | 1,841 |
| 28% | | $ | 1,747 |
| 27% | | 5% | 6% |
| Services | 2,306 |
| 35% | | 2,218 |
| 35% | | 4% | 6% |
| Hardware | 2,396 |
| 37% | | 2,408 |
| 38% | | —% | 9% |
| Consolidated revenue | $ | 6,543 |
| 100% | | $ | 6,373 |
| 100% | | 3% | 7% |
(1)The tables above include presentations of period-over-period revenue growth or decline on an adjusted constant currency or constant currency basis. Revenue growth on a constant currency basis is a non-GAAP measure that excludes the effects of foreign currency fluctuations. We calculate this information by translating prior period revenue growth at current period monthly average exchange rates. Revenue growth on an adjusted constant currency basis excludes the effects of foreign currency fluctuations and the impact of the IPS divestiture, and is calculated by translating prior period revenue growth at current period monthly average exchange rates and, for the 2016 comparison, by excluding the prior period results of the divested IPS business for the comparable period after the completion of the sale in May 2016. We believe that examining period-over-period revenue growth or decline excluding foreign currency fluctuations and adjusting for the impact of the IPS divestiture is useful for assessing the underlying performance of our business and provides additional insight into historical and/or future performance, and our management uses revenue growth adjusted for constant currency and the impact of the IPS divestiture to evaluate period-over-period operating performance on a more consistent and comparable basis. These non-GAAP measures should not be considered substitutes for, or superior to, period-over-period revenue growth under GAAP.
The following table provides a reconciliation of region revenue % growth (GAAP) to revenue % growth adjusted constant currency (non-GAAP) for the years ended December 31:
|
| | | | | | | | | |
| | 2017 | | 2016 |
| | Revenue % Growth (GAAP) | Favorable (unfavorable) FX impact | Divestiture impact | Revenue % Growth Adjusted Constant Currency (non-GAAP) | | Revenue % Growth (GAAP) | Favorable (unfavorable) FX impact | Divestiture Impact | Revenue % Growth Adjusted Constant Currency (non-GAAP) |
| Americas | 2% | —% | (2)% | 4% | | 7% | —% | (4)% | 11% |
| EMEA | (6)% | (1)% | (1)% | (4)% | | (3)% | (2)% | (3)% | 2% |
| APJ | 2% | 1% | (2)% | 3% | | (1)% | —% | (2)% | 1% |
| Consolidated revenue | —% | —% | (1)% | 1% | | 3% | (1)% | (3)% | 7% |
The following table provides a reconciliation of segment revenue % growth (GAAP) to revenue % growth adjusted constant currency (non-GAAP) for the years ended December 31:
|
| | | | | | | | | |
| | 2017 | | 2016 |
| | Revenue % Growth (GAAP) | Favorable (unfavorable) FX impact | Divestiture impact | Revenue % Growth Adjusted Constant Currency (non-GAAP) | | Revenue % Growth (GAAP) | Favorable (unfavorable) FX impact | Divestiture Impact | Revenue % Growth Adjusted Constant Currency (non-GAAP) |
| Software | 3% | —% | —% | 3% | | 5% | (1)% | —% | 6% |
| Services | 3% | —% | —% | 3% | | 4% | (2)% | —% | 6% |
| Hardware | (6)% | 1% | (5)% | (2)% | | —% | —% | (9)% | 9% |
| Consolidated Revenue | —% | —% | (1)% | 1% | | 3% | (1)% | (3)% | 7% |
2017 compared to 2016 results discussion
Revenue
Revenue was flat in 2017 from 2016 due to growth in Software and Services revenue offset by lower Hardware revenue. Foreign currency fluctuations did not have a significant impact on the revenue comparison and the IPS divestiture unfavorably impacted the revenue comparison by 1%.
Software revenue increased 3% driven by growth in cloud, software maintenance, and professional services. Services revenue increased 3% from 2016 driven by growth in both implementation services and hardware maintenance services. Hardware revenue was down 6% due to declines in Automated Teller Machine (ATM) revenue and consumables revenue as a result of the IPS divestiture, offset by increases in self-checkout (SCO) and point-of-sale (POS) revenue.
Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percentage of Revenue(1) | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Product gross margin | $ | 129 | | | $ | 123 | | | $ | 144 | | | 10.4 | % | | 9.7 | % | | 12.2 | % | | 5 | % | | (15) | % |
| Service gross margin | 833 | | | 855 | | | 781 | | | 32.1 | % | | 33.9 | % | | 31.0 | % | | (3) | % | | 9 | % |
| Total gross margin | $ | 962 | | | $ | 978 | | | $ | 925 | | | 25.1 | % | | 25.8 | % | | 25.1 | % | | (2) | % | | 6 | % |
Gross margin as a percentage of revenue was28.6%25.1% in 2017 2023compared to27.2% 25.8% in 20162022.Gross margin for the year ended December 31, 20172023 included $1 million benefit from pension mark-to-market adjustments, $11$6 million related to transformation and restructuring and transformation costs, and $50$16 million of stock-based compensation expense, $38 million related to amortization of acquisitionacquisition-related intangible assets, $32 million of separation-related costs and $16 million related to the cyber ransomware incident recovery costs. Gross margin for the year ended December 31, 2022 included $28 million related to transformation and restructuring costs, $15 million of stock-based compensation expense, $41 million related to amortization of acquisition-related intangible assets. Excluding these items, gross margin as a percentage of revenue was 28.0% in 2022 compared to 27.9% in 2023.
Gross margin as a percentage of revenue was 25.8% in 2022 compared to 25.1% in 2021. Gross margin for the year ended December 31, 2022 included $28 million related to transformation and restructuring costs, $15 million of stock-based compensation expense, $41 million related to amortization of acquisition-related intangible assets. Gross margin for the year ended December 31, 20162021 included $38 million expense from pension mark-to-market adjustments, $4$32 million related to transformation and restructuring costs, $19 million of stock-based compensation expense and transformation costs, and $58$34 million related to amortization of acquisition relatedacquisition-related intangible assets. Excluding these items, gross margin increased approximately 70 basis points driven by continued focus on productivity improvements in our Services segment.
2016 compared to 2015 results discussion
Revenue
Revenue increased 3% in 2016 from 2015 due to growth in Software and Services. Foreign currency fluctuations and the IPS divestiture unfavorably impacted the revenue comparison by 1% and 3%, respectively.
Software revenue increased 5% driven by growth in all of our software revenue streams, which include software license, software maintenance, cloud, and professional services. Services revenue increased 4% from 2015 driven by growth in both implementation services and hardware maintenance services as a result of our focus on improving the customer experience. Hardware revenue was flat due to growth in ATM revenue and self-checkout revenue offset by declines in point-of-sale revenue and consumables revenue as a result of the IPS divestiture.
Gross Margin
Gross margin as a percentage of revenue was 27.2%increased from 27.4% in 2016 compared2021 to 23.1% 28.0% in 2015. Gross margin for the year ended December 31, 2016 included $38 million in pension mark-to-market adjustments, $4 million related to restructuring and transformation costs, and $58 million related to amortization of acquisition related intangible assets. Gross margin for the year ended December 31, 2015 included $313 million in pension mark-to-market adjustments which primarily included the settlement of the UK London pension plan, $12 million related to restructuring and $63 million related to amortization of acquisition related intangible assets. Excluding these items, gross margin was slightly down,2022 due to investment associated with new hardware product introductions offset by growth in our Software segment.
Effects of Pension, Postemployment, and Postretirement Benefit Plans
NCR's income from continuing operations for the years ended December 31 was impacted by certain employee benefit plans as reflected in the table below:
|
| | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Pension expense | $36 | | $103 | | $464 |
| Postemployment expense | 24 | | 10 | | 17 |
| Postretirement (benefit) | (3) | | (11) | | (15) |
| Total expense | $57 | | $102 | | $466 |
In 2017, pension expense was $36 million compared to $103 million in 2016 and $464 million in 2015. In 2017, pension expense included actuarial losses of $28 million compared to $85 million in 2016. Discount rates in 2017 remained consistent with 2016 and actuarial losses in 2017 were primarily due to a mortality update in the United States. Actuarial losses in 2016 were due to a decrease in the discount rate from the prior year, offset by a higher than expected return on global pension assets. In 2017, approximately 82% of the pension expense was included in operating expenses, with the remaining 18% included in cost of products and services. In 2015, pension expense included a settlement loss of $427 million related to the completion of the transfer of NCR's UK London pension plan to an insurer, in addition to actuarial losses of $29 million. The actuarial losses were primarily attributable to lower than expected return on U.S. pension assets, partially offset by an increase in the discount rate.
Postemployment expense (severance and disability medical) was $24 million in 2017 compared to $10 million in 2016 and $17 million in 2015. In July 2014, the Company announced a restructuring plan to strategically reallocate resources and position the Company to focus on higher growth, higher margin opportunitiessoftware and recorded a related charge of zero, $4 million, and $1 million in the years ended December 31, 2017, 2016, and 2015 respectively.services revenue.
Selling, General and Administrative Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percentage of Total Revenue | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Selling, general and administrative expenses | $ | 740 | | | $ | 695 | | | $ | 704 | | | 19.3 | % | | 18.3 | % | | 19.1 | % | | 6 | % | | (1) | % |
Selling, general, and administrative expenses increased $6 million to $932were $740 million in 2017 from $9262023 as compared to $695 million in 2016.2022. As a percentage of revenue, theseselling, general and administrative expenses were 14.3%19.3% in 20172023 and 14.2%18.3% in 2016.2022. In 2017,2023, selling, general and administrative expenses included $12$25 million of pension mark-to-market adjustments, $65transformation and restructuring costs, $23 million related to the fraudulent ACH disbursements, $121 million of stock-based compensation expense, $33 million of acquisition-related amortization of intangibles, $5$1 million of acquisition-related costs, and $14$57 million of transformationin separation-related costs. In 2016,2022, selling, general and administrative expenses included $24$40 million of pension mark-to-market adjustments, $7transformation and restructuring costs, $65 million of acquisition-related costs, $65stock-based compensation expense, $30 million of acquisition-related amortization of intangibles and $7$2 million of restructuring and transformation costs. Excluding these items, selling, general and administrative expenses increased as a percentage of revenue from 12.6% in 2016 to 12.8% in 2017 due to increased sales investment as we expand our strategic offers and go to market strategy.
Selling, general, and administrative expenses decreased $116 million to $926 million in 2016 from $1,042 million in 2015. As a percentage of revenue, these expenses were 14.2% in 2016 and 16.4% in 2015. In 2016, selling, general, and administrative expenses included $24 million of pension mark-to-market adjustments, $7 million of acquisition-related costs, $65 million of acquisition-related amortization of intangibles and $7 million of restructuring and transformation costs. In 2015, selling, general, and administrative expenses included $123 million of pension mark-to-market adjustments, $11 million of acquisition-related costs, $62 million of amortization of acquisition-related intangible assets, a $20 million reserve on a subcontracting arrangement in emerging industries in Middle East Africa and $1 million of OFAC and FCPA related legal costs. Excluding these items, selling, general and administrative expenses decreased as a percentage of revenue from 12.9%14.7% in 20152022 to 12.6%12.5% in 20162023, due to the continued cost actions implemented, partially offset by an increase in employee-related costs.
Selling, general, and administrative expenses were $695 million in 2022, compared to $704 million in 2021. In 2022, selling, general and administrative expenses included $40 million of transformation and restructuring costs, $65 million of stock-based compensation expense, $30 million of acquisition-related amortization of intangibles and $2 million of acquisition-related costs. In 2021, selling, general and administrative expenses included $15 million of transformation and restructuring costs, $82 million of stock-based compensation expense, $42 million of acquisition-related amortization of intangibles and $3 million of acquisition-related costs. Excluding these items, selling, general and administrative expenses as a percentage of revenue decreased from 15.2% in 2021 to 14.7% in 2022 related to a reduction actions focused on limiting discretionary spending and the benefit of cost savings from the restructuring program initiated in 2014.employee-related costs in 2022.
Research and Development Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percentage of Total Revenue | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Research and development expenses | $ | 185 | | | $ | 147 | | | $ | 195 | | | 4.8 | % | | 3.9 | % | | 5.3 | % | | 26 | % | | (25) | % |
Research and development expenses increased $14 million to $256were $185 million in 2017 from $2422023, compared to $147 million in 2016.2022. As a percentage of revenue, these costs were 4.8% in 2023 and 3.9% in 2017 and 3.7% in 2016.2022. In 2017,2023, research and development expenses included $17$3 million of pension mark-to-market adjustmentscosts related to our transformation and $4restructuring initiatives, $7 million of transformation costs.separation related costs, and $13 million of stock-based compensation expense. In 2016,2022, research and development expenses included $23$20 million of pension mark-to-market adjustmentstransformation and zerorestructuring costs and $10 million of transformation costs.stock-based compensation expense. After considering this item,these items, research and development expenses increased as a percentage of revenue from 3.3%3.1% in 20162022 to 3.6%4.2% in 2017 driven by planned incremental investments2023 due to further advance our software and hardware solutions.an increase in employee-related costs.
Research and development expenses increased $12 million to $242were $147 million in 2016 from $2302022, compared to $195 million in 2015. As a percentage of revenue, these costs were 3.7% in 2016 and 3.6% in 2015. Research2021. In 2022, research and development expenses included pension mark-to-market adjustments$20 million of $23transformation and restructuring costs and $10 million in 2016 and $18 million in 2015. After considering this item,of stock-based compensation expense. In 2021, research and development expenses remained consistentincluded $21 million of stock-based compensation expense. After considering these items, research and development expenses decreased as a percentage of revenue at 3.3%.from 4.7% in 2021 to 3.1% in 2022 related to a reduction in employee-related costs in 2022.
Restructuring-Related ChargesLoss on Extinguishment of Debt
In 2016, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Loss on extinguishment of debt | $ | 46 | | | $ | — | | | $ | 42 | | | 100 | % | | (100) | % |
Loss on extinguishment of debt was $46 million in 2023 related to the Company recorded restructuring-related chargespremium paid for early redemption of $15$24 million of the 5.750% senior notes due 2027 and the 6.125% senior notes due 2029, as well as the write-off of deferred financing fees of $22 million related to the restructuring program announcedsenior unsecured notes, the senior secured credit facilities, and the revolving credit facility. Loss on extinguishment of debt was $42 million in 2014. The charges consist of severance and other employee related costs of $4 million, other exit costs of $9 million and asset-related charges of $2 million.
In 2015, the Company recorded restructuring-related charges of $62 million2021 related to the restructuring program announced in July 2014. The charges consistpremium paid for early redemption of severance and other employee related costs$400 million aggregate principal amount of $20 million, other exit costs8.125% senior secured notes due 2025, which includes the write-off of $13deferred financing fees of $5 million and asset-related chargesa cash redemption premium of $29$37 million.
Interest Expense
Interest expense was $163 million in 2017 compared to $170 million in 2016 and $173 million in 2015. Interest expense in all years was primarily related to the Company's senior unsecured notes and borrowings under the Company's senior secured credit facility.
Other Expense
Other (expense), net was $31 million in 2017 compared to $50 million in 2016 and $57 million in 2015. Interest income was $3 million in 2017, $4 million in 2016 and $5 million in 2015. In 2017, other (expense), net included $26 million related to losses from foreign currency fluctuations and foreign exchange contracts and $8 million in bank-related fees. In 2016, other (expense), net included $40 million related to losses from foreign currency fluctuations and foreign exchange contracts, $8 million in bank-related fees, $6 million related to the loss on sale of the IPS business and entity liquidations. In 2015, other (expense), net included $21 million related to losses from foreign currency fluctuations and foreign exchange contracts, $9 million in bank-related fees, and $34 million related to the loss on the then pending sale of the IPS business.
Income Taxes
Our effective tax rate was 50% in 2017, 24% in 2016, and (58)% in 2015. During 2017, our tax rate includes a provisional charge of approximately $130 million as a result of the impact of U.S. Tax Reform enacted in December 2017. The provisional charge primarily relates to the application of the newly enacted 21% corporate income tax rate to our net U.S deferred income tax assets in addition to the repatriation tax. The $130 million provisional charge represents NCR’s current best estimate, which may be refined and adjusted over the course of 2018. During 2016, our tax rate was impacted by a less favorable mix of earnings, primarily driven by actuarial pension losses in foreign jurisdictions with a valuation allowance against deferred tax assets. During 2015, there was no tax benefit recorded on the $427 million charge related to the settlement of the UK London pension plan due to a valuation allowance against deferred tax assets in the United Kingdom. Refer to Note 8, “Employee Benefit Plans”6, “Debt Obligations” of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for additional discussion on the settlementfinancing transactions.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Interest expense | $ | 294 | | | $ | 285 | | | $ | 238 | | | 3 | % | | 20 | % |
Interest expense was $294 million in 2023 compared to $285 million in 2022. Interest expense is primarily related to our senior unsecured notes and borrowings under the senior secured credit facilities. The increase in interest expense was due to the significant increase in variable interest rates on the senior secured credit facilities, partially offset by the recognition of $18 million of unrealized gains on terminated interest rate derivative contracts included in Accumulated other comprehensive loss due to the determination that the underlying transactions were no longer probable of occurring as a result of the UK London pension plan. Additionally, we favorably settled examinations with Canada for tax years 2002 through 2006 that resulted in a tax benefitSpin-Off of $10NCR Atleos from the Company.
Interest expense was $285 million in 2015.2022 compared to $238 million in 2021. Interest expense is primarily related to our senior unsecured notes and borrowings under the Senior Secured Credit Facility. The main driver of the increase in interest expense from 2021 to 2022 was the increase in total debt outstanding as a result of the closing of the acquisition of Cardtronics in the second quarter of 2021, combined with an increase in variable interest rates on the Senior Secured Credit Facility.
Other Income (Expense), net
Other income (expense), net was expense of $79 million in 2023, income of $18 million in 2022 and expense of $13 million in 2021, with the components reflected in the following table:
| | | | | | | | | | | | | | | | | |
| In millions | 2023 | | 2022 | | 2021 |
| Interest income | $ | 13 | | | $ | 13 | | | $ | 8 | |
| Foreign currency fluctuations and foreign exchange contracts | (28) | | | (17) | | | (2) | |
| Bank-related fees | (28) | | | (9) | | | (27) | |
| Employee benefit plans | (8) | | | 40 | | | 9 | |
| | | | | |
| | | | | |
| | | | | |
| Other, net | (28) | | | (9) | | | (1) | |
| Other income (expense), net | $ | (79) | | | $ | 18 | | | $ | (13) | |
Employee benefit plans within other income (expense) net includes the components of pension, postemployment expense, other than service cost, as well as actuarial gains and losses from the annual pension mark-to-market adjustment. In 2023, there was an actuarial loss of $7 million compared to an actuarial gain of $41 million in 2022. The net actuarial loss in 2023 was primarily due to plan experience losses as well as a decrease in discount rates, partially offset by favorable returns on plan assets. The actuarial gain in 2022 was primarily due to an increase in discount rates, partially offset by unfavorable returns on the fair value of plan assets. The actuarial gain in 2021 was $7 million primarily due to favorable returns on plan assets.
In 2023, Other, net includes a $9 million loss recognized on the divestitures of certain non-strategic businesses. In 2022, Other, net includes a $9 million loss recognized on the divestiture of a non-strategic business.
In 2023, the Company incurred bank-related fees of $28 million, mainly related to higher interest rates incurred on the trade receivables facility compared to prior years. In 2021, the Company incurred bank-related expenses of $19 million related to certain structuring and commitment fees as a result of the financing transactions entered into during the first quarter of 2021.
Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Income tax expense (benefit) | $ | 204 | | | $ | 72 | | | $ | 70 | | | 183 | % | | 3 | % |
Our effective tax rate was (53)% in 2023, (55)% in 2022, and (26)% in 2021. During 2014,2023, our tax rate was impacted by a net $226 million expense related to the Internal Revenue Service (IRS) finalizedSpin-Off of NCR Atleos. Also during 2023, our tax rate was impacted by a $20 million expense from recording a valuation allowance against deferred tax assets and a $17 million expense from nondeductible executive compensation. During 2022, our tax rate was impacted by a $103 million expense from recording a valuation allowance against deferred tax assets in the United Kingdom and other jurisdictions. During 2021, our tax rate was impacted by a $56 million expense from recording a valuation allowance against deferred tax assets and a $55 million expense resulting from an examination of our 2009 and 2010 income tax returns and commenced an examination of our 2011, 2012 and 2013 income tax returns, which is ongoing. internal entity restructuring.
While we are subject to numerous federal, state and foreign tax audits, we believe that appropriate reserves exist for issues that might arise from these audits. Should these audits be settled, the resulting tax effect could impact the tax provision and cash flows in future periods. During 2018,2024, the Company expects to resolve certain tax matters related to U.S. and foreign jurisdictions. These resolutions could have a material impact on the effective tax rate in 2018.2024.
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 a 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. Given current earnings and anticipated future earnings at certain subsidiaries, the Company believes that there is a reasonable possibility sufficient positive evidence may become available that would allow the release
LossIncome (Loss) from Discontinued Operations, net of tax
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| | | | | | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Income (loss) from discontinued operations, net of tax | $ | 163 | | | $ | 262 | | | $ | 435 | | | (38) | % | | (40) | % |
In 2017, loss2023, the income from discontinued operations was $5$163 million, net of tax, primarily related to income of discontinued operations for NCR Atleos of $213 million, as described in Note 2, “Discontinued Operations”of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, offset by a loss of $50 million, net of tax, due to updates in estimates and assumptions for the FoxKalamazoo River reserve partially offset by insurance recoveries received during the year.and other environmental reserves.
In 2016, loss2022, the income from discontinued operations was $13$262 million, net of tax, primarily related to updates in estimates and accruals for litigation expenses related to the Fox River reserve.
In 2015, loss fromincome of discontinued operations was $24for NCR Atleos of $267 million, net of tax, primarily related to updates in estimates and accruals for litigation expenses related to the Fox River reserve in addition to accruals for litigation expenses related to the Kalamazoo River environmental matter.
Revenue and Operating Income by Segment
Asas described in Note 12, “Segment Information and Concentrations” 2, “Discontinued Operations”of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, offset by a loss of $4 million, net of tax, due to updates in estimates and assumptions for the Kalamazoo River and Fox River environmental reserves.
In 2021, the income from discontinued operations was $435 million, net of tax, all of which is related to income of discontinued operations for NCR Atleos, as described in Note 2, “Discontinued Operations” of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
Revenue and Adjusted EBITDA by Segment
The Company manages and reports its businesses in the following segments:
Software - Our software offerings include industry-based software platforms, applications Retail, Restaurants (formerly reported as Hospitality), and application suites for the financial services, retail, hospitality and small business industries. We also offer a portfolio of other industry-oriented software applications including cash management software, video banking software, fraud and loss prevention applications, check and document imaging, remote-deposit capture and customer-facing mobile and digital banking applications for the financial services industry; and secure electronic and mobile payment solutions, sector-specific point of sale software applications, and back-office inventory and store and restaurant management applications for the retail and hospitality industries. Additionally, we provide ongoing software support and maintenance services, as well as consulting and implementation services for our software solutions.
Services - Our global end-to-end services solutions include assessment and preparation, staging, installation, implementation, and maintenance and support for our solutions. We also provide systems management and complete managed services for our product offerings. In addition, we provide installation, maintenance and servicing for third party networking products and computer hardware from select manufacturers.
Hardware - Our hardware solutions include our suite of financial-oriented self-service ATM-related hardware, and our retail- and hospitality-oriented point of sale terminal, self-checkout kiosk and related hardware. We also offer other self-service kiosks, such as self-check in/out kiosks for airlines, and wayfinding solutions for buildings and campuses.
Each of these segments derives its revenue by selling in the sales theaters in which NCR operates.Digital Banking. Segments are measured for profitability by the Company’s chief operating decision maker based on revenue and segment operating income. For purposesAdjusted EBITDA. Refer to the section above entitled “Non-GAAP Financial Measures and Use of discussingCertain Terms” for our operating results by segment, we exclude the impactdefinition of certain non-operational items from segment operating income, consistent with the manner by which management reviews each segment, evaluates performance, and reports our segment results under GAAP. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by NCR management to make decisions regarding the segments and to assess our financial performance. Our segment results are reconciled to total Company results reported under GAAP in Note 12, “Segment Information and Concentrations” of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report.
In the segment discussions below, we have disclosed the impact of foreign currency fluctuationsAdjusted EBITDA and the IPS divestiture as it relatesreconciliation of net income (loss) from continuing operations attributable to NCR Voyix (GAAP) to Adjusted EBITDA (non-GAAP).
Corporate and Other includes income and expenses related to corporate functions that are not specifically attributable to any of our segment revenue duethree individual reportable segments along with certain non-strategic businesses that are considered immaterial operating segment(s), certain countries which are expected to their significance.
Software Segment
transfer to NCR Atleos during 2024, and commercial agreements with NCR Atleos.
The following table presents the Softwareshows our segment revenue and segment operating incomeAdjusted EBITDA for the years ended December 31:31, the relative percentage that those amounts represent to revenue, and the change in those amounts year-over-year.
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| | | | | | | Percentage of Revenue(1) | | Increase (Decrease) |
| (in millions) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 v 2022 | | 2022 v 2021 |
| Revenue | | | | | | | | | | | | | | | |
| Retail | $ | 2,177 | | | $ | 2,182 | | | $ | 2,138 | | | 56.8 | % | | 57.5 | % | | 58.0 | % | | — | % | | 2 | % |
| Restaurants | 886 | | | 857 | | | 794 | | | 23.1 | % | | 22.6 | % | | 21.5 | % | | 3 | % | | 8 | % |
| Digital Banking | 579 | | | 547 | | | 521 | | | 15.1 | % | | 14.4 | % | | 14.1 | % | | 6 | % | | 5 | % |
| Total Segment Revenue | 3,642 | | | 3,586 | | | 3,453 | | | 95.0 | % | | 94.5 | % | | 93.6 | % | | 2 | % | | 4 | % |
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| Other | 188 | | | 207 | | | 239 | | | 5.0 | % | | 5.5 | % | | 6.4 | % | | (9) | % | | (13) | % |
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| Total Revenue | $ | 3,830 | | | $ | 3,793 | | | $ | 3,692 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 1 | % | | 3 | % |
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| Adjusted EBITDA by segment | | | | | | | | | | | | | | | |
| Retail | $ | 411 | | | $ | 384 | | | $ | 427 | | | 18.9 | % | | 17.6 | % | | 20.0 | % | | 7 | % | | (10) | % |
| Restaurants | 197 | | | 160 | | | 150 | | | 22.2 | % | | 18.7 | % | | 18.9 | % | | 23 | % | | 7 | % |
| Digital Banking | 219 | | | 233 | | | 216 | | | 37.8 | % | | 42.6 | % | | 41.5 | % | | (6) | % | | 8 | % |
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(1) The percentage of revenue is calculated for each line item divided by total revenue, except for Adjusted EBITDA, which are divided by the related component of revenue.
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| | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Revenue | $1,900 | | $1,841 | | $1,747 |
| Operating income | $567 | | $577 | | $539 |
| Operating income as a percentage of revenue | 29.8% | | 31.3% | | 30.9% |
Segment Revenue
For the year ended December 31, 2023 compared to the year ended December 31, 2022
Retail revenue was flat for the year ended December 31, 2023 compared to the prior year period. The change in revenue compared to the prior period includes increases in software license revenue and transaction services revenue, offset by declines in hardware revenue.
Restaurants revenue increased 3% in 2017for the year ended December 31, 2023 compared to 2016the prior year period driven by an increase in software and services revenue, driven by connecting to the platform and payments processing growth, partially offset by declines in hardware revenue.
Digital Banking revenue increased 6% for the year ended December 31, 2023 compared to the prior year period due to an increase in recurring cloud services and software maintenance revenues.
For the operations grouped as Other, revenue decreased 9% for the year ended December 31, 2023 compared to the prior year period due to the divestiture of a non-strategic business and declines in revenues not attributable to a reportable segment, offset by revenues from commercial agreements in 2023 with NCR Atleos following the Spin-Off.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Retail revenue increased 2% for the year ended December 31, 2022 compared to the prior year period. The change in revenue compared to the prior period was driven by an increase in hardware-related revenues and a non-recurring software-related payment from our largest client, as well as an increase in cloud revenue of 6%,services revenues, partially offset by declines in hardware maintenance, professional services and software maintenance revenues.
Restaurants revenue of 1%, professionalincreased 8% for the year ended December 31, 2022 compared to the prior year period. The change in revenue compared to the prior period was driven by an increase in both hardware-related and services-related revenues.
Digital Banking revenue increased 5% for the year ended December 31, 2022 compared to the prior year period. The change in revenue compared to the prior period was driven by an increase in software license revenues, cloud services revenue of 5%,revenues and software maintenance revenues, slightly offset by a decline in software licenseprofessional services revenues.
For the operations grouped as Other, revenue of 1%. Cloud revenue increaseddecreased 13% for the year ended December 31, 2022 compared to the prior year period due to prior period bookings. Software maintenance revenue grew duedeclines in revenues not attributable to software license growth in prior periods. Professional services revenue grew duea reportable segment.
Segment Adjusted EBITDA
For the year ended December 31, 2023 compared to demandthe year ended December 31, 2022
Retail Adjusted EBITDA increased 7% for the Company's channel transformation and digital enablement solutions. Software license revenue declined due to lower software license revenue attached to hardware. Foreign currency fluctuations had no impact on the revenue comparison.
Software revenue increased 5% in 2016year ended December 31, 2023 compared to 2015the prior year period. The increase in Adjusted EBITDA compared to the prior year period is driven by improved revenue mix from growth in software license revenue of 13%, software maintenance revenue of 7%, cloud revenue of 4% and professional services revenue of 2%. Growth in software license revenue was driven primarily by store transformation and attached software revenue driven by the increase in hardware sales. Software maintenance revenue grew due to the growth in software licenses in prior periods and cloud revenue growth was due to growth in the financial services and hospitality industries. Foreign currency fluctuations negatively impacted the year-over-year revenue comparison of 1%.
Operating income decreased in 2017 compared to 2016 driven by the decrease in software license revenue but partially offset by improved efficiency in cloud and software maintenance. Operating income increased in 2016 compared to 2015 driven by higher revenue.
Services Segment
The following table presents the Services revenue and segment operating income for the years ended December 31:
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| In millions | 2017 | | 2016 | | 2015 |
| Revenue | $2,373 | | $2,306 | | $2,218 |
| Operating income | $288 | | $201 | | $194 |
| Operating income as a percentage of revenue | 12.1% | | 8.7% | | 8.7% |
Services revenue increased 3% in 2017 compared to 2016 primarily driven by growth in implementation services as well as hardware maintenance as a result of our focus on improvingoperating efficiencies and productivity improvements.
Restaurants Adjusted EBITDA increased 23% for the customer experience. Foreign currency fluctuations had no impact on the year-over-year revenue comparison.
Services revenue increased 4% in 2016year ended December 31, 2023 compared to 2015 primarilythe prior year period driven by positive revenue mix and growth in implementation, hardware maintenanceservices offsetting the impact of higher labor costs.
Digital Banking Adjusted EBITDA decreased 6% for the year ended December 31, 2023 compared to the prior year period driven by investment in selling expenses and managed services as a resultresearch and development expenses and the impact of our focus on improvingprior year employee-related benefits.
For the customer experience. Foreign currency fluctuations negatively impactedyear ended December 31, 2022 compared to the year-over-year revenue comparisonyear ended December 31, 2021
Retail Adjusted EBITDA decreased 10% for the year ended December 31, 2022 compared to the prior year period. The decrease in Adjusted EBITDA compared to the prior year period is driven by 2%.product cost and mix, increased labor challenges and other supply chain challenges during the period.
Restaurants Adjusted EBITDA increased 7% for the year ended December 31, 2022 compared to the period year period. The increase in Adjusted EBITDA compared to the prior period is driven by an increase in both hardware-related and services-related
revenues. These improvements were partially offset by supply chain challenges and increased fuel costs, which drove up component and other costs, particularly in transaction services and hardware.
Operating incomeDigital Banking Adjusted EBITDA increased in 2017 compared to 2016 primarily driven by continued focus on productivity and efficiency improvements. Operating income increased in 2016 compared to 2015 primarily driven by higher revenue.
Hardware Segment
The following table presents the Hardware revenue and segment operating income8% for the yearsyear ended December 31:
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| In millions | 2017 | | 2016 | | 2015 |
| Revenue | $2,243 | | $2,396 | | $2,408 |
| Operating (loss) income | $(2) | | $62 | | $87 |
| Operating (loss) income as a percentage of revenue | (0.1)% | | 2.6% | | 3.6% |
On May 27, 2016, NCR completed the sale of substantially all of the IPS business to Atlas Holdings LLC, which excluded the IPS operations in the Middle East and Africa (MEA). Accordingly, the Hardware segment revenue and operating income results exclude the results of the IPS operations, except for the IPS MEA operations, from May 27, 2016 through the end of 2017.
Hardware revenue decreased 6% in 201731, 2022 compared to 2016 driven by the impact of the IPS divestiture in the prior year and declinesperiod. The increase in ATM revenue of 17% partially offset by growth in self-checkout revenue of 16% and point-of-sale revenue of 20%. Self-checkout revenue increased due to store transformation. Point-of-sale revenue increased due to growth from a new solution in the petroleum and convenience sector. ATM revenue decreased mainly due to due to delays in customer spending in North America as well as declines in the Middle East and Africa. Foreign currency fluctuations positively impacted the year-over-year comparison by 1% and the IPS divestiture negatively impacted the year-over-year revenue comparison by 5%.
Hardware revenue was relatively flat in 2016Adjusted EBITDA compared to 2015 with growththe prior period in ATM revenue of 3% and self-checkout revenue of 88% offset by declines in point-of-sale revenue of 3% and IPS revenue as a result of the divestiture. ATM revenue increased mainly due to new product introductions and branch transformation, and self-checkout revenue increased due to store transformation. Point-of-sale revenue was down mainly in the retail industry. Foreign currency fluctuations and the IPS divestiture negatively impacted the year-over-year revenue comparison by 0% and 9%, respectively.
Operating income decreased in 2017 compared to 2016 driven by lower volume and the impact on new product introductions. Operating income decreasedan increase in 2016 compared to 2015 due to a decline in gross margins attributable to expenses associated with new product launches. The gross margin rate in 2016 was negatively impacted by higher initial expenses from the roll-out of a new ATM product family and macroeconomic challenges.recurring revenue.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
In the year ended December 31, 2017, cash provided by operating activities was $755 million andGeneral Our primary liquidity needs in the year ended December 31, 2016 cash provided byordinary course of business are to: (i) fund normal operating activities was $894 million. The decrease was due to lower working capital, partially offset by higher operating income.
NCR’s management uses a non-GAAP measure called “free cash flow” to assessexpenses; (ii) meet the financial performanceinterest and principal requirements of the Company. We define free cash flow as net cash provided by (used in) operating activities and cash provided by (used in) discontinued operations, lessour outstanding indebtedness, including finance leases; (iii) fund capital expenditures for property, plant and equipment, less additionsoperating lease payments; (iv) remediation payments related to capitalized software plus discretionaryenvironmental matters; (v) meet our expected pension contributions and settlements. Free cash flow does not have a uniform definition under GAAP,postemployment plan contributions; and therefore NCR’s definition of this measure may differ from that of other companies.(vi) payments related to transformation and restructuring initiatives. We believe freethese needs will be satisfied in both the short and long term based on our current cash flow information is useful for investors because it relates the operatingposition, cash flows from the Company’s continuinggenerated by our operations, and discontinued operations to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash available after capital expenditures for, among other things, investments in the Company’s existing businesses, strategic acquisitions and investments, repurchase of NCR stock and repayment of debt obligations. Free cash flow does not represent the residual cash flow available for discretionary expenditures, since there may be other non-discretionary expenditures that are not deducted from the measure. This non-GAAP measure should not be considered a substitute for, or superior to, cash flows from operating activities under GAAP. The table below reconciles net cash provided by (used in) operating activities, the most directly comparable GAAP measure, to NCR’s non-GAAP measure of free cash flow for the years ended December 31:financing arrangements.
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| | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Net cash provided by operating activities | $755 | | $894 | | $681 |
| Capital expenditures for property, plant and equipment | (128) | | (73) | | (79) |
| Additions to capitalized software | (166) | | (154) | | (150) |
| Net cash used in discontinued operations | (8) | | (39) | | (43) |
| Pension discretionary contributions and settlements | — | | — | | — |
| Free cash flow (non-GAAP) | $453 | | $628 | | $409 |
In 2017, net cash provided by operating activities decreased $139 million, and net cash used in discontinued operations decreased $31 million, which contributed to a net decrease in free cash flow of $175 million in comparison to 2016. Additionally, capital expenditures for property, plant and equipment increased $55 million primarily due to expenditures related to the new global headquarters in Atlanta Georgia. Expenditures related to the new global headquarters were approximately $60 million offset by approximately $44 million of reimbursements by the lessor which was included in net cash provided by operating activities. Additions to capitalized software increased $12 million due to continued investment in software solution enhancements. The net cash used in discontinued operations in 2017 was lower than 2016 primarily due to decreased litigation payments associated with the Fox River and Kalamazoo environmental matters as well as insurance settlements received in 2017.
In 2016, net cash provided by operating activities increased $213 million, and net cash used in discontinued operations decreased $4 million, which contributed to a net increase in free cash flow of $219 million in comparison to 2015. Additionally, capital expenditures decreased $6 million and capitalized software additions increased $4 million due to continued investment in software solution enhancements. The net cash used in discontinued operations in 2016 was lower than 2015 primarily due to lower remediation payments associated with the Fox River environmental matter.
Financing activities and certain other investing activities are not included in our calculation of free cash flow. Our other investing activities primarily include business acquisitions, divestitures and investments as well as proceeds from the sales of property, plant and equipment. During the year ended December 31, 2016, we completed the sale of our IPS business, excluding its MEA operations, to Atlas Holdings LLC for cash consideration of $47 million.
Our financing activities primarily include proceeds from the issuance of preferred stock, employee stock plans, borrowings on term credit facilities and the issuance of unsecured notes, as well as payments made for share repurchases, repayments of term credit facilities and tax withholding on behalf of employees. During the years ended December 31, 2017 and 2016, we repurchased a total of $350 million and $250 million, respectively, of our common stock. During the year ended December 31, 2015, we issued and sold shares of our Series A Convertible Preferred Stock for $820 million, less $26 million of issuance costs, and completed a share repurchase by modified "Dutch auction" tender offer for $1 billion, plus $5 million of issuance costs. During the years ended December 31, 2017, 2016 and 2015, proceeds from employee stock plans were $15 million in all periods. During the years ended December 31, 2017, 2016 and 2015, payments made for tax withholding on behalf of employees totaled $31 million, $16 million and $16 million, respectively.
Long Term Borrowings As of December 31, 2017, our senior secured credit facility consisted of a term loan facility with an aggregate principal amount outstanding of $810 million, and a revolving credit facility in an aggregate principal amount of $1.10 billion, of which none was outstanding. Additionally, the revolving credit facility has up to $400 million available to certain foreign subsidiaries. Loans under the revolving credit facility are available in U.S. Dollars, Euros and Pound Sterling. The revolving credit facility also allows a portion of the availability to be used for outstanding letters of credit, and as of December 31, 2017, there were no letters of credit outstanding. As of December 31, 2016, the outstanding principal balance of the term loan facility was $866 million and no amounts were outstanding under the revolving credit facility.
As of December 31, 2017 and 2016, we had outstanding $700 million in aggregate principal balance of 6.375% senior unsecured notes due 2023, $600 million in aggregate principal balance of 5.00% senior unsecured notes due 2022, $500 million in aggregate principal balance of 4.625% senior unsecured notes due 2021 and $400 million in aggregate principal balance of 5.875% senior unsecured notes due 2021.
Our revolving trade receivables securitization facility provides the Company with up to $200 million in funding based on the availability of eligible receivables and other customary factors and conditions. As of December 31, 2017 and December 31, 2016, the Company had no amounts outstanding under the facility.
See Note 5, "Debt Obligations" of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for further information on the senior secured credit facility, the senior unsecured notes and the trade receivables securitization facility.
Employee Benefit Plans We expect to make pension, postemployment and postretirement plan contributions of approximately $92 million in 2018. See Note 8, “Employee Benefit Plans” of the Notes to the Consolidated Financial Statements included in Item 8 of Part II of this Report for additional discussion on our pension, postemployment and postretirement plans.
Restructuring Program In 2014, we announced a restructuring plan to strategically reallocate resources so that we can focus on higher-growth, higher-margin opportunities in the software-driven omni-channel industry and as of March 31, 2017, this plan was complete. Refer to Note 14, "Restructuring Plan" of the Notes to the Consolidated Financial Statements included in Item 8 of Part II of this Report for additional discussion on our restructuring plan.
In addition to the above, we remain focused on continuing our transformation to build share in the most promising growth areas while driving further operating efficiencies. To accelerate our transformation journey, we are evaluating programs to prioritize driving sustainable margin improvement, higher productivity and process efficiencies focusing on investing in software products that accelerate growth, driving growth in services through structural improvements and optimizing its hardware production, sourcing and supply chain strategy. As we finalize these programs, NCR expects to incur a related pre-tax charge over the next two years in the range of approximately $200 million to $250 million, with $100 million to $150 million in 2018, that will be included in income from operations. The cash impact of the restructuring plan is expected to be approximately $150 million to $200 million over the next two years, with $100 million in 2018. We plan to achieve run-rate savings of approximately $150 million per year by 2020.
Series A Convertible 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. These direct and incremental expenses 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. Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 5.5% per annum, payable quarterly in arrears and payable in-kind for the first sixteen dividend payments, after which, dividends will be payable in cash or in-kind at the option of the Company. During the twelve months ended December 31, 2017 and 2016, the Company paid dividends-in-kind of $45 million and $47 million, respectively, associated with the Series A Convertible Preferred Stock. As of December 31, 2017 and 2016, the Company had accrued dividends of $3 million and $3 million, respectively. There were no cash dividends declared in the years ended December 31, 2017 and 2016.
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, 2017 and 2016, the maximum number of common shares that could be required to be issued if converted was 27.5 million and 29.0 million shares, respectively, which would represent approximately 18% and 19% of our outstanding common stock as of December 31, 2017 and 2016 including the preferred shares on an as-converted basis.
Under the Investment Agreement, Blackstone agreed not to sell or otherwise transfer its shares of Series A Convertible Preferred Stock (or any shares of common stock issued upon conversion thereof) without the Company’s consent until June 4, 2017. In March 2017, we provided Blackstone with an early release from this lock-up, allowing Blackstone to sell approximately 49% of its shares of Series A Convertible Preferred Stock, and in return, Blackstone agreed to amend the Investment Agreement to extend the lock-up on the remaining 51% of its shares of Series A Convertible Preferred Stock for six months until December 1, 2017.
In connection with the early release of the lock-up, 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.
Cash and Cash Equivalents Held by Foreign Subsidiaries Cash and cash equivalents held by the Company's foreign subsidiaries were $442 million and $428 million at December 31, 2017 and 2016, respectively. As a result of U.S. Tax Reform, including the repatriation tax, in general we will not be subject to additional U.S. taxes if cash and cash equivalents and short-term investments held outside the U.S. are distributed to the U.S. in the form of dividends or otherwise. However, we may be subject to foreign withholding taxes, which could be significant.
Summary As of December 31, 2017, our cash and cash equivalents totaled $537$262 million and our total debt was $3.01$2.6 billion. Our borrowing capacity under our senior secured credit facility was $1.10 billion and under our trade receivables securitization facility was $200$351 million at December 31, 2017.2023. Our ability to generate positive cash flows from operations is dependent on general economic conditions, and the competitive environment in our industry, and is subject to the business and other risk factors described in Item 1A
of Part I of this Report. If we are unable to generate sufficient cash flows from operations, or otherwise comply with the terms of our credit facilities, we may be required to seek additional financing alternatives.
We believe that we have sufficient liquidity based onThe following table summarizes our current cash position, cash flows from operationsoperating activities, investing activities and existing financing activities:
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| (in millions) | 2023 | | 2022 | | 2021 | |
| Net cash provided by operating activities | $ | 694 | | | $ | 427 | | | $ | 1,009 | | |
| Net cash used in investing activities | (290) | | | (387) | | | (2,826) | | |
| Net cash provided by (used in) financing activities | (839) | | | 1 | | | 2,178 | | |
The following table summarizes information related to meet our expected pension, postemployment, and postretirement plan contributions, remediation paymentscash flows from discontinued operations related to the Fox River environmental matter, debt servicing obligations, paymentsSpin-Off of NCR Atleos:
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| For the year ended December 31 |
| In millions | 2023* | | 2022 | | 2021 |
| Net cash provided by/(used in) operating activities | $ | 283 | | | $ | 243 | | | $ | 803 | |
| Net cash provided by/(used in) investing activities | (71) | | | (123) | | | (1,789) | |
| Net cash provided by/(used in) financing activities | — | | | 10 | | | (3) | |
*Represents Atleos operations from January 1, 2023 through October 16, 2023, versus a full year of NCR Atleos operations in 2022 and 2021.
Net cash used in operating activities of discontinued operations related to transformation initiatives,environmental obligations were $19 million, $20 million and our$68 million for fiscal years 2023, 2022 and 2021, respectively.
Operating Activities Cash provided by operating requirementsactivities was $694 million for the next twelve months.year ended December 31, 2023 compared to cash provided by operating activities of $427 million for the year ended December 31, 2022. The increase in cash provided by operating activities was driven by the favorable movement in net working capital accounts.
Cash provided by operating activities was $427 million for the year ended December 31, 2022 compared to cash provided by operating activities of $1,009 million for the year ended December 31, 2021. The decrease in cash provided by operating activities was driven by the unfavorable movement in net working capital accounts, partially offset by cash received upon termination of interest rate swap contracts in the first and second quarters of 2022. Additionally, cash provided by operating activities in the year ended December 31, 2021 reflects the agreement entered into during the third quarter of 2021 to sell short-term receivables from certain trade accounts to an unaffiliated financial institution, which provided a $300 million benefit to operating cash flows.
Capital Expenditures and Other Investing Activities Our principal capital expenditures are for software (purchased and internally developed) and additions to property and equipment. We invested approximately $377 million, $377 million and $348 million in capital expenditures during 2023, 2022 and 2021, respectively. We expect to continue investing in property and equipment, purchased software and internally developed software to support our business.
Financing Activities Financing activities mainly related to borrowings and repayments under our senior secured credit facilities as well as our unsecured senior notes. Financing activities also included dividends paid on the Series A preferred stock, proceeds from employee stock plans as well as tax withholding payments on behalf of employees for stock based awards that vested.
Long Term Borrowings The senior secured credit facilities include a term loan facility in an initial aggregate principal amount of $200 million, of which $200 million was outstanding as of December 31, 2023. Additionally, the senior secured credit facilities include a five-year Revolving Credit Facility with an aggregate principal amount of $500 million, of which $98 million was outstanding as of December 31, 2023. The Revolving Credit Facility also contains a sub-facility to be used for letters of credit, and as of December 31, 2023, there were $51 million letters of credit outstanding.
As of December 31, 2023, we had outstanding $1.2 billion in aggregate principal balance of 5.125% senior unsecured notes due in 2029, $650 million aggregate principal balance of 5.000% senior unsecured notes due in 2028 and $450 million in aggregate principal balance of 5.250% senior unsecured notes due in 2030.
See Note 6, “Debt Obligations”, of the Notes to Consolidated Financial Statements included in Item 8 of this Report for further information on the Senior Secured Credit Facility.
Employee Benefit Plans In 2024, we expect to make contributions of $13 million to our international pension plans and $21 million to our postemployment plan. See Note 10, “Employee Benefit Plans”, of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for additional discussion on our pension and postemployment plans.
Series A Convertible Preferred Stock In 2015, NCR issued 820,000 shares of Series A Convertible Preferred Stock. As of December 31, 2023, there were approximately 300,000 shares that remained issued and outstanding with a redemption value of approximately $276 million. 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, are payable in cash or in-kind at the option of the Company. During the years ended December 31, 2023, the Company paid cash dividends of $15 million. The holders also have certain redemption rights or put rights, including the right to require us to repurchase all or any portion of the Series A Convertible Preferred Stock 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 such date, at 100% of the liquidation preference plus all accrued but unpaid dividends.
Prior to the close of business on October 17, 2023, the Series A Convertible Preferred Stock was convertible at the option of the holders at any time into shares of common stock at a conversion price of $30.00 per share, or a conversion rate of 33.333 shares of common stock per share of Series A Convertible Preferred Stock. As a result of the Spin-Off, the conversion rate of the Series A Convertible Preferred Stock was adjusted pursuant to its terms to 57.560 shares of common stock per share of Series A Convertible Preferred Stock, effective immediately after the close of business on October 17, 2023. As of December 31, 2023, the maximum number of common shares that could be required to be issued upon conversion of the outstanding shares of the Series A Convertible Preferred Stock was 15.9 million shares, which would represent approximately 10% of our outstanding common stock as of December 31, 2023, including the preferred shares on an as-converted basis.
Cash and Cash Equivalents Held by Foreign Subsidiaries Cash and cash equivalents held by the Company’s foreign subsidiaries were $191 million and $178 million at December 31, 2023 and 2022, respectively. Under current tax laws and regulations, if cash and cash equivalents and short-term investments held outside the U.S. are distributed to the U.S. in the form of dividends or otherwise, we may be subject to additional U.S. income taxes and foreign withholding taxes, which could be significant.
Material Cash Requirements from Contractual and Other Obligations In the normal course of business, we enter into various contractual obligations that impact, or could impact, the liquidity of our operations. The following table and discussion outlines our material obligations as of December 31, 20172023 on an undiscounted basis, with projected cash payments in the years shown:
| | | | | | | | | | | | | | | | | | |
| In millions | Total Amounts | 2024 | 2025-2026 | 2027-2028 | 2029 & Thereafter | |
| Debt obligations | $ | 2,578 | | $ | 15 | | $ | 31 | | $ | 805 | | $ | 1,727 | | |
| Interest on debt obligations | 732 | | 134 | | 264 | | 256 | | 78 | | |
| Estimated environmental liability payments | 136 | | 24 | | 76 | | 28 | | 8 | | |
| Lease obligations | 403 | | 70 | | 92 | | 77 | | 164 | | |
| Purchase obligations | 984 | | 980 | | 4 | | — | | — | | |
| | | | | | |
| Total obligations | $ | 4,833 | | $ | 1,223 | | $ | 467 | | $ | 1,166 | | $ | 1,977 | | |
|
| | | | | | | | | | | | | | | | | | |
| In millions | Total Amounts | 2018 | 2019 - 2020 | 2021 - 2022 | 2023 & Thereafter | All Other |
| Debt obligations | $ | 3,014 |
| $ | 52 |
| $ | 174 |
| $ | 2,085 |
| $ | 703 |
| $ | — |
|
| Interest on debt obligations | 679 |
| 150 |
| 290 |
| 192 |
| 47 |
| — |
|
| Estimated environmental liability payments | 35 |
| 22 |
| 12 |
| 1 |
| — |
| — |
|
| Lease obligations | 729 |
| 135 |
| 161 |
| 90 |
| 343 |
| — |
|
| Purchase obligations | 735 |
| 679 |
| 29 |
| 27 |
| — |
| — |
|
| Uncertain tax positions | 148 |
| — |
| — |
| — |
| — |
| 148 |
|
| Total obligations | $ | 5,340 |
| $ | 1,038 |
| $ | 666 |
| $ | 2,395 |
| $ | 1,093 |
| $ | 148 |
|
As of December 31, 2017, we had short and long-term debt totaling $2.99 billion, which includes debt issuance costs as a direct reduction from the carrying amount of debt.
For purposes of this table, we used interest rates as of December 31, 20172023 to estimate the future interest on debt obligations outstanding as of December 31, 20172023 and have assumed no voluntary prepayments of existing debt. See Note 5, "Debt Obligations"6, “Debt Obligations” of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for additional disclosure related to our debt obligations and the related interest rate terms.
The estimated environmental liability payments included in the table of contractual obligationsmaterial cash requirements shown above are related primarily to the Kalamazoo River and Ebina environmental matters. As of December 31, 2023, all of the Company’s remedial obligations for the Fox River environmental matter. Thematter have been completed. For the Kalamazoo River and Ebina matters, the amounts shown are our expected payments, net of the payment obligations of co-obligors; the amounts do not includeco-obligors and an estimate for payments to be received from insurers or indemnification parties. Following the Spin-Off, the Company will retain the responsibility to manage the identified environmental liabilities and remediation, subject however to an indemnity obligation by NCR Atleos to contribute 50% of the costs of certain environmental liabilities after an annual $15 million funding threshold is met. However, given the uncertainty of timing and amount of the indemnity payments, these amounts are not reflected within the table above. For additional information, refer to Note 9, "Commitments11, “Commitments and Contingencies"Contingencies”, of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report.
Our lease obligations are primarily for future rental amounts for our world headquarters in Atlanta, Georgia, as well as for certain sales and manufacturing facilities in various domestic and international locations as well asand leases related to equipment and vehicles. Our lease obligations also include future rental amounts owed for our world headquarters in Atlanta commencing after construction completion. Due to ongoing construction, we have included assumptions regarding the total project cost and lease commencement.
Purchase obligations represent committed purchase orders and other contractual commitments for goods or services. The purchase obligation amounts were determined through information in our procurement systems and payment schedules for significant contracts. Included in the amounts are committed payments in relation to the long-term service agreement with Accenture under which NCR’sthe Company’s transaction processing activities and functions are performed.
We have a $148 million liability related to our uncertain tax positions. Due to the nature of the underlying liabilities and the extended time often needed to resolve income tax uncertainties, we cannot make reliable estimates of the amount or timing of cash payments that may be required to settle these liabilities. For additional information, refer to Note 6, "Income Taxes"8, “Income Taxes”, of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report.
Our U.S. and international employee benefit plans, which are described in Note 8,10, “Employee Benefit Plans”, of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report, could require significant future cash payments. The funded status of NCR’s U.S. pension plan is an underfunded position of $506 million as of December 31, 2017 compared to an underfunded position of $463 million as of December 31, 2016. The increase in our underfunded position is primarily attributable to a change in mortality assumptions in 2017. Our international retirement plans were in an underfunded statusposition of $187$136 million as of December 31, 2017,2023, as compared to an underfunded statusposition of $194$127 million as of December 31, 2016.2022. The increase in our underfunded position of international plans is primarily attributable to an increase in discount rates used to measure the benefit obligation, partially offset by an increase in the fair value of plan assets. Contributions to international pension plans are expected to be approximately $30$13 million in 2018.2024. Following the Spin-Off, NCR Atleos assumed the U.S. and certain international pension plan assets and liabilities, along with the associated deferred costs in accumulated other comprehensive loss, which were previously sponsored by the Company. Pursuant to the terms of the Spin-Off transaction documents, the Company is required to contribute 50% of the annual costs of the NCR Atleos U.S. pension plan to the extent NCR Atleos contributes more than $40 million on an annual basis beginning with the plan year ending December 31, 2024.
We also have product warranties that may affect future cash flows. These items are not included in the table of obligations shown above, but are described in detail in Note 9, "Commitments11, “Commitments and Contingencies"Contingencies”, of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report.
Our senior secured credit facility
The Senior Secured Credit Facilities contains customary representations and the indentures for our senior unsecured notes includewarranties, affirmative covenants, and negative covenants. The negative covenants that restrict or limit ourthe Company’s and its subsidiaries’ ability to, among other things, incur indebtedness;indebtedness, create liens on assets;the Company’s or its subsidiaries’ assets, engage in certain fundamental corporate changes, or changes to our business activities; make investments;investments, sell or otherwise dispose of assets;assets, engage in sale-leaseback or hedging transactions; pay dividends ortransactions, make similar distributions;restricted payments, repay other indebtedness;subordinated indebtedness, engage in certain affiliate transactions; ortransactions with affiliates and enter into agreements restricting the ability of the Company’s subsidiaries to make distributions to the Company or incur liens on their assets.
The Senior Secured Credit Facilities also contains a financial covenant that restrict our abilitydoes not permit the Company to create liens, pay dividends or make loan repayments. Our senior secured credit facility also includes financial covenants that require us to maintain:
aallow its 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 December 31, 2017, (a) the sum of 4.25 and an amount (notSeptember 30, 2024, 4.75 to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00, (ii) in the case of any fiscal quarter ending after December 31, 2017 and on or following September 30, 2024 and prior to December 31, 2019, (a) the sum of 4.00 and an amount (notSeptember 30, 2025, 4.50 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 December 31, 2019,on or following September 30, 2025, 4.25 to 1.00, in each case subject, to (x) increases of 0.25 in connection with the sum of (a) 3.75 and an amount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00; and
an interest coverage ratio on the last dayconsummation of any material acquisition and applicable to the fiscal quarter greater than or equal to 3.50 to 1.00.
At December 31, 2017,in which such acquisition is consummated and the three consecutive fiscal quarters thereafter, and (y) a maximum consolidated leverage ratio under the senior secured credit facility was 4.35cap of 5.00 to 1.00.
Off-Balance Sheet Arrangements We have no significant contractual obligations not fully recorded on our Consolidated Balance SheetsThe Senior Secured Credit Facilities 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 fully disclosed inrepay the notesamounts due, the lenders could, among other things, proceed against the collateral granted to our consolidated financial statements. We have no material off-balance sheet arrangements as defined by SEC Regulation S-K Item 303 (a) (4) (ii).them to secure such indebtedness.
See Note 9, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additional information on guarantees associated with our business activities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of these financial statements, we are required to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosure of contingent liabilities. These assumptions, estimates and judgments are based on historical experience and are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. Our critical accounting policies are those that require assumptions to be made about matters that are highly uncertain. Different estimates could have a material impact on our financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions or circumstances. Our management continually reviews these assumptions, estimates and judgments to ensure that our financial statements are presented fairly and are materially correct.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require significant management judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. The significant accounting policies and estimates that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are discussed in the paragraphs below. Our senior management has reviewed these critical accounting policiesestimates and related disclosures with our independent registered public accounting firm and the Audit Committee of our Board of Directors. See Note 1, "Description“Basis of BusinessPresentation and Significant Accounting Policies"Policies”, of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, which contains additional information regarding our accounting policies and other disclosures required by GAAP.
Revenue RecognitionNCR frequently enters We enter into multiple-element arrangements with its customers including hardware, software, professional consulting services and maintenance support services. For arrangements involving multiple deliverables, when deliverables include software and non-softwarecontracts to sell our products and services, NCR evaluateswhich may be sold separately or bundled with other products and separates each deliverable to determine whether it representsservices. As a separate unit of accounting based on the following criteria: (a) the delivered item has value to the customer on a stand-alone basis;result, interpretation and (b) if the contract includes a general right of return relative to the delivered item, delivery or performance of the undelivered items is considered probable and substantially in the control of NCR.
Consideration is allocated to each unit of accounting based on the unit's relative selling prices. In such circumstances, the Company uses a hierarchyjudgment are sometimes required to determine the appropriate accounting for these transactions, including: (1) whether performance obligations are considered distinct that should be accounted for separately versus together, how the price should be allocated among the performance obligations, and when to recognize revenue for each performance obligation; (2) developing an estimate of the stand-alone selling price, to be usedor SSP, of each distinct performance obligation; (3) combining contracts that may impact the allocation of the transaction price between product and services; and (4) estimating and accounting for allocating revenue tovariable consideration, including rights of return, rebates, expected penalties or other price concessions as a reduction of the transaction price.
Our estimates of SSP for each deliverable: (i) vendor-specific objective evidence of selling price (VSOE), (ii) third-party evidence of selling price (TPE), and (iii) best estimate of selling price (BESP). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company forperformance obligation require judgment that deliverable. VSOE is established for our software maintenance and software-related professional services. We use TPE to establish selling prices for our installation and transaction services. The Company uses BESP to allocate revenue when we are unable to establish VSOE or TPE of selling price. BESP is used for hardware maintenance and elements such as products that are not consistently priced within a narrow range. The Company determines BESP for a deliverable by consideringconsiders multiple factors, including, product class, geography, average discount,but not limited to, historical discounting trends for products and management'sservices, pricing practices in different geographies and industries, gross margin objectives, and internal costs. Our estimates for rights of return and rebates are based on historical pricing practices. Amounts allocated to the delivered hardwaresales returns and software elements are recognizedcredits, specific criteria outlined in customer contracts or rebate agreements, and other factors known at the time of sale provided the other conditionstime. Our estimates for revenue recognition have been met. Amounts allocated to the undelivered maintenanceexpected penalties and other services elementsprice concessions are recognized as the services are provided or on a straight-line basis over the service period. 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 the customer acceptance is obtained. Delivery and acceptance generally occur in the same reporting period.
In situations where NCR's solutions contain software that is more than incidental, revenue related to the software and software-related elements is recognized in accordance with authoritative guidance on software revenue recognition. For the software and software-related elements of such transactions, revenue is allocated based on the relative fair value of each element,historical trends and fair value is determined by VSOE. If the Company cannot objectively determine the fair value of any undelivered element included in such multiple-element arrangements, the Company defers revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. When the fair value of a delivered element has not been established, but fair value exists for the undelivered elements, the Company uses the residual method to recognize revenue. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue. If an arrangement includes software and services that involve significant production, modification or customization of the software, the services cannot be separated from the software. The Company accounts for these arrangements as a long-term contract.expectations regarding future occurrence.
For certain of NCR’s long-term contracts, the Company utilizes a percentage-of-completion accounting method, which requires estimates of future revenue and costs over the full term of product and/or service delivery. Estimated losses, if any, on long-term projects are recognized as soon as such losses become known.
Revenue recognition for complex contractual arrangements, especially those with multiple elements, requires a significant level of judgment and is based upon a review of specific contracts, past experience, the selling price of undelivered elements when sold separately, creditworthiness of customers, international laws and other factors. Changes in judgments aboutwith respect to these factorsassumptions and estimates could impact the timing andor amount of revenue recognized between periods.recognition. Additional information regarding our revenue recognition policy is included in Note 1, “Basis of Presentation and Significant Accounting Policies”, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
Allowance for Doubtful Accounts
Inventory ValuationWe evaluateassess the collectabilityvaluation of our accounts receivable basedinventory on a number of factors. We establish provisions for doubtful accounts using percentages of our accounts receivable balance as an overall proxy to reflect historical average credit lossesperiodic basis and also use management judgment that may include elements that are uncertain, including specific provisions for known issues. The percentages are applied to aged accounts receivable balances. Aged accounts are determined based on the number of days the receivable is outstanding, measured from the date of the invoice, or from the date of revenue recognition. As the age of the receivable increases, the provision percentage also increases. This policy is applied consistently among all of our operating segments.
Based on the factors below, we periodically review customer account activity in order to assess the adequacy of the allowances provided for potential losses. Factors include economic conditions and judgments regarding collectability of account balances, each customer’s payment history and creditworthiness.
The allowance for doubtful accounts was $37 million as of December 31, 2017, $41 million as of December 31, 2016, and $47 million as of December 31, 2015. These allowances represent, as a percentage of gross receivables, 2.8% in 2017, 3.1% in 2016, and 3.6% in 2015.
Given our experience, the reserves for potential losses are considered adequate, but if one or more of our larger customers were to default on its obligations, we could be exposed to potentially significant losses in excess of the provisions established. We continually evaluate our reserves for doubtful accounts and economic deterioration could leadmake adjustments to the need to increase our allowances.
Inventory Valuation Inventories are stated at the lower of cost or net realizable value using the average cost method. Each quarter, we reassess raw materials, work-in-process, parts and finished equipment inventory costs to identify purchase or usage variances from standards, and valuation adjustments are made. Additionally, to properly provide for potential exposure due to slow-moving, excess,
obsolete or unusable inventory, inventory valuesinventory. Inventories are reducedwritten down to net realizable value based on forecasted usage of part, sales orders, technological obsolescence and inventory aging. These factors arecan be impacted by market conditions, technology changes, and changes in strategic direction, and customer demand and require estimates and management judgment that may include elements that are uncertain. On a quarterly basis, we review the current net realizable value of inventory and adjust for any inventory exposure due to age, obsolescence, or excess of cost over net realizable value.
We have inventory in more than 40 countries around the world. We purchase inventory from third party suppliers and manufacture inventory at our plants. This inventory is transferred to our distribution and sales organizations at cost plus a mark-up. This mark-up is referred to as inter-company profit. Each quarter, we review our inventory levels and analyze our inter-company profit to determine the correct amount of inter-company profit to eliminate. Key assumptions are made to estimate product gross margins, the product mix of existing inventory balances and current period shipments. Over time, we refine these estimates as facts and circumstances change. If our estimates require refinement, our results could be impacted. The policies described are applied consistently across all of our operating segments.
Warranty Reserves One of our key objectives is to provide superior quality products and services. To that end, we provide a standard manufacturer’s warranty typically extending up to 12 months, allowing our customers to seek repair of products under warranty at no additional cost. A corresponding estimated liability for potential warranty costs is recorded at the time of the sale. We sometimes offer extended warranties in the form of product maintenance services to our customers for purchase. We defer the fair value of this revenue and recognize revenue over the life of the extended warranty period. Refer to Note 1, "Description of Business and Significant Accounting Policies" in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for further information regarding our accounting for extended warranties.
Future warranty obligation costs 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 and the associated warranty liability is recorded based upon the estimated cost to provide the service over the warranty period.
Total warranty costs were $43 million in 2017, $42 million in 2016, and $41 million in 2015. Warranty costs as a percentage of total product revenue was 1.7% in 2017, 1.5% in 2016, and 1.5% in 2015. Historically, the principal factor used to estimate our warranty costs has been service calls per machine. Significant changes in this factor could result in actual warranty costs differing from accrued estimates. Although no near-term changes in our estimated warranty reserves are currently anticipated, in the unlikely event of a significant increase in warranty claims by one or more of our larger customers, costs to fulfill warranty obligations would be higher than provisioned, thereby impacting results.
Goodwill 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. Consistent with the examples of such events and circumstances given in the accounting guidance, we believe that a goodwill impairment test should be performed immediately before and after a reorganization of our reporting structure when the reorganization would affect the composition of one or more of our reporting units. In this circumstance, performing the impairment test immediately before and after the reorganization would help to confirm that the reorganization is not potentially masking a goodwill impairment charge.
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, must be measured under step two ofis determined based on the impairment analysis. In step two ofamount by which the analysis, we will record an impairment loss equalcarrying amount exceeds the fair value up to the excess of the carryingtotal value of goodwill assigned to the reporting unit’s goodwill over its implied fair value.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 a discounted cash flow (DCF)(“DCF”) analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including marketsrevenue growth rates, EBITDA margins and market shares, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate and working capital changes.rates. 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)(“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.
We performed our annual impairment assessment of goodwill during the fourth quarter of 2017, which did not indicate an impairment existed. The reporting unit In connection with the lowest percentage by whichSpin-Off, goodwill was reassigned to the reporting units using a relative fair value exceeded the carrying value was the Hardware reporting unit, where the excess of fair value over carrying value was approximately 20%. We areallocation approach. Refer to Note 4, “Goodwill and Purchased Intangible Assets” in the processNotes to Consolidated Financial Statements in Item 8 of identifying initiatives to accelerate our transformation to improve profitability in our Hardware segment through optimizing our production, sourcing and supply chain strategy.Part II of this Report for additional information.
Valuation of Long-lived Assets and Amortizable Other Intangible Assets We perform impairment tests for our long-lived assets if an event or circumstance indicates that the carrying amount of our long-lived assets may not be recoverable. In response to changes in industry and market conditions, we may also strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses. Such activities could result in impairment of our long-lived assets or other intangible assets. We also are subject to the possibility of impairment of long-lived assets arising in the ordinary course of business. We consider the likelihood of impairment if certain events occur indicating that the carrying value of the long-lived assets may be impaired and we may recognize impairment if the carrying amount of a long-lived asset or intangible asset is not recoverable from its undiscounted cash flows. Impairment is measured as the difference between the carrying amount and the fair value of the asset. We use both the income approach and market approach to estimate fair value. Our estimates of fair value are subject to a high degree of judgment since they include a long-term forecast of future operations. Accordingly, any value ultimately derived from our long-lived assets may differ from our estimate of fair value.
We make strategic acquisitions that may have a material impact on our consolidated results of operations or financial position. We allocate the purchase price of acquired businesses to the assets acquired and liabilities assumed in the transaction at their estimated fair values. The estimates used to determine the fair value of long-lived assets, such as intangible assets, can be complex and require significant judgments. We use information available to us to make fair value determinations and engage independent valuation specialists, when necessary, to assist in the fair value determination of significant acquired long-lived assets. The determination of fair value requires estimates about cash flow forecasts, discount rates, revenue growth rates, EBITDA margin, customer attrition rate, and other future events that are judgmental in nature. While we use our best estimates and assumptions as a part of the purchase price allocation process, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments subsequent to the measurement period are recorded to our consolidated statements of income. We are also required to estimate the useful lives of intangible assets to determine the amount of
acquisition-related intangible asset amortization expense to record in future periods. Additional information regarding our acquisitions is included in Note 3, “Business Combinations and Divestitures”, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
Pension Postretirement and Postemployment Benefits We sponsor domestic and foreign defined benefit pension and postemployment plans as well asforeign and domestic postretirementpostemployment plans. As a result, we have significant pension postretirement and postemployment benefit costs, which are developed from actuarial valuations. Actuarial assumptions attempt to anticipate future events and are used in calculating the expense and liability relating to these plans. These factors include assumptions we make about interest rates, expected investment return on plan assets, rate of increase in healthcare costs, total and involuntary turnover rates, and rates of future compensation increases. In addition, our actuarial consultants advise us about subjective factors such as withdrawal rates and mortality rates to use in our valuations. We generally review and update these assumptions on an annual basis at the beginningend of each fiscal year. We are required to consider current market conditions, including changes in interest rates, in making these assumptions. The actuarial assumptions that we use 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 we have recorded or may record. Ongoing pension postemployment and postretirementpostemployment expense impacts all of our segments. Pension mark-to-market adjustments, settlements, curtailments and special termination benefits are excluded from our segment results as those items are not included in the evaluation of segment performance. See Note 12, "Segment5, “Segment Information and Concentrations,"Concentrations”, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for a reconciliation of our segment results to income from operations.
The key assumptions used in developing our 20172023 expense were discount rates of 3.4%3.8% for our U.S.German pension plan and 3.2%1.0% for our postretirementJapanese pension plan, and an expected return on assets assumption of 3.5%5.0% for our U.S.Japanese pension plan in 2017.2023. The U.S. planGerman and Japanese plans represented 60%93% of the pension obligation and 100% of the postretirement medical plan obligation as of December 31, 2017.2023. Holding all other assumptions constant, a 0.25% change in the discount rate used for the U.S. planGerman and the Japanese pension plans would have increased or decreased 20172023 ongoing pension expense by approximately $3 million and would have had an immaterial impact on 2017 postretirement income.less than $1 million. A 0.25% change in the expected rate of return on plan assets assumption for the U.S.Japanese pension plan would have increased or decreased 20172023 ongoing pension expense by approximately $4less than $1 million. Our expected return on plan assets has historically been and will likely continue to be material to net income. For 2018,2024, we intend to use discount rates of 3.2% and 3.1% in determining the 2018 U.S.German pension plan and postretirement expense, respectively.1.2% in determining the Japanese pension expense. We intend to use an expected rate of return on assets assumption of 3.1%5.0% for the U.S.Japanese pension plan.
Effective January 1, 2017, we changed the method used to estimate the service and interest components of net periodic benefit cost for our significant pension plans where yield curves are available. Previously, we estimated such cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the pension benefit obligation. The new methodology utilizes a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the pension benefit obligation to their underlying projected cash flows and provides a more precise measurement of service and interest costs by improving the correlation between projected cash flows and their corresponding spot rates. This change does not affect the measurement of our total benefit obligation and is applied prospectively as a change in estimate.
We recognize additional changes in the fair value of plan assets and net actuarial gains or losses of our pension plans upon remeasurement, which occurs at least annually in the fourth quarter of each year. The remaining components of pension expense, primarily net service cost, interest cost, and the expected return on plan assets, are recorded on a quarterly basis as ongoing pension expense. While it is required that we review our actuarial assumptions each year at the measurement date, we generally do not change them between measurement dates. We use a measurement date of December 31 for all of our plans. Changes in assumptions or asset values may have a significant effect on the annual measurement of expense or income in the fourth quarter.
The most significant assumption used in developing our 20182023 postemployment plan expense is the assumed rate of involuntary turnover of 4.8%3.8%. The involuntary turnover rate is based on historical trends and projections of involuntary turnover in the future. A 0.25% change in the rate of involuntary turnover would have increased or decreased 20172023 expense by approximately $2less than $1 million. The sensitivity
of the assumptions described above is specific to each individual plan and not to our pension postretirement and postemployment plans in the aggregate. We intend to use an involuntary turnover assumption of 3.8% in determining the 2024 postemployment expense.
Environmental and Legal Contingencies Each quarter, we review the status of each claim and legal proceeding and assess our potential financial exposure. If the potential loss from any claim or legal proceeding would be material and is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. To the extent that the amount of such a probable loss is estimable only by reference to a range of equally likely outcomes, and no amount within the range appears to be a better estimate than any other amount, we accrue the amount at the low end of the range. Because of uncertainties related to these matters, the use of estimates, assumptions and judgments, and external factors beyond our control, accruals are based on the best information available at the time. At environmental sites, or portions of environmental sites, where liability is determined to be probable but a remedy has not yet been determined, we accrue for the costs of investigations and studies for the affected areas but not for the costs of remediation. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position. When insurance carriers or third parties have agreed to pay any amounts related to costs, and we believe that it is probable that we can collect such amounts, those amounts are reflected as receivables in our Consolidated Balance Sheet.
The most significant legal contingencies impacting our Company relates toare the Fox River, and Kalamazoo River, and Ebina matters, which are further described in detail in Note 9, "Commitments11, “Commitments and Contingencies"Contingencies”, in the Notes to Consolidated Financial Statements in Item
8 of Part II of this Report. NCRThe Company has been identified as a potentially responsible party (PRP)(“PRP”) at both the Fox River and Kalamazoo River sites.
As described below and in Note 9, "Commitments11, “Commitments and Contingencies"Contingencies”, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, while substantial progress has been made in the Fox River clean-up including a consent decree that establishes the general limits on NCR’s liability therefor (it is subject to appeal), and while significant litigation activities have taken placebeen concluded with respect to the KalamazooFox River matter and while the Company has engaged in cooperative regulatory compliance activities with the government of Japan with respect to the Ebina matter, the extent of our potential liabilities continues to be subject to significant uncertainties. The uncertainties described below.related to the Kalamazoo River matter include the total cost of clean-up as well as the solvency and willingness of the co-obligors or indemnitors, and other responsible parties, to pay. As relates to Fox River, uncertainties remain with respect to the final reconciliation of the indemnitors’ payment obligations.
Our net reservereserves for the Fox River matter, the Kalamazoo River matter and the Ebina matter, as of December 31, 2017 was2023 were approximately $35$22 million, $141 million, and $7 million, respectively, as further discussed in Note 9, "Commitments11, “Commitments and Contingencies"Contingencies”, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report. The Company regularly re-evaluates the assumptions used in determining the appropriate reserve for the Fox River matterthese matters as additional information becomes available and, when warranted, makes appropriate adjustments.
Income Taxes We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in the periods in which the deferred tax assets or liabilities are anticipated to be settled or realized.
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 a 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, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies. Projected future taxable income is based on our expected results and assumptions as to the jurisdiction in which the income will be earned. The expected timing of the reversals of existing temporary differences is based on current tax law and our tax methods of accounting. As a result of this determination, we had valuation allowances of $415$211 million as of December 31, 20172023 and $445$274 million as of December 31, 2016,2022, related to certain deferred income tax assets, primarily tax loss carryforwards, including interest expense carryforwards and foreign tax credits in jurisdictions where there is uncertainty as to the ultimate realization of a benefit from those tax assets.
If we are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or the time period within which the underlying temporary differences become taxable or deductible, or if the tax laws change unfavorably, then we could be required to increase our valuation allowance against our deferred tax assets, resulting in an increase in our effective tax rate.
The Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform") was enacted in December 2017. The legislation significantly changes U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries. The legislation reduces the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. The SEC staff issued guidance to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of U.S. Tax Reform and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We have recognized the provisional impacts related to the one-time repatriation tax and remeasurement of deferred tax balances and included these estimates in our consolidated financial statements for the year ended December 31, 2017. The ultimate impact may materially differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of U.S. Tax Reform. In addition, foreign governments may enact tax laws in response
to the U.S. legislation that could result in further changes to global taxation and materially affect our financial position and results of operations.
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 realized upon settlement. 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 until such time that the related tax benefits are recognized. As described in Note 1, “Basis of Presentation and Significant Accounting Policies” and Note 8, “Income Taxes”, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for disclosures, on October 16, 2023, in connection with the Spin-Off, the Company completed a series of legal entity restructurings including both an internal and external spin-off transaction. These transactions are subject to tax laws in the U.S. and non-U.S. jurisdictions, which resulted in the use of significant judgments by management as it pertains to the interpretation and application of tax laws in the U.S. and non-U.S. jurisdictions to determine the potential taxability of the transactions. The Company recorded income tax expense of $226 million from continuing operations in its 2023 financial statements related to the Spin-Off transactions.
The provision for income taxes may change period-to-period based on non-recurring events, such as the settlement of income tax audits and changes in tax laws, as well as recurring factors including the geographic mix of income before taxes, state and local taxes and the effects of various global income tax strategies. We maintain certain strategic management and operational activities in overseas subsidiaries and our foreign earnings are taxed at rates that are generally lower than in the United States. As of December 31, 2017,2023, we did not provide for U.S. federal income taxes or foreign withholding taxes on approximately $2.5 billion$258 million of undistributed earnings of our foreign subsidiaries as such earnings are expected to be reinvested indefinitely. The amount of unrecognized deferred tax liability associated with these indefinitely unless itreinvested earnings is determined that future repatriation would give rise to little or no net tax costs.approximately $19 million.
Refer to Note 6, "Income Taxes"8, “Income Taxes”, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for disclosures related to foreign and domestic pretax income, foreign and domestic income tax (benefit) expense and the effect foreign taxes have on our overall effective tax rate.
Stock-based Compensation We measure compensation cost for stock awards at fair value and recognize compensation expense over the service period for which awards are expected to vest. We utilize the Black-Scholes option pricing model to estimate the fair value of options at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected holding period. We estimate forfeitures for awards granted which are not expected to vest. The estimation of stock awards that will ultimately vest requires judgment, and to the extent that actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period in which estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards and historical experience. Actual results and future changes in estimates may differ from our current estimates.
We have performance-based awards that vest only if specific performance conditions are satisfied, typically at the end of a multi-year performance period, and the service requirement is fulfilled. The number of shares that will be earned can vary based on actual performance. No shares will vest if the objectives are not met, and in the event the objectives are exceeded, additional shares will vest up to a maximum amount. The cost of these awards is expensed over the service period based upon management’s estimates of achievement against the performance criteria. Because the actual number of shares to be awarded is not known until the end of the performance period, the actual compensation expense related to these awards could differ from our current expectations.
We also have market-based awards and the cost of the awards is recognized as the requisite service is rendered by the employees, regardless of when, if ever, the market-based performance conditions are satisfied. The fair value of market-based awards is based on the Monte Carlo simulation model. Assumptions and estimates utilized in the calculation of the fair value of the market-based awards include the risk-free interest rate, dividend yield, expected volatility based on the historical volatility of publicly traded peer companies and remaining performance period of the award. The market-based awards vest and result in the issuance of common stock based upon the recipient’s continuing employment and the achievement of targeted stock prices for a specified period of time noted in the award agreement.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
A discussion of recently issued accounting pronouncements is described in Note 1, “Basis of Presentation and Significant Accounting Policies”, of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, and we incorporate by reference such discussion in this MD&A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risk
We are exposed to market risks primarily from changes in foreign currency exchange rates and interest rates. It is our policy to manage our foreign exchange exposure and debt structure in order to manage capital costs, control financial risks and maintain financial
flexibility over the long term. In managing market risks, we employ derivatives according to documented policies and procedures, including foreign currency contracts and interest rate swaps. We do not use derivatives for trading or speculative purposes.
Foreign Exchange Risk
Since a substantial portion of our operations and revenue occur outside the U.S.,United States, and in currencies other than the U.S. Dollar, our results can be significantly impacted by changes in foreign currency exchange rates. We have exposure to approximately 5040 functional currencies and are exposed to foreign currency exchange risk with respect to our sales, profits and assets and liabilities denominated in currencies other than the U.S. Dollar. Although we use financial instruments to hedge certain foreign currency risks, we are not fully protected against foreign currency fluctuations and our reported results of operations could be affected by changes in foreign currency exchange rates. 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. These foreign exchange contracts are designated as highly effective cash flow hedges. This is primarily done through the hedging of foreign currency denominated inter-company inventory purchases by the marketing units and the foreign currency denominated inputs to our manufacturing units. All of these transactions are forecasted. If these contracts are designated as highly effective cash flow hedges, the gains or losses are deferred into accumulated other comprehensive income (“AOCI”). The gains or losses from derivative contracts that are designated as highly effective cash flow hedges related to inventory purchases are recorded in cost of products when the inventory is sold to an unrelated third party. Otherwise, the gains or losses from these contracts are recognized in earnings as exchange rates change. We also use derivatives not designated as hedging instruments consisting primarily of forward contracts to hedge foreign currency denominated balance sheet exposures. For these derivatives we recognize gains and losses in the same period as the remeasurement losses and gains of the related foreign currency-denominated exposures.
We utilize non-exchange traded financial instruments, such as foreign exchange forward and option contracts, that we purchase exclusively from highly rated financial institutions. We record these contracts on our balance sheet at fair market value based upon market price quotations from the financial institutions. We do not enter into non-exchange traded contracts that require the use of fair value estimation techniques, but if we did, they could have a material impact on our financial results.
For purposes of analyzing potential risk, we use sensitivity analysis to quantify potential impacts that market rate changes may have on the fair values of our hedge portfolio related to firmly committed or forecasted transactions. The sensitivity analysis represents the hypothetical changes in value of the hedge position and does not reflect the related gain or loss on the forecasted underlying transaction. A 10% appreciation orin the value of the U.S. Dollar against foreign currencies from the prevailing market rates would have resulted in a corresponding decrease in the fair value of the hedge portfolio of $18 million as of December 31, 2023. A 10% depreciation in the value of the U.S. Dollar against foreign currencies from the prevailing market rates would have resulted in a corresponding increase or decrease of $23 million as of December 31, 2017in the fair value of the hedge portfolio.portfolio of $18 million as of December 31, 2023. The Company expects that any increase or decrease in the fair value of the portfolio would be substantially offset by increases or decreases in the underlying exposures being hedged.
The U.S. Dollar was slightly weakerstronger in 20172023 compared to 20162022 based on comparable weighted averages for our functional currencies. This had noan unfavorable revenue impact of 1% on 2017 revenue versus 2016 revenue.2023 compared to 2022. This excludes the effects of our hedging activities and, therefore, does not reflect the actual impact of fluctuations in exchange rates on our operating income.
Interest Rate Risk
We are subject to interest rate risk principally in relation to variable-rate debt. Approximately 73%93% of our borrowings were on a fixed rate basis as of December 31, 2017.2023. The increase in pre-tax interest expense for the twelve monthsyear ended December 31, 20172023 from a hypothetical 100 basis point increase in variable interest rates would be approximately $11$21 million.As of December 31, 2023, we do not have any outstanding interest rate derivative contracts related to our variable rate debt.
We utilize interest rate swap contracts and interest rate cap agreements to add stability to interest expense and to manage exposure to interest rate movements as part of our interest rate risk management strategy. Payments and receipts related to interest rate cap agreements and interest rate swap contracts are included in cash flows from operating activities in the Consolidated Statements of Cash Flows. Refer to Note 15, “Derivatives and Hedging Instruments”, for further information.
Concentrations of Credit Risk
We are 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 balance sheet. Exposure to credit risk is managed through credit approvals, credit limits, selecting major international financial institutions as counterparties to hedging transactions, and monitoring procedures. Our business often involves large transactions with customers for which we do not require collateral. If one or more of those customers were to default in its obligations under applicable contractual arrangements, we could be exposed to potentially significant losses. Moreover, a prolonged downturn in the global economy could have an adverse impact on the ability of our customers to pay their obligations on a timely basis. We believe that the reserves for potential losses are adequate. As of December 31, 2017,2023, we did not have any significant concentration of credit risk related to financial instruments.
Index to Financial Statements and Supplemental Data
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Stockholders of NCR Voyix Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(1), and the financial statement schedule listed in the index appearing under Item 15(a)(2), of NCR Voyix Corporation and its subsidiaries (the "Company"“Company”) (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and December 31, 2016, 2022, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained,did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.COSO because material weaknesses in internal control over financial reporting existed as of that date as the Company did not design and maintain effective controls (i) to prevent or timely detect unauthorized Automated Clearing House disbursements and (ii) related to accounts receivable and accounts payable clearing accounts, specifically, controls were not designed at a sufficient level of precision to timely reconcile and review the reasonableness and supportability of clearing account balances, including review of the nature and aging of the individual clearing account balances.
ChangeA material weakness is a deficiency, or a combination of deficiencies, in Accounting Principle
As discussedinternal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Note 1 toManagement’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and our opinion regarding the Company changedeffectiveness of the manner in which it accounts for employee share-based payments in 2017.Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Basis for Opinions
The Company's management is responsible for these consolidatedfinancial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included inManagement's Report on Internal Control over Financial Reporting appearing under Item 9A. management’s report referred to above. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Relative Fair Value Determination of Goodwill Allocated to NCR Atleos Corporation as Part of the Spin-Off Transaction
As described in Notes 1, 2, 4, and 5 to the consolidated financial statements, on October 16, 2023, the Company (formerly known as NCR Corporation) completed the separation of its ATM-focused business, including its self-service banking, payments and network, and telecommunications and technology businesses, through the spin-off of its wholly owned subsidiary, NCR Atleos Corporation (NCR Atleos), (the “spin-off”). Subsequent to the spin-off, the Company manages and reports operations in three reportable segments - Retail, Restaurants (formerly reported as Hospitality), and Digital Banking. Management determined that the accounting requirements for reporting the spin-off of NCR Atleos as a discontinued operation were met when the separation was completed and, as a result, the financial results for NCR Atleos for the years ended December 31, 2023 (through the date of separation), December 31, 2022 and December 31, 2021 have been presented in the Company’s consolidated financial statements as discontinued operations. In connection with the spin-off, management allocated and distributed $2,474 million of goodwill to NCR Atleos using a relative fair value allocation approach. The relative fair value of each reporting unit was estimated using a weighted methodology considering the output from both the income and market approaches. The income approach incorporates the use of a 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 rates, EBITDA margins and discount rates. The market approach is performed using the guideline public companies (GPC) method which is based on earnings multiple data.
The principal considerations for our determination that performing procedures relating to the relative fair value determination of goodwill allocated to NCR Atleos as part of the spin-off transaction is a critical audit matter are (i) the significant judgment by management when developing the relative fair value estimate of the goodwill allocated to NCR Atleos; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, EBITDA margins, discount rates and earnings multiple data; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s allocation of goodwill, including controls over the valuation of the goodwill allocated to NCR Atleos. These procedures also included, among others (i) testing management’s process for developing the relative fair value estimate of goodwill allocated to NCR Atleos; (ii) evaluating the appropriateness of the DCF model and GPC method used by management; (iii) testing the completeness and accuracy of the underlying data used in the DCF model and GPC method; and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, EBITDA margins, discount rates, and earnings multiple data. Evaluating management’s assumptions related to revenue growth rates and EBITDA margins involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the Company and NCR Atleos;
(ii) the consistency with external market data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the DCF model and GPC method and (ii) the reasonableness of the assumptions related to the discount rate and earnings multiple data.
Accounting for Income Taxes Associated with the Spin -Off Transaction
As described in Notes 1 and 8 to the consolidated financial statements, on October 16, 2023, the Company completed the separation of its ATM-focused business through the spin-off of its wholly owned subsidiary, NCR Atleos (the “spin-off”). In connection with the spin-off, the Company completed a series of legal entity restructurings, including both an internal and external spin-off transaction. These transactions are subject to tax laws in the U.S. and non-U.S. jurisdictions, which resulted in the use of significant judgments by management as it pertains to the interpretation and application of tax laws in the U.S. and non-U.S. jurisdictions to determine the potential taxability of the transactions. The Company recorded income tax expense of $226 million from continuing operations in its 2023 financial statements related to the spin-off transactions.
The principal consideration for our determination that performing procedures relating to the accounting for income taxes associated with the spin-off transaction is a critical audit matter are (i) the significant judgment by management when interpreting and applying the tax laws in the U.S. and non-U.S. jurisdictions as it relates to the spin-off transaction; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s interpretation and application of tax laws in the U.S. and non-U.S. jurisdictions as it relates to the spin-off transaction; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to income taxes, including controls over accounting for the tax consequences related to the spin-off transaction. These procedures also included, among others, evaluating the impact of the spin-off transaction on the Company’s accounting for income taxes. Professionals with specialized skill and knowledge were used to assist in (i) obtaining and evaluating tax opinions and the private letter ruling from the Internal Revenue Service; (ii) evaluating the reasonableness of management’s interpretation and application of the tax laws in the U.S. and non-U.S. jurisdictions; and (iii) evaluating the reasonableness of management’s assessment of the potential taxability of the spin-off transaction.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 26, 2018March 14, 2024
We have served as the Company’s auditor since 1993.
NCR Voyix Corporation
Consolidated Statements of Operations
| | | For the years ended December 31, (in millions, except per share amounts) | | 2017 | | 2016 | | 2015 | For the years ended December 31, (in millions, except per share amounts) | 2023 | | 2022 | | 2021 |
| Product revenue | | $ | 2,579 |
| | $ | 2,737 |
| | $ | 2,711 |
|
| Service revenue | | 3,937 |
| | 3,806 |
| | 3,662 |
|
| Total revenue | | 6,516 |
| | 6,543 |
| | 6,373 |
|
| Cost of products | | 2,026 |
| | 2,102 |
| | 2,072 |
|
| Cost of services | | 2,626 |
| | 2,659 |
| | 2,832 |
|
| Selling, general and administrative expenses | | 932 |
| | 926 |
| | 1,042 |
|
| Research and development expenses | | 256 |
| | 242 |
| | 230 |
|
| Restructuring-related charges | | — |
| | 15 |
| | 62 |
|
| | Total operating expenses | |
| Total operating expenses | |
| Total operating expenses | | 5,840 |
| | 5,944 |
| | 6,238 |
|
| Income from operations | | 676 |
| | 599 |
| | 135 |
|
| Loss on extinguishment of debt | |
| Interest expense | | (163 | ) | | (170 | ) | | (173 | ) |
| Other (expense), net | | (31 | ) | | (50 | ) | | (57 | ) |
| Other income (expense), net | |
| Income (loss) from continuing operations before income taxes | | 482 |
| | 379 |
| | (95 | ) |
| Income tax expense | | 242 |
| | 92 |
| | 55 |
|
| Income tax expense (benefit) | |
| Income (loss) from continuing operations | | 240 |
| | 287 |
| | (150 | ) |
| Loss from discontinued operations, net of tax | | (5 | ) | | (13 | ) | | (24 | ) |
| Income (loss) from discontinued operations, net of tax | |
| Net income (loss) | | 235 |
| | 274 |
| | (174 | ) |
| Net income attributable to noncontrolling interests | | 3 |
| | 4 |
| | 4 |
|
| Net income (loss) attributable to NCR | | $ | 232 |
| | $ | 270 |
| | $ | (178 | ) |
| Amounts attributable to NCR common stockholders: | | | | | | |
| | Net income (loss) attributable to noncontrolling interests of discontinued operations | |
| Net income (loss) attributable to noncontrolling interests of discontinued operations | |
| Net income (loss) attributable to noncontrolling interests of discontinued operations | |
| Net income (loss) attributable to NCR Voyix | |
| Amounts attributable to NCR Voyix common stockholders: | |
| Income (loss) from continuing operations | |
| Income (loss) from continuing operations | |
| Income (loss) from continuing operations | | $ | 237 |
| | $ | 283 |
| | $ | (154 | ) |
| Series A convertible preferred stock dividends | | (47 | ) | | (49 | ) | | (4 | ) |
| Deemed dividend on modification of Series A convertible preferred stock | | (4 | ) | | — |
| | — |
|
| Deemed dividend on Series A convertible preferred stock related to redemption | | (58 | ) | | — |
| | — |
|
| Income (loss) from continuing operations attributable to NCR | | 128 |
| | 234 |
| | (158 | ) |
| Loss from discontinued operations, net of tax | | (5 | ) | | (13 | ) | | (24 | ) |
| Net income (loss) attributable to NCR common stockholders | | $ | 123 |
| | $ | 221 |
| | $ | (182 | ) |
| Income (loss) per share attributable to NCR common stockholders: | | | | | | |
| Income (loss) from continuing operations attributable to NCR Voyix | |
| Income (loss) from discontinued operations, net of tax | |
| Net income (loss) attributable to NCR Voyix common stockholders | |
| Income (loss) per share attributable to NCR Voyix common stockholders: | |
| Income (loss) per common share from continuing operations | | | | | | |
| Income (loss) per common share from continuing operations | |
| Income (loss) per common share from continuing operations | |
| Basic | |
| Basic | |
| Basic | | $ | 1.05 |
| | $ | 1.86 |
| | $ | (0.94 | ) |
| Diluted | | $ | 1.01 |
| | $ | 1.80 |
| | $ | (0.94 | ) |
| Net income (loss) per common share | | | | | | |
| Basic | | $ | 1.01 |
| | $ | 1.76 |
| | $ | (1.09 | ) |
| Basic | |
| Basic | |
| Diluted | | $ | 0.97 |
| | $ | 1.71 |
| | $ | (1.09 | ) |
| Weighted average common shares outstanding | | | | | | |
| Basic | | 121.9 |
| | 125.6 |
| | 167.6 |
|
| Diluted (continuing operations) | | 127.0 |
| | 157.4 |
| | 167.6 |
|
| Diluted (net income) | | 127.0 |
| | 129.2 |
| | 167.6 |
|
| Basic | |
| Basic | |
| Diluted | |
The accompanying notes are an integral part of the Consolidated Financial Statements.
NCR Voyix Corporation
Consolidated Statements of Comprehensive Income (Loss)
| | | For the years ended December 31 (in millions) | 2017 | | 2016 | | 2015 | For the years ended December 31 (in millions) | 2023 | | 2022 | | 2021 |
| Net income (loss) | $ | 235 |
| | $ | 274 |
| | $ | (174 | ) |
| Other comprehensive income (loss): | | | | | |
| Currency translation adjustments | | | | | |
| Currency translation adjustments | 39 |
| | (57 | ) | | (50 | ) |
| Currency translation adjustments | |
| Currency translation adjustments gain (loss) | |
| Currency translation adjustments gain (loss) | |
| Currency translation adjustments gain (loss) | |
| Derivatives | | | | | |
| Unrealized gain (loss) on derivatives | (16 | ) | | 19 |
| | 10 |
|
| Gains on derivatives arising during the period | (1 | ) | | (1 | ) | | (7 | ) |
| Unrealized gain (loss) on derivatives | |
| Unrealized gain (loss) on derivatives | |
| Loss (gain) on derivatives arising during the period | |
| Less income tax benefit (expense) | 3 |
| | (4 | ) | | (1 | ) |
| | Employee benefit plans | | | | | |
| | Employee benefit plans | |
| | Employee benefit plans | |
| Prior service benefit | |
| Prior service benefit | |
| Prior service benefit | — |
| | — |
| | 9 |
|
| Amortization of prior service cost | (11 | ) | | (19 | ) | | (21 | ) |
| Net (loss) gain arising during the period | (13 | ) | | (1 | ) | | 43 |
|
| Amortization of actuarial (loss) gain | (2 | ) | | (2 | ) | | 2 |
|
| Less income tax benefit (expense) | 5 |
| | 5 |
| | (2 | ) |
| Other comprehensive income (loss) | 4 |
| | (60 | ) | | (17 | ) |
| Total comprehensive income (loss) | 239 |
| | 214 |
| | (191 | ) |
| Less comprehensive income attributable to noncontrolling interests: | | | | | |
| Net income | 3 |
| | 4 |
| | 4 |
|
| Net income | |
| Net income | |
| Currency translation adjustments | (2 | ) | | (5 | ) | | (3 | ) |
| Amounts attributable to noncontrolling interests | 1 |
| | (1 | ) | | 1 |
|
| Comprehensive income (loss) attributable to NCR common stockholders | $ | 238 |
| | $ | 215 |
| | $ | (192 | ) |
| Comprehensive income (loss) attributable to NCR Voyix common stockholders | |
The accompanying notes are an integral part of the Consolidated Financial Statements.
NCR Voyix Corporation
Consolidated Balance Sheets
| | | | | | | | | | | |
| | | |
| As of December 31 (in millions except per share amounts) | 2023 | | 2022 |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 262 | | | $ | 221 | |
| Accounts receivable, net of allowances of $32 and $21 as of December 31, 2023 and 2022, respectively | 481 | | 550 | |
| Inventories | 254 | | 357 | |
| Restricted cash | 21 | | 17 | |
| Prepaid and other current assets | 188 | | 247 | |
| Current assets of discontinued operations | — | | 1,690 | |
| Total current assets | 1,206 | | 3,082 | |
| Property, plant and equipment, net | 212 | | 227 | |
| Goodwill | 2,040 | | 2,064 | |
| Intangibles, net | 291 | | 416 | |
| Operating lease assets | 236 | | 272 | |
| Prepaid pension cost | 43 | | 35 | |
| Deferred income taxes | 239 | | 329 | |
| Other assets | 723 | | 744 | |
| Noncurrent assets of discontinued operations | — | | | 4,338 | |
| Total assets | $ | 4,990 | | | $ | 11,507 | |
| Liabilities and stockholders’ equity | | | |
| Current liabilities | | | |
| Short-term borrowings | $ | 15 | | | $ | 101 | |
| Accounts payable | 505 | | 594 | |
| Payroll and benefits liabilities | 149 | | 87 | |
| Contract liabilities | 197 | | 191 | |
| Settlement liabilities | 39 | | 38 | |
| Other current liabilities | 428 | | 349 | |
| Current liabilities of discontinued operations | — | | 1,353 | |
| Total current liabilities | 1,333 | | 2,713 | |
| Long-term debt | 2,563 | | 5,552 | |
| Pension and indemnity plan liabilities | 167 | | 157 | |
| Postretirement and postemployment benefits liabilities | 43 | | 38 | |
| Income tax accruals | 64 | | 58 | |
| Operating lease liabilities | 254 | | 286 | |
| Other liabilities | 265 | | 185 | |
| Noncurrent liabilities of discontinued operations | — | | 764 | |
| Total liabilities | 4,689 | | 9,753 | |
| Commitments and Contingencies (Note 11) | | | |
| Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.3 shares issued and outstanding as of December 31, 2023 and 2022; redemption amount and liquidation preference of $276 as of December 31, 2023 and 2022 | 276 | | 275 | |
| Stockholders’ equity | | | |
| NCR Voyix stockholders’ equity | | | |
| Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding as of December 31, 2023 and 2022, respectively | — | | | — | |
| Common stock: par value $0.01 per share, 500.0 shares authorized, 142.6 and 138.0 shares issued and outstanding as of December 31, 2023 and 2022, respectively | 1 | | | 1 | |
| Paid-in capital | 874 | | | 704 | |
| Retained earnings (deficit) | (421) | | | 1,075 | |
| Accumulated other comprehensive loss | (429) | | | (300) | |
| Total NCR Voyix stockholders’ equity | 25 | | | 1,480 | |
| Noncontrolling interests in subsidiaries | — | | | — | |
| Noncontrolling interests of discontinued operations | — | | | (1) | |
| Total stockholders’ equity | 25 | | | 1,479 | |
| Total liabilities and stockholders’ equity | $ | 4,990 | | | $ | 11,507 | |
The accompanying notes are an integral part of the Consolidated Financial Statements. |
| | | | | | | |
| As of December 31 (in millions except per share amounts) | 2017 | | 2016 |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 537 |
| | $ | 498 |
|
| Accounts receivable, net | 1,270 |
| | 1,282 |
|
| Inventories | 780 |
| | 699 |
|
| Other current assets | 243 |
| | 278 |
|
| Total current assets | 2,830 |
| | 2,757 |
|
| Property, plant and equipment, net | 341 |
| | 287 |
|
| Goodwill | 2,741 |
| | 2,727 |
|
| Intangibles, net | 578 |
| | 672 |
|
| Prepaid pension cost | 118 |
| | 94 |
|
| Deferred income taxes | 460 |
| | 575 |
|
| Other assets | 586 |
| | 561 |
|
| Total assets | $ | 7,654 |
| | $ | 7,673 |
|
| Liabilities and stockholders’ equity | | | |
| Current liabilities | | | |
| Short-term borrowings | $ | 52 |
| | $ | 50 |
|
| Accounts payable | 762 |
| | 781 |
|
| Payroll and benefits liabilities | 219 |
| | 234 |
|
| Deferred service revenue and customer deposits | 458 |
| | 468 |
|
| Other current liabilities | 398 |
| | 432 |
|
| Total current liabilities | 1,889 |
| | 1,965 |
|
| Long-term debt | 2,939 |
| | 3,001 |
|
| Pension and indemnity plan liabilities | 798 |
| | 739 |
|
| Postretirement and postemployment benefits liabilities | 133 |
| | 127 |
|
| Income tax accruals | 148 |
| | 142 |
|
| Other liabilities | 200 |
| | 138 |
|
| Total liabilities | 6,107 |
| | 6,112 |
|
| Commitments and Contingencies (Note 9) |
| |
|
| Redeemable noncontrolling interest | 15 |
| | 15 |
|
| Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.8 shares issued and outstanding as of December 31, 2017 and 0.9 shares issued and outstanding as of December 31, 2016; redemption amount and liquidation preference of $825 and $870 as of December 31, 2017 and 2016, respectively | 810 |
| | 847 |
|
| Stockholders’ equity | | | |
| NCR stockholders’ equity | | | |
| Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding as of December 31, 2017 and 2016, respectively | — |
| | — |
|
| Common stock: par value $0.01 per share, 500.0 shares authorized, 122.0 and 124.6 shares issued and outstanding as of December 31, 2017 and 2016, respectively | 1 |
| | 1 |
|
| Paid-in capital | 60 |
| | 32 |
|
| Retained earnings | 857 |
| | 867 |
|
| Accumulated other comprehensive loss | (199 | ) | | (205 | ) |
| Total NCR stockholders’ equity | 719 |
| | 695 |
|
| Noncontrolling interests in subsidiaries | 3 |
| | 4 |
|
| Total stockholders’ equity | 722 |
| | 699 |
|
| Total liabilities and stockholders’ equity | $ | 7,654 |
| | $ | 7,673 |
|
NCR Voyix Corporation
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | |
| For the years ended December 31 (in millions) | 2023 | | 2022 | | 2021 |
| Operating activities | | | | | |
| Net income (loss) | $ | (423) | | | $ | 59 | | | $ | 98 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| | | | | |
| Loss on debt extinguishment | 46 | | | — | | | 42 | |
| Depreciation and amortization | 559 | | | 610 | | | 517 | |
| Stock-based compensation expense | 177 | | | 125 | | | 154 | |
| Deferred income taxes | 140 | | | 60 | | | 89 | |
| Loss (gain) on disposal of property, plant and equipment and other assets | (2) | | | (10) | | | — | |
| Loss on divestitures | 12 | | | 9 | | | — | |
| Impairment of other assets | 8 | | | — | | | 24 | |
| Gain on terminated interest rate derivative agreements | (103) | | | — | | | — | |
| | | | | |
| Changes in assets and liabilities, net of effects of business acquired: | | | | | |
| Receivables | 47 | | | (216) | | | 215 | |
| Inventories | 9 | | | (188) | | | (195) | |
| Current payables and accrued expenses | 108 | | | 29 | | | 255 | |
| Contract liabilities | (24) | | | (1) | | | (15) | |
| Employee benefit plans | (6) | | | (61) | | | (147) | |
| Other assets and liabilities | 146 | | | 11 | | | (28) | |
| Net cash provided by operating activities | $ | 694 | | | $ | 427 | | | $ | 1,009 | |
| Investing activities | | | | | |
| Expenditures for property, plant and equipment | $ | (130) | | | $ | (92) | | | $ | (106) | |
| Proceeds from sales of property, plant and equipment | 8 | | | 10 | | | 1 | |
| Additions to capitalized software | (247) | | | (285) | | | (242) | |
| Business acquisitions, net of cash acquired | (7) | | | (13) | | | (2,473) | |
| Proceeds from divestitures, net | 96 | | | (2) | | | — | |
| Purchases of investments | (10) | | | — | | | (13) | |
| Proceeds from sale of investments | — | | | — | | | 14 | |
| Other investing activities, net | — | | | (5) | | | (7) | |
| Net cash used in investing activities | $ | (290) | | | $ | (387) | | | $ | (2,826) | |
| Financing activities | | | | | |
| Short term borrowings, net | $ | — | | | $ | 1 | | | $ | — | |
| Payments on term credit facilities | (1,878) | | | (63) | | | (107) | |
| Borrowings on term credit facilities | 200 | | | — | | | 1,505 | |
| Payments on revolving credit facilities | (2,855) | | | (1,192) | | | (1,650) | |
| Borrowings on revolving credit facilities | 2,430 | | | 1,333 | | | 1,756 | |
| Payments of senior unsecured notes | (1,000) | | | — | | | (400) | |
| Proceeds from issuance of senior unsecured and other notes | — | | | 12 | | | 1,200 | |
| Payments on other financing arrangements | (2) | | | — | | | — | |
| Debt issuance costs and bridge commitment fees | (5) | | | — | | | (53) | |
| Call premium paid on debt extinguishment | (24) | | | — | | | (37) | |
| Cash paid for Series A Convertible Preferred Stock dividends | (15) | | | (15) | | | (15) | |
| | | | | |
| Tax withholding payments on behalf of employees | (34) | | | (59) | | | (50) | |
| Proceeds from employee stock plans | 27 | | | 31 | | | 44 | |
| Net change in client funds obligations | — | | | (28) | | | 4 | |
| | | | | |
| Principal payments for finance lease obligations | (15) | | | (15) | | | (17) | |
| Proceeds from long-term debt related to debt transferred to NCR Atleos at separation | 3,016 | | | — | | | — | |
| Cash transferred to NCR Atleos at separation | (684) | | | — | | | — | |
| Other financing activities | — | | | (4) | | | (2) | |
| Net cash provided by (used in) financing activities | $ | (839) | | | $ | 1 | | | $ | 2,178 | |
| | | | | |
| | | | | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (20) | | | (50) | | | (18) | |
| Increase (decrease) in cash, cash equivalents and restricted cash | (455) | | | (9) | | | 343 | |
| Cash, cash equivalents and restricted cash at beginning of period | 740 | | | 749 | | | 406 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 285 | | | $ | 740 | | | $ | 749 | |
| | | | | |
The accompanying notes are an integral part of the Consolidated Financial Statements.
NCR Voyix Corporation
Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | NCR Stockholders | | | | |
| | Common Stock | | | | | | Accumulated Other Comprehensive (Loss) Income | | Noncontrolling Interests in Subsidiaries | | |
| (in millions) | | Shares | | Amount | | Paid-in Capital | | Retained Earnings
(Deficit) | | | | Total |
| December 31, 2020 | | 129 | | | $ | 1 | | | $ | 368 | | | $ | 950 | | | $ | (271) | | | $ | 3 | | | $ | 1,051 | |
| Comprehensive income (loss): | | | | | | | | | | | | | | |
| Net income (loss) | | — | | | — | | | — | | | 97 | | | — | | | 1 | | | 98 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (20) | | | — | | | (20) | |
| Total comprehensive income (loss) | | — | | | — | | | — | | | 97 | | | (20) | | | 1 | | | 78 | |
| Employee stock purchase and stock compensation plans | | 3 | | | — | | | 128 | | | — | | | — | | | — | | | 128 | |
| Fair value of converted Cardtronics awards attributable to pre-combination services | | — | | | — | | | 19 | | | — | | | — | | | — | | | 19 | |
| | | | | | | | | | | | | | |
| Series A convertible preferred stock dividends | | — | | | — | | | — | | | (16) | | | — | | | — | | | (16) | |
| Dividends paid to minority shareholder | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| December 31, 2021 | | 132 | | | $ | 1 | | | $ | 515 | | | $ | 1,031 | | | $ | (291) | | | $ | 3 | | | $ | 1,259 | |
| Comprehensive income (loss): | | | | | | | | | | | | | | |
| Net income (loss) | | — | | | — | | | — | | | 60 | | | — | | | (1) | | | 59 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (9) | | | (3) | | | (12) | |
| Total comprehensive income (loss) | | — | | | — | | | — | | | 60 | | | (9) | | | (4) | | | 47 | |
| Employee stock purchase and stock compensation plans | | 5 | | | — | | | 121 | | | — | | | — | | | — | | | 121 | |
| | | | | | | | | | | | | | |
| Stock issued in acquisition of LibertyX | | 1 | | | — | | | 68 | | | — | | | — | | | — | | | 68 | |
| Series A convertible preferred stock dividends | | — | | | — | | | — | | | (16) | | | — | | | — | | | (16) | |
| December 31, 2022 | | 138 | | | $ | 1 | | | $ | 704 | | | $ | 1,075 | | | $ | (300) | | | $ | (1) | | | $ | 1,479 | |
| Comprehensive income (loss): | | | | | | | | | | | | | | |
| Net income (loss) | | — | | | — | | | — | | | (423) | | | — | | | — | | | (423) | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 53 | | | — | | | 53 | |
| Total comprehensive income (loss) | | — | | | — | | | — | | | (423) | | | 53 | | | — | | | (370) | |
| Employee stock purchase and stock compensation plans | | 5 | | | — | | | 170 | | | — | | | — | | | — | | | 170 | |
| | | | | | | | | | | | | | |
| Series A convertible preferred stock dividends | | — | | | — | | | — | | | (16) | | | — | | | — | | | (16) | |
| Spin-Off of NCR Atleos (See Note 1 and 2) | | — | | | — | | | — | | | (1,056) | | | (182) | | | 1 | | | (1,237) | |
| | | | | | | | | | | | | | |
| December 31, 2023 | | 143 | | | $ | 1 | | | $ | 874 | | | $ | (420) | | | $ | (429) | | | $ | — | | | $ | 26 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| For the years ended December 31 (in millions) | 2017 | | 2016 | | 2015 |
| Operating activities | | | | | |
| Net income (loss) | $ | 235 |
| | $ | 274 |
| | $ | (174 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Loss from discontinued operations | 5 |
| | 13 |
| | 24 |
|
| Depreciation and amortization | 354 |
| | 344 |
| | 308 |
|
| Stock-based compensation expense | 77 |
| | 61 |
| | 42 |
|
| Deferred income taxes | 173 |
| | 10 |
| | 24 |
|
| Gain on sale of property, plant and equipment and other assets | (3 | ) | | — |
| | (2 | ) |
| Loss on divestiture | — |
| | 2 |
| | — |
|
| Impairment of long-lived and other assets | 1 |
| | 2 |
| | 63 |
|
| Changes in assets and liabilities: | | | | | |
| Receivables | 29 |
| | (89 | ) | | 28 |
|
| Inventories | (68 | ) | | (86 | ) | | (46 | ) |
| Current payables and accrued expenses | (78 | ) | | 216 |
| | 8 |
|
| Deferred service revenue and customer deposits | 10 |
| | 88 |
| | 19 |
|
| Employee benefit plans | (4 | ) | | 33 |
| | 384 |
|
| Other assets and liabilities | 24 |
| | 26 |
| | 3 |
|
| Net cash provided by operating activities | 755 |
| | 894 |
| | 681 |
|
| Investing activities | | | | | |
| Expenditures for property, plant and equipment | (128 | ) | | (73 | ) | | (79 | ) |
| Proceeds from sales of property, plant and equipment | 6 |
| | — |
| | 19 |
|
| Additions to capitalized software | (166 | ) | | (154 | ) | | (150 | ) |
| Business acquisitions, net | (8 | ) | | — |
| | — |
|
| Proceeds from divestiture | 3 |
| | 47 |
| | — |
|
| Other investing activities, net | 3 |
| | (9 | ) | | 1 |
|
| Net cash used in investing activities | (290 | ) | | (189 | ) | | (209 | ) |
| Financing activities | | | | | |
| Short term borrowings, net | (4 | ) | | (8 | ) | | 8 |
|
| Payments on term credit facilities | (61 | ) | | (97 | ) | | (383 | ) |
| Payments on revolving credit facilities | (1,940 | ) | | (1,431 | ) | | (1,694 | ) |
| Borrowings on revolving credit facilities | 1,940 |
| | 1,331 |
| | 1,698 |
|
| Debt issuance costs | — |
| | (9 | ) | | — |
|
| Series A convertible preferred stock issuance, net of issuance costs of $26 million | — |
| | — |
| | 794 |
|
| Tender offer, including costs of $5 million | — |
| | — |
| | (1,005 | ) |
| Repurchases of Company common stock | (350 | ) | | (250 | ) | | — |
|
| Tax withholding payments on behalf of employees | (31 | ) | | (16 | ) | | (16 | ) |
| Proceeds from employee stock plans | 15 |
| | 15 |
| | 15 |
|
| Other financing activities | (3 | ) | | (2 | ) | | — |
|
| Net cash used in financing activities | (434 | ) | | (467 | ) | | (583 | ) |
| Cash flows from discontinued operations | | | | | |
| Net cash used in discontinued operations operating activities | (8 | ) | | (39 | ) | | (43 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 16 |
| | (29 | ) | | (29 | ) |
| Increase (decrease) in cash and cash equivalents | 39 |
| | 170 |
| | (183 | ) |
| Cash and cash equivalents at beginning of period | 498 |
| | 328 |
| | 511 |
|
| Cash and cash equivalents at end of period | $ | 537 |
| | $ | 498 |
| | $ | 328 |
|
| | | | | | |
| Supplemental data | | | | | |
| Cash paid during the year for: | | | | | |
| Income taxes | $ | 98 |
| | $ | 66 |
| | $ | 60 |
|
| Interest | $ | 159 |
| | $ | 155 |
| | $ | 163 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
NCR Voyix Corporation
Consolidated Statements of Changes in Stockholders' Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NCR Stockholders | | | | |
| | | Common Stock | | | | | | Accumulated Other Comprehensive (Loss) Income | | Non-Redeemable Noncontrolling Interests in Subsidiaries | | |
| in millions | | Shares | | Amount | | Paid-in Capital | | Retained Earnings | | | | Total |
| December 31, 2014 | | 169 |
| | $ | 2 |
| | $ | 442 |
| | $ | 1,563 |
| | $ | (136 | ) | | $ | 12 |
| | $ | 1,883 |
|
| Comprehensive income (loss): | | | | | | | | | | | | | | |
| Net income (loss) | | — |
| | — |
| | — |
| | (178 | ) | | — |
| | 2 |
| | (176 | ) |
| Other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | (14 | ) | | (2 | ) | | (16 | ) |
| Total comprehensive income (loss) | | — |
| | — |
| | — |
| | (178 | ) | | (14 | ) | | — |
| | (192 | ) |
| Employee stock purchase and stock compensation plans | | 1 |
| | — |
| | 50 |
| | — |
| | — |
| | — |
| | 50 |
|
| Repurchase of Company Common Stock | | (37 | ) | | (1 | ) | | (492 | ) | | (512 | ) | | — |
| | — |
| | (1,005 | ) |
| Series A Convertible Preferred Stock dividends | | — |
| | — |
| | — |
| | (4 | ) | | — |
| | — |
| | (4 | ) |
| Sale of noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) |
| December 31, 2015 | | 133 |
| | 1 |
| | — |
| | 869 |
| | (150 | ) | | 6 |
| | 726 |
|
| Comprehensive income (loss): | |
| |
| |
| |
| |
| |
| |
|
| Net income (loss) | | — |
| | — |
| | — |
| | 270 |
| | — |
| | 2 |
| | 272 |
|
| Other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | (55 | ) | | (2 | ) | | (57 | ) |
| Total comprehensive income (loss) | | — |
| | — |
| | — |
| | 270 |
| | (55 | ) | | — |
| | 215 |
|
| Employee stock purchase and stock compensation plans | | 2 |
| | — |
| | 59 |
| | — |
| | — |
| | — |
| | 59 |
|
| Dividend distribution to minority shareholder | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
| Repurchase of Company common stock | | (10 | ) | | — |
| | (27 | ) | | (223 | ) | | — |
| | — |
| | (250 | ) |
| Series A convertible preferred stock dividends | | — |
| | — |
| | — |
| | (49 | ) | | — |
| | — |
| | (49 | ) |
| December 31, 2016 | | 125 |
| | 1 |
| | 32 |
| | 867 |
| | (205 | ) | | 4 |
| | 699 |
|
| Comprehensive income (loss): | | | | | | | | | | | | | | |
| Net income (loss) | | — |
| | — |
| | — |
| | 232 |
| | — |
| | 3 |
| | 235 |
|
| Other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | 6 |
| | (2 | ) | | 4 |
|
| Total comprehensive income (loss) | | — |
| | — |
| | — |
| | 232 |
| | 6 |
| | 1 |
| | 239 |
|
| Cumulative effect of a change in accounting principle related to employee share-based payments | | — |
| | — |
| | — |
| | 39 |
| | — |
| | — |
| | 39 |
|
| Employee stock purchase and stock compensation plans | | 1 |
| | — |
| | 61 |
| | — |
| | — |
| | — |
| | 61 |
|
| Dividend distribution to minority shareholder | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
| Repurchase of Company common stock | | (7 | ) | | — |
| | (178 | ) | | (172 | ) | | — |
| | — |
| | (350 | ) |
| Series A convertible preferred stock dividends | | — |
| | — |
| | — |
| | (47 | ) | | — |
| | — |
| | (47 | ) |
| Deemed dividend on modification of Series A Convertible Preferred Stock | | — |
| | — |
| | — |
| | (4 | ) | | — |
| | — |
| | (4 | ) |
| Deemed dividend on redemption of Series A Convertible Preferred Stock | | — |
| | — |
| | 58 |
| | (58 | ) | | — |
| | — |
| | — |
|
| Redemption of Series A Convertible Preferred Stock | | 3 |
| | — |
| | 87 |
| | — |
| | — |
| | — |
| | 87 |
|
| December 31, 2017 | | 122 |
| | $ | 1 |
| | $ | 60 |
| | $ | 857 |
| | $ | (199 | ) | | $ | 3 |
| | $ | 722 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
NCR Corporation
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business NCR Voyix Corporation (“NCR Voyix”, “NCR”, the “Company”, “we” or “us”), which, prior to its name change effective October 13, 2023 was known as NCR Corporation, was originally incorporated in 1884 and is a leading global provider of omni-channeldigital commerce solutions for retail stores, restaurants and financial institutions. Headquartered in Atlanta, Georgia, we are a software and services-led enterprise technology provider of run-the-store capabilities for retail and restaurants and cloud-based digital solutions for financial institutions, serving businesses of all sizes. Our software platforms, which run in the cloud and include microservices and APIs that enrich the interactionsintegrate with our customers’ systems, and our As-a-Service solutions enable an end-to-end technology-based operations solution for our customers. Our offerings include digital first software and services offerings for retailers, restaurants and financial institutions, as well as payments acceptance solutions, multi-vendor connected device services, self-checkout (“SCO”) kiosks and related technologies, point of businesses with their customers.sale (“POS”) terminals and other self-service technologies. Our solutions are designed to allow businesses inenable restaurants, retailers, and financial institutions to seamlessly transact and engage with their customers and end users.
Spin-off of NCR Atleos On September 15, 2022, Voyix announced a plan to separate into two independent, publicly traded companies – one focused on digital commerce, the financial services, retail, hospitality, travelother on ATMs. On October 16, 2023, the Company completed its separation of its ATM-focused business, including its self-service banking, payments & network and telecommunications and technology industriesbusinesses, through the spin-off of its wholly owned subsidiary, NCR Atleos Corporation (“NCR Atleos”), (the “Spin-Off”). The Spin-Off was effected through a pro rata distribution of all outstanding shares of NCR Atleos common stock to deliverholders of NCR Voyix common stock as of the close of business on October 2, 2023 (the “record date”). The Company distributed one share of NCR Atleos common stock for every two common shares of NCR Voyix outstanding as of the record date. Shareholders received cash in lieu of fractional shares of Atleos common stock. The Spin-Off is expected to qualify as a rich, integratedtax-free distribution for U.S. federal income tax purposes. NCR Atleos is an independent, publicly traded company focused on providing self-directed banking solutions to a global customer base, including financial institutions, retailers and personalized experienceconsumers, and NCR Voyix retains no ownership interest. The accounting requirements for reporting the Spin-Off of NCR Atleos as a discontinued operation were met when the separation was completed. Accordingly, the financial results for NCR Atleos for the years ended December 31, 2023 (through the date of separation), December 31, 2022 and December 31, 2021 are presented as net income (loss) from discontinued operations, net of tax on the Consolidated Statements of Operations and its assets and liabilities as of December 31, 2022 are reclassified as discontinued operations in the Consolidated Balance Sheets. Refer to consumers across physicalNote 2, “Discontinued Operations” for additional information.
In connection with the Spin-Off, the Company and digital commerce channels. Our offeringsNCR Atleos entered into various agreements to effect the Spin-Off and provide a framework for the relationship between the Company and NCR Atleos after the Spin-Off. Such agreements include the separation and distribution agreement, as well as the following ongoing agreements: a portfolio of omni-channel platform softwaretransition services agreement, tax matters agreement, employee matters agreement, patent and technology cross-license agreement, trademark license and use agreement, master services agreement and various other software applications, industry-focused hardware and smart-edge devices including automated teller machines (ATMs), point of sale (POS) terminals and devices and self-service kiosks, and a complete suite of consulting, implementation, maintenance and managed services. We also resell third-party networkingtransaction agreements. Under these agreements, the Company will continue to provide certain products and provide related service offerings inservices to NCR Atleos following the telecommunicationsSpin-Off and technology sectors. Our solutions createwill receive certain products and services from NCR Atleos following the Spin-Off.
Additionally, outstanding restricted stock units and stock options were adjusted to maintain the economic value for our customersof those awards before and after the Spin-Off. Generally, continuing NCR Voyix employees retained the number of outstanding restricted stock units held by increasing productivity allowing them as of the Spin-Off and received additional NCR Voyix restricted stock units to address consumer demand for convenience, valuereflect the Spin-Off, while continuing NCR Atleos employees had their outstanding restricted stock units held by them as of the Spin-Off converted solely into equivalent restricted stock units of NCR Atleos, and individual service across different commerce channels.any outstanding restricted stock units held by them as of the Spin-Off were cancelled. Outstanding stock options at the time of the Spin-Off, regardless of the holder, were converted into stock options of both NCR Voyix and NCR Atleos. In addition, outstanding restricted stock units held by certain key equity holders as of the Spin-Off (including directors and certain former employees) were converted into restricted stock units of both NCR Voyix and NCR Atleos.
Our solutions are based on a foundation of long-established industry knowledge and expertise, omni-channel platform and other software, industry-focused hardware and smart-edge devices and global implementation, consulting, maintenance and customer support services.
Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles in the United States ( U.S. GAAP)(“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. Actual results
Although our estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from those estimates.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 macroeconomic pressures and geopolitical challenges. The ultimate impact on our overall financial condition and operating results will depend on supply chain challenges and cost escalations including materials, interest, labor and freight, and any additional governmental and public actions taken in response. As a result, our accounting estimates and assumptions may change over time as a consequence of the effects these external factors. 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.
Evaluation of Subsequent Events The Company evaluated subsequent events through the date that our Consolidated Financial Statements were issued. Except as described in Note 18, "Subsequent Events",Other than the items discussed within the Notes to Consolidated Financial Statements, no matters were identified that required adjustment of the Consolidated Financial Statements or additional disclosure.
Basis of Consolidation The consolidated financial statements include the accounts of NCR Voyix and its majority-owned subsidiaries. Long-term investments in affiliated companies in which NCR Voyix 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 Voyix does not exercise significant influence (generally, when NCRthe Company 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.
Cyber ransomware incident On April 13, 2023, the Company determined that a single data center outage impacting certain of its commerce customers was caused by a cyber ransomware incident. Upon such determination, the Company immediately started contacting customers, enacted its cybersecurity protocol and engaged outside experts to contain the incident and begin the recovery process. We concluded that this incident impacted operations for some customers only with respect to specific Aloha cloud-based services and Counterpoint. Our investigation also concluded no financial reporting systems were impacted. During the year ended December 31, 2023, we recognized $36 million related to this matter in Cost of services and Selling, general and administrative expenses. As of December 31, 2023, we expect $19 million of these costs to be recovered under our insurance policies and have received $5 million of cash during 2023 and the remaining $14 million is recorded as an insurance receivable. Payments are expected in 2024. Additionally, we are still pursuing insurance recoveries for the remaining costs. We may incur additional costs relating to this incident in the future, including expenses to respond to and remediate this matter, payment of damages or other costs to customers or others. While the Company’s response to this incident is ongoing, at this time we do not believe additional costs we may incur as a result of the incident will ultimately have a material adverse effect on our business, results of operations or financial condition; however, we remain subject to risks and uncertainties as a result of the incident. We will continue to assess the impacts of the security event and cannot definitively determine, at this time, the full extent of the impact from such event on our business, results of operations or financial condition.
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.
Out-of-period adjustments In the first quarter of 2023, the Company recorded a $10 million out-of-period adjustment to increase operating expenses and an employee-related liability in order to correct for an understatement of such same balances during the fourth quarter of 2022.
In February 2024, the Company identified fraudulent automated clearing house (“ACH”) disbursements from a Company bank account. The amount of these disbursements through December 31, 2023 was $23 million. Through September 30, 2023, the Company had incorrectly recorded approximately $11 million in an accounts receivable clearing account instead of as operating expenses, of which approximately $2 million related to annual periods prior to 2023. As a result, in the fourth quarter of 2023, the Company recorded a $2 million out-of-period adjustment to increase operating expenses and decrease accounts receivable in order to correct for the errors.
The Company evaluated the impact of the errors and out-of-period adjustments and concluded they are not material to any previously issued consolidated financial statements and the correction of the errors is not material to the consolidated financial statements for the year ended December 31, 2023.
Revenue RecognitionThe Company records revenue, net of taxes,sales tax, when it is realized,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 realizable, and earned. as, we satisfy performance obligations
The Company considers these criteria metrecords revenue when, persuasive evidenceor as, performance obligations are satisfied by transferring control of an arrangement exists, the productsa promised good or services have been providedservice to the customer, in an amount that reflects the salesconsideration 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. The Company does not adjust the transaction price for taxes collected from customers, as those amounts are netted against amounts remitted to government authorities.
The Company enters contracts that include multiple distinct performance obligations, including hardware, software, professional consulting and managed services, payment processing 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 fixedthe price that the Company charges for that good or determinable, and collectabilityservice when the Company sells it separately in similar circumstances to similar customers.
For hardware products, control is reasonably assured. For product sales, delivery is deemed to have occurredgenerally 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 and all performance obligations are complete. For service sales, revenue is recognized as the services are provided or ratably over the service period, or, if applicable, after customer acceptance of the services.
NCR frequently enters into multiple-element arrangements with its customers including hardware, software, professional consulting services, transaction services and maintenance support services. For arrangements involving multiple deliverables, when deliverables include software and non-software products and services, NCR evaluates and separates each deliverable to determine whether it represents a separate unit of accounting based on the following criteria: (a) whether the delivered item has value to the customer on a stand-alone basis; and (b) if the contract includes a general right of return relative to the delivered item, whether delivery or performance of the undelivered items is considered probable and substantially in the control of NCR.
Consideration is allocated to each unit of accounting based on the units' relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to each deliverable: (i) vendor-specific objective evidence of selling price (VSOE); (ii) third-party evidence of selling price (TPE); and (iii) best estimate of selling price (BESP).
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. VSOE is established for our software maintenance and software-related professional services. We use TPE to establish selling prices for our installation and transaction services. The Company uses BESP to allocate revenue when we are unable to establish VSOE or TPE of selling price. BESP is used for hardware maintenance and elements such as products that are not consistently priced within a narrow range. The Company determines BESP for a deliverable by considering multiple factors including product class, geography, average discount, and management's historical pricing practices. Amounts allocated to the delivered hardware and software elements are recognized at the time of sale, provided the other conditions for revenue recognition have been met. Amounts allocated to the undelivered maintenance and other service elements are recognized as the services are provided or on a straight-line basis over the service period.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 the customer acceptance is obtained. Delivery, acceptance, and acceptancetransfer of title and risk of loss generally occur in the same reporting period.
In situations where NCR's solutions contain software that is more than incidental, revenue related to the software and software-related elements is recognized in accordance with authoritative guidance on software revenue recognition. For the software and software-related elements of such transactions, revenue is allocated based on the relative fair value of each element, and fair value is determined by VSOE. If the Company cannot objectively determine the fair value of any undelivered element included in such multiple-element arrangements, the Company defers revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. When the fair value of a delivered element has not been established, but fair value evidence exists for the undelivered elements, the Company uses the residual method to recognize revenue. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue. If an arrangement includes software and services that involve significant production, modification or customization of the software, the services cannot be separated from the software. The Company accounts for these arrangements as a long-term contract.
For certain of NCR’s long-term contracts, the Company utilizes a percentage-of-completion accounting method, which requires estimates of future revenue and costs over the full term of product and/or service delivery. Estimated losses, if any, on long-term projects are recognized as soon as such losses become known.
NCR'sCompany’s customers may request that delivery and passage of title and risk of loss occur on a bill and hold basis. For the years endedperiods ending December 31, 2017, 2016,2023, 2022, and 2015,2021, the revenue recognized from bill and hold transactions approximated 1%less than 2% of total revenue, respectively. Hardware products may also be included in an As-a-service package and sold in a bundle with managed services. In these packages, title to the hardware is not transferred to the customer and revenue is recognized in consideration of lease accounting standards, depending on the terms and conditions in the contract. Most hardware leases embedded in our As-a-service contracts qualify for classification as operating leases. Revenue from the hardware operating leases in an As-a-service package is recognized over the term of the contract, which is the same pattern and timing as the services in 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 is 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.
SaaS 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 software and 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 products and services 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, payment processing revenue, managed services, 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 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. For recurring services that we perform over a contract term, we analyze if the services are performed evenly throughout the term for fixed consideration. If so, we ratably recognize the corresponding consideration over the committed term. Otherwise, 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.
Payment processing revenue includes surcharge and other fees paid by cardholders and/or the cardholder’s financial institutions for the use of processing services. Surcharge revenues are recognized daily as the associated transactions are processed. Relative to credit card processing, revenue is comprised of fees charged to the Company’s customers, net of interchange fees and assessments charged by the credit card associations and payment networks, which are pass-through charges collected on behalf of the card issuers and payment networks.
Under our managed service agreements, the Company provides various forms of services, including customer service, processing and other services, under one contract package. The Company typically receives a monthly service fee, fee per transaction, or fee per service provided in return for providing the agreed-upon services. The managed services fees are recognized as the related services are provided to the customers.
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.
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 are not separately priced but includehave been combined with product maintenance,contracts under the revenue guidance, the Company defers revenue at an amount based on the relative standalone selling price using objective and reliable evidence,allocation, and recognizes the deferred revenue over the service term. For separately priced productnon-combined maintenance contracts, NCRthe Company defers the stated amount of the separately priced contractservice and recognizes the deferred revenue ratably over the service term.
Remaining Performance Obligations Remaining performance obligations represent the transaction price of contracts for which products have not been delivered or services have not been performed. As of December 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $1.6 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 three elections which affect the value of remaining performance obligations described above. We do not disclose remaining performance obligations for contracts where variable consideration is directly allocated based on usage or when the original expected duration is one year or less. Additionally, we do not disclose remaining performance obligations for contracts where we recognize revenue from the satisfaction of the performance obligation in accordance with the ‘right to invoice’ practical expedient.
Warranty and Sales Returns Provisions for product warranties and sales returns and allowances are recorded in the period in which NCRthe Company 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.
Shipping and Handling Costs related to shipping and handling are included in cost of products in the Consolidated Statements of Operations.
StockStock-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
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
over the requisite service period. Forfeitures are recognized as they occur. See Note 7, "Stock9, “Stock Compensation Plans"Plans”, for further information on NCR’sthe Company’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. NCRThe Company 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.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) that instituted fundamental changes to the taxation of multinational corporations. See Note 6, "Income Taxes" for additional information on the Company's assessment and related impacts.
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 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:
|
| | | | | | | | | | | |
| In millions, except per share amounts | Twelve months ended December 31 |
| 2017 | | 2016 | | 2015 |
| Income (loss) from continuing operations | $ | 237 |
| | $ | 283 |
| | $ | (154 | ) |
| Series A convertible preferred stock dividends | (47 | ) | | (49 | ) | | (4 | ) |
| Deemed dividend on modification of Series A Convertible Preferred Stock | (4 | ) | | — |
| | — |
|
| Deemed dividend on Series A Convertible Preferred Stock redemption | (58 | ) | | — |
| | — |
|
| Net income (loss) from continuing operations attributable to NCR common stockholders | 128 |
| | 234 |
| | (158 | ) |
| Loss from discontinued operations, net of tax | (5 | ) | | (13 | ) | | (24 | ) |
| Net income (loss) attributable to NCR common stockholders | $ | 123 |
| | $ | 221 |
| | $ | (182 | ) |
| | | | | | |
| Denominator | | | | | |
| Basic weighted average number of shares outstanding | 121.9 |
| | 125.6 |
| | 167.6 |
|
| | | | | | |
| Basic earnings (loss) per share: | | | | | |
| From continuing operations | $ | 1.05 |
| | $ | 1.86 |
| | $ | (0.94 | ) |
| From discontinued operations | (0.04 | ) | | (0.10 | ) | | (0.15 | ) |
| Total basic earnings (loss) per share | $ | 1.01 |
| | $ | 1.76 |
| | $ | (1.09 | ) |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
The components of diluted earnings (loss) per share are as follows:
|
| | | | | | | | | | | |
| In millions, except per share amounts | Twelve months ended December 31 |
| 2017 | | 2016 | | 2015 |
| Income (loss) from continuing operations | $ | 237 |
| | $ | 283 |
| | $ | (154 | ) |
| Series A convertible preferred stock dividends | (47 | ) | | — |
| | (4 | ) |
| Deemed dividend on modification of Series A Convertible Preferred Stock | (4 | ) | | — |
| | — |
|
| Deemed dividend on Series A Convertible Preferred Stock redemption | (58 | ) | | — |
| | — |
|
| Net income (loss) from continuing operations attributable to NCR common stockholders | 128 |
| | 283 |
| | (158 | ) |
| Loss from discontinued operations, net of tax | (5 | ) | | (13 | ) | | (24 | ) |
| Series A convertible preferred stock dividends | — |
| | (49 | ) | | — |
|
| Net income (loss) attributable to NCR common stockholders | $ | 123 |
| | $ | 221 |
| | $ | (182 | ) |
| | | | | | |
| Basic weighted average number of shares outstanding | 121.9 |
| | 125.6 |
| | 167.6 |
|
| Dilutive effect of as-if Series A Convertible Preferred Stock | — |
| | 28.2 |
| | — |
|
| Dilutive effect of employee stock options and restricted stock units | 5.1 |
| | 3.6 |
| | — |
|
| Denominator - from continuing operations | 127.0 |
| | 157.4 |
| | 167.6 |
|
| | | | | | |
| Basic weighted average number of shares outstanding | 121.9 |
| | 125.6 |
| | 167.6 |
|
| Dilutive effect of employee stock options and restricted stock units | 5.1 |
| | 3.6 |
| | — |
|
| Denominator - total | 127.0 |
| | 129.2 |
| | 167.6 |
|
| | | | | | |
| Diluted earnings (loss) per share: | | | | | |
| From continuing operations | $ | 1.01 |
| | $ | 1.80 |
| | $ | (0.94 | ) |
| From discontinued operations | (0.04 | ) | | (0.10 | ) | | (0.15 | ) |
| Total diluted earnings (loss) per share | $ | 0.97 |
| | $ | 1.71 |
| | $ | (1.09 | ) |
For 2017, diluted earnings (loss) per share from continuing operations and total diluted earnings (loss) per share, it is more dilutive to assume the Series A Convertible Preferred Stock is not converted to common stock and therefore weighted average outstanding shares of common stock are not adjusted by the as-if converted Series A Convertible Preferred Stock shown above because the effect would be anti-dilutive. If the as-if converted Series A Convertible Preferred Stock had been dilutive, approximately 27.4 million additional shares, considering the existing and redeemed shares, would have been included in the diluted weighted average number of shares outstanding for the year ended December 31, 2017. For 2017, there were 0.8 million weighted anti-dilutive restricted stock units outstanding.
For 2016, diluted earnings (loss) per share from continuing operations, it is more dilutive to assume the Series A Convertible Preferred Stock is converted to common stock and therefore weighted average outstanding shares of common stock are adjusted by the as-if converted Series A Convertible Preferred Stock. For 2016, total diluted earnings (loss) per share, it is more dilutive to assume the Series A Convertible Preferred Stock is not converted to common stock and therefore weighted average outstanding shares of common stock are not adjusted by the as-if converted Series A Convertible Preferred Stock shown above because the effect would be anti-dilutive. Therefore, total diluted earnings (loss) per share less diluted earnings (loss) per share from continuing operations does not equal diluted earnings (loss) per share from discontinued operations. For 2016, there were 0.4 million weighted anti-dilutive restricted stock units outstanding.
For 2015, it is more dilutive to assume the Series A Convertible Preferred Stock is not converted to common stock and therefore weighted average outstanding shares of common stock are not adjusted by the as-if converted Series A Convertible Preferred Stock because the effect would be anti-dilutive. If the as-if converted Series A Convertible Preferred Stock had been dilutive, approximately 2.0 million additional shares would have been included in the diluted weighted average number of shares outstanding for the year ended December 31, 2015.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
For 2015, due to the net loss attributable to NCR common stockholders, potential common shares that would cause dilution, such as the Series A Convertible Preferred Stock, restricted stock units and stock options, have been excluded from the diluted share count because their effect would have been anti-dilutive. For the year ended December 31, 2015, the fully diluted shares would have been 172.2 million shares.
Cash, and Cash Equivalents, and Restricted Cash All short-term, highly liquid investments having original maturities of three months or less, including time deposits, are considered to be cash equivalents. As of December 31, 2023, 2022 and 2021, the Company has restricted cash on deposit with a bank as collateral for letters of credit as well as cash included in settlement processing assets.
AllowanceThe reconciliation of cash, cash equivalents and restricted cash in the Consolidated Statements of Cash Flows is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | | Balance Sheet Location | | December 31, 2023 | | December 31, 2022 | | December 31, 2021 |
| Cash and cash equivalents | | Cash and cash equivalents | | $ | 262 | | | $ | 221 | | | $ | 221 | |
| Short term restricted cash | | Restricted cash | | — | | | 1 | | | — | |
| Long term restricted cash | | Other assets | | 2 | | | — | | | 1 | |
| Funds held for client | | Restricted cash | | — | | | — | | | 48 | |
| Cash included in settlement processing assets | | Restricted cash | | 21 | | | 16 | | | 16 | |
| Total cash, cash equivalents and restricted cash | | | | $ | 285 | | | $ | 238 | | | $ | 286 | |
| Cash, cash equivalents and restricted cash of discontinued operations | | | | — | | | 502 | | | 463 | |
| Total cash, cash equivalents and restricted cash | | | | $ | 285 | | | $ | 740 | | | $ | 749 | |
Supplemental cash flow information Interest paid in cash was $365 million, $268 million, and $215 million for Doubtful Accounts NCR establishes provisionsfiscal years 2023, 2022, and 2021, respectively. Income taxes paid in cash were $92 million, $56 million and $42 million for doubtful accounts using percentagesfiscal years 2023, 2022, and 2021, respectively.
Supplemental disclosures of noncash investing and financing activities During the twelve months ended December 31, 2022, we issued shares of the Company’s common stock and assumed unvested outstanding option awards in the acquisition of Moon Inc., dba LibertyX, for total non-cash consideration of $68 million. In connection with the acquisition, we also assumed debt of $2 million. Refer to Note 2, “Discontinued Operations”, for additional information on the LibertyX acquisition.
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.
The components of accounts receivable balances to reflect historical averageare summarized as follows:
| | | | | | | | | | | |
| In millions | December 31, 2023 | | December 31, 2022 |
| Accounts receivable | | | |
| Trade | $ | 372 | | | $ | 505 | |
| Other | 141 | | | 66 | |
| Accounts receivable, gross | 513 | | | 571 | |
| Less: allowance for credit losses | (32) | | | (21) | |
| Total accounts receivable, net | $ | 481 | | | $ | 550 | |
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 provisionscustomers and market sectors. This policy is applied consistently among all of our operating segments. We continue to evaluate our reserves in light of the age and quality of our outstanding accounts receivable and risks to specific industries or countries and adjust the reserves accordingly.
Our allowance for known issues.credit losses as of December 31, 2023 and December 31, 2022 was $32 million and $21 million, respectively. For the year ended December 31, 2023, our allowance for credit losses charged to expense was $26 million. The Company recorded$15 million of write-offs against the reserve for the year ended December 31, 2023. For the year ending, December 31, 2022 our allowance for credit losses charged to expense was $15 million and the Company recorded $13 million of write-offs against the reserve.
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.
Contract Assets and Liabilities Contract assets include unbilled amounts where the 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 Prepaid and 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. As of December 31, 2023 and 2022, no contracts were in a net asset position.
The following table presents the net contract asset and contract liability balances:
| | | | | | | | | | | | | | | | | |
| In millions | Location in the Consolidated Balance Sheet | | December 31, 2023 | | December 31, 2022 |
| | | | | |
| Current portion of contract liabilities | Contract liabilities | | $ | 197 | | | $ | 191 | |
| Non-current portion of contract liabilities | Other liabilities | | $ | 19 | | | $ | 18 | |
During the twelve months ended December 31, 2023, 2022, and 2021 the Company recognized $138 million, $152 million, and $176 million, respectively, in revenue that was included in contract liabilities as of December 31, 2022, 2021, and 2020, 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 Prepaid and 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 in either direction 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 occurs after the sponsoring bank or the Company receives the funds from the card issuer through the card networks, creating a settlement obligation to the merchant 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 settlement asset on the Company’s Consolidated Balance Sheet. Additionally, relative to credit card transactions, 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 settlement assets due from customers and receivables from merchants corresponding to the discount fee related to reimbursement of the interchange expense, our receivables from the processing bank or Electronic Funds Transfer (“EFT”) network for transactions that have occurred and have been funded to 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 or merchant for transactions for which we have received funding from the members or networks but have not funded merchants as well as certain exception items. Settlement processing assets other than restricted cash are recorded within Prepaid and other current assets and settlement processing liabilities are recorded within Settlement liabilities in the Consolidated Balance Sheet. Cash related to settlement processing is recorded within Restricted cash in the Consolidated Balance Sheet. As of December 31, 2023 and 2022, settlement processing assets were $46 million and $39 million, respectively, and settlement processing liabilities were $39 million and $38 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 otherOther assets and amortized over the estimated useful lives of the resulting software. NCRThe Company 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 otherOther assets and are amortized on a sum-of-the-years'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. NCRThe Company 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 | 2023 | | 2022 | | 2021 |
| Beginning balance as of January 1 | $ | 463 | | | $ | 394 | | | $ | 354 | |
| Capitalization | 231 | | | 240 | | | 205 | |
| Amortization | (195) | | | (169) | | | (147) | |
| Impairment | (3) | | | — | | | (18) | |
| Capitalized software acquired or disposed of and other adjustments | (10) | | | (2) | | | — | |
| Ending balance as of December 31 | $ | 486 | | | $ | 463 | | | $ | 394 | |
|
| | | | | | | | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Beginning balance as of January 1 | $ | 345 |
| | $ | 311 |
| | $ | 257 |
|
| Capitalization | 166 |
| | 154 |
| | 150 |
|
| Amortization | (145 | ) | | (118 | ) | | (80 | ) |
| Impairment | — |
| | (2 | ) | | (16 | ) |
| Ending balance as of December 31 | $ | 366 |
| | $ | 345 |
| | $ | 311 |
|
During the year ended December 31, 2023, other adjustments includes the write-off of certain capitalized software related to the divested business. During the year ended December 31, 2021, 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. Consistent with the examples of such events and circumstances given in the accounting guidance, we believe that a goodwill impairment test should be performed immediately before and after a reorganization of our reporting structure when the reorganization would affect the composition of one or more of our reporting units. In this circumstance, performing the impairment test immediately before and after the reorganization would help to confirm that the reorganization is not potentially masking a goodwill impairment charge.
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, must be measured under step two ofis determined based on the impairment analysis. In step two ofamount by which the analysis, we will record an impairment loss
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
equalcarrying amount exceeds the fair value up to the excess of the carryingtotal value of goodwill assigned to the reporting unit’s goodwill over its implied fair value should such a circumstance arise.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)(“DCF”) analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including marketsrevenue growth rates, EBITDA margins and market shares, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate and working capital changes.rates. 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)(“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. During the fourth quarter of each year presented, we performed our annual impairment assessment of goodwill which did not indicate that an impairment existed.Refer to Note 4, “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 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. The Company makes judgments about the recoverability of intangible assets whenever events or changes in circumstances indicate that impairment may exist. If such facts and circumstances exist, the Company assesses the recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the Company would accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. For further discussion of identified intangible assets, see Note 4, “Goodwill and Purchased Intangible Assets”.
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 $86$57 million, $90$57 million, and $91$59 million for the years ended December 31, 2017, 2016,2023, 2022, and 2015,2021, 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 3, "Goodwill4, “Goodwill and Purchased Intangible Assets"Assets”, for further discussion.
Leasing The Company determines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and the Company has the right to control the asset.
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 of 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 The Company 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, total and involuntary turnover rates, and rates of future compensation increases. In addition, NCRthe Company also uses subjective factors, such as withdrawal rates and mortality rates to develop the Company’s valuations. NCRThe Company generally reviews and updates these assumptions on an annual basis. NCRThe Company is required to consider current market conditions, including changes in interest rates, in making
these assumptions. The actuarial assumptions that NCRthe Company 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.
Environmental and Legal Contingencies In the normal course of business, NCRthe Company 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, NCRthe Company 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 NCRthe Company or could have an impact on NCR’sthe Company’s future operating results. NCRThe Company 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
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
the Fox River and Kalamazoo River environmental matters discussed in Note 9, "Commitments11, “Commitments and Contingencies"Contingencies”, and to comply with applicable laws and regulations, will not exceed the amounts reflected in NCR’sthe Company’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, 20172023 cannot currently be reasonably determined or are not currently considered probable. The costs and insurance recoveries relating to certain environmental obligations associated with discontinued operations, including those relating to the Fox River, Kalamazoo River and Ebina matters, are presented in Income (loss) from discontinued operations, net of tax, in the Consolidated Statements of Operations.
Legal fees and expenses related to loss contingencies are typically expensed as incurred, except for certain costs associated with NCR’sthe Company’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.
Leases The Company accounts for material escalation clauses, free or reduced rents and landlord incentives contained in operating type leases on a straight-line basis over the lease term, including any reasonably assured lease renewals. For leasehold improvements that are funded by the landlord, the Company records the incentive as deferred rent. The deferred rent is then amortized as reductions to lease expense over the lease term. For capital leases where NCR is the lessee, we record an amortizable debt and a related fixed asset in the Consolidated Balance Sheet.
Foreign Currency For many NCRof the Company’s 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 otherOther comprehensive income. Where the U.S. Dollar is the functional currency, remeasurementRemeasurement adjustments are recorded in otherOther income (expense), net.
Derivative Instruments In the normal course of business, NCRthe Company 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 Accumulated other comprehensive incomeloss 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 accumulatedAccumulated 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 otherOther income (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 accounting guidance prioritizes the inputs used to measure fair value into the following three-tier fair value hierarchy:
•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
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
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.
NCRThe Company 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 otherOther comprehensive income (loss).
Redeemable Noncontrolling Interests and Related Party Transactions In 2011, we sold a 49% voting equity interest in NCR Brasil - Indústria de Equipamentos para Automação S.A., a subsidiary of the Company (NCR Manaus) to Scopus Tecnologia Ltda. (Scopus). Under our investment agreements with Scopus, Scopus may elect to sell its shares in NCR Manaus at the then-current fair value to a third party that is not a competitor of NCR. If Scopus is unable to locate a buyer, Scopus may require NCR to purchase its noncontrolling interest for its then-current fair value.
We recognized $79 million, $82 million and $59 million in revenue related to Banco Bradesco SA (Bradesco), the parent of Scopus, for the years ended December 31, 2017, 2016 and 2015, respectively, and we had $18 million and $10 million in receivables outstanding from Bradesco as of December 31, 2017 and 2016.
Recent Accounting Pronouncements
IssuedAdoption of New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued a new revenue recognition standard that will supersede current revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective for the first interim period within annual periods beginning after December 15, 2017, which for NCR is the first quarter of 2018. We will adopt the standard using a modified retrospective approach with an adjustment to retained earnings for the cumulative effect of applying the standard to open contracts as of the adoption date.
The Company has determined our new accounting policies related to the new standard and continues to evaluate the impact on the consolidated financial statements and related disclosures. We continue to believe adoption of the standard will have the following impacts:
The new standard removes the current limitation on contingent revenue, and we expect that this may result in revenue being recognized earlier for certain contracts containing multiple performance obligations.
The new standard modifies the accounting for the costs to obtain a contract, such as the capitalization and deferral of commission expenses, and we expect that this will be a change to our current policy to expense as incurred for certain recurring revenue streams.
We have designed, and are in the process of implementing, appropriate changes to our business processes, systems and controls to support revenue recognition and the expanded qualitative and quantitative disclosures required under the new standard.
In February 2016,October 2021, the FASB issued aASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, with new leasing standard that will supersede current guidance related to accounting for leases. The guidance is intended to increase transparency and comparability among organizations by recognizing leasecontract assets and leasecontract liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard will be effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. The standard is
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
required to be adopted using the modified retrospective approach. We areacquired in the process of identifying and designing appropriate changes to our business processes, systems and controls to support the new standard, and we are continuing to evaluate the impact of the standard on our consolidated financial statements and related disclosures. At this time the Company cannot estimate the quantitative impact of adopting the new standard, but it is expected to have a material effect to the total assets and total liabilities reported on the consolidated balance sheet, and is not expected to have a material effect to the consolidated statement of operations or the consolidated statement of cash flows.
In August 2016, the FASB issued an accounting standards update which provides guidance regarding the classification of certain cash receipts and cash payments on the statement of cash flows, where specific guidance is provided for issues not previously addressed. This guidance is effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2017, with early adoption permitted, and is required to be adopted using a retrospective approach. The adoption of this accounting standard update is not expected to have a material effect on the Company's statement of cash flows.
In October 2016, the FASB issued an accounting standards update which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The adoption of this accounting standard update is not expected to have a material effect on the Company's net income, cash flows or financial condition.
In November 2016, the FASB issued an accounting standards update which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. The guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The accounting standard update is required to be adopted for annual periods beginning after December 15, 2017, including interim periods within that annual period. The amendment is to be applied retrospectively with early adoption permitted. The adoption of this accounting standard update is not expected to have a material effect on the Company's statement of cash flows.
In January 2017, the FASB issued an accounting standards update which clarifies the definition of a business which is used across several areas of accounting. The area expected to see the most change is the evaluation of whether a transaction should be accounted for as an acquisition (or disposal) of assets, or as a business combination. The new guidance clarifies thatrequires contract assets and contract liabilities, such as deferred revenue, acquired in a business combination to be a business there must also berecognized and measured by the acquirer on the acquisition date in accordance with Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers. Prior to the issuance of this guidance, contract assets and contract liabilities were recognized by the acquirer at least one substantive process, and narrowsfair value on the definition of outputs by more closely aligning it with how outputs are described in the new revenue recognition standard.acquisition date. The accounting standardstandards update is required to be adoptedwas effective for annualfiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, including2022, with early adoption permitted and applied prospectively to acquisitions occurring on or after the effective date. The Company has adopted this accounting standard update which did not have an impact on the Company’s net income, cash flows, earnings per share or financial condition but may impact future acquisitions.
Although there are other new accounting pronouncements issued by the FASB and adopted by or effective for the Company, the Company does not believe any of these accounting pronouncements had a material impact on its consolidated financial statements.
Accounting Pronouncements Issued But Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendment enhances disclosures of significant segment expenses by requiring disclosure of significant segment expenses regularly provided to the chief operating decision maker (“CODM”), extend certain annual disclosures to interim periods, within that annual period.and permit more than one measure of segment profit or loss to be reported under certain conditions. The amendment is to be applied prospectively with early adoption permitted. We do not expect the adoption of this standard to have a material effect on our financial condition, results of operations or disclosures, as the standard applies only to businesses acquired after the adoption date.
In January 2017, the FASB issued an accounting standards update with new guidance intended to simplify the subsequent measurement of goodwill. The standards update eliminates the requirement for an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an entity will perform its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an impairment chargeeffective for the amount by which the carrying amount exceeds the fair value. The standards update is effective prospectively for annual and interim goodwill impairment testing performedCompany in fiscal years beginning after December 15, 2019. The2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption of this standards updatethe amendment is permitted, including adoption in any interim periods for which financial statements have not expectedbeen issued. The Company is currently evaluating the guidance and its impact to have a material effect on our consolidatedthe financial statements.statements and related disclosures.
In March 2017,December 2023, the FASB issued an accounting standards update with newASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance on the employer's presentationrequires disclosure of defined benefit retirement costsspecific categories in the income statement. Employers will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period onrate reconciliation and provides additional information for reconciling items that meet a retrospective basis. Employers will present the other components of the net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented, on a retrospective basis. Only the service cost component will be eligible for capitalization in assets and should be applied on a prospective basis.specified quantitative threshold. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods therein,2024, with early adoption permitted. The Company is in the process of assessing the impact the adoption of this guidance will have on the Company’s financial statement disclosures.
Although there are other new accounting standard update ispronouncements issued by the FASB and not expected toyet adopted by or effective for the Company, the Company does not believe any of these accounting pronouncements will have a material effectimpact on its consolidated financial statements.
2. DISCONTINUED OPERATIONS
Spin-Off of NCR Atleos
On October 16, 2023, the Company's netCompany completed the Spin-Off of NCR Atleos into an independent publicly traded company. Refer to Note 1, “Basis of Presentation and Significant Accounting Policies” for additional information regarding the Spin-Off. The historical results of NCR Atleos have been presented as discontinued operations. The Company’s presentation of discontinued operations excludes general corporate overhead costs that did not meet the requirements to be presented as discontinued operation. The presentation of discontinued operations below excludes certain countries which are expected to transfer to NCR Atleos during 2024. The results of operations for these countries will be presented as part of discontinued operations as of the date of their separation. As of March 2024, three countries have transferred to NCR Atleos.
The following table presents the major categories of income cash flows or financial condition.
In May 2017, the FASB issued an accounting standards update which clarifies when to account for a change(loss) from discontinued operations related to the terms or conditionsSpin-Off of NCR Atleos:
| | | | | | | | | | | | | | | | | |
| For the year ended December 31 |
| In millions | 2023(1) | | 2022 | | 2021 |
| Product revenue | $ | 784 | | | 1,077 | | | 1,017 | |
| Service revenue | 2,464 | | | 2,974 | | | 2,447 | |
| Total revenue | 3,248 | | | 4,051 | | | 3,464 | |
| Cost of products | 633 | | | 946 | | | 818 | |
| Cost of services | 1,715 | | | 2,225 | | | 1,678 | |
| Selling, general and administrative expenses | 537 | | | 457 | | | 447 | |
| Research and development expenses | 52 | | | 70 | | | 73 | |
| Total operating expenses | 2,937 | | | 3,698 | | | 3,016 | |
| Income from discontinued operations | 311 | | | 353 | | | 448 | |
| | | | | |
| Interest expense | (6) | | | — | | | — | |
| Other income (expense), net | (23) | | | (11) | | | 102 | |
| Income (loss) from discontinued operations before income taxes | 282 | | | 342 | | | 550 | |
| Income tax expense (benefit) | 69 | | | 76 | | | 115 | |
| Net income (loss) from discontinued operations | 213 | | | 266 | | | 435 | |
| Net income (loss) attributable to noncontrolling interests | — | | | (1) | | | 1 | |
| Net income (loss) from discontinued operations related to NCR Atleos | 213 | | | 267 | | | 434 | |
(1) Represents operations of NCR Atleos through October 16, 2023, versus the full year for 2022 and 2021.
The following table represents the major classes of assets and liabilities of discontinued operations:
| | | | | | | | |
| In millions | December 31, 2022 | |
| Assets | | |
| Current assets | | |
| Cash and cash equivalents | $ | 284 | | |
| Accounts receivable, net of allowances | 533 | | |
| Inventories | 415 | | |
| Restricted cash | 211 | | |
| Prepaid and other current assets | 247 | | |
| Total current assets | 1,690 | | |
| Property, plant and equipment, net | 436 | | |
Goodwill* | 2,476 | | |
| Intangibles, net | 729 | | |
| Operating lease assets | 99 | | |
| Prepaid pension cost | 177 | | |
| Deferred income taxes | 269 | | |
| Other assets | 152 | | |
| Noncurrent assets | 4,338 | | |
| Total assets of discontinued operations | $ | 6,028 | | |
| | |
| Liabilities and stockholder's equity | | |
| Current liabilities | | |
| Short-term borrowings | 3 | | |
| Accounts payable | 348 | | |
| Payroll and benefits liabilities | 120 | | |
| Contract liabilities | 346 | | |
| Settlement liabilities | 212 | | |
| Other current liabilities | 324 | | |
| Total current liabilities | 1,353 | | |
| Long-term debt | 9 | | |
| Pension and indemnity plan liabilities | 457 | | |
| Postretirement and postemployment benefits liabilities | 53 | | |
| Income tax accruals | 39 | | |
| Operating lease liabilities | 67 | | |
| Other liabilities | 139 | | |
| Noncurrent liabilities | 764 | | |
| Total liabilities of discontinued operations | $ | 2,117 | | |
| | |
*Goodwill allocated to discontinued operations represents the amount of goodwill attributable to NCR Atleos which was determined on a share-based payment award as a modification. This update requires modification only if therelative fair value vesting conditions or the classification of the award changesbasis.
The total net impact to stockholder’s equity as a result of the change in terms or conditions. This guidance is effective prospectively for fiscal years beginning after December 15, 2017,separation was a reduction of $1,237 million, which has been reflected as a reduction of $1,056 million, $182 million and interim periods therein, with early adoption permitted. The
NCR Corporation
Notes$1 million to Consolidated Financial Statements-(Continued)
adoption of this accounting standard update is not expected to have a material effect on the Company's net income, cash flows or financial condition.
In August 2017, the FASB issued an accounting standards update which simplifies certain aspects of hedge accounting and improves disclosures of hedging arrangements through the elimination of the requirement to separately measure and report hedge ineffectiveness. This update generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item in order to align financial reporting of hedge relationships with economic results. Entities must apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements must be applied prospectively. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods therein, with early adoption permitted. The adoption of this accounting standard update is not expected to have a material effect on the Company's net income, cash flows or financial condition.
In February 2018, the FASB issued an accounting standards update which will permit entities to reclassify tax effects stranded inretained earnings, accumulated other comprehensive income and noncontrolling interest, respectively, in the Consolidated Statement of Equity as of December 31, 2023.
The following table presents selected financial information related to cash flows from discontinued operations:
| | | | | | | | | | | | | | | | | |
| For the year ended December 31 |
| In millions | 2023* | | 2022 | | 2021 |
| Net cash provided by/(used in) operating activities | $ | 283 | | | $ | 243 | | | $ | 803 | |
| Net cash provided by/(used in) investing activities | (71) | | | (123) | | | (1,789) | |
| Net cash provided by/(used in) financing activities | — | | | 10 | | | (3) | |
*Represents Atleos operations from January 1, 2023 through October 16, 2023, versus a full year of NCR Atleos operations in 2022 and 2021.
The following transactions have been included as part of discontinued operations for all of the periods presented.
Acquisition of LibertyX (2022)
On January 5, 2022, the Company completed its acquisition of Moon Inc., dba LibertyX, a leading cryptocurrency software provider, with the goal of enabling the Company to provide a complete digital currency solution, including the ability to buy and sell cryptocurrency, conduct cross-border remittance, and accept digital currency payments across digital and physical channels. The Company purchased all outstanding shares of LibertyX for $1 million cash consideration and approximately 1.4 million shares of the Company’s common stock at a price of $42.13 per share. The Company also converted approximately 0.2 million outstanding unvested LibertyX option awards into the Company’s awards pursuant to an exchange ratio as defined in the acquisition agreement. LibertyX stock option awards were converted into the Company’s stock option awards with an exercise price per share for option awards equal to the exercise price per share of such stock option award immediately prior to the completion of the acquisition divided by the exchange ratio, and vested immediately. The value of the option awards was deemed attributable to services already rendered and was included as a result of tax reform to retained earnings. Entities can elect to apply the guidance retrospectively or in the period of adoption. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods therein, with early adoption permitted. The adoption of this accounting standard update is not expected to have a material effect on the Company's net income, cash flows or financial condition.
Adopted
In March 2016, the FASB issued an accounting standards update that amended the accounting standard related to employee share-based payments. The guidance requires the recognitionportion of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allowspurchase price. Total purchase consideration for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The adoption approach varies based on the amendment topic.LibertyX acquisition was approximately $69 million. As a result of the adoption, we recorded an adjustmentacquisition, LibertyX became a wholly-owned subsidiary of approximately $39 millionthe Company.
Recording of Assets Acquired and Liabilities Assumed The fair value of consideration transferred was allocated to the Januaryidentifiable assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition as set forth below. The amounts for intangible assets are based on third-party valuations performed. The final allocation of the purchase price was as follows:
| | | | | |
| In millions | Fair Value |
| Cash acquired | $ | 2 | |
| Tangible assets acquired | 3 |
| Acquired intangible assets other than goodwill | 38 |
| Acquired goodwill | 40 |
| Deferred tax liabilities | (10) |
| Liabilities assumed | (4) |
| Total purchase consideration | $ | 69 | |
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 the Company and LibertyX and is not deductible for tax purposes. The goodwill arising from the LibertyX acquisition is included in Noncurrent assets of discontinued operations within the Consolidated Balance Sheets.
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 | $ | 5 | | | 10 |
| Technology - Software | 30 | | | 13 |
| Non-compete | 1 | | | 1 |
| Tradenames | 2 | | | 2 |
| Total acquired intangible assets | $ | 38 | | | |
(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.
The operating results of LibertyX are part of Income (loss) from discontinued operations, net of tax within the Company’s results since the closing date of the acquisition.
Other Acquisitions (2022)
On July 1, 2017 retained earnings balance to recognize federal tax credit carryforwards attributable to excess tax benefits on stock compensation that had not2022, the Company completed its acquisition of the India ATM business of FIS Payment Solutions & Services Private Limited for consideration of $19 million, of which $12 million has been previously recognized to additional paid in capital.cash as of December 31, 2023. The Company also expects the new standard toIndia ATM business acquisition did not have an on-goinga material impact on the recordingconsolidated financial statements.
Acquisition of excess tax benefitsCardtronics plc
On January 25, 2021, the Company entered into a definitive agreement to acquire all outstanding shares of Cardtronics for $39.00 per share (the “Cardtronics Transaction”). The legal closing of the Cardtronics Transaction occurred on June 21, 2021.
Cardtronics was the world’s largest non-bank ATM operator and deficienciesservice 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. The Cardtronics Transaction is expected to accelerate our consolidated balance sheetsNCR-as-a-service strategy and consolidated statementsenhance our ability to provide technology solutions and capabilities that run our customers’ businesses.
Purchase Price Consideration The purchase consideration transferred consisted of incomethe following:
| | | | | |
| In millions | Purchase Consideration |
| Cash paid to common stockholders and holders of certain restricted stock and stock option awards | $ | 1,775 | |
| Debt repaid by the Company on behalf of Cardtronics | 809 | |
| Transaction costs paid by the Company on behalf of Cardtronics | 57 | |
| Fair value of converted Cardtronics awards attributable to pre-combination services | 19 | |
| Settlement of pre-existing relationships | 14 | |
| Total purchase consideration | $ | 2,674 | |
Other than certain outstanding restricted stock and comprehensive income. However,stock option awards issued to directors which were paid out in cash at closing, the magnitudeCompany converted outstanding unvested Cardtronics awards into the Company’s awards pursuant to an exchange ratio as defined in the acquisition agreement. Each restricted stock award that was outstanding, whether performance-based or time-based, was converted into time-based awards, and will continue to be governed by the same vesting terms as the original Cardtronics awards. Cardtronics stock option awards were converted into the Company’s stock option awards with an exercise price per share for option awards equal to the exercise price per share of such impact is dependentstock option award immediately prior to the completion of the acquisition divided by the exchange ratio, and will continue to be governed generally by the same terms and conditions as were applicable prior to the acquisition. The amounts attributable to services already rendered were included as an adjustment to the purchase price and the amounts attributable to future services will be expensed over the remaining vesting period, net of estimated forfeitures. The fair value of options that the Company assumed in connection with the acquisition of Cardtronics were estimated using the Black-Scholes model.
Recording of Assets Acquired and LiabilitiesAssumed The fair value of consideration transferred to acquire Cardtronics was allocated to the identifiable assets acquired and liabilities assumed based upon our future grantstheir estimated fair values as of stock awards, our future stockthe date of the acquisition as set forth below. The allocation of the purchase price was finalized in relationJune 2022.
The final allocation of the purchase price for Cardtronics was as follows:
| | | | | |
| In millions | Fair Value |
| Assets acquired | |
| Cash and restricted cash | $ | 291 | |
| Trade accounts receivable | 85 | |
| Prepaid expenses, other current assets and other assets | 193 | |
| Property, plant and equipment | 362 | |
| Acquisition-related intangible assets | 864 | |
| Total assets acquired | $ | 1,795 | |
| |
| Liabilities assumed | 733 | |
| Net assets acquired, excluding goodwill | 1,062 | |
| Total purchase consideration | 2,674 | |
| Goodwill | $ | 1,612 | |
We recorded an allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of June 21, 2021. In determining the fair value, the Company utilized various methods of awardsthe income, cost, and market approaches depending on the grant date and the exercise behaviorasset or liability being fair valued. The estimation of stock option holders.
2. BUSINESS COMBINATIONS AND DIVESTITURES
Interactive Printer Solutions (IPS) Divestiture
As of December 31, 2015, we determined that it was probable that we would dispose of our Interactive Printer Solutions (IPS) business, which triggered an impairment assessment of the related assets which include long-lived assets and goodwill. The assetsfair value required significant judgment related to future net cash flows (including revenue growth rate, EBITDA margins, and customer attrition), discount rates reflecting the IPS businessrisk inherent in each cash flow stream, competitive trends, market comparables, and other factors. Inputs were generally determined by taking into account historical data (supplemented by current and anticipated market conditions) and growth rates.
Direct customer relationships and technology - software were valued using a market approachan excess earnings method. Significant assumptions used in the discounted cash flow analysis for (i) direct customer relationships were the revenue growth rate, customer attrition rate, and discount rate, and (ii) technology - software were the revenue growth rate, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margins, and discount rate.
Goodwill represents the future economic benefits arising from other assets acquired that could not be separately recognized. The goodwill arising from the acquisition consists of revenue and cost synergies expected from combining the operations of the Company and Cardtronics. Approximately $139 million of the goodwill recognized in connection with the acquisition was deductible for tax purposes. The goodwill arising from the acquisition is included within Noncurrent assets of discontinued operations within the Consolidated Balance Sheets.
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 | $ | 373 | | | 15 |
| Technology - Software | 441 | | | 8 |
| Non-compete | 1 | | | 1 |
| Tradenames | 49 | | | 4 |
| Total acquired intangible assets | $ | 864 | | | |
(1) Determination of the weighted average period of the individual categories of intangible assets was based on an independent third-party market price. The assessment resulted in chargesthe nature of the applicable intangible asset and the expected future cash flows to reducebe derived from the carrying valuesintangible asset. Amortization of goodwill and property, plant and equipment, net by $16intangible 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 transaction costs of $46 million and $18 million, respectively, for a total charge of $34 million recorded in other (expense), net in the Consolidated Statements of Operations for the year ended December 31, 2015.
On May 27, 2016, NCR completed the sale2021, which has been included within Income (loss) from discontinued operations, net of all but the Middle East and Africa (MEA) assets of the IPS business to Atlas Holdings LLC for cash consideration of $47 million. In connection with the sale, NCR agreed to provide Atlas Holdings with certain support services on a short-term basis following the closing under a transition services agreement. During the year ended December 31, 2016, a loss on sale of $2 million was recorded to other (expense), nettax in the Consolidated Statement of Operations.
Supplemental Information
Conflict in Eastern Europe The war in Eastern Europe and related sanctions imposed on Russia and related actors by the United States and other jurisdictions required us to commence the orderly wind down of our operations in Russia beginning in the first quarter of 2022. As of December 21, 2017,31, 2022, we ceased operations in Russia and our only subsidiary in Russia was formally dissolved as of December 20, 2023. We recognized a pre-tax net loss of $22 million for the year ended December 31, 2022 related to these actions which is included in Income (loss) from discontinued operations, net of tax within the Company’s results. NCR Voyix has no operations in Russia.
Environmental Matters
The costs and insurance recoveries relating to certain environmental obligations associated with discontinued operations, including those relating to the Fox River, Kalamazoo River and Ebina matters, are presented in Income (loss) from discontinued operations, net of tax, in the Consolidated Statements of Operations. Income (loss) from discontinued operations, net of tax, related to environmental matters was a loss of $50 million, $4 million and zero, for the years ended December 31, 2023, 2022 and 2021, respectively. Net cash used in operating activities of discontinued operations related to environmental obligations was $19 million, $20 million and $68 million for fiscal years 2023, 2022 and 2021, respectively. Refer to Note 11, “Commitments and Contingencies” for further information.
3. BUSINESS COMBINATIONS AND DIVESTITURES
Acquisition of Freshop, Terafina, & Dumac
In the first quarter of 2021, the Company completed the sale of the MEA assets of the IPS business to Interactive Printer Solutions FZCOacquisitions for total cash consideration of $3 million.$126 million, as outlined below:
•On January 6, 2021, the Company completed its acquisition of Freshop E-Commerce Solution, Inc. (“Freshop”), a leading provider of grocery e-commerce. The Freshop acquisition further expands the Company’s software and services-led offerings to our retail platform and creates more value for our customers and new capabilities for the Company to run the store. As a result of the acquisition, Freshop became a wholly owned subsidiary of the Company.
•On February 5, 2021, the Company completed its acquisition of Terafina, Inc. (“Terafina”), a leading solution provider for customer account opening and onboarding across digital, branch and call center channels. The Terafina acquisition further expands the Company’s sales and marketing capabilities in its industry-leading digital-first-banking platform to drive revenue growth across consumer and business market segments. As a result of the acquisition, Terafina became a wholly owned subsidiary of the Company.
•On March 22, 2021 the Company completed its acquisition of certain assets and liabilities of Dumac Business Systems Inc. (“Dumac”), a leading POS solution provider for the quick service, table service, and convenient store markets. The Dumac asset acquisition further expands the Company’s software and services-led offerings, creating more value for our customers and driving revenue growth across the Restaurants segment.
Recording of Assets Acquired and Liabilities Assumed The fair value of consideration transferred was allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values as of the date of the respective acquisitions as set forth below. The allocation of the purchase prices is as follows:
| | | | | |
| In millions | Fair Value |
| Cash acquired | $ | 2 | |
| Tangible assets acquired | 7 | |
| Acquired intangible assets other than goodwill | 52 | |
| Acquired goodwill | 81 | |
| Deferred tax liabilities | (3) | |
| Liabilities assumed | (13) | |
| Total purchase consideration | $ | 126 | |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Goodwill represents the future economic benefits arising from other assets acquired that could not be individually separately recognized. The goodwill arising from the acquisitions consists of revenue and cost synergies expected from combining the operations of the Company and the respective acquisitions. It is expected that $9 million of the goodwill recognized in connection with the acquisitions will be deductible for tax purposes. The goodwill arising from the Freshop acquisition has been allocated to our Retail segment. The goodwill arising from the Terafina acquisition has been allocated to our Digital Banking segment. The goodwill arising from the Dumac acquisition has been allocated to our Restaurants segment. Refer to Note 4, “Goodwill and Purchased Intangible Assets”, for the carrying amounts of goodwill by segment.
3.
The following table sets forth the components of the intangible assets acquired as of the acquisition dates:
| | | | | | | | | | | |
| Fair Value | | Weighted Average Amortization Period(1) |
| (In millions) | | (In years) |
| Direct customer relationships | $ | 11 | | | 10 |
| Technology - Software | 36 | | | 8 |
| Non-compete | 1 | | | 1 |
| Tradenames | 4 | | | 9 |
| Total acquired intangible assets | $ | 52 | | | |
(1)Determination of the weighted average period of the individual categories of intangible assets was based on the nature of the 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.
The operating results of Freshop, Terafina, and Dumac have been included within the Company’s results as of the closing dates of the respective acquisitions. Supplemental pro forma information and actual revenue and earnings since the acquisition dates have not been provided as the acquisitions did not have a material impact on the Company’s Consolidated Statements of Operations.
Divestitures
On October 19, 2023, the Company divested of a portion of the assets that were deemed non-strategic to its payments business, consisting primarily of merchant contracts, our front end authorization platform and certain relevant intellectual property for cash proceeds of $82 million.
4. GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill
by SegmentThe carrying amounts of goodwill by segment as of December 31, 2023 and 2022 are included in the tables below. Foreign currency fluctuations are included within other adjustments.Goodwill and other intangible assets related to the NCR Atleos business have been reclassified as Noncurrent assets of discontinued operations for prior year periods as discussed in Note 2, “Discontinued Operations”.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | January 1, 2017 | | | | | | | | December 31, 2017 |
| In millions | Goodwill | | Accumulated Impairment Losses | | Total | | Additions | | Impairment | | Other | | Goodwill | | Accumulated Impairment Losses | | Total |
| Software | $ | 1,930 |
|
| $ | (7 | ) |
| $ | 1,923 |
|
| $ | — |
|
| $ | — |
|
| $ | 14 |
|
| $ | 1,944 |
|
| $ | (7 | ) |
| $ | 1,937 |
|
| Services | 658 |
|
| — |
|
| 658 |
|
| — |
|
| — |
|
| — |
|
| 658 |
|
| — |
|
| 658 |
|
| Hardware | 162 |
|
| (16 | ) |
| 146 |
|
| — |
|
| — |
|
| — |
|
| 162 |
|
| (16 | ) |
| 146 |
|
| Total goodwill | $ | 2,750 |
|
| $ | (23 | ) |
| $ | 2,727 |
|
| $ | — |
|
| $ | — |
|
| $ | 14 |
|
| $ | 2,764 |
|
| $ | (23 | ) |
| $ | 2,741 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | | | | | | | December 31, 2023 |
| In millions | Goodwill | Accumulated Impairment | Total | | Additions | | Impairment | | Other | | Goodwill | Accumulated Impairment | Total |
| Retail | $ | 1,077 | | $ | (34) | | $ | 1,043 | | | $ | — | | | $ | — | | | $ | 4 | | | $ | 1,081 | | $ | (34) | | $ | 1,047 | |
| Restaurants | 495 | | (23) | | 472 | | | — | | | — | | | — | | | 495 | | (23) | | 472 | |
| Digital Banking | 521 | | — | | 521 | | | — | | | — | | | — | | | 521 | | — | | 521 | |
Other(1) | 28 | | — | | 28 | | | — | | | — | | | (28) | | | — | | — | | — | |
| Total goodwill | $ | 2,121 | | $ | (57) | | $ | 2,064 | | | $ | — | | | $ | — | | | $ | (24) | | | $ | 2,097 | | $ | (57) | | $ | 2,040 | |
(1) Other segment relates to the divested business as noted in Note 3, “Business Combinations and Divestitures”. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | January 1, 2016 | | | | | | | | December 31, 2016 |
| In millions | Goodwill | | Accumulated Impairment Losses | | Total | | Additions | | Impairment | | Other | | Goodwill | | Accumulated Impairment Losses | | Total |
| Software | $ | 1,936 |
| | $ | (7 | ) | | $ | 1,929 |
| | $ | 9 |
| | $ | — |
| | $ | (15 | ) | | $ | 1,930 |
| | $ | (7 | ) | | $ | 1,923 |
|
| Services | 658 |
| | — |
| | 658 |
| | — |
| | — |
| | — |
| | 658 |
| | — |
| | 658 |
|
| Hardware | 162 |
| | (16 | ) | | 146 |
| | — |
| | — |
| | — |
| | 162 |
| | (16 | ) | | 146 |
|
| Total goodwill | $ | 2,756 |
| | $ | (23 | ) | | $ | 2,733 |
| | $ | 9 |
| | $ | — |
| | $ | (15 | ) | | $ | 2,750 |
| | $ | (23 | ) | | $ | 2,727 |
|
As discussed in Note 1, “Basis of Presentation and Significant Accounting Policies,” NCRPolicies”, management completed the annual goodwill impairment test during the fourth quarter of 2017. The2023 for all reporting unitunits. In connection with the lowest percentage by whichSpin-Off, goodwill was reassigned to the reporting units using a relative fair value allocation approach. The Company performed a quantitative impairment assessment for all reporting units using a weighted combination of both guideline public company and discounted
cash flow valuation methods. This assessment included, but was not limited to, our consideration of macroeconomic conditions such as the conflict in Eastern Europe, foreign currency fluctuations, and significant cost inflation to the current year cash flows, the potential impacts to future cash flows, as well as industry and market conditions and financial performance, including forecasted revenue, earnings and capital expenditures of each reporting unit. Based on the assessments completed, it was determined that the fair value exceededof all reporting units were in excess of the carrying valuevalue. However, if the actual results differ from our expectations for any of our reporting units, there is a possibility we would have to perform an interim impairment test in 2024, which could lead to an impairment of goodwill or other assets. The amount of goodwill allocated and distributed to NCR Atleos in connection with the Spin-Off was $2,474 million. Refer to Note 1, “Basis of Presentation and Significant Accounting Policies” for further details over the Hardware reporting unit, wherevaluation models used and the excess of fair value over carrying value was approximately 20%. We aresignificant assumptions and estimates utilized in the process of identifying initiatives to accelerate our transformation to improve profitability in our Hardware segment through optimizing our production, sourcing and supply chain strategy.analysis performed.
PurchasedIdentifiable Intangible Assets
NCR’sNCR Voyix’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. These assets are reported in intangibles, net in the Consolidated Balance Sheets. The gross carrying amount and accumulated amortization for NCR’sthe Company’s identifiable intangible assets were as set forth in the table below:below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization
Period
(in Years) | | December 31, 2023 | | December 31, 2022 |
| In millions | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Identifiable intangible assets | | | | | | | | | |
| Reseller & customer relationships | 1 - 20 | | $ | 665 | | | $ | (438) | | | $ | 714 | | | $ | (405) | |
| Intellectual property | 2 - 8 | | 494 | | | (433) | | | 536 | | | (433) | |
| Customer contracts | 8 | | 89 | | | (89) | | | 89 | | | (89) | |
| Tradenames | 1 - 10 | | 79 | | | (76) | | | 78 | | | (74) | |
| Total identifiable intangible assets | | | $ | 1,327 | | | $ | (1,036) | | | $ | 1,417 | | | $ | (1,001) | |
|
| | | | | | | | | | | | | | | | | |
| | Amortization Period (in Years) | | December 31, 2017 | | December 31, 2016 |
| In millions | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Identifiable intangible assets | | | | | | | | | |
| Reseller & customer relationships | 1 - 20 | | $ | 659 |
| | $ | (170 | ) | | $ | 656 |
| | $ | (128 | ) |
| Intellectual property | 2 - 8 | | 410 |
| | (351 | ) | | 392 |
| | (302 | ) |
| Customer contracts | 8 | | 89 |
| | (81 | ) | | 89 |
| | (66 | ) |
| Tradenames | 2 - 10 | | 73 |
| | (51 | ) | | 73 |
| | (42 | ) |
| Total identifiable intangible assets | | | $ | 1,231 |
| | $ | (653 | ) | | $ | 1,210 |
| | $ | (538 | ) |
Amortization expense related to identifiable intangible assets was $71 million, $71 million, and $76 million for the years ended December 31, 2023, 2022, 2021, respectively.
The aggregate amortization expense (actual and estimated)(estimated) for identifiable intangible assets for the following periods is:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the years ended December 31 (estimated) |
| In millions | | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 |
| Amortization expense | | | | $ | 57 | | | $ | 50 | | | $ | 47 | | | $ | 41 | | | $ | 29 | |
5. SEGMENT INFORMATION AND CONCENTRATIONS
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, 2017 | | For the years ended December 31 (estimated) |
| In millions | | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| Amortization expense | | $ | 115 |
| | $ | 85 |
| | $ | 75 |
| | $ | 57 |
| | $ | 49 |
| | $ | 45 |
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
4. 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 twelve months ended December 31, 2017 and 2016, the Company paid dividends-in-kind of $45 million and $47 million, respectively, associated with the Series A Convertible Preferred Stock. As of December 31, 2017 and December 31, 2016, the Company had accrued dividends of $3 million, respectively, associated with the Series A Convertible Preferred Stock. There were no cash dividends declared during the twelve months ended December 31, 2017 or 2016.
Under the Investment Agreement, Blackstone agreed not to sell or otherwise transfer its shares of Series A Convertible Preferred Stock (or any shares of common stock issued upon conversion thereof) without the Company’s consent until June 4, 2017. In March 2017, we provided Blackstone with an early release from this lock-up, allowing Blackstone to sell approximately 49% of its shares of Series A Convertible Preferred Stock, and in return, Blackstone agreed to amend the Investment Agreement to extend the lock-up on the remaining 51% of its shares of Series A Convertible Preferred Stock for six months until December 1, 2017.
In connection with the early release of the lock-up, 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.
The repurchase of the common shares immediately upon conversion is considered a redemption of the related preferred shares. As a result, the excess of the fair value of consideration transferred over the carrying value, of $58 million, was included as a deemed dividend in adjusting the income from common stockholders in calculating earnings per share for the twelve months ended December 31, 2017. Additionally, we determined that the changesSubsequent to the lock-up period were considered a modification of the Series A Convertible Preferred Stock. The impact of the modification, calculated as the difference in the fair value immediately before and immediately after the changes, of $4 million, was included as a deemed dividend in adjusting the income from common stockholders in calculating earnings per share for the twelve months ended December 31, 2017. This adjustment was recorded as an increase to the Series A Convertible Preferred Shares and will reduce the accretion of the direct and incremental expenses associated with the original offeringSpin-Off, as described above. Refer toin Note 1, “Basis of Presentation and Significant Accounting Policies” for additional discussion.
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, payable quarterly in arrears and payable in-kind for the first sixteen dividend payments, after which, dividends will be payable in cash or in-kind at the option of the Company. If, the Company does not declaremanages 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. Dividends are paid in-kind, through the issuance of additional shares of Series A Convertible Preferred Stock, for the first sixteen dividend payment dates, after which dividends will be payable in cash or in-kind at the option of the Company.
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, 2017 and December 31, 2016, 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 27.5 million and 29.0 million shares, respectively. The conversion rate is subject toreports the following customary anti-dilutionsegments:
•Retail - We offer software-led 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 other adjustments:outdoor settings from POS, to payments, inventory management, fraud and loss prevention applications, loyalty and consumer engagement. 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 and merchant acquiring solutions, and bar-code scanners.
•Restaurants - We offer technology solutions to customers in the issuancerestaurant industry, including table-service, quick-service and fast casual restaurants of common stockall sizes, that are designed to improve operational efficiency, increase customer satisfaction, streamline order and transaction processing and reduce operating costs. Our solutions include POS hardware and software solutions, payment processing and merchant acquiring services, installation, maintenance, as well as managed and professional services.
•Digital Banking - Our Digital Banking segment helps financial institutions implement their digital-first platform strategy by providing solutions for account opening, account management, transaction processing, imaging, and branch services to enable financial institutions to offer a dividend or the subdivision, combination, or reclassification of common stock into a greater or lesser number of shares of common stock;
compelling customer experience.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
the dividend, distribution or other issuanceCorporate and Other includes income and expenses related to corporate functions that are not specifically attributable to any 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 shareour three individual reportable segments along with certain non-strategic businesses 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 stockare considered immaterial operating segment(s) and certain other above-market purchases of common stock;countries which are expected to transfer to NCR Atleos during 2024, as well as commercial agreements with NCR Atleos.
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 subsidiaryThese segments represent components of the Company ceases to befor which separate financial information is available that is utilized on a subsidiaryregular basis by the chief operating decision maker in assessing segment performance and in allocating the Company’s resources. Management evaluates the performance of the Companysegments based on revenue and Adjusted EBITDA. Adjusted EBITDA is defined as GAAP net income (loss) from continuing operations attributable to NCR Voyix plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus stock-based compensation expense; plus other income (expense); plus pension mark-to-market adjustments and other special items, including amortization of acquisition-related intangibles, separation-related costs, cyber ransomware incident recovery costs net of insurance recoveries, fraudulent ACH disbursements costs, transformation and restructuring charges (which includes integration, severance and other exit and disposal costs), among others. The special items are considered non-operational or non-recurring in nature, so are excluded from the Adjusted EBITDA metric utilized by our chief operating decision maker in evaluating segment performance and are separately delineated to reconcile back to total reported GAAP net income (loss) from continuing operations attributable to the Company.
Assets are not allocated to segments, and thus are not included in the assessment of segment performance. 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. Intersegment sales and transfers are not material.
The following table presents revenue and operating income by segment for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| In millions | | 2023 | | 2022 | | 2021 |
| Revenue by Segment | | | | | | |
| Retail | | $ | 2,177 | | | $ | 2,182 | | | $ | 2,138 | |
| Restaurants | | 886 | | | 857 | | | 794 | |
| Digital Banking | | 579 | | | 547 | | | 521 | |
| Total Segment Revenue | | $ | 3,642 | | | $ | 3,586 | | | $ | 3,453 | |
| | | | | | |
| Other | | 188 | | | 207 | | | 239 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total Revenue | | $ | 3,830 | | | $ | 3,793 | | | $ | 3,692 | |
| | | | | | |
| Adjusted EBITDA by Segment | | | | | | |
| Retail | | $ | 411 | | | $ | 384 | | | $ | 427 | |
| Restaurants | | 197 | | | 160 | | | 150 | |
| Digital Banking | | 219 | | | 233 | | | 216 | |
| Total Segment Adjusted EBITDA | | 827 | | | 777 | | | 793 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| In millions | | 2023 | | 2022 | | 2021 |
| Segment Adjusted EBITDA | | $ | 827 | | | $ | 777 | | | $ | 793 | |
| Corporate and other income and expenses not allocated to segments | | 211 | | | 181 | | | 322 | |
| Pension mark-to-market adjustments | | 7 | | | (41) | | | (7) | |
Transformation and restructuring costs(1) | | 39 | | | 96 | | | 53 | |
Fraudulent ACH disbursements(2) | | 23 | | | — | | | — | |
| Acquisition-related amortization of intangibles | | 71 | | | 71 | | | 76 | |
Acquisition-related costs(3) | | 1 | | | 2 | | | 3 | |
| | | | | | |
Interest expense(4) | | 294 | | | 285 | | | 238 | |
| Interest income | | (13) | | | (13) | | | (8) | |
| Depreciation and amortization | | 252 | | | 237 | | | 220 | |
| Income taxes | | 204 | | | 72 | | | 70 | |
| Stock-based compensation expense | | 150 | | | 90 | | | 121 | |
Separation costs(5) | | 99 | | | — | | | — | |
| | | | | | |
| | | | | | |
| Loss on disposal of businesses | | 12 | | | — | | | — | |
| Loss on debt extinguishment | | 46 | | | — | | | 42 | |
Cyber ransomware incident recovery costs(6) | | 17 | | | — | | | — | |
| | | | | | |
| Net income (loss) from continuing operations attributable to NCR Voyix (GAAP) | | $ | (586) | | | $ | (203) | | | $ | (337) | |
| | | | | | |
(1) Represents integration, severance, and other exit and disposal costs, which are considered non-operational in nature.
(2) Represents company identified fraudulent ACH disbursements from a company bank account. Additional details regarding this item are discussed in Note 1, “Basis of Presentation and Significant Accounting Policies”.
(3) Represents professional fees, retention bonuses, and other costs incurred related to acquisitions, which are considered non-operational in nature.
(4) During the three months ended September 30, 2023, it was determined that the transactions underlying the unrealized gains on terminated interest rate swap and cap agreements reported in Accumulated other comprehensive income were probable of not occurring under ASC 815, Derivatives and Hedging. As such, $18 million of unrealized gains were recognized in Interest expense. Refer to Note 15, “Derivatives and Hedging Instruments”.
(5) Represents costs incurred as a result of the distributionSpin-Off. Professional fees to effect the spin-off of NCR Atleos including separation management, organizational design, and legal fees have been classified within discontinued operations through October 16, 2023, the equity interestsseparation date.
(6) Represents expenses to respond to, remediate and investigate the April 13, 2023 cyber ransomware incident net of the subsidiary to the holdersinsurance recoveries, which is considered a nonrecurring special item. Additional details regarding this cyber ransomware incident are discussed in Note 1, “Basis of the Company’s common stock;Presentation 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 Preferred Convertible 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 Significant Accounting Policies”. 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 on 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.
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 certain
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
designeesThe following table presents recurring revenue and all other products and services that is recognized at a point in time for electionthe Company for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| In millions | | 2023 | | 2022 | | 2021 |
Recurring revenue(1) | | $ | 2,195 | | | $ | 2,120 | | | $ | 2,069 | |
| All other products and services | | 1,635 | | | 1,673 | | | 1,623 | |
| Total revenue | | $ | 3,830 | | | $ | 3,793 | | | $ | 3,692 | |
(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, interchange and network revenue, and certain professional services arrangements, as well as term-based software license arrangements that include customer termination rights.
Revenue is attributed to the Company's Boardgeographic area to which the product is delivered or in which the service is provided. The following table presents revenue by geographic area for the Company for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | | 2023 | | % | | 2022 | | % | | 2021 | | % |
| Revenue by Geographic Area | | | | | | | | | | | | |
| United States | | $ | 2,540 | | | 67 | % | | $ | 2,560 | | | 67 | % | | $ | 2,367 | | | 65 | % |
| Americas (excluding United States) | | 281 | | | 7 | % | | 254 | | | 7 | % | | 226 | | | 6 | % |
| Europe, Middle East and Africa | | 653 | | | 17 | % | | 594 | | | 16 | % | | 643 | | | 17 | % |
| Asia Pacific | | 356 | | | 9 | % | | 385 | | | 10 | % | | 456 | | | 12 | % |
| Total revenue | | $ | 3,830 | | | 100 | % | | $ | 3,793 | | | 100 | % | | $ | 3,692 | | | 100 | % |
The following table presents property, plant and equipment by geographic area as of Directors, amendments toDecember 31:
| | | | | | | | | | | | | | |
| In millions | | 2023 | | 2022 |
| Property, plant and equipment, net | | | | |
| United States | | $ | 177 | | | $ | 187 | |
| Americas (excluding United States) | | 2 | | | 2 | |
| Europe, Middle East and Africa | | 29 | | | 32 | |
| Asia Pacific | | 4 | | | 6 | |
| Consolidated property, plant and equipment, net | | $ | 212 | | | $ | 227 | |
Concentrations One customer accounted for approximately 13% and 10% of our consolidated operating revenues during the Company’s organizational documentsyears ended December 31, 2023 and 2022, respectively, and is included in our Retail segment. No customer accounted for more than 10% of our consolidated operating revenues during the year ended December 31, 2021. As of December 31, 2023, 2022, and 2021, the Company is not aware of any other significant concentration of business transacted with a particular customer that could, if suddenly eliminated, have ana material adverse effect on the Series Company’s operations. NCR Voyix does not have 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 Convertible Preferred Stocknumber of NCR Voyix’s products, systems and issuances by thesolutions rely primarily on specific suppliers for microprocessors and other component products, manufactured assemblies, operating systems, commercial software and other central components. The Company of securitiesalso utilizes contract manufacturers in order to complete manufacturing activities. There can be no assurances that are senior to, or equal in priority with, the Series A Convertible Preferred Stock.
Registration Rights Holders of Series A Convertible Preferred Stock have certain customary registration rights with respectany sudden impact to the Series A Convertible Preferred Stock andavailability or cost of these technologies or services would not have a material adverse effect on the sharesCompany’s operations.
5.6. DEBT OBLIGATIONS
The following table summarizes the Company'sCompany’s short-term borrowings and long-term debt:
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| 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) | $ | 15 | | 8.46% | | $ | 100 | | 6.54% |
| | | | | |
Other(1) | — | | 7.38% | | 1 | | 7.05% |
| Total short-term borrowings | $ | 15 | | | | $ | 101 | | |
| Long-Term Debt | | | | | |
| Senior Secured Credit Facility: | | | | | |
| Term loan facilities(1) | $ | 185 | | 8.46% | | $ | 1,778 | | 6.69% |
| Revolving credit facility(1) | 98 | | 9.07% | | 523 | | 6.79% |
| Senior Notes: | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| 5.750% Senior Notes due 2027 | — | | | | 500 | | |
| 5.000% Senior Notes due 2028 | 650 | | | | 650 | | |
| 5.125% Senior Notes due 2029 | 1,200 | | | | 1,200 | | |
| 6.125% Senior Notes due 2029 | — | | | | 500 | | |
| 5.250% Senior Notes due 2030 | 450 | | | | 450 | | |
| Deferred financing fees | (20) | | | | (49) | | |
| | | | | |
| Total long-term debt | $ | 2,563 | | | | $ | 5,552 | | |
|
| | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| 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) | $ | 51 |
| 3.21% | | $ | 45 |
| 2.88% |
| Trade Receivables Securitization Facility | — |
|
| | — |
| |
Other (2) | 1 |
| 3.71% | | 5 |
| 7.41% |
| | Total short-term borrowings | $ | 52 |
| | | $ | 50 |
| |
| Long-Term Debt | | | | | |
| Senior Secured Credit Facility: | | | | | |
| | Term loan facility (1) | $ | 759 |
| 3.21% | | $ | 821 |
| 2.88% |
| | Revolving credit facility (1) | — |
|
| | — |
| |
| Senior Notes: |
|
| | | | |
| | 5.00% Senior Notes due 2022 | 600 |
| | | 600 |
| |
| | 4.625% Senior Notes due 2021 | 500 |
| | | 500 |
| |
| | 5.875% Senior Notes due 2021 | 400 |
| | | 400 |
| |
| | 6.375% Senior Notes due 2023 | 700 |
| | | 700 |
| |
| Deferred financing fees | (23 | ) | | | (29 | ) | |
Other (2) | 3 |
| 1.62% | | 9 |
| 6.64% |
| | Total long-term debt | $ | 2,939 |
| | | $ | 3,001 |
| |
| |
(1)
| Interest rates are weighted average interest rates as of December 31, 2017 and 2016. |
| |
(2)
| Interest rates are weighted average interest rates as of December 31, 2017 and 2016 primarily related to various international credit facilities and a note payable in the U.S. |
(1)Interest rates are weighted average interest rates as of December 31, 2023 and 2022.
Senior Secured Credit Facility FacilitiesOn March 31, 2016,October 16, 2023, the Company amended and restated itsentered into a new senior secured credit facilityagreement, with and among certain foreign subsidiaries of NCR (the Foreign Borrowers),the Company party thereto as foreign borrowers, the lenders party thereto and JPMorgan Chase Bank NA (JPMCB)of America, N.A., as the administrative agent and refinanced its term loan facility and revolving(in such capacity, the “Administrative Agent”). This credit facility thereunder (the Senior Secured Credit Facility). As of December 31, 2017, the Senior Secured Credit Facility consisted of a term loan facility with an aggregate principal amount outstanding of $810 million and a revolvingagreement provides for new senior secured credit facility withfacilities in an aggregate principal amount of $1,100$700 million, which are comprised of which zero was outstanding. The(i) a five-year multicurrency revolving credit facility also allowsin the aggregate principal amount of $500 million (including (a) a portionletter of the availabilitycredit sub-facility in an aggregate principal amount of up to be used$51 million and (b) a sub-facility in an aggregate principal amount of up to $200 million for outstandingborrowings and letters of credit in certain agreed foreign currencies) (the “Revolving Credit Facility,” and asthe loans thereunder, the “Revolving Loans”) and (ii) a five-year term loan “A” facility in the aggregate principal amount of December 31, 2017, there were no letters of credit outstanding.$200 million (the “Term Loan A Facility,” and the loans thereunder, the “Term A Loans” and, the Term Loan A Facility, together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”).
Up to $400 million of the revolving credit facility is available to the Foreign Borrowers. 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 ofTerm A Loans and the term loan facility is required to be repaid in equal quarterly installments of approximately $11 million beginning June 30, 2016, $17 million beginning June 30, 2018, and $23 million beginning June 30, 2019, withRevolving Loans (collectively, the balance being due at maturity on March 31, 2021. Borrowings under the revolving portion of the credit facility are due March 31, 2021. Amounts outstanding under the Senior Secured Credit Facility“Loans”) bear interest at LIBORbased on SOFR (or in the case ofan alternative reference rate for amounts denominated in Euros, EURIBOR)a currency other than Dollars), or, at NCR’sthe Company’s option, in the case of amounts denominated in U.S. Dollars, at a base reference rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) JPMCB’sthe rate of interest last quoted by the Administrative Agent as its “prime rate” and (c) the one-month LIBORSOFR rate
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
plus 1.00% (the Base Rate)“Base Rate”), plus, in each case,as applicable, a margin ranging from 2.25% to 3.25% per annum for SOFR-based Loans and ranging from 1.25% to 2.25% for LIBOR-based loans that are either term loans or revolving loans and EURIBOR-based revolving loans and ranging from 0.25% to 1.25%per annum for Base Rate-based loans that are either term loans or revolving loans,Loans, in each case, depending on the Company’s consolidated leverage ratio.
The termsoutstanding principal balance of the Senior SecuredTerm Loan A Facility is required to be repaid in quarterly installments beginning with the first full fiscal quarter after the Closing Date in an amount equal to (i) 1.875% of the original principal amount of the Term A Loans during the first three years and (ii) 2.50% of the original principal amount of the Term A Loans during final two years. Any remaining outstanding balance will be due at maturity on the fifth anniversary of the Closing Date. The Revolving Credit Facility also require certain other feesis not subject to amortization and payments to be made by the Company, including a commitment feewill mature on the undrawn portionfifth anniversary of the revolving credit facility.Closing Date.
The obligations of the Company and Foreign Borrowers under the Senior Secured Credit FacilityFacilities are guaranteed by certain of the Company's wholly-owned domestic subsidiaries.Company’s material subsidiaries (the “Guarantors”). The obligations under the Senior Secured Credit FacilityFacilities and these guaranteesthe above described guarantee are secured by a first priority lien and security interest in certain equity interests owned by the Company and the guarantor subsidiariesGuarantors 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 subsidiaries,Company and the Guarantors, 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 includesFacilities contains customary representations and warranties, affirmative covenants, and negative covenants. The negative covenants that restrict or limit the ability of the CompanyCompany’s and its subsidiariessubsidiaries’ ability to, among other things, incur indebtedness;indebtedness, create liens on assets;the Company’s or its subsidiaries’ assets, engage in certain fundamental corporate changes, or changes to the Company's business activities; make investments;investments, sell or otherwise dispose of assets;assets, engage in sale-leaseback or hedging transactions; repurchase stock, pay dividends ortransactions, make similar distributions;restricted payments, repay other indebtedness;subordinated indebtedness, engage in certain affiliate transactions; ortransactions with affiliates and enter into agreements that restrictrestricting the Company's ability of the Company’s subsidiaries to createmake distributions to the Company or incur liens pay dividends or make loan repayments. on their assets.
The Senior Secured Credit FacilityFacilities also includescontains a financial covenantscovenant that requiredoes not permit the Company to maintain:
aallow its 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 December 31, 2017, (a) the sum of 4.25 and an amount (notSeptember 30, 2024, 4.75 to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00, (ii) in the case of any fiscal quarter ending after December 31, 2017 and on or following September 30, 2024 and prior to December 31, 2019, (a) the sum of 4.00 and an amount (notSeptember 30, 2025, 4.50 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 December 31, 2019,on or following September 30, 2025, 4.25 to 1.00, in each case subject, to (x) increases of 0.25 in connection with the sum of (a) 3.75 and an amount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00; and
an interest coverage ratio on the last dayconsummation of any material acquisition and applicable to the fiscal quarter greater than or equal to 3.50 to 1.00.
At December 31, 2017,in which such acquisition is consummated and the three consecutive fiscal quarters thereafter, and (y) a maximum consolidated leverage ratio under the Senior Secured Credit Facility was 4.35cap of 5.00 to 1.00.
The Senior Secured Credit FacilityFacilities 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.
ThePrior Senior Secured Credit Facility On the Closing Date, the Company may request, at any timerepaid all accrued and unpaid loans and other amounts due under the Company’s prior senior secured credit facility, originally dated as of August 22, 2011 (as amended, amended and restated, supplemented or modified), among the Company, as borrower, the lenders and issuing banks party thereto from time to time, but the lenders are not obligated to fund, the establishmentand JPMorgan Chase Bank, N.A., as administrative agent, and terminated all commitments and obligations thereunder.
The Company’s prior senior secured credit facilities provided for a senior secured term loan A facility in an initial aggregate principal amount of one or more incremental$1,305 million, a senior secured term loans and/orloan B facility in an initial aggregate principal amount of $750 million, and a revolving credit facilities (subject to the agreement of existing lenders or additional financial institutions to provide such term loans and/or revolving credit facilities)facility with commitments in an aggregate principal amount not to exceed the greater of (i) $1501,300 million, and (ii) such amount as would not (a) prior to the date that the Company obtains an investment grade rating cause the leverage ratio under the.
Atleos Senior Secured Credit Facility calculated onOn September 27, 2023, Atleos entered into a pro forma basis includingcredit agreement (the “Atleos Senior Secured Credit Facility”) with NCR Atleos Escrow Corporation (the “Escrow Issuer”), a wholly-owned subsidiary of Atleos, subsidiaries of Atleos that may become party thereto as foreign borrowers (if any), the incremental facilitylenders party thereto and assuming that it and the revolver are fully drawn, to exceed 2.50 to 1.00, and (b) on and after the date that the Company obtains an "investment grade" rating cause the leverage ratio under theBank of America, N.A., as administrative agent. The Atleos Senior Secured Credit Facility calculated onprovides for new senior secured credit facilities in an aggregate principal amount of $2,085 million, which are comprised of (i) a pro forma basis includingfive-year multicurrency revolving credit facility in the incremental facilityaggregate principal amount of $500 million (including (a) a letters of credit sub-facility in an aggregate face amount of up to $75 million and assuming that it(b) a sub-facility in an aggregate principal amount of up to $200 million for borrowings and Letters of Credit in certain agreed foreign currencies) (the “Atleos Revolving Credit Facility”, and the revolver are fully drawn, to exceedloans thereunder, the “Atleos Revolving Loans”), (ii) a ratio that is 0.50 less thanfive-year term loan “A” facility in the leverage ratio then applicableaggregate principal amount of $835 million (the “Atleos Term Loan A Facility”, and the loans thereunder, the “Atleos Term A Loans”) and (iii) a five and a half-year term loan “B” facility in the aggregate principal amount of $750 million.
On October 16, 2023, the Escrow Issuer merged with and into Atleos (the “Escrow Merger”) and Atleos assumed the obligations of the Escrow Issuer under the financial covenantsAtleos Senior Secured Credit Facility. As of the consummation of the spin-off on October 16, 2023, the Atleos Senior Secured Credit Facility was no longer an obligation of the proceeds of which can be used for working capital requirements and other general corporate purposes.Company.
Senior Unsecured NotesOn September 17, 2012,August 21, 2019, the Company issued $600$500 million aggregate principal amount of 5.00%5.750% senior unsecured notes due in 20222027 (the 5.00% Notes). The 5.00% Notes were sold at 100% of the principal amount“5.750% Notes”) and will mature on July 15, 2022. On December 18, 2012, the Company issued $500$500 million aggregate principal amount of 4.625%6.125% senior unsecured notes due in 20212029 (the 4.625% Notes)“6.125% Notes”). The 4.625%On October 17, 2023, the Company redeemed the 5.750% Notes were soldin full at 100%a redemption premium of 101.438% of the aggregate principal amount thereof and will mature on February 15, 2021. the 6.125% Notes in full at a redemption premium of 103.074% of the aggregate principal amount thereof. As part of the debt extinguishment, the Company wrote-off deferred financing fees of $8 million and a cash redemption premium of $24 million.
On December 19, 2013,August 20, 2020, the Company issued $400$650 million aggregate principal amount of 5.875%5.000% senior unsecured notes due in 20212028 (the 5.875% Notes)“5.000% Notes”) and $700$450 million aggregate principal amount of 6.375%5.250% senior unsecured notes due in 20232030 (the 6.375% Notes)“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%, the proceeds of which were used solely for the acquisition of Digital Insight.respectively, on April 1 and October 1. The 5.875%5.000% and 5.250% Notes were sold at 100% of the principal amount and will mature on December 15, 2021October 1, 2028 and October 1, 2030, respectively.
At any time and from time to time, prior to October 1, 2023, the 6.375%Company may redeem up to a maximum of 40% of the original aggregate principal amount of either the 5.000% Notes were soldor 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% Notes 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 and will mature on December 15, 2023. The senior unsecured notes are guaranteed, fully and unconditionally, on an unsecured
NCR Corporation
the Notes to Consolidated Financial Statements-(Continued)
senior basis, by our 100% owned subsidiary, NCR International, Inc. Underbe redeemed plus the indentures for these notes,Applicable Premium, as defined in the Company hasindenture governing the option to redeem eachapplicable series of notes, in whole or in part, at various times for specified prices, plus accrued and unpaid interest. Underinterest to, but excluding, the indentures for these notes,redemption date (subject to the Company hasright of holders of record of the optionNotes on the relevant record date to redeem each series of notes, in whole or in part, at various times for specified prices, plus accrued and unpaid interest.receive interest due on the relevant interest payment date).
The Company has the option to redeem the 5.00%5.000% Notes, in whole or in part, at any time on or after July 15, 2017,October 1, 2023, at a redemption price of 102.500%, 101.667%101.250%, 100.833% and 100.000%100% during the 12-month periods commencing on July 15, 2017, 2018, 2019October 1, 2023, 2024 and 20202025 and thereafter, respectively, plus accrued and unpaid interest to the redemption date.
The Company has the option to redeem the 4.625%5.250% Notes, in whole or in part, at any time on or after February 15, 2017,October 1, 2025, at a redemption price of 102.313%102.625%, 101.156%101.750%, 100.875%, and 100% during the 12-month periods commencing on February 15, 2017, 2018October 1, 2025, 2026, 2027 and 20192028 and thereafter, respectively, plus accrued and unpaid interest to the redemption date.
On April 6, 2021, the Company issued $1.2 billion aggregate principal amount of 5.125% senior notes due 2029 (the “5.125% Notes”). Interest is payable on the 5.125% Notes semi-annually in arrears at annual rates of 5.125% on April 15 and October 15 of each year. The Company has the option to redeem the 5.875%5.125% Notes in whole or in part, atwill mature on April 15, 2029.
At any time onand from time to time, prior to April 15, 2024, the Company may redeem up to a maximum of 40% of the original aggregate principal amount of the 5.125% Notes with the proceeds of one or after December 15, 2017,more equity offerings, at a redemption price equal to 105.125% of 102.938%, 101.469% and 100% during the 12-month periods commencing on December 15, 2017, 2018 and 2019 and thereafter, respectively,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 applicable 5.125% Notes remains outstanding; and (ii) such redemption date.occurs within 180 days of the completion of such equity offering.
The Company has the option to redeem the 6.375% Notes, in whole or in part, at any time on or after December 15, 2018, at a redemption price of 103.188%, 102.125%, 101.063% and 100% during the 12-month periods commencing on December 15, 2018, 2019, 2020 and 2021 and thereafter, respectively, plus accrued and unpaid interest to the redemption date. Prior to DecemberApril 15, 2018,2024, the Company may redeem some or all of the 6.375%5.125% Notes in whole or in part, atby paying a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus a make-whole premiumthe Applicable Premium, as defined in the indenture governing the 5.125% Notes, and accrued and unpaid interest to, but excluding, the applicable redemption date (subject to the right of holders of record of the applicable 5.125% Notes on the relevant record date to receive interest due on the relevant interest payment date).
On or after April 15 of the relevant year listed below, the Company may redeem some or all of the 5.125% Notes at the prices listed below, plus accrued and unpaid interest, if any, to, but not including, the redemption date.date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): 2024 at a redemption price of 102.563%, 2025 at a redemption price of 101.281% and 2026 and thereafter at a redemption price of 100%.
The termssenior unsecured notes are the Company’s senior unsecured obligations and are jointly and severally unconditionally guaranteed on a senior unsecured basis by the Company’s domestic material subsidiaries, subject to certain limitations, that guarantee the Company’s Senior Secured Credit Facilities pursuant to supplemental indentures governing each applicable series of senior unsecured notes. The indentures governing the senior unsecured notes contain customary events of default, including, among other things, payment default, exchange default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events. The indentures for thesegoverning the senior unsecured notes also contains customary high yield affirmative and negative covenants, including negative covenants that, among other things, limit the ability of the Company and certain of its subsidiariesrestricted subsidiaries’ ability 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 restrictionsindebtedness, create liens 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 allassets, engage in certain fundamental corporate changes or substantially allchanges to lines of business activities, make certain investments or material acquisitions, engage in sale-leaseback or hedging transactions, repurchase common stock, pay dividends or make similar distributions on capital stock, repay certain indebtedness, engage in certain affiliate transactions and enter into agreements that restrict their
ability to create liens, pay dividends or make loan repayments. If the Company's or such subsidiaries' assets. These covenants are subject to significant exceptions and qualifications. For example, if thesesenior unsecured notes are assigned an "investment grade"“investment grade” rating by Moody'sMoody’s or S&P and no default has occurred or is continuing, certain covenants will be terminated.
Trade Receivables Securitization Facility In November 2014,On September 27, 2023, the Escrow Issuer issued $1,350 million aggregate principal amount of 9.500% senior secured notes due in 2029 (the “Atleos Notes”). On October 16, 2023, upon consummation of the Escrow Merger, Atleos assumed the obligations of the Escrow Issuer under the indenture governing the Atleos Notes. As of the consummation of the Spin-Off on October 16, 2023, the Atleos Notes were no longer obligations of the Company establishedor any of its subsidiaries.
Other Debt:In connection with the completion of the Spin-Off, the Company was released from its obligations under the master loan agreement it had in place with Banc of America Leasing & Capital, LLC. All of the Company’s rights and obligations under the master loan agreement were assumed by NCR Atleos and a revolvingsubsidiary of NCR Atleos. Prior to such release and assignment, the master loan agreement provided the Company with a source of funding for specified ATM-as-a-Service (“ATMaaS”) contracts and the ATM equipment related to such contracts. Included within discontinued operations as of December 31, 2022, total debt outstanding under the financing program was $12 million with a weighted average interest rate of 7.21% and a weighted average term of 3.7 years.
Debt Maturities Maturities of debt outstanding, in principal amounts, at December 31, 2023 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the years ended December 31 | | |
| In millions | | Total | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter |
| Debt maturities | | $ | 2,578 | | | $ | 15 | | | $ | 16 | | | $ | 15 | | | $ | 19 | | | $ | 786 | | | $ | 1,727 | |
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, 2023 and 2022 was $2.47 billion and $5.25 billion, respectively. Management’s fair value estimates were based on quoted prices for recent trades of the Company’s long-term debt, quoted prices for similar instruments, and inquiries with certain investment communities.
7. TRADE RECEIVABLES FACILITY
The Company maintains a trade receivables securitization facility (the A/“T/R Facility) withFacility”) pursuant to which the Company’s wholly-owned, bankruptcy-remote subsidiary NCR Receivables LLC (the “U.S. SPE”) may sell certain trade receivables acquired by it from the Company and other affiliates of the Company to PNC Bank, National Association, (PNC) asMUFG Bank, Ltd. and any other unaffiliated purchasers from time to time party to the administrative agent,T/R Facility (the “Purchasers”). The T/R Facility was most recently amended on October 16, 2023 in connection with the Spin-Off in order to, among other things, (i) extend the scheduled maturity by two years, (ii) provide for the repurchase by each of Cardtronics USA, Inc., ATM National, LLC and various lenders. In November 2016,Cardtronics Canada Holdings Inc. (the “Released Originators”) of its outstanding receivables then subject to the T/R Facility, (iii) assign to the Company amendedand NCR Canada Corp., as applicable, all obligations of the A/Released Originators under the T/R Facility and release each such Released Originator from all of its obligations thereunder, and (iv) adjust the factors used to extend the maturity date to November 2018. The A/R Facility provides for up to $200 million in funding based ondetermine the availability of eligiblecapital for investment in the pool of receivables and other customary factors and conditions. by Purchasers.
Under the A/T/R Facility, NCR sells and/or contributes certainthe Company and one of its U.S.Canadian operating subsidiaries continuously sell their trade receivables to a wholly-owned, bankruptcy-remote subsidiary as they are originated and advances byto the lenders to that subsidiary are secured by those trade receivables. TheU.S. SPE or a Canadian bankruptcy-remote special purpose entity (collectively with the U.S. SPE, the “SPEs”), as applicable. None of the assets or credit 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 notSPEs is available to satisfy the debts and obligations owed to the creditors of the Company.Company or any other person until the obligations of the SPEs under the T/R Facility have been satisfied. In addition, the obligations of the SPEs under T/R Facility are solely the obligations of the SPEs and not of any other person, and such obligations are generally payable out of collections on the trade receivables owned by such SPEs. The Company includescontrols and therefore consolidates the assets, liabilities and results of operations of this financing subsidiarySPEs in its consolidated financial statements.
As cash is collected on the trade receivables sold to the Purchasers, the U.S. SPE has the ability to continuously transfer ownership and control of new qualifying trade receivables to the Purchasers such that the total outstanding balance of trade receivables sold to the Purchasers can be up to $300 million at any point in time, which is the maximum purchase commitment of the Purchasers under the T/R Facility. The financing subsidiary owned $491future outstanding balance of trade receivables that are sold by the U.S. SPE to the Purchasers is expected to vary based on the level of activity and other factors and could be less than the maximum purchase commitment of $300 million. The total outstanding balance of trade receivables that were sold to the Purchasers and derecognized by the U.S. SPE was approximately $288 million and $426$300 million, of outstanding accounts receivablerespectively, as of December 31, 20172023 and 2016,December 31, 2022. Excluding the trade receivables sold to the Purchasers, the SPEs also collectively owned $107 million and
$224 million of additional trade receivables as of December 31, 2023 and December 31, 2022, respectively, and these amounts are included in accountsAccounts receivable, net in the Company’s Consolidated Balance Sheets.
Upon the effectiveness of the T/R Facility, as amended, the Company received a benefit from cash from operations of approximately $300 million in the year ended December 31, 2021. Continuous cash activity related to the T/R Facility is reflected in Net cash provided by operating activities in the Consolidated Statements of Cash Flows. The U.S. SPE incurs fees under the T/R Facility, including fees due and payable to the Purchasers. Those fees, which are immaterial, are recorded within Other income (expense), net in the Consolidated Statements of Operations. In addition, each of the SPEs has provided a full recourse guarantee in favor of the Purchasers of the full and timely payment of all trade receivables sold to them by the U.S. SPE. The guarantee is secured by all the trade receivables owned by each of the SPEs that have not been sold to the Purchasers. The reserve recognized for this recourse obligation as of December 31, 2023 and 2022 is not material.
The financing subsidiary will pay annual commitment and other customary feesCompany, or in the case of any Canadian trade receivables, NCR Canada Corp., continues to be involved with the trade receivables even after they are transferred to the lenders,SPEs (or further transferred to the Purchasers) by acting as servicer. In addition to any obligations as servicer, the Company and advances by a lendereach of its subsidiaries that may from time to time act as an originator under the A/T/R Facility provide the SPEs with customary recourse in respect of (i) certain dilutive events with respect to the trade receivables sold to the SPEs that are caused by the Company or other applicable originators and (ii) in the event of certain violations by the Company or other applicable originators of their respective representations and warranties with respect to the trade receivables sold to the SPEs. The Company guarantees that any of its subsidiaries (other than the SPEs) party to the T/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 lenderduly and punctually perform its obligations under the termsT/R Facility (whether as servicer or as originator). These servicing and originator liabilities of the A/Company and any such subsidiaries (other than the SPEs) under the T/R Facility or (ii) based on commercial paper interest rates ifare not expected to be material given the lender is funding as a commercial paper conduit lender. Advances may be prepaid at any time without premium or penalty.high quality of the customers underlying the receivables and the anticipated short collection period.
The A/T/R Facility contains variousincludes other customary representations and warranties, affirmative and negative covenants and default and termination provisions, which provide for the acceleration of amounts owed to the advances under the A/R FacilityPurchasers thereunder in circumstances including, but not limited to, failure to pay interestcapital or principalyield on 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, 2017 are summarized below:
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | For the years ended December 31 | | |
| In millions | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter |
| Debt maturities | | $ | 3,014 |
| | $ | 52 |
| | $ | 84 |
| | $ | 90 |
| | $ | 1,485 |
| | $ | 600 |
| | $ | 703 |
|
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, 2017 and 2016 was $3.07 billion and $3.16 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.
6.8. INCOME TAXES
On December 22, 2017, the U.S. enacted comprehensive and complex tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”). The legislation included changes that impacted 2017, including but not limited to, a permanent reduction in the corporate tax rate to 21% and a one-time mandatory tax on certain undistributed earnings of foreign subsidiaries (“repatriation tax”).
U.S. Tax Reform also puts in place several new tax laws that are generally effective prospectively from January 1, 2018, including but not limited to: a base erosion and anti-abuse tax; elimination of U.S. federal taxes on substantially all dividends from foreign subsidiaries; a lower U.S. tax rate on certain revenues from sources outside the U.S.; and, implementation of a new provision to tax certain global intangible low-taxed income of foreign subsidiaries.
U.S. GAAP generally requires that the overall impact of tax legislation is recorded in the quarter of enactment. However, given the fundamental complexity of U.S. Tax Reform, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) that allows the Company to record provisional amounts for the impacts of the legislation, with the requirement that the accounting be completed in a period not to exceed one year from the date of enactment of the legislation. As of December 31, 2017, the Company has not completed the accounting in its entirety for the tax effects of the legislation. However, the Company was able to make a reasonable estimate of the impact of U.S. Tax Reform and we have recorded a provisional tax expense of $130 million in the year ended December 31, 2017. This provisional tax expense includes a $94 million tax expense to remeasure the net U.S. deferred tax assets to the newly enacted 21% corporate income tax rate. We believe this calculation is complete except for changes in estimates that can result from finalizing the filing of our 2017 U.S. corporate income tax return, as well as changes that may be a direct impact of other provisional amounts recorded due to the enactment of U.S. Tax Reform. The net provisional tax expense also includes a $36 million tax expense related to the repatriation tax. We believe that our preliminary calculations result in a reasonable estimate of the repatriation tax and related foreign tax credits and, as such, have included those amounts in our year-end income tax provision. As the analysis of accumulated foreign earnings and profits, related foreign tax paid, and state tax consequences are completed, we will update our provisional estimate of the repatriation tax in future periods.
The Company continues to evaluate the realizability of deferred tax assets for foreign tax credit carryforwards under U.S. Tax Reform. Due to the complexity associated with changes to the foreign tax credit laws, we have determined that the accounting is incomplete pursuant to SAB 118 and we have reverted to tax law that existed prior to U.S. Tax Reform. Specifically, we are still evaluating the impact on our future foreign tax credit limitations for our branches and other foreign tax credit carryforwards when applying new laws incorporated within U.S. Tax Reform. Based on prior law that existed before U.S. Tax Reform, the Company concluded that its available foreign tax credits are fully realizable.
We also continue to evaluate our intention concerning future repatriation of earnings from our foreign subsidiaries; however, due to the inability to evaluate the overall impact of U.S. Tax Reform to our organization, we have determined that the accounting is incomplete pursuant to SEC guidance and we have reverted to tax law that existed prior to U.S. Tax Reform. As such, NCR did not provide for additional U.S. income tax or foreign withholding taxes, if any, beyond the repatriation tax in 2017, on approximately $2.5 billion of undistributed earnings of its foreign subsidiaries as such earnings are intended to be reinvested indefinitely unless it is determined future repatriation would give rise to little or no net tax costs. Due to the complexities in the tax laws, the assumptions that we would have to make and the availability and calculation of associated foreign tax credits, it is not practicable to determine the amount of the related unrecognized deferred income tax liability associated with these undistributed earnings.
Completion of our accounting concerning future repatriation of earnings from our foreign subsidiaries and the realizability of foreign tax credits could lead to a material increase or decrease in our effective tax rate during 2018.
For the years ended December 31, income (loss) from continuing operations before income taxes consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| In millions | | 2023 | | 2022 | | 2021 |
| Income (loss) before income taxes | | | | | | |
| United States | | $ | (323) | | | $ | (212) | | | $ | (260) | |
| Foreign | | (59) | | | 81 | | | (7) | |
| Total income (loss) from continuing operations before income taxes | | $ | (382) | | | $ | (131) | | | $ | (267) | |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | |
| In millions | | 2017 | | 2016 | | 2015 |
| Income (loss) before income taxes | | | | | | |
| United States | | $ | 149 |
| | $ | 35 |
| | $ | (24 | ) |
| Foreign | | 333 |
| | 344 |
| | (71 | ) |
| Total income (loss) from continuing operations before income taxes | | $ | 482 |
| | $ | 379 |
| | $ | (95 | ) |
For the years ended December 31, income tax expense (benefit) consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| In millions | | 2023 | | 2022 | | 2021 |
| Income tax expense (benefit) | | | | | | |
| Current | | | | | | |
| Federal | | $ | 26 | | | $ | 1 | | | $ | 5 | |
| State | | 3 | | | 3 | | | 3 | |
| Foreign | | 35 | | | 30 | | | 36 | |
| Deferred | | | | | | |
| Federal | | (32) | | | (3) | | | 62 | |
| State | | (6) | | | (2) | | | (10) | |
| Foreign | | 178 | | | 43 | | | (26) | |
| Total income tax expense (benefit) | | $ | 204 | | | $ | 72 | | | $ | 70 | |
|
| | | | | | | | | | | | |
| In millions | | 2017 | | 2016 | | 2015 |
| Income tax expense (benefit) | | | | | | |
| Current | | | | | | |
| Federal | | $ | 14 |
| | $ | 18 |
| | $ | (7 | ) |
| State | | 2 |
| | 4 |
| | 1 |
|
| Foreign | | 54 |
| | 60 |
| | 37 |
|
| Deferred | | | | | |
|
| Federal | | 178 |
| | 12 |
| | 23 |
|
| State | | (3 | ) | | 1 |
| | (6 | ) |
| Foreign | | (3 | ) | | (3 | ) | | 7 |
|
| Total income tax expense (benefit) | | $ | 242 |
| | $ | 92 |
| | $ | 55 |
|
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 | | 2023 | | 2022 | | 2021 |
| Income tax (benefit) expense at the U.S. federal tax rate of 21% | | $ | (80) | | | $ | (28) | | | $ | (56) | |
| Foreign income tax differential | | 1 | | | (8) | | | 13 | |
| Additional U.S. tax on foreign income | | 9 | | | (2) | | | 4 | |
| State and local income taxes (net of federal effect) | | (2) | | | 1 | | | (5) | |
| Other U.S. permanent book/tax differences | | 5 | | | 4 | | | 4 | |
| Meals and entertainment expense | | 2 | | | 1 | | | 1 | |
| Nondeductible transaction costs | | 2 | | | 1 | | | — | |
| Nondeductible executive compensation | | 17 | | | 9 | | | 13 | |
| | | | | | |
| Dispositions | | 16 | | | — | | | — | |
| Spin-off of NCR Atleos | | 226 | | | — | | | — | |
| Gains/losses on internal entity restructuring | | — | | | — | | | 55 | |
| | | | | | |
| Excess (benefit)/deficit from share-based payments | | 2 | | | — | | | (11) | |
| Change in branch tax status | | — | | | — | | | 1 | |
| Research and development tax credits | | (2) | | | (5) | | | (5) | |
| Foreign tax law changes | | (8) | | | 3 | | | (14) | |
| Valuation allowances | | 20 | | | 103 | | | 56 | |
| Change in liability for unrecognized tax benefits | | 3 | | | (15) | | | — | |
| Change in tax estimates for prior periods | | (5) | | | 4 | | | 17 | |
| Other, net | | (2) | | | 4 | | | (3) | |
| Total income tax (benefit) expense | | $ | 204 | | | $ | 72 | | | $ | 70 | |
|
| | | | | | | | | | | | |
| In millions | | 2017 | | 2016 | | 2015 |
| Income tax expense (benefit) at the U.S. federal tax rate of 35% | | $ | 169 |
| | $ | 133 |
| | $ | (33 | ) |
| Foreign income tax differential | | (38 | ) | | (26 | ) | | 33 |
|
| U.S. permanent book/tax differences | | 2 |
| | — |
| | (5 | ) |
| Tax audit settlements | | — |
| | — |
| | (10 | ) |
| Change in liability for unrecognized tax benefits | | (2 | ) | | (12 | ) | | (7 | ) |
| Nondeductible transaction costs | | — |
| | — |
| | (1 | ) |
| Goodwill impairment | | — |
| | — |
| | 5 |
|
| U.S. valuation allowance | | — |
| | — |
| | (3 | ) |
| U.S. manufacturing deduction | | (9 | ) | | (7 | ) | | — |
|
| Settlement of UK London pension plan | | — |
| | — |
| | 77 |
|
| U.S. Tax Reform | | 130 |
| | — |
| | — |
|
| Employee share-based payments | | (8 | ) | | — |
| | — |
|
| Other, net | | (2 | ) | | 4 |
| | (1 | ) |
| Total income tax expense (benefit) | | $ | 242 |
| | $ | 92 |
| | $ | 55 |
|
NCR'sThe Company’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'subsidiaries’ tax losses due to the uncertainty of the ultimate realization of future benefits from these losses. During 2017, the2023, our tax rate was impacted by a provisional chargenet $226 million expense related to the Spin-Off of $130 million relating to U.S. Tax Reform. During 2016, theNCR Atleos. Also during 2023, our tax rate was impacted by a less favorable mix of earnings, primarily driven by actuarial pension losses in foreign jurisdictions with$20 million expense from recording a valuation allowance against deferred tax assets.assets and a $17 million expense from nondeductible executive compensation. During 2015, there2022, our tax rate was no tax benefit recorded on the $427impacted by a $103 million charge related to the settlement of the UK London pension plan due toexpense from recording a valuation allowance against deferred tax assets in the United Kingdom. ReferKingdom and other jurisdictions. During 2021, our tax rate was impacted by a $56 million expense from recording a valuation allowance against deferred tax assets and a $55 million expense resulting from an internal entity restructuring.
As described in Note 1, “Basis of Presentation and Significant Accounting Policies”, on October 16, 2023, in connection with the Spin-Off, the Company completed a series of legal entity restructurings including both an internal and external spin-off transaction. These transactions are subject to Note 8, “Employee Benefit Plans” for additional discussion ontax laws in the settlementU.S. and non-U.S. jurisdictions, which resulted in the use of significant judgments by management as it pertains to the interpretation and application of tax laws in the U.S. and non-U.S. jurisdictions to determine the potential taxability of the UK London pension plan. Additionally, we favorably settled examinationstransactions. The Company recorded income tax expense of $226 million from continuing operations in its 2023 financial statements related to the Spin-Off transactions.
The Company did not provide additional U.S. income tax or foreign withholding taxes, if any, on approximately $258 million 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 Canada forthese indefinitely reinvested earnings is approximately $19 million. The unrecognized deferred tax years 2002 through 2006 that resulted inliability is made up of a tax benefitcombination of $10 million.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
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 athe 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. Given current earnings and anticipated future earnings at certain subsidiaries, the Company believes that there is a reasonable possibility sufficient positive evidence may become available that would allow the release of a valuation allowance within the next twelve months.
Deferred income tax assets and liabilities included in the Consolidated Balance Sheets as of December 31 were as follows:
| | | | | | | | | | | | | | |
| In millions | | 2023 | | 2022 |
| Deferred income tax assets | | | | |
| Employee pensions and other benefits | | $ | 7 | | | $ | 41 | |
| Other balance sheet reserves and allowances | | 200 | | | 205 | |
| Tax loss and credit carryforwards | | 245 | | | 346 | |
| Capitalized research and development | | 51 | | | 30 | |
| Property, plant and equipment | | 17 | | | 18 | |
| Lease liabilities | | 56 | | | 70 | |
| Capitalized software | | 15 | | | — | |
| Other | | 26 | | | 25 | |
| Total deferred income tax assets | | $ | 617 | | | $ | 735 | |
| Valuation allowance | | (211) | | | (274) | |
| Net deferred income tax assets | | $ | 406 | | | $ | 461 | |
| Deferred income tax liabilities | | | | |
| Intangibles | | $ | 119 | | | $ | 41 | |
| Right of use assets | | 57 | | | 72 | |
| Capitalized software | | — | | | 19 | |
| | | | |
| Total deferred income tax liabilities | | $ | 176 | | | $ | 132 | |
| Total net deferred income tax assets | | $ | 230 | | | $ | 329 | |
|
| | | | | | | | |
| In millions | | 2017 | | 2016 |
| Deferred income tax assets | | | | |
| Employee pensions and other benefits | | $ | 230 |
| | $ | 313 |
|
| Other balance sheet reserves and allowances | | 185 |
| | 251 |
|
| Tax loss and credit carryforwards | | 525 |
| | 578 |
|
| Capitalized research and development | | 50 |
| | 99 |
|
| Property, plant and equipment | | 6 |
| | 6 |
|
| Other | | 27 |
| | 38 |
|
| Total deferred income tax assets | | 1,023 |
| | 1,285 |
|
| Valuation allowance | | (415 | ) | | (445 | ) |
| Net deferred income tax assets | | 608 |
| | 840 |
|
| Deferred income tax liabilities | | | | |
| Intangibles | | 129 |
| | 239 |
|
| Capitalized software | | 27 |
| | 43 |
|
| Other | | 16 |
| | 7 |
|
| Total deferred income tax liabilities | | 172 |
| | 289 |
|
| Total net deferred income tax assets | | $ | 436 |
| | $ | 551 |
|
NCRThe Company has previously recorded valuation allowances related to certain deferred income 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, primarilyincluding tax loss carryforwards, interest expense carryforwards, and foreign tax credits in tax jurisdictions where there is uncertainty as to the ultimate realization of a benefit from those tax losses.assets. If we are unable to generate sufficient future 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 allowanceallowances could be required.
As of December 31, 2017, NCR2023, the Company had U.S. federal, U.S. state (tax effected), and foreign tax attribute carryforwards of approximately $1.5 billion.$622 million. The net operating loss carryforwards that are subject to expiration will expire in the years 20182024 through 2036. This includes2040. The attributes include U.S. tax credit carryforwards of $179 million. Approximately $21$105 million, of the credit carryforwards do not expire, and $158 million of the credit carryforwardswhich expire in the years 20182024 through 2037. 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.2043.
The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| In millions | | 2023 | | 2022 | | 2021 |
| Gross unrecognized tax benefits - January 1 | | $ | 87 | | | $ | 121 | | | $ | 103 | |
| Increases related to tax positions from prior years | | 1 | | | 3 | | | 25 | |
| Decreases related to tax positions from prior years | | (1) | | | (15) | | | (4) | |
| Increases related to tax provisions taken during the current year | | 2 | | | 7 | | | 7 | |
| Settlements with tax authorities | | — | | | (22) | | | (2) | |
| Lapses of statutes of limitation | | (1) | | | (7) | | | (8) | |
| Distributions to NCR Atleos | | $ | (30) | | | $ | — | | | $ | — | |
| Total gross unrecognized tax benefits - December 31 | | $ | 58 | | | $ | 87 | | | $ | 121 | |
|
| | | | | | | | | | | | |
| In millions | | 2017 | | 2016 | | 2015 |
| Gross unrecognized tax benefits - January 1 | | $ | 183 |
| | $ | 209 |
| | $ | 248 |
|
| Increases related to tax positions from prior years | | 3 |
| | 3 |
| | 17 |
|
| Decreases related to tax positions from prior years | | (1 | ) | | (34 | ) | | (37 | ) |
| Increases related to tax provisions taken during the current year | | 23 |
| | 23 |
| | 35 |
|
| Settlements with tax authorities | | (4 | ) | | (6 | ) | | (33 | ) |
| Lapses of statutes of limitation | | (8 | ) | | (12 | ) | | (21 | ) |
| Total gross unrecognized tax benefits - December 31 | | $ | 196 |
| | $ | 183 |
| | $ | 209 |
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Of the total amount of gross unrecognized tax benefits as of December 31, 2017, $972023, $44 million would affect NCR’sthe Company’s effective tax rate if realized. The Company’s liability arising from uncertain tax positions is recorded in incomeIncome tax accruals and otherOther 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 $2$4 million of expense, zero, and $4$1 million of benefit, and zero for the years ended December 31, 2017, 2016,2023, 2022, and 2015,2021, respectively. The gross amount of interest and penalties accrued as of December 31, 20172023 and 20162022 was $45$18 million and $41$26 million, respectively.
In the U.S., NCRUnited States, the Company files consolidated federal and state income tax returns where statutes of limitations generally range from three to five years. The Company resolved examinations for the tax years of 2009 and 2010 withIn 2022, the IRS in 2014, andcommenced an examination of our 2019 income tax return, which is ongoing. U.S. federal tax years remain open from 20112019 forward. In 2014, the IRS commenced an examination of our 2011, 2012, and 2013 income tax returns, which is ongoing. Years beginning on or after 20012010 are still open to examination by certain foreign taxing authorities.
The Company engages in discussions and negotiations with taxing authorities including India, Korea,regarding tax matters, and other major taxing jurisdictions.
During 2018, the Company has determined that over the next 12 months it expects to resolve certain tax matters related to U.S. and foreign jurisdictions. As a result, as of December 31, 2017,2023, we estimate that it is reasonably possible that unrecognized tax benefits may decrease by $35$6 million to $40$8 million in the next 12 months due to the resolution of these tax matters.months.
7.9. STOCK COMPENSATION PLANS
As disclosed in Note 1, “Basis of Presentation and Significant Accounting Policies”, outstanding restricted stock units and stock options were adjusted to maintain the economic value of those awards before and after the Spin-Off. Generally, continuing NCR Voyix employees retained the number of outstanding restricted stock units held by them as of the Spin-Off and received additional NCR Voyix restricted stock units to reflect the Spin-Off, while continuing NCR Atleos employees had their outstanding restricted stock units held by them as of the Spin-Off converted solely into equivalent restricted stock units of NCR Atleos, and any outstanding restricted stock units held by them as of the Spin-Off were cancelled. Outstanding stock options at the time of the Spin-Off, regardless of the holder, were converted into stock options of both NCR Voyix and NCR Atleos. In addition, outstanding restricted stock units held by certain key equity holders as of the Spin-Off (including directors and certain former employees) were converted into restricted stock units of both NCR Voyix and NCR Atleos. The share information included below has been adjusted for the Spin-Off. The modification of the Company’s awards did not result in material stock-based compensation cost during the year ended December 31, 2023.
The Company recognizes all share-based payments as compensation expense in its financial statements based on their fair value.
As of December 31, 2017,2023, the Company’s stock-based compensation consisted of restricted stock units, employee stock purchase plan and an insignificant amount of stock options. The Company recorded stock-based compensation expense in income (loss) from continuing operations for the years ended December 31 as follows:
| | | | | | | | | | | | | | | | | |
| In millions | 2023 | | 2022 | | 2021 |
| Restricted stock units | $ | 141 | | | 66 | | | 93 | |
| Stock options | 3 | | | 15 | | | 20 | |
| Employee stock purchase plan | 6 | | | 9 | | | 8 | |
| Stock-based compensation expense | $ | 150 | | | $ | 90 | | | $ | 121 | |
| Tax benefit | (7) | | (5) | | | (8) | |
| Total stock-based compensation (net of tax) | $ | 143 | | | 85 | | | 113 | |
|
| | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Restricted stock units | $73 | | $61 | | $42 |
| Employee stock purchase plan | 4 | | — | | — |
| Stock-based compensation expense | 77 | | 61 | | 42 |
| Tax benefit | (22) | | (18) | | (13) |
| Total stock-based compensation (net of tax) | $55 | | $43 | | $29 |
Approximately 2539 million shares (i) remain authorized to be issuedavailable for future issuance and (ii) are issuable upon the exercise or settlement of outstanding awards under the 20132017 Stock Incentive Plan (SIP)(“SIP”). Details of the Company'sCompany’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, 2017:2023:
| | | | | | | | | | | | | | |
| Shares in thousands | | Number of Units | | Weighted Average Grant-Date Fair Value per Unit |
| Unvested shares as of January 1 | | 15,676 | | | $ | 17.93 | |
| Shares granted | | 3,859 | | | $ | 16.25 | |
| Shares vested | | (7,351) | | | $ | 19.75 | |
| Shares forfeited | | (1,094) | | | $ | 18.58 | |
| Awards transferred to Atleos at Spin-Off | | (3,868) | | | $ | 15.94 | |
| Unvested shares as of December 31 | | 7,222 | | | $ | 19.86 | |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | |
| Shares in thousands | | Number of Units | | Weighted Average Grant-Date Fair Value per Unit |
| Unvested shares as of January 1 | | 7,469 |
| | $ | 24.70 |
|
| Shares granted | | 2,211 |
| | $ | 46.95 |
|
| Shares vested | | (1,989 | ) | | $ | 30.23 |
|
| Shares forfeited | | (533 | ) | | $ | 28.12 |
|
| Unvested shares as of December 31 | | 7,158 |
| | $ | 29.78 |
|
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 NCRthe Company’s common stock was $87$132 million in 2017, $422023, $121 million in 2016,2022, and $44$92 million in 2015.2021. As of December 31, 2017,2023, there was $98$49 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.year. The weighted average grant date fair value for restricted stock unit awards granted in 20162022 and 20152021 was $20.45$35.08 and $29.40,$34.00, respectively.
The following table represents the composition of restricted stock unit grants in 2017:2023:
| | | | | | | | | | | | | | |
| Shares in thousands | | Number of Units | | Weighted Average Grant-Date Fair Value |
| Service-based units | | 2,254 | | | $ | 13.44 | |
| Performance-based units | | 1,605 | | | $ | 20.32 | |
| Total restricted stock units | | 3,859 | | | $ | 16.25 | |
|
| | | | | | | |
| Shares in thousands | | Number of Units | | Weighted Average Grant-Date Fair Value |
| Service-based units | | 1,030 |
| | $ | 46.80 |
|
| Performance-based units | | 1,181 |
| | $ | 47.08 |
|
| Total restricted stock units | | 2,211 |
| | $ | 46.95 |
|
At December 31, 2017, certain ofOn February 13, 2023, the performance-based sharesCompany granted in 2017 were not probable of vesting.
During the first quarter of 2016, the Compensation and Human Resource Committee approved a special multi-year equity grant to a limited group of senior executives of the Company. These awards were performance based price-contingentmarket-based restricted stock units withvesting on December 31, 2025. The number of awards that vest are subject to the compound annual growth rate (“CAGR”) of the Company’s stock price from January 1, 2023 to December 31, 2025 (the “performance period”), subject to an alternative level of achievement based on the Company’s relative total shareholder return ranking among a comparison group. The fair value of the awards was determined to be $35.04 per share based on using a Monte-Carlo simulation model and will be recognized over the requisite service period.
Approximately 50% of these market-based restricted stock units granted include an accelerated vesting provision if a Qualified Transaction, as defined in the award agreement, takes place during the performance period (with a minimum vesting period of 60 months. Vestingone year from the grant date). Upon the occurrence of these unitsa Qualified Transaction, the number of shares that vest are then based on the Company’s 20-day volume-weighted average closing stock price immediately preceding the transaction date. If a qualifying transaction is deemed probable, the award will be recognized over the adjusted requisite service period at a fair value determined using a Monte-Carlo simulation model ranging from $35.09 to $41.77 per unit, dependent upon the achievementestimated timing of target stock prices established by the Compensationtransaction. Transactions of this nature are subject to many variables that are highly uncertain, including the receipt of regulatory approvals and Human Resource Committee, which have since been achieved, and servicemarket conditions. The Company estimatedSpin-Off resulted in a Qualified Transaction and as such, these market-based restricted stock units were subject to accelerated vesting as defined in the fair value and derived service period usingaward agreement.
The table below details the Monte Carlo simulation option-pricing model. The Company amortizessignificant assumptions used in determining the fair value of these awards over the explicit service period of 36 to 48 months, which was longer than the derived service period, adjusted for estimated forfeitures. Provided that the explicit service period is rendered, the total fair value of the price-contingentmarket-based restricted stock units at the date of grant is recognized as compensation expense even if the market condition is not achieved. However, the number of units that ultimately vest can vary significantly with the performance of the specified market criteria.
The weighted-average assumptions used and the resulting estimates of fair value related to the multi-year equity grants described above were as follows:
granted on February 13, 2023: | | | | | |
| Dividend yield | — | % |
| Risk-free interest rate | 4.15 | % |
| Twelve months ended December 31, 2016 |
| Expected volatility | 33.9% |
Expected dividend yield55.90 | — |
Risk-free rate | 1.21% |
Weighted average fair value per share | $14.93% |
Expected volatility for these restricted stock units is based oncalculated as the historical volatility derived from NCRof the Company’s stock price movements over a period of approximately three years, as management believes this is the last 60 months.best representation of prospective trends. The risk-free interest rate was determined based upon theon a three year U.S. Treasury yield curve in effect at the time of the grant.
On February 25, 2022, the Company granted market-based restricted stock units vesting on December 31, 2024. The number of awards that vest are subject to the performance of the Company’s stock price from the date of grant withto December 31, 2024. The fair value was determined to be $57.67 per share based on using a remaining termMonte-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 60 months.the market-based restricted stock units.
| | | | | |
| |
| Dividend yield | — | % |
| Risk-free interest rate | 1.73 | % |
| Expected volatility | 59.26 | % |
Employee Stock Purchase Plan
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 three year U.S. Treasury yield curve in effect at the time of the grant.
Effective
On December 21, 2022, the Company granted market-based restricted stock units vesting on December 31, 2025. The number of awards that vest are subject to the compound annual growth rate (“CAGR”) of the Company’s stock price from January 1, 2017,2023 to December 31, 2025 (the “performance period”), subject to an alternative level of achievement based on the Company amended its Employee Stock Purchase Plan ("ESPP")Company’s relative total shareholder return ranking among a comparison group. The fair value of the awards was determined to provide employees a 15% discountbe $29.66 per share based on stock purchases using a three-month look-back feature whereMonte-Carlo simulation model and will be recognized over the discount is applied torequisite service period.
Approximately 50% of these market-based restricted stock units granted include an accelerated vesting provision if a Qualified Transaction, as defined in the stock priceaward agreement, takes place during the performance period (with a minimum vesting period of one year from the grant date). Upon the occurrence of a Qualified Transaction, the number of shares that represents
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
vest are then based on the lower of NCR’sCompany’s 20-day volume-weighted average closing stock price immediately preceding the transaction date. If a qualifying transaction is deemed probable, the award will be recognized over the adjusted requisite service period at a fair value determined using a Monte-Carlo simulation model ranging from $30.00 to $35.81 per unit, dependent upon the estimated timing of the transaction. Transactions of this nature are subject to many variables that are highly uncertain, including the receipt of regulatory approvals and market conditions. The Spin-Off resulted in a Qualified Transaction and as such, these market-based restricted stock units were subject to accelerated vesting as defined in the award agreement.
The table below details the significant assumptions used in determining the fair value of the market-based restricted stock units granted on eitherDecember 21, 2022:
| | | | | |
| Dividend yield | — | % |
| Risk-free interest rate | 3.90 | % |
| Expected volatility | 64.93 | % |
Expected volatility for these restricted stock units is calculated as the first day orhistorical volatility of the last dayCompany’s stock over a period of each calendar quarter. Participants can contribute between 1% and 10%approximately three years, as management believes this is the best representation of their compensation.prospective trends. The risk-free interest rate was determined based on a three year U.S. Treasury yield curve in effect at the time of the grant.
Employees purchased approximately 0.5 million shares in 2017, 0.3 million shares in 2016, and 0.3 million shares in 2015, for approximately $15 million in 2017, $7 million in 2016 and $7 million in 2015. A total of 4 million shares were originally authorized to be issued under the ESPP. In 2016, NCR stockholders approved our amended ESPP to be effective January 1, 2017. 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 10.4 million authorized shares remain unissued under our amended ESPP as of December 31, 2017.
Stock Options
The SIP also provides for the grant of stock options to purchase shares of NCRthe Company’s 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 NCRthe Company’s 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.
Stock-based compensation expense for options was computed using the Black-Scholes option-pricing model. During the years ended December 31, 2017, 20162023 and 2015,December 31, 2022, the Company did not grant a significant amount ofany stock options. During the year ended December 31, 2022, as discussed in Note 2, “Discontinued Operations”, the Company converted certain outstanding unvested LibertyX awards into the Company’s awards. LibertyX stock option awards were converted into the Company’s stock option awards with an exercise price per share for option awards equal to the exercise price per share of such stock option award immediately prior to the completion of the acquisition divided by the exchange ratio (as defined in the acquisition agreement), and vested immediately. The value of the option awards was deemed attributable to services already rendered and was included as a portion of the purchase price.
During the year ended December 31, 2021, as discussed in Note 2, “Discontinued Operations”, the Company converted certain outstanding unvested Cardtronics awards into the Company’s awards. Cardtronics stock option awards were converted into the Company’s stock option awards with an exercise price per share for option awards equal to the exercise price per share of such stock option award immediately prior to the completion of the acquisition divided by the exchange ratio (as defined in the acquisition agreement) and will continue to be governed generally by the same terms and conditions as were applicable prior to the acquisition. The fair value of options that the Company assumed in connection with the acquisition of Cardtronics were estimated using the Black-Scholes model.
The following table summarizes the Company’s stock option activity for the year ended December 31, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | 8,696 | | | $ | 19.57 | | | | | |
| Granted | | 470 | | | $ | 23.59 | | | | | |
| | | | | | | | |
| Exercised | | (122) | | | $ | 17.00 | | | | | |
| Forfeited or expired | | (248) | | | $ | 35.04 | | | | | |
| Awards transferred to Atleos at Spin-Off | | (470) | | | $ | 23.59 | | | | | |
| Outstanding as of December 31 | | 8,326 | | | $ | 19.09 | | | 2.30 | | $ | 4.44 | |
| Fully vested and expected to vest as of December 31 | | 8,326 | | | $ | 19.09 | | | 2.30 | | $ | 4.44 | |
| Exercisable as of December 31 | | 8,326 | | | $ | 19.09 | | | 2.30 | | $ | 4.44 | |
|
| | | | | | | | | | | | | |
| 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 | | 629 |
| | $ | 17.69 |
| | | | |
| Granted | | — |
| | $ | — |
| | | | |
| Exercised | | (117 | ) | | $ | 20.48 |
| | | | |
| Forfeited or expired | | (37 | ) | | $ | 21.54 |
| | | | |
| Outstanding as of December 31 | | 475 |
| | $ | 16.70 |
| | 1.87 | | $ | 8.2 |
|
| Fully vested and expected to vest as of December 31 | | 475 |
| | $ | 16.70 |
| | 1.87 | | $ | 8.2 |
|
| Exercisable as of December 31 | | 475 |
| | $ | 16.70 |
| | 1.87 | | $ | 8.2 |
|
As of December 31, 2023, there was no unrecognized compensation cost related to unvested stock option grants.
The total intrinsic value of all options exercised was $3$1 million in 2017, $62023, $7 million in 2016,2022, and $6$9 million in 2015.2021. Cash received from option exercises under all share-based payment arrangements was $2 million in 2017, $82023, $1 million in 2016,2022, and $8$25 million in 2015. The2021. There was $1 million and $2 million of tax benefits realized from option exercises in 2022 and 2021, respectively. There was no tax benefit realized from these exercisesstock options exercised in 2023.
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 the Company’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 $1 million in 2017, $2 millionapproved by the Company’s stockholders in 2016 and $2became effective January 1, 2017.
Employees purchased approximately 0.9 million shares in 2023, 1.3 million shares in 2022, and 0.8 million shares in 2021, for approximately $19 million in 2015.2023, $29 million in 2022 and $26 million in 2021. 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 4.6 million authorized shares remain unissued under our amended ESPP as of December 31, 2023.
10. EMPLOYEE BENEFIT PLANS
Pension Postretirement and Postemployment Plans NCR The Company sponsors defined benefit pension plans. NCR’sFollowing the Spin-Off, NCR Atleos assumed the U.S. and certain international pension plan assets and liabilities, along with the associated deferred costs in accumulated other comprehensive loss, which were previously sponsored by the Company. Pursuant to the terms of the Spin-Off transaction documents, the Company is required to contribute 50% of the annual costs of the NCR Atleos U.S. pension plan no longer offers additional benefits and is closed to new participants. the extent NCR Atleos contributes more than $40 million on an annual basis beginning with the plan year ending December 31, 2024.
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 new participants. NCR’sThe Company’s funding policy is to contribute annually no less than the minimum required by applicable laws and regulations. Assets of NCR’sthe Company’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.trusts.
NCRThe Company 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
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
postretirement and postemployment plans, changes to the funded status are recognized as a component of other comprehensive loss in stockholders'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 NCRthe Company generally does not provide postretirement benefits other than pensions to non-U.S. retirees. NCRThe Company generally funds these benefits on a pay-as-you-go basis.
NCRThe Company offers various postemployment benefits to involuntarily terminated and certain inactive employees after employment but before retirement. These benefits are paid in accordance with NCR’sthe Company’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. NCRThe Company 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'sthe Company’s pension plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | International Pension Benefits | | |
| In millions | | | | | | 2023 | | 2022 | | | | |
| Change in benefit obligation | | | | | | | | | | | | |
| Benefit obligation as of January 1 | | | | | | $ | 178 | | | $ | 249 | | | | | |
| Net service cost | | | | | | 2 | | | 2 | | | | | |
| Interest cost | | | | | | 6 | | | 2 | | | | | |
| | | | | | | | | | | | |
| Actuarial (gain) loss | | | | | | 15 | | | (43) | | | | | |
| Benefits paid | | | | | | (14) | | | (13) | | | | | |
| Settlements | | | | | | — | | | — | | | | | |
| Plan participant contributions | | | | | | — | | | — | | | | | |
| Currency translation adjustments | | | | | | 5 | | | (19) | | | | | |
| Benefit obligation as of December 31 | | | | | | $ | 192 | | | $ | 178 | | | | | |
| Accumulated benefit obligation as of December 31 | | | | | | $ | 191 | | | $ | 175 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Pension Benefits | | International Pension Benefits | | Total Pension Benefits |
| In millions | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Change in benefit obligation | | | | | | | | | | | | |
| Benefit obligation as of January 1 | | $ | 2,185 |
| | $ | 2,155 |
| | $ | 1,172 |
| | $ | 1,159 |
| | $ | 3,357 |
| | $ | 3,314 |
|
| Net service cost | | — |
| | — |
| | 8 |
| | 7 |
| | 8 |
| | 7 |
|
| Interest cost | | 71 |
| | 90 |
| | 20 |
| | 28 |
| | 91 |
| | 118 |
|
| Actuarial loss | | 121 |
| | 53 |
| | 43 |
| | 174 |
| | 164 |
| | 227 |
|
| Benefits paid | | (427 | ) | | (113 | ) | | (75 | ) | | (75 | ) | | (502 | ) | | (188 | ) |
| Plan participant contributions | | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
| Currency translation adjustments | | — |
| | — |
| | 104 |
| | (122 | ) | | 104 |
| | (122 | ) |
| Benefit obligation as of December 31 | | $ | 1,950 |
| | $ | 2,185 |
| | $ | 1,273 |
| | $ | 1,172 |
| | $ | 3,223 |
| | $ | 3,357 |
|
| Accumulated benefit obligation as of December 31 | | $ | 1,950 |
| | $ | 2,185 |
| | $ | 1,262 |
| | $ | 1,162 |
| | $ | 3,212 |
| | $ | 3,347 |
|
A reconciliation of the beginning and ending balances of the fair value of the plan assets of NCR'sthe Company’s pension plans are as follows:
| | | | | U.S. Pension Benefits | | International Pension Benefits | | Total Pension Benefits |
| | | | International Pension Benefits | |
| | | | International Pension Benefits | |
| | | | International Pension Benefits | |
| In millions | |
| In millions | |
| In millions | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Change in plan assets | | | | | | | | | | | | |
| Change in plan assets | |
| Change in plan assets | |
| Fair value of plan assets as of January 1 | |
| Fair value of plan assets as of January 1 | |
| Fair value of plan assets as of January 1 | | $ | 1,722 |
| | $ | 1,726 |
| | $ | 978 |
| | $ | 1,009 |
| | $ | 2,700 |
| | $ | 2,735 |
|
| Actual return on plan assets | | 149 |
| | 109 |
| | 80 |
| | 136 |
| | 229 |
| | 245 |
|
| Actual return on plan assets | |
| Actual return on plan assets | |
| Company contributions | |
| Company contributions | |
| Company contributions | | — |
| | — |
| | 25 |
| | 31 |
| | 25 |
| | 31 |
|
| Benefits paid | | (427 | ) | | (113 | ) | | (75 | ) | | (75 | ) | | (502 | ) | | (188 | ) |
| Benefits paid | |
| Benefits paid | |
| Settlement | |
| Settlement | |
| Settlement | |
| Currency translation adjustments | |
| Currency translation adjustments | |
| Currency translation adjustments | | — |
| | — |
| | 77 |
| | (124 | ) | | 77 |
| | (124 | ) |
| Plan participant contributions | | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
| Plan participant contributions | |
| Plan participant contributions | |
| Fair value of plan assets as of December 31 | | $ | 1,444 |
| | $ | 1,722 |
| | $ | 1,086 |
| | $ | 978 |
| | $ | 2,530 |
| | $ | 2,700 |
|
| Fair value of plan assets as of December 31 | |
| Fair value of plan assets as of December 31 | |
The following table presents the funded status and the reconciliation of the funded status to amounts recognized in the Consolidated Balance Sheets and in accumulatedAccumulated other comprehensive loss as of December 31:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | International Pension Benefits | | |
| In millions | | | | | | 2023 | | 2022 | | | | |
| Funded Status | | | | | | $ | (136) | | | $ | (127) | | | | | |
| Amounts recognized in the Consolidated Balance Sheets | | | | | | | | | | | | |
| Noncurrent assets | | | | | | $ | 43 | | | $ | 40 | | | | | |
| Current liabilities | | | | | | (12) | | | (11) | | | | | |
| Noncurrent liabilities | | | | | | (167) | | | (156) | | | | | |
| Net amounts recognized | | | | | | $ | (136) | | | $ | (127) | | | | | |
| Amounts recognized in accumulated other comprehensive loss | | | | | | | | | | | | |
| Prior service cost | | | | | | — | | | — | | | | | |
| Total | | | | | | $ | — | | | $ | — | | | | | |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Pension Benefits | | International Pension Benefits | | Total Pension Benefits |
| In millions | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Funded Status | | $ | (506 | ) | | $ | (463 | ) | | $ | (187 | ) | | $ | (194 | ) | | $ | (693 | ) | | $ | (657 | ) |
| Amounts recognized in the Consolidated Balance Sheets | | | | | | | | | | | | |
| Noncurrent assets | | $ | — |
| | $ | — |
| | $ | 118 |
| | $ | 94 |
| | $ | 118 |
| | $ | 94 |
|
| Current liabilities | | — |
| | — |
| | (13 | ) | | (12 | ) | | (13 | ) | | (12 | ) |
| Noncurrent liabilities | | (506 | ) | | (463 | ) | | (292 | ) | | (276 | ) | | (798 | ) | | (739 | ) |
| Net amounts recognized | | $ | (506 | ) | | $ | (463 | ) | | $ | (187 | ) | | $ | (194 | ) | | $ | (693 | ) | | $ | (657 | ) |
| Amounts recognized in accumulated other comprehensive loss | | | | | | | | | | | | |
| Prior service cost | | — |
| | — |
| | 18 |
| | 15 |
| | 18 |
| | 15 |
|
| Total | | $ | — |
| | $ | — |
| | $ | 18 |
| | $ | 15 |
| | $ | 18 |
| | $ | 15 |
|
For pension plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation and accumulated benefit obligation and fair value of assets were $2,229 million, $2,223$163 million and $1,446$162 million, respectively, as of December 31, 2017,2023, and $2,711 million, $2,702$147 million and $1,991$149 million, respectively, as of December 31, 2016.2022. The fair value of assets was zero as of both December 31, 2023 and December 31, 2022.
The net periodic benefit (income) cost of the pension plans for the years ended December 31 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | | | International Pension Benefits | | |
| | | | | | 2023 | | 2022 | | 2021 | | | | | | |
| Net service cost | | | | | | | $ | 2 | | | $ | 2 | | | $ | 2 | | | | | | | |
| Interest cost | | | | | | | 6 | | | 2 | | | 1 | | | | | | | |
| Expected return on plan assets | | | | | | | (2) | | | (1) | | | (1) | | | | | | | |
| Amortization of prior service cost | | | | | | | — | | | — | | | — | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Actuarial (gain) loss | | | | | | | 7 | | | (41) | | | (7) | | | | | | | |
| Net periodic benefit (income) cost | | | | | | | $ | 13 | | | $ | (38) | | | $ | (5) | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | U.S. Pension Benefits | | International Pension Benefits | | Total Pension Benefits |
| 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Net service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | 7 |
| | $ | 12 |
| | $ | 8 |
| | $ | 7 |
| | $ | 12 |
|
| Interest cost | 71 |
| | 90 |
| | 87 |
| | 20 |
| | 28 |
| | 42 |
| | 91 |
| | 118 |
| | 129 |
|
| Expected return on plan assets | (57 | ) | | (72 | ) | | (72 | ) | | (35 | ) | | (36 | ) | | (60 | ) | | (92 | ) | | (108 | ) | | (132 | ) |
| Amortization of prior service cost | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
| Curtailment | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) |
| Settlement | — |
| | — |
| | — |
| | — |
| | — |
| | 427 |
| | — |
| | — |
| | 427 |
|
| Actuarial loss | 28 |
| | 16 |
| | 27 |
| | — |
| | 69 |
| | 2 |
| | 28 |
| | 85 |
| | 29 |
|
| Net periodic benefit (income) cost | $ | 42 |
| | $ | 34 |
| | $ | 42 |
| | $ | (6 | ) | | $ | 69 |
| | $ | 422 |
| | $ | 36 |
| | $ | 103 |
| | $ | 464 |
|
During 2017,The net actuarial loss in 2023 was primarily due to plan experience losses as well as a decrease in discount rates, partially offset by favorable returns on plan assets. Actuarial gains in 2022 were primarily due to an increase in discount rates partially offset by unfavorable returns on the Company offered a voluntary lump sum payment option to certain former employees who were deferred vested participants of the Company's U.S. pension plan who had not yet started monthly payments of their pension benefit. The voluntary lump sum payment offer, which resulted in approximately $130 million being paid outfair value of plan assets, was completed during the fourth quarter of 2017. Additionally, during 2017, the Company entered into a single premium group annuity contract to secure approximately $190 million of benefits for former employees or their related beneficiaries whose monthly pension benefit amount under the Company’s U.S. pensionassets. Actuarial gains in 2021 were primarily due favorable returns on plan was $500 or less. These actions were completed during the fourth quarter of 2017 which resulted in an actuarial gain of $25 million and is reflected as a component of the actuarial loss as a result of the annual remeasurement completed in the fourth quarter of 2017.assets.
Effective January 1, 2017, we changed the method used to estimate the service and interest components of net periodic benefit cost for our significant pension plans where yield curves are available. Previously, we estimated such cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the pension benefit obligation. The new methodology utilizes a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the pension benefit obligation to their underlying projected cash flows and provides a more precise measurement of service and interest costs by improving the correlation between projected cash flows and their corresponding spot rates. This change does not affect the measurement of our total benefit obligation and was applied prospectively as a change in estimate, beginning January 1, 2017.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
In November 2013, the trustees of the NCR Pension Plan (UK London) entered into an agreement with Pension Insurance Corporation (PIC) to purchase, as a plan asset, an insurance policy with PIC to facilitate the wind-up and buy-out of the pension plan. NCR Limited, a UK subsidiary of the Company, was the principal employer of the pension plan which had approximately 5,400 participants. During the second quarter of 2015, the Company completed the transfer of the UK London pension plan to PIC by issuing individual insurance policies. As a result of the transfer, for the the year ended December 31, 2015, the Company recorded a settlement loss of $427 million in the Consolidated Statement of Operations as well as an offsetting decrease to prepaid pension costs in the Consolidated Balance Sheet.
The weighted average rates and assumptions used to determine benefit obligations as of December 31 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | International Pension Benefits | | |
| | | | | | 2023 | | 2022 | | | | |
| Discount rate | | | | | | 3.0 | % | | 3.4 | % | | | | |
| Rate of compensation increase | | | | | | 2.4 | % | | 1.0 | % | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | U.S. Pension Benefits | | International Pension Benefits | | Total Pension Benefits |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Discount rate | | 3.6 | % | | 4.1 | % | | 1.9 | % | | 1.9 | % | | 2.9 | % | | 3.3 | % |
| 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | International Pension Benefits | | |
| | | | | | | | 2023 | | 2022 | | 2021 | | | | | | |
| Discount rate - Service Cost | | | | | | | | 1.8% | | 0.8 | % | | 0.6 | % | | | | | | |
| Discount rate - Interest Cost | | | | | | | | 3.4% | | 0.7 | % | | 0.3 | % | | | | | | |
| Expected return on plan assets | | | | | | | | 5.0% | | 2.1 | % | | 2.0 | % | | | | | | |
| Rate of compensation increase | | | | | | | | 1.0% | | 0.9 | % | | 0.7 | % | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Pension Benefits | | International Pension Benefits | | Total Pension Benefits |
| | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Discount rate - Service Cost | | N/A |
| | N/A |
| | N/A |
| | 1.4 | % | | 2.6 | % | | 2.9 | % | | 1.4 | % | | 2.6 | % | | 2.9 | % |
| Discount rate - Interest Cost | | 3.4 | % | | 4.3 | % | | 4.0 | % | | 1.6 | % | | 2.6 | % | | 2.9 | % | | 2.8 | % | | 3.7 | % | | 3.5 | % |
| Expected return on plan assets | | 3.5 | % | | 4.3 | % | | 4.0 | % | | 3.5 | % | | 3.8 | % | | 3.8 | % | | 3.5 | % | | 4.1 | % | | 3.9 | % |
| Rate of compensation increase | | N/A |
| | N/A |
| | N/A |
| | 0.9 | % | | 1.3 | % | | 1.8 | % | | 0.9 | % | | 1.3 | % | | 1.8 | % |
The weighted-average cash balance interest crediting rate for the Company’s cash balance defined benefit plans was 1.4% and 1.0% for the years ended December 31, 2023 and 2022, respectively.
The discount rate used to determine U.S.the International plans benefit obligations as of December 31, 2017 was2023 were 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. During 2014, the Society of Actuaries published updated mortality tables and an improvement scale for U.S. plans, which both reflect improved longevity. Based on evaluation of these new tables, we updated our mortality assumptions for our U.S. pension benefits as of December 31, 2015. In 2017, we made a further update to utilize the white collar version of the 2014 tables due to a study of plan specific experience.
NCRThe Company 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, 20172023 and 20162022 by asset category are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | International Pension Fund |
| | | | | | Actual Allocation of Plan Assets as of December 31 | | Target Asset Allocation |
| | | | | | | 2023 | | 2022 | |
Equity and other investments(1) | | | | | | | | 66 | % | | 62 | % | | 62.5% |
Debt securities(2) | | | | | | | | 34 | % | | 37 | % | | 37.2% |
| | | | | | | | | | | | |
| Other | | | | | | | | 1 | % | | — | % | | 0.3% |
| Total | | | | | | | | 100 | % | | 100 | % | | |
(1) Includes equity securities and equities held in comingled trusts.
(2) Includes debt securities and debt held in comingled trusts.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | |
| | | 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 |
| | | 2017 | | 2016 | | | 2017 | | 2016 | |
| Equity securities | | — | % | | — | % | | 0 - 0% | | 22 | % | | 23 | % | | 12 - 27% |
| Debt securities | | 98 | % | | 96 | % | | 95 - 100% | | 58 | % | | 52 | % | | 54 - 72% |
| Real estate | | 1 | % | | 1 | % | | 0 - 2% | | 12 | % | | 13 | % | | 6 - 14% |
| Other | | 1 | % | | 3 | % | | 0 - 3% | | 8 | % | | 12 | % | | 4 - 9% |
| Total | | 100 | % | | 100 | % | | | | 100 | % | | 100 | % | | |
The Company has adopted updated accounting guidance on fair value measurement which removed both the requirement to categorize within the fair value hierarchy and the requirement to provide related sensitivity disclosures for all investments for which fair value is measured using net asset value (NAV) as a practical expedient. The amount of these investments is disclosed separately in the following tables as "Not Subject to Leveling".
The fair value of plan assets as of December 31, 20172023 and 20162022 by asset category is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | International |
| In millions | Notes | | | | | | | Fair Value as of December 31, 2023 | 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 and other investments: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Common and commingled trusts - Equities | 1 | | | | | | | | 37 | | — | | — | | — | | 37 | |
| Fixed income securities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Common and commingled trusts - Bonds | 1 | | | | | | | | 19 | | — | | — | | — | | 19 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Total | | | | | | | | $ | 56 | | $ | — | | $ | — | | $ | — | | $ | 56 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. | | International |
| In millions | Notes | Fair Value as of December 31, 2017 | 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, 2017 | 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 |
| $ | 1 |
| $ | — |
| $ | 1 |
| $ | — |
| $ | — |
| | $ | 56 |
| $ | 56 |
| $ | — |
| $ | — |
| $ | — |
|
| Fixed income securities: | | | | | | | | | | | | |
| Government securities | 2 |
| 223 |
| — |
| 223 |
| — |
| — |
| | 49 |
| — |
| 49 |
| — |
| — |
|
| Corporate debt | 3 |
| 895 |
| — |
| 895 |
| — |
| — |
| | 141 |
| — |
| 139 |
| 2 |
| — |
|
| Other types of investments: | | | | | | | | | | | | |
| Money market funds | 4 |
| 24 |
| — |
| — |
| — |
| 24 |
| | 15 |
| — |
| 10 |
| — |
| 5 |
|
| Common and commingled trusts - Equities | 4 |
| — |
| — |
| — |
| — |
| — |
| | 182 |
| — |
| — |
| — |
| 182 |
|
| Common and commingled trusts - Bonds | 4 |
| 207 |
| — |
| — |
| — |
| 207 |
| | 421 |
| — |
| — |
| — |
| 421 |
|
| Common and commingled trusts - Short Term Investments | 4 |
| 31 |
| — |
| — |
| — |
| 31 |
| | 24 |
| — |
| — |
| — |
| 24 |
|
| Common and commingled trusts - Balanced | 4 |
| — |
| — |
| — |
| — |
| — |
| | 68 |
| — |
| — |
| — |
| 68 |
|
| Partnership/joint venture interests - Real estate | 5 |
| 5 |
| — |
| — |
| — |
| 5 |
| | — |
| — |
| — |
| — |
| — |
|
| Partnership/joint venture interests - Other | 5 |
| 5 |
| — |
| — |
| — |
| 5 |
| | — |
| — |
| — |
| — |
| — |
|
| Mutual funds | 4 |
| 53 |
| 53 |
| — |
| — |
| — |
| | — |
| — |
| — |
| — |
| — |
|
| Insurance products | 4 |
| — |
| — |
| — |
| — |
| — |
| | 1 |
| — |
| 1 |
| — |
| — |
|
| Real estate and other | 5 |
| — |
| — |
| — |
| — |
| — |
| | 129 |
| — |
| — |
| 129 |
| — |
|
| Total | | $ | 1,444 |
| $ | 53 |
| $ | 1,119 |
| $ | — |
| $ | 272 |
| | $ | 1,086 |
| $ | 56 |
| $ | 199 |
| $ | 131 |
| $ | 700 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | International |
| In millions | Notes | | | | | | | Fair Value as of December 31, 2022 | 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 and commingled trusts - Equities | 1 | | | | | | | | 32 | | — | | — | | — | | 32 | |
| Fixed income securities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Common and commingled trusts - Bonds | 1 | | | | | | | | 19 | | — | | — | | — | | 19 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Total | | | | | | | | $ | 51 | | $ | — | | $ | — | | $ | — | | $ | 51 | |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. | | International |
| In millions | Notes | Fair Value as of December 31, 2016 | 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, 2016 | 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 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | 47 |
| $ | 47 |
| $ | — |
| $ | — |
| $ | — |
|
| Fixed income securities: | | | | | | | | | | | | |
| Government securities | 2 |
| 234 |
| — |
| 234 |
| — |
| — |
| | 27 |
| — |
| 27 |
| — |
| — |
|
| Corporate debt | 3 |
| 797 |
| — |
| 797 |
| — |
| — |
| | 110 |
| — |
| 108 |
| 2 |
| — |
|
| Other types of investments: | | | | | | | | | | | | |
| Money market funds | 4 |
| 28 |
| — |
| — |
| — |
| 28 |
| | 8 |
| — |
| 8 |
| — |
| — |
|
| Common and commingled trusts - Equities | 4 |
| — |
| — |
| — |
| — |
| — |
| | 169 |
| — |
| — |
| — |
| 169 |
|
| Common and commingled trusts - Bonds | 4 |
| 530 |
| — |
| — |
| — |
| 530 |
| | 363 |
| — |
| — |
| — |
| 363 |
|
| Common and commingled trusts - Short Term Investments | 4 |
| 23 |
| — |
| — |
| — |
| 23 |
| | 27 |
| — |
| — |
| — |
| 27 |
|
| Common and commingled trusts - Balanced | 4 |
| — |
| — |
| — |
| — |
| — |
| | 104 |
| — |
| — |
| — |
| 104 |
|
| Partnership/joint venture interests - Real estate | 5 |
| 8 |
| — |
| — |
| — |
| 8 |
| | — |
| — |
| — |
| — |
| — |
|
| Partnership/joint venture interests - Other | 5 |
| 6 |
| — |
| — |
| — |
| 6 |
| | — |
| — |
| — |
| — |
| — |
|
| Mutual funds | 4 |
| 60 |
| 60 |
| — |
| — |
| — |
| | — |
| — |
| — |
| — |
| — |
|
| Hedge Funds | 5 |
| 36 |
| — |
| — |
| — |
| 36 |
| | — |
| — |
| — |
| — |
| — |
|
| Insurance products | 4 |
| — |
| — |
| — |
| — |
| — |
| | 1 |
| — |
| 1 |
| — |
| — |
|
| Real estate and other | 5 |
| — |
| — |
| — |
| — |
| — |
| | 122 |
| — |
| — |
| 122 |
| — |
|
| Total | | $ | 1,722 |
| $ | 60 |
| $ | 1,031 |
| $ | — |
| $ | 631 |
| | $ | 978 |
| $ | 47 |
| $ | 144 |
| $ | 124 |
| $ | 663 |
|
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 comparable1.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 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 |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
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.
| |
5. | Partnership/joint ventures and hedge funds 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 and in the case of hedge funds they are valued using a Net Asset Value (NAV) provided by the manager of each fund. 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, 2015 | $ | 133 |
|
| Realized and unrealized gains and losses, net | (8 | ) |
| Purchases, sales and settlements, net | 1 |
|
| Transfers, net | (2 | ) |
| Balance, December 31, 2016 | $ | 124 |
|
| Realized and unrealized gains and losses, net | 7 |
|
| Purchases, sales and settlements, net | — |
|
| Transfers, net | — |
|
| Balance, December 31, 2017 | $ | 131 |
|
Investment Strategy NCR The Company 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 inWhen considering assets for investment, the valueCompany considers the expected rate of assets held byreturn and the U.S. pension plan, we have rebalanced the asset allocation to a portfoliorisk of 98%return, among others, of fixed income assets as of December 31, 2017. Similar investment strategy changes are under consideration or being implemented in a number of NCR’s international plans.
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 relatedeach potential 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 PlansPostemployment Benefits Reconciliation of the beginning and ending balances of the benefit obligation for NCR's U.S. postretirementthe Company’s postemployment plan is as follows:was:
| | | | | | | | | | | | | | |
| | Postemployment Benefits |
| In millions | | 2023 | | 2022 |
| Change in benefit obligation | | | | |
| Benefit obligation as of January 1 | | $ | 93 | | | $ | 64 | |
| | | | |
Service cost(1) | | 15 | | | 58 | |
| Interest cost | | 2 | | | 1 | |
| | | | |
| Benefits paid | | (54) | | | (18) | |
| Foreign currency exchange | | — | | | (3) | |
| Actuarial (gain) loss | | 9 | | | (9) | |
| Benefit obligation as of December 31 | | $ | 65 | | | $ | 93 | |
|
| | | | | | | | |
| | | Postretirement Benefits |
| In millions | | 2017 | | 2016 |
| Change in benefit obligation | | | | |
| Benefit obligation as of January 1 | | $ | 25 |
| | $ | 27 |
|
| Interest cost | | 1 |
| | 1 |
|
| Actuarial gain | | (3 | ) | | (2 | ) |
| Plan participant contributions | | — |
| | 1 |
|
| Benefits paid | | (2 | ) | | (2 | ) |
| Benefit obligation as of December 31 | | $ | 21 |
| | $ | 25 |
|
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 | | 2017 | | 2016 |
| Benefit obligation | | $ | (21 | ) | | $ | (25 | ) |
| Amounts recognized in the Consolidated Balance Sheets | | | | |
| Current liabilities | | $ | (2 | ) | | $ | (3 | ) |
| Noncurrent liabilities | | (19 | ) | | (22 | ) |
| Net amounts recognized | | $ | (21 | ) | | $ | (25 | ) |
| Amounts recognized in accumulated other comprehensive loss | | | | |
| Net actuarial loss | | $ | 11 |
| | $ | 16 |
|
| Prior service benefit | | (13 | ) | | (19 | ) |
| Total | | $ | (2 | ) | | $ | (3 | ) |
The net periodic benefit income of the postretirement plan for the years ended December 31 was:
|
| | | | | | | | | | | | |
| In millions | | Postretirement Benefits |
| | 2017 | | 2016 | | 2015 |
| Interest cost | | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
| Amortization of: | |
| |
| |
|
| Prior service benefit | | (6 | ) | | (14 | ) | | (18 | ) |
| Actuarial loss | | 2 |
| | 2 |
| | 2 |
|
| Net periodic benefit income | | $ | (3 | ) | | $ | (11 | ) | | $ | (15 | ) |
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 |
| | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Discount rate | | 3.1 | % | | 3.2 | % | | 3.3 | % | | 3.2 | % | | 3.3 | % | | 3.1 | % |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Assumed healthcare cost trend rates as of December 31 were:
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 |
| | | Pre-65 Coverage | | Post-65 Coverage | | Pre-65 Coverage | | Post-65 Coverage |
| Healthcare cost trend rate assumed for next year | | 6.6 | % | | 5.9 | % | | 6.6 | % | | 5.8 | % |
| 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 | | 2025 |
| | 2025 |
| | 2024 |
| | 2024 |
|
In addition, a one percentage point change in assumed healthcare cost trend rates would have had an immaterial impact on the postretirement benefit income and obligation.
Postemployment Benefits Reconciliation of the beginning and ending balances of the benefit obligation for NCR's postemployment plan was:
|
| | | | | | | | |
| | | Postemployment Benefits |
| In millions | | 2017 | | 2016 |
| Change in benefit obligation | | | | |
| Benefit obligation as of January 1 | | $ | 127 |
| | $ | 143 |
|
| Restructuring program cost | | — |
| | 4 |
|
| Service cost | | 34 |
| | 16 |
|
| Interest cost | | 2 |
| | 3 |
|
| Benefits paid | | (34 | ) | | (37 | ) |
| Foreign currency exchange | | 9 |
| | (6 | ) |
| Actuarial loss | | 4 |
| | 4 |
|
| Benefit obligation as of December 31 | | $ | 142 |
| | $ | 127 |
|
The following table present the funded status and the reconciliation of the unfunded status to amounts recognized in the Consolidated Balance Sheets and in accumulatedAccumulated other comprehensive loss at December 31:
| | | | | | | | | | | | | | |
| | Postemployment Benefits |
| In millions | | 2023 | | 2022 |
| Benefit obligation | | $ | 65 | | | $ | 93 | |
| Amounts recognized in the Consolidated Balance Sheets | | | | |
| Current liabilities | | $ | 22 | | | $ | 57 | |
| Noncurrent liabilities | | 43 | | | 36 | |
| Net amounts recognized | | $ | 65 | | | $ | 93 | |
| Amounts recognized in Accumulated other comprehensive loss | | | | |
| Net actuarial (gain) loss | | $ | 9 | | | $ | (9) | |
| Amortization of gain (loss) | | 1 | | | — | |
| Amortization of prior service cost | | 1 | | | 1 | |
| Total | | $ | 11 | | | $ | (8) | |
|
| | | | | | | | |
| | | Postemployment Benefits |
| In millions | | 2017 | | 2016 |
| Benefit obligation | | $ | (142 | ) | | $ | (127 | ) |
| Amounts recognized in the Consolidated Balance Sheets | | | | |
| Current liabilities | | $ | (28 | ) | | $ | (22 | ) |
| Noncurrent liabilities | | (114 | ) | | (105 | ) |
| Net amounts recognized | | $ | (142 | ) | | $ | (127 | ) |
| Amounts recognized in accumulated other comprehensive loss | | | | |
| Net actuarial gain | | $ | (20 | ) | | $ | (42 | ) |
| Prior service benefit | | (11 | ) | | (17 | ) |
| Total | | $ | (31 | ) | | $ | (59 | ) |
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 |
| 2023 | | 2022 | | 2021 |
| Service cost | $ | 15 | | | $ | 58 | | | $ | 15 | |
| Interest cost | 2 | | | 1 | | | 1 | |
| Amortization of: | | | | | |
| Prior service benefit | (1) | | | (1) | | | (1) | |
| Actuarial gain | (1) | | | — | | | (1) | |
| Net periodic benefit cost | $ | 15 | | | $ | 58 | | | $ | 14 | |
|
| | | | | | | | | | | |
| In millions | Postemployment Benefits |
| 2017 | | 2016 | | 2015 |
| Service cost | $ | 34 |
| | $ | 16 |
| | $ | 17 |
|
| Interest cost | 2 |
| | 3 |
| | 3 |
|
| Amortization of: |
|
| |
|
| |
|
|
| Prior service benefit | (6 | ) | | (6 | ) | | (4 | ) |
| Actuarial gain | (6 | ) | | (7 | ) | | — |
|
| Net benefit cost | $ | 24 |
| | $ | 6 |
| | $ | 16 |
|
| Restructuring severance cost | — |
| | 4 |
| | 1 |
|
| Net periodic benefit cost | $ | 24 |
| | $ | 10 |
| | $ | 17 |
|
During the years ended December 31, 2017, 2016 and 2015, restructuring charges for employee severance of zero, $4 million and $1 million, respectively, were recognized associated with the restructuring plan. See Note 14, "Restructuring Plan" for additional information.
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 |
| | 2023 | | 2022 | | 2023 | | 2022 | | 2021 |
| Discount rate for severance plan | | 4.1 | % | | 5.1 | % | | 5.1 | % | | 2.3 | % | | 1.4 | % |
| | | | | | | | | | |
| Salary increase rate | | 3.4 | % | | 3.1 | % | | 3.1 | % | | 2.6 | % | | 2.0 | % |
| Involuntary turnover rate | | 3.8 | % | | 3.8 | % | | 3.8 | % | | 3.8 | % | | 3.8 | % |
|
| | | | | | | | | | | | | | | |
| | | Postemployment Benefit Obligations | | Postemployment Benefit Costs |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| Discount rate | | 2.3 | % | | 2.0 | % | | 2.0 | % | | 2.2 | % | | 2.1 | % |
| Salary increase rate | | 1.9 | % | | 1.8 | % | | 1.8 | % | | 2.1 | % | | 2.0 | % |
| Involuntary turnover rate | | 4.8 | % | | 4.8 | % | | 4.8 | % | | 4.8 | % | | 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 2018, and The Company plans to contribute approximately $30$13 million to the international pension plans in 2018.2024. The Company also plans to make contributions of approximately $2 million to the U.S. postretirement plan and approximately $60$21 million to the postemployment plan in 2018.2024.
Estimated Future Benefit Payments NCR The Company expects to make the following benefit payments reflecting past and future service from its pension postretirement and postemployment plans:
| | | | | | | | | | | | | | | | | | | | |
| In millions | | | | International Pension Benefits | | | | | | Postemployment Benefits |
| Year | | | | | | | | | | |
| 2024 | | | | $ | 15 | | | | | | | $ | 21 | |
| 2025 | | | | $ | 14 | | | | | | | $ | 8 | |
| 2026 | | | | $ | 14 | | | | | | | $ | 8 | |
| 2027 | | | | $ | 14 | | | | | | | $ | 7 | |
| 2028 | | | | $ | 14 | | | | | | | $ | 7 | |
| 2029-2033 | | | | $ | 60 | | | | | | | $ | 31 | |
|
| | | | | | | | | | | | | | | | | | | | |
| In millions | | U.S. Pension Benefits | | International Pension Benefits | | Total Pension Benefits | | Postretirement Benefits | | Postemployment Benefits |
| Year | | | | | | | | | | |
| 2018 | | $ | 104 |
| | $ | 53 |
| | $ | 157 |
| | $ | 2 |
| | $ | 60 |
|
| 2019 | | $ | 107 |
| | $ | 54 |
| | $ | 161 |
| | $ | 2 |
| | $ | 22 |
|
| 2020 | | $ | 109 |
| | $ | 52 |
| | $ | 161 |
| | $ | 2 |
| | $ | 21 |
|
| 2021 | | $ | 112 |
| | $ | 52 |
| | $ | 164 |
| | $ | 2 |
| | $ | 20 |
|
| 2022 | | $ | 114 |
| | $ | 52 |
| | $ | 166 |
| | $ | 2 |
| | $ | 18 |
|
| 2023-2027 | | $ | 581 |
| | $ | 265 |
| | $ | 846 |
| | $ | 5 |
| | $ | 76 |
|
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’sThe Company’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 $22 million in 2023, $26 million in 2017, $242022, and $22 million in 2016, and $23 million in 2015.2021. The expense under international and subsidiary savings plans was $24$11 million in 2017, $262023, $11 million in 2016,2022, and $22$14 million in 2015.2021.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Amounts to be Recognized The amounts in accumulatedAccumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost (income) during 20182024 are as follows:less than $1 million.
|
| | | | | | | | | | | | | | | | | | | | |
| In millions | | U.S. Pension Benefits | | International Pension Benefits | | Total Pension Benefits | | Postretirement Benefits | | Postemployment Benefits |
| Prior service cost (benefit) | | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | (5 | ) | | $ | (5 | ) |
| Actuarial loss (gain) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | (1 | ) |
9.11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, NCRthe Company 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, patents or other intellectual property, data privacy and security, product liability, commercial disputes and regulatory compliance, among others. Additionally, NCRthe Company 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 NCRthe Company or could have an impact on NCR'sthe Company’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 mattersmatter and other matters discussed above and below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in NCR’sthe Company’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.
In 2012, NCR received anonymous allegations from a purported whistleblower regarding certain aspects of the Company's business practices in China, the Middle East and Africa. The principal allegations received in 2012 related to the Company's compliance with the Foreign Corrupt Practices Act (FCPA) and federal regulations that prohibit U.S. persons from engaging in certain activities in Syria. As previously reported, the Company and its Board of Directors completed investigations with the assistance of experienced outside counsel and resolved a related shareholder derivative action.
With respect to the FCPA, the Company made a presentation to the staff of the Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) providing the facts known to the Company related to the whistleblower's FCPA allegations, and advising the government that many of these allegations were unsubstantiated. With respect to the DOJ, the Company responded to its most recent requests for documents in 2014. On June 22, 2015, the SEC staff notified the Company that it did not intend to recommend an enforcement action against the Company with respect to these matters.
With respect to Syria, in 2012 NCR voluntarily notified the U.S. Treasury Department Office of Foreign Assets Control (OFAC) of potential violations and ceased operations in Syria, which were commercially insignificant. The notification related to confusion stemming from the Company's failure to register in Syria the transfer of the Company's Syrian branch to a foreign subsidiary and to deregister the Company's legacy Syrian branch, which was a branch of NCR Corporation. The Company applied for and received from OFAC various licenses that permitted the Company to take measures required to wind down its past operations in Syria. The last such license expired in April 2016, and in connection with that expiration the Company abandoned its remaining property in Syria, which was commercially insignificant, and ended the employment of its final two employees there, who had remained employed by the Company to assist with the execution of the Company's wind-down activities pursuant to authority granted by the OFAC licenses. The Company also submitted detailed reports to OFAC regarding this matter, including a description of the Company's comprehensive export control program and related remedial measures, and a description of the abandonment and related circumstances. In correspondence dated May 5, 2017, OFAC advised the Company it would not seek monetary penalties against the Company, and issued a so-called “cautionary letter” as a “final enforcement response.”
In 2013 the Company entered into a subcontract with a prime contractor with respect to certain information technology components of two airport construction projects in Oman. In 2015 the prime contractor’s contract with an Omani public agency was terminated for cause; the Company and the prime contractor (a joint venture) subsequently provided to each other notices of termination of
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
the subcontract. The prime contractor subsequently filed liquidation proceedings in Oman. The Company had delivered and installed goods and services in the approximate amount of $40 million as of 2015 when the various contracts were terminated, approximately half of which sum remains due and owing; under the terms of the subcontract, most of the payment obligations by the Omani public agency to the terminated prime contractor, and from the terminated prime contractor to the Company, had not at that time matured. The Company remains engaged in the construction projects, having been urged by the Omani public agency to enter into a new subcontract with a new prime contractor, which the Company did later in 2015. In 2016 the Company entered into a partial settlement agreement with the Omani public agency under which it was paid approximately half of the sums owed to it, in exchange for certain deliverables under the original subcontract. The Company has identified various avenues to pursue, against the prime contractor and others, including the parent of one of the joint venture partners in the terminated prime contractor, to obtain recoveries of the remaining amounts owed to it. Based on the status of negotiations and proceedings as of December 31, 2017, the Company continues to maintain a reserve of approximately $20 million with respect to those portions of its claim that it considered did not meet the Company’s standard for probable recovery.
In June 2014, one of the Company’s Brazilian subsidiaries, NCR Manaus, was notified of a Brazilian federal tax assessment of R$168 million, or approximately $51 million as of December 31, 2017, including penalties and interest regarding certain federal indirect taxes for 2010 through 2012. The assessment alleges improper importation of certain components into Brazil's free trade zone that would nullify related indirect tax incentives. We have not recorded an accrual for the assessment, as the Company believes it has a valid position regarding indirect taxes in Brazil and, as such, has filed an appeal in 2014. In December 2017, the Company prevailed in this appeal regarding substantially all of the disputed amounts. However, the Brazilian federal tax authority has further appealed this dispute to the next procedural level, so the dispute is ongoing. The Company estimated the aggregate risk related to this matter to be between zero and $75 million as of December 31, 2017. Although the Company has not recorded an accrual, it is possible that the Company could be required to pay taxes, penalties and interest related to this matter, which could be material to the Company's Consolidated Financial Statements.
Environmental Matters NCR's The Company’s facilities and operations are subject to a wide range of environmental protection laws, and NCRthe Company 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, NCRthe Company 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)(“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)(“CERCLA”) and comparable state statutes. Following the Spin-Off, the Company will retain the responsibility to manage the identified environmental liabilities and remediations, subject however to an indemnity obligation by NCR Atleos to contribute 50% of the costs of certain environmental liabilities after an annual $15 million funding threshold is met. Other than the FoxKalamazoo River matter and the Kalamazoo RiverEbina matter detaileddiscussed below, we currently do not anticipate material expenses and liabilities from these environmental matters.
Fox River NCR is The Company was one of eight entities that werewas formally notified by governmental and other entities such as local Native American tribes, that they are PRPsit was a PRP for environmental claims (under CERCLA and other statutes) arising out of the presence of polychlorinated biphenyls (PCBs)(“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 are 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), WTM I Co. (formerly Wisconsin Tissue Mills, now owned by Canal Corporation, formerly known as Chesapeake Corporation), CBC Corporation (formerly Riverside Paper Corporation), U.S. Paper Mills Corp. (owned by Sonoco Products Company), and Menasha Corporation. 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. Some parties contended that NCR is also responsible for PCB discharges from paper mills owned by other companies because NCRRiver, and carbonless copy paper "broke" was“broke” the Company allegedly purchased by thosesold to other mills as a raw material.
The United States Environmental Protection Agency (USEPA) In 2017, the Company entered into a Consent Decree with the federal and Wisconsin Department of Natural Resources (together, the Governments) developed clean-up plansstate governments for the upper and lower partsclean-up of the Fox River, and for portions ofwhich was approved on August 22, 2017 by the Bay of Green Bay. On November 13, 2007,federal district court in Wisconsin presiding over this matter. The Consent Decree resolved the Governments issued a unilateral administrative order (the 2007 Order) under CERCLACompany’s disputes with the enforcement agencies as well as the other PRPs.
All litigation relating to the eight original PRPs, requiring them to perform remedial work under the Governments’ clean-up plan for the lower partscontribution and enforcement 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 atobligations on the Fox River site. In-water dredging and remediationhas been concluded. On October 3, 2022, the Environmental Protection Agency issued the Company a Certificate of Completion certifying that all of the Company’s remedial obligations under the clean-up plan commenced shortly thereafter.Consent Decree have been completed.
NCRThe cost of the Fox River remediation has been shared with three parties (the previously reported API having fully satisfied its obligations in 2016, and API, along with B.A.Tis now bankrupt): B.A.T. Industries p.l.c. (BAT)(“BAT”) as co-obligor, and AT&T Corp. (“AT&T”) and Nokia (as the successor to Lucent Technologies and Alcatel-Lucent USA) as indemnitors. Under a 1998 Cost Sharing Agreement and subsequent 2005 arbitration award (collectively, the “Cost Sharing Agreement”), share among themselves a portionfrom 2008 through 2014, BAT paid 60% 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(“NRD”). Pursuant to a September 30, 2014 Funding Agreement (the Funding Agreement). The Cost Sharing Agreement and the arbitration resolved disputes that arose out“Funding Agreement”), BAT funded 50% 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
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
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’sCompany’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 NCRthe Company contractual avenues for a future 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 NCRthe Company 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 2014.2014 (collectively, the “Funding Agreement Receivable”). Pursuant to a June 12, 2015 Letter Agreement, the Company’s contractual avenue for direct payment by BAT was effectively stayed pending completion of other unrelated lawsuits by BAT against third-parties. As of December 31, 2017, the receivable under2023 and 2022, the Funding Agreement Receivable was approximately $38$54 million and was included in otherOther assets in the Consolidated Balance Sheet.Sheets. The Company anticipates that it will collecttiming of collection of sums related to the receivable in 2019 or later, likely after the remediation efforts relatedis uncertain, subject and pursuant to the Fox River matter, described below, are complete.
terms of the Funding Agreement and related agreements. This receivable is not taken into account in calculating the Company’s Fox River netremaining reserve.
The Company's litigation relating to contribution and enforcement claims concerning the Fox River have largely been concluded. A proposed consent decree settlement (the CD settlement) with respect to the contribution action (originally filed by NCR and API) and the government enforcement action (originally filed by the federal and state governments against several PRPs) was successfully negotiated by NCR and the federal and state governments. In January 2017 the government filed a motion for approval of the CD settlement with the federal district court in Wisconsin that had been overseeing those cases. Pending its decision on approval of the CD settlement, that court canceled a trial that had been scheduled for 2017. Following briefing on the CD settlement, the court approved it on August 22, 2017. A final order of dismissal as to the Company in the contribution and government enforcement actions was subsequently entered; one party, Glatfelter, has appealed the approval of the CD settlement.
The CD settlement is expected to resolve the remaining Fox River-related claims against the Company, subject to any appeals, including the Glatfelter appeal referenced above. The key components of the approved CD settlement include (1) the Company’s commitment to complete the remediation of the Fox River, which is now expected to be completed in 2019 or 2020; (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 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. That dispute is scheduled for a hearing in late 2018.
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 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 clean-up costs, 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 in this matter; and (5) the share of NCR's payments that API and/or BAT will bear (which is governed by the Cost Sharing Agreement and the Funding Agreement, as discussed above). 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.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
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, 2017 and 2016, the gross reserve for the Fox River matter was approximately $36 million and $58 million, respectively . As of December 31, 2017 and 2016, the net reserve for the Fox River matter was approximately $35 million and $27 million, respectively. The change in the net reserve is due primarily to changes in estimates and assumptions of the remaining cost previously discussed partially offset by payments for clean-up activities and litigation costs as well as cash payments received from indemnitors. 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, 2017 and 2016, 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,Divestiture Agreement, AT&T Corp. (AT&T) and Nokia (as the successor to Lucent Technologies and Alcatel-Lucent USA) arehave been responsible severally (not jointly) for indemnifying NCRthe Company for certain portions of the amounts paid by NCRthe Company for the Fox River matter over a defined threshold and subject to certain offsets.offsets for insurance recoveries and net tax benefits (the “Divestiture Agreement Offsets”), if any. (The agreementDivestiture Agreement governs certain aspects of AT&T's&T’s divestiture of NCRthe Company and of what was then known as Lucent Technologies.) Those companies have made the payments the Company has requested of them by the Company on an ongoing basis. The Company, AT&T and Nokia are currently discussing a final reconciliation of the Divestiture Agreement Offsets, but the timing for a final reconciliation is uncertain.
Accordingly, there could be additional changes to some elements of the Company’s remaining obligation over upcoming periods, in view of the final reconciliation of the Funding Agreement Receivable and the Divestiture Agreement Offsets. Thus, there can be no assurance that unexpected expenditures and liabilities will not have a material effect on the Company’s capital expenditures, earnings, financial condition, cash flows, or competitive position. As of December 31, 2023, we have no remaining liability for remedial obligations for the Fox River matter. As of December 31, 2023 and 2022, the liability subject to final reconciliation with indemnitors under the Divestiture Agreement was approximately $22 million.
Kalamazoo RiverIn November 2010, USEPAThe United States Environmental Protection Agency (“USEPA”) issued a "general“general notice letter"letter” to NCRthe Company with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site (Kalamazoo(“Kalamazoo River site)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 NCRthe Company never had facilities at or near the Kalamazoo River site, but USEPA indicated that "NCR“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 hazardous substances at the Site."” USEPA stated that it "may“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 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"“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 have not yet been determined.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"“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 NCRthe Company 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 hasThe Company preserved its right to appeal the September 2013 decision.
TheIn the 2013 decision the Court did not determine NCR’sthe Company’s share of the overall liability, which the Company believes should be de minimis, or how NCR’s liability relates to the liability of other liable or potentially liable parties at the site.liability. Relative shares of liability for the four companies were tried to the court in a subsequent phase of the case; the trial concludedcase in December 2015, and posttrial briefing concluded2015. In a ruling issued on March 29, 2018, the court addressed responsibility for the costs that GP had incurred in March 2016. The parties are awaiting the court's judgment. Priorpast, totaling to trial, in response to a motionapproximately $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); the Company 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 dismissed several portionsand remains stayed until the Company filed its dismissal of GP’s claims as time-barred,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 result thatUSEPA 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, being tried total to approximately $50 million.pay the USEPA and state agencies their past and future administrative costs, and to dismiss its Sixth Circuit appeal. The court may or mayConsent Decree further requires the Company to take responsibility for the remediation of a portion, but not also ruleall, 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. Ifcosts left unresolved by the June 19, 2019 judgment.
The Company is found liable for money damages or otherwise with respect to the Kalamazoo River site,believes it would havehas meritorious claims against BAT and API under the Cost Sharing Agreement, the arbitration award, the judgment and the Funding Agreement discussed above, in connection with the Fox River matter (the Funding Agreement may provide partial reimbursement of such damages depending on the extent of certain recoveries, if any, against third parties under its terms). API filed for bankruptcy protection in October 2017, and thus payment of its potential share (up to a cap of $25 million) under the Funding Agreement for so-called “future sites,” which would include the Kalamazoo River site, may be at risk, butremediation expenses as liabilitya so-called “future site.” To date, BAT has denied that the Kalamazoo River is a “future site.” On February 10, 2023, the Company filed an action against BAT in the Southern District of New York seeking a declaration that the Kalamazoo River is indeed a future site 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.Agreement. The Company wouldwill also have indemnity or reimbursement claims against AT&T and Nokia under the arrangement discussed above in connection with the Fox River matter.matter after expenses have met a contractual threshold set out in the 1996 Divestiture Agreement referenced above in the Fox River discussion. The Company believes that contractual threshold was met in December 2022.
In November 2023, the USEPA issued a conditional approval for a work plan to remediate one area of the river (referred to by USEPA as Area 4) for which the Company has remediation responsibility. The Company is currently working with the USEPA to define the conditions for approval and the scope of work needed to be completed. The conditional approval provided the Company with sufficient information to estimate the cost of remediation for this area of the river and necessitated an increase in the Kalamazoo reserve.
As of December 31, 2023 and 2022, the total reserve for Kalamazoo was $141 million and $90 million, respectively. The reserve 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 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 $155 million and the Company will continue to pursue such contribution.
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 the Company’s potential liability remains subject to many uncertainties, notwithstanding the settlement of this matter and related Consent Decree noted above, particularly in as much 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, 2023, the Company had disposed of approximately 99% of its lower-concentration wastes and approximately 98% of its higher-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. The government has given its final approvals, and the Company started to dispose of the high-concentration wastes in 2021, with final deadlines for various of the government-constructed disposal sites
currently set for 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 adjusted its existing reserve for the matter to take into account this cost estimate. The reserve as of both December 31, 2023 and 2022 is $7 million. 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. NCR Atleos does not have any indemnification obligations to the Company in connection with the Ebina matter, and this remediation is expected to be completed during the remainder of the year or early next year.
Environmental-Related Insurance Recoveries In connection with the Fox River and other environmental sites, through December 31, 2017, NCR2023, the Company has received a combined gross total of approximately $202$212 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'sCompany’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 costs.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, but it has recovered some amounts as a result of settlement discussions with certain carriers. Claims with respect to Kalamazoo River defense costs have now been settled, with the amounts of those settlements included in the sum reported above.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Environmental Remediation Estimates It is difficult to estimate the future financial impact of environmental laws, including potential liabilities. NCRThe Company records environmental provisions when it is probable that a liability has been incurred and the amount or range of the liability is reasonably estimable.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'sthe Company’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 collectability of such amounts is probable, the amounts are recorded in the Consolidated Financial Statements. For the Fox River site,and Kalamazoo River sites, as described above, assets relating to the AT&T and Nokia indemnities and to the API/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, NCRthe Company 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, NCRthe Company 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. NCRThe Company believes the likelihood of having to perform under any such guarantee is remote. As of December 31, 20172023 and 2016, NCR2022, the Company had no material obligations related to such guarantees, and therefore its Consolidated Financial Statements do not have any associated liability balance.
NCRThe Company 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. Warranty reserve liabilities are presented in Other current liabilities and Other liabilities in the Consolidated Balance Sheets.
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 the years ended December 31 as follows:
|
| | | | | | | | | | | |
| In millions | 2017 | | 2016 | | 2015 |
| Warranty reserve liability | | | | | |
| Beginning balance as of January 1 | $ | 27 |
| | $ | 24 |
| | $ | 22 |
|
| Accruals for warranties issued | 43 |
| | 42 |
| | 41 |
|
| Settlements (in cash or in kind) | (44) |
| | (39) |
| | (39) |
|
| Ending balance as of December 31 | $ | 26 |
| | $ | 27 |
| | $ | 24 |
|
In addition, NCRthe Company provides its customers with certain indemnification rights.rights, subject to certain limitations and exceptions. In general, NCRsome cases, the Company agrees to defend and indemnify the customer if a third party assertsits customers from third-party lawsuits alleging patent or other infringement of Company solutions based on the part of its customers for itscustomers’ use of the Company’s products subject to certain conditions that are generally standard within the Company’s industries.them. On limited occasions the Company will undertake additional indemnification obligationsto indemnify a customer for business, rather than contractual, reasons. From time to time, NCRthe Company 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, certain limitations to liability and indemnity exclusions that appear in certain of the Company’s agreements, and the specific facts and circumstances involved with each particular agreement. TheHistorically, the Company has not recorded a liability in connection with these indemnifications, and no current indemnification instance is materialindemnifications. From time to the Company’s financial position. Historically, payments made bytime the Company has provided indemnification under these typescircumstances, none of agreements have not had awhich has resulted in material effect onliabilities, and the Company’s consolidated financial condition, results of operations or cash flows.Company expects these indemnities will continue to arise in the future.
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'sthe Company’s key transaction processing activities and functions are performed.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
12. LEASING
Leases NCR conducts certain
The following table presents our lease balances as of its salesDecember 31:
| | | | | | | | | | | | | | | |
| In millions | Location in the Consolidated Balance Sheet | | December 31, 2023 | December 31, 2022 | |
| Assets | | | | | |
| Operating lease assets | Operating lease assets | | $ | 236 | | $ | 272 | | |
| Finance lease assets | Property, plant and equipment, net | | 71 | | 59 | | |
| Accumulated Amortization of Finance lease assets | Property, plant and equipment, net | | (57) | | (49) | | |
| Total leased assets | | | $ | 250 | | $ | 282 | | |
| Liabilities | | | | | |
| Current | | | | | |
| Operating lease liabilities | Other current liabilities | | $ | 44 | | $ | 52 | | |
| Finance lease liabilities | Other current liabilities | | 8 | | 9 | | |
| Noncurrent | | | | | |
| Operating lease liabilities | Operating lease liabilities | | 254 | | 286 | | |
| Finance lease liabilities | Other liabilities | | 7 | | 3 | | |
| Total lease liabilities | | | $ | 313 | | $ | 350 | | |
| | | | | |
The following table presents our lease costs for operating and manufacturing operations using leased facilities, and also operates certain equipment and vehicles under leases,finance leases:
| | | | | | | | | | | |
| In millions | For the year ended December 31, 2023 | For the year ended December 31, 2022 | For the year ended December 31, 2021 |
| Operating lease cost | $ | 72 | | $ | 77 | | $ | 98 | |
| Finance lease cost | | | |
| Amortization of leased assets | 13 | | 13 | | 14 | |
| Interest on lease liabilities | 1 | | 1 | | 1 | |
| Short-Term lease cost | — | | 3 | | 3 | |
| Variable lease cost | 29 | | 23 | | 21 | |
| Sublease income | (3) | | — | | — | |
| Total lease cost | $ | 112 | | $ | 117 | | $ | 137 | |
The following table presents the initial lease termssupplemental cash flow information:
| | | | | | | | | | | |
| In millions | For the year ended December 31, 2023 | For the year ended December 31, 2022 | For the year ended December 31, 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 76 | | $ | 82 | | $ | 102 | |
| Operating cash flows from finance leases | $ | 1 | | $ | 1 | | $ | 1 | |
| Financing cash flows from finance leases | $ | 14 | | $ | 13 | | $ | 14 | |
| Lease Assets Obtained in Exchange for Lease Obligations | | | |
| Operating Leases | $ | 16 | | $ | 4 | | $ | 107 | |
| Finance Leases | $ | (1) | | $ | — | | $ | 2 | |
The following table reconciles the undiscounted cash flows for each of the leases contain renewal optionsfirst five years and escalation clauses that are not materialtotal of the remaining years to the overallfinance lease portfolio. Ourliabilities and operating lease obligations also include amounts owed for our future world headquarters in Atlanta. Due to ongoing construction, we assumed lease commencement in early 2018 and included assumptions regardingliabilities recorded on the total project cost, which will be used to determine our monthly rental expense. Future minimum lease payments under non-cancelable operating leasesConsolidated Balance Sheet as of December 31, 2023:
| | | | | | | | | | | | | | |
| In millions | | Operating Leases | | Finance Leases |
| 2024 | | $ | 61 | | | $ | 9 | |
| 2025 | | 46 | | | 6 | |
| 2026 | | 39 | | | 1 | |
| 2027 | | 39 | | | — | |
| 2028 | | 38 | | | — | |
| Thereafter | | 164 | | | — | |
| Total lease payments | | 387 | | | 16 | |
| Less: Amount representing interest | | 89 | | | 1 | |
| Present value of lease liabilities | | $ | 298 | | | $ | 15 | |
As of December 31, 2023, all material operating leases had commenced.
The following table presents the weighted average remaining lease term and interest rates:
| | | | | | | | | | | | |
| | December 31, 2023 | December 31, 2022 | |
| Weighted average lease term: | | | | |
| Operating leases | | 8.3 years | 8.8 years | |
| Finance leases | | 2.2 years | 1.2 years | |
| Weighted average interest rates: | | | | |
| Operating leases | | 6.14 | % | 6.01 | % | |
| Finance leases | | 3.38 | % | 3.08 | % | |
13. SERIES A PREFERRED STOCK
On December 4, 2015, the Company 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.
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, the Company entered into an agreement to repurchase and convert the outstanding 512,221 shares of Series A Convertible Preferred Stock owned by Blackstone. The Company 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 9.2 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 following fiscal years are:conversion of the remaining preferred shares into common stock.
|
| | | | | | | | | | | | | | | | | | | | |
| In millions | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| Minimum lease obligations | | $ | 135 |
| | $ | 96 |
| | $ | 65 |
| | $ | 49 |
| | $ | 41 |
|
On October 6, 2020, the Company 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, the Company 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.
Total rental expense
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. 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. During the years ended December 31, 2023, 2022 and 2021, the Company did not pay dividends-in-kind associated with the Series A Convertible Preferred Stock. Cash dividends of $15 million were declared during the years ended December 31, 2023, 2022 and 2021.
Conversion Features Prior to the close of business on October 17, 2023, the Series A Convertible Preferred Stock was convertible at the option of the holders at any time into shares of common stock at a conversion price of $30.00 per share or a conversion rate of 33.333 shares of common stock per share of Series A Convertible Preferred Stock. As a result of the Spin-Off, the conversion rate of the Series A Convertible Preferred Stock was adjusted pursuant to its terms to 57.560 shares of common stock per share of Series A Convertible Preferred Stock, effective immediately after the close of business on October 17, 2023. As of December 31, 2023 and 2022, 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 15.9 million and 9.2 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;
•the dividend, distribution or other issuance of rights, options or warrants to holders of Common Stock entitling them to subscribe for operating leasesor 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 $144greater 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.
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.
14. EARNINGS PER SHARE
Basic earnings per share (“EPS”) is calculated by dividing net income or loss attributable to NCR Voyix, less any dividends (declared or cumulative undeclared), deemed 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 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, unvested restricted stock units and stock options do not have non-forfeitable rights to common stock dividends or common stock dividend equivalents. Accordingly, the Series A Convertible Preferred Stock, unvested restricted stock units and stock options do not qualify as participating securities. See Note 9, “Stock Compensation Plans”, for share information on NCR Voyix’s stock compensation plans.
The components of basic and diluted earnings (loss) per share are as follows:
| | | | | | | | | | | | | | | | | |
| In millions, except per share amounts | Year ended December 31 |
| 2023 | | 2022 | | 2021 |
| Numerator: | | | | | |
| Income (loss) from continuing operations | $ | (586) | | | $ | (203) | | | $ | (337) | |
| Series A convertible preferred stock dividends | (16) | | | (16) | | | (16) | |
| Net income (loss) from continuing operations attributable to NCR Voyix common stockholders | (602) | | | (219) | | | (353) | |
| Income (loss) from discontinued operations, net of tax | 163 | | | 263 | | | 434 | |
| Net income (loss) attributable to NCR Voyix common stockholders | $ | (439) | | | $ | 44 | | | $ | 81 | |
| | | | | |
| Denominator: | | | | | |
| Basic and diluted weighted average number of shares outstanding | 140.6 | | | 136.7 | | | 131.2 | |
| | | | | |
| Basic and diluted earnings (loss) per share: | | | | | |
| From continuing operations | $ | (4.28) | | | $ | (1.60) | | | $ | (2.69) | |
| From discontinued operations | 1.16 | | | 1.92 | | | 3.31 | |
| Total basic and diluted earnings per share | $ | (3.12) | | | $ | 0.32 | | | $ | 0.62 | |
For 2023, due to the net loss from continuing operations attributable to NCR Voyix common stockholders, potential common shares that would cause dilution, such as Series A Convertible Preferred Stock, restricted stock units and stock options, were excluded from the diluted share count because their effect would have been anti-dilutive. The weighted average outstanding shares of common stock were not adjusted by 10.6 million in 2017, $132for the as-if converted Series A Convertible Preferred Stock because the effect would be anti-dilutive. Additionally, for 2023, weighted average restricted stock units and stock options of 12.1 million in 2016,were excluded from the diluted share count because their effect would have been anti-dilutive. Refer to Note 13, “Series A Convertible Preferred Stock”, for additional discussion related to the transaction impacting the Series A Convertible Preferred Stock.
For 2022, due to the net loss from continuing operations attributable to NCR Voyix common stockholders, potential common shares that would cause dilution, such as Series A Convertible Preferred Stock, restricted stock units and $148stock options, were excluded from the diluted share count because their effect would have been anti-dilutive. The weighted average outstanding shares of common stock were not adjusted by 9.2 million in 2015.for the as-if converted Series A Convertible Preferred Stock because the effect would be anti-dilutive. Additionally, for 2022, weighted average restricted stock units and stock options of 11.0 million were excluded from the diluted share count because their effect would have been anti-dilutive.
For 2021, due to the net loss from continuing operations attributable to NCR Voyix common stockholders, potential common shares that would cause dilution, such as Series A Convertible Preferred Stock, restricted stock units and stock options, were excluded from the diluted share count because their effect would have been anti-dilutive. The weighted average outstanding shares of common stock were not adjusted by 9.2 million for the as-if converted Series A Convertible Preferred Stock because the effect would have been anti-dilutive. Additionally, for 2021, weighted average restricted stock units and stock options of 12.5 million were excluded from the diluted share count because their effect would have been anti-dilutive. 10.
15. DERIVATIVES AND HEDGING INSTRUMENTS
NCRThe Company is exposed to certain risks arising from both our business operations and economic conditions. We principally manage exposures to a wide variety of business and operational risk through management of core business activities. We manage interest rate risk associated with changes in foreign currency exchange ratesour vault cash rental obligations and interest rates. NCR utilizes a varietyfloating rate-debt by managing the amount, sources, and duration of measures to monitordebt funding and manage these risks, including the use of derivative financial instruments. NCR has exposureThe Company previously used interest rate cap agreements or interest rate swap contracts (“Interest Rate Derivatives”) to approximately 50 functional currencies. Sincemanage differences in the amount, timing and duration of known or expected cash payments related to our previous TLA Facility.
Further, a substantial portion of our operations and revenue occur outside the U.S.,United States and, in currencies other thanas such, the U.S. Dollar, ourCompany has exposure to approximately 40 functional currencies. Our results can be significantly impacted, both positively and negatively, by changes in foreign currency exchange rates. The Company seeks to mitigate such impact by hedging its foreign currency transaction exposure using foreign currency forward and option contracts. We do not enter into hedges for speculative purposes.
Foreign Currency Exchange RiskThe 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.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)months), the subsidiaries are still subject to the effect of translating the functional currency results to U.S.United States 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’sthe Company’s marketing units and the foreign currency denominated inputs to our manufacturing units. If the hedge is designated as a highly effective cash flow hedge, the gains or losses are deferred into accumulated other comprehensive income (“AOCI”). The related foreign exchangegains or losses from derivative contracts that 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, 2017, the balance in AOCI related to foreign exchange derivative transactions was a loss of $1 million. 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. Otherwise, they are recorded in earnings when the exchange rates change. As of December 31, 2023, the balance in AOCI related to foreign exchange derivative transactions was zero.
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.
Interest Rate RiskThe Company was party to an interest rate swap agreement that fixed the interest rate on a portion of the Company's LIBOR indexed floating rate borrowings under its Senior Secured Credit Facility through August 22, 2016. The Company designated the interest rate swapdesignates Interest Rate Derivative contracts as a cash flow hedgehedges of forecasted quarterly interest payments made on three-month LIBOR indexed borrowings under the Senior Secured Credit Facility. The interest rate swap wastransactions when they are determined to be highly effective at inception.
We utilize interest rate swap contracts or interest rate cap agreements to add stability to interest cost and to manage exposure to interest rate movements as part of our interest rate risk management strategy. Payments and receipts related to Interest Rate Derivatives are included in cash flows from operating activities in the Consolidated Statements of Cash Flows.
In March 2022, the Company terminated the outstanding $2 billion notional amount interest rate cap agreements maturing in 2024 for proceeds of $64 million. The gains will be recognized ratably through July 1, 2024, corresponding to the term of the original interest rate cap agreements.
In March 2022, the Company executed $2.2 billion aggregate notional amount interest rate swap contracts that began April 1, 2022 and had an original termination date of April 1, 2025. These interest rate swap contracts had fixed rates ranging from 2.078% to 2.443%, and were designated as cash flow hedges of the floating rate interest associated with the Company’s TLA Facility.
In June 2022, the Company terminated the outstanding $2.4 billion aggregate notional interest rate swap contracts maturing in 2025 for proceeds of $55 million. The gains will be recognized ratably primarily through April 1, 2025, corresponding to the term of the original interest rate swap agreements.
As of September 30, 2023, it was determined that the transactions underlying the unrealized gains on terminated interest rate swap agreement for the TLA facility reported in Accumulated other comprehensive income were probable of not occurring under ASC 815, Derivatives and Hedging. As such, $18 million of unrealized gains were recognized in Interest Expense in the Consolidated Statements of Operations for the year ended December 31, 2023.As of December 31, 2023 and December 31, 2022, the balance in AOCI related to Interest Rate Derivatives was zero and $109 million, respectively.
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 | | | Fair Values of Derivative Instruments |
| December 31, 2023 | | | December 31, 2023 |
| In millions | | In millions | Balance Sheet Location | | Notional
Amount | | Fair
Value | | Balance Sheet Location | | Notional
Amount | | Fair
Value |
| | | | Fair Values of Derivative Instruments |
| | December 31, 2017 |
| In millions | Balance Sheet Location | | Notional Amount | | Fair Value | | Balance Sheet Location | | Notional Amount | | Fair Value |
| Derivatives designated as hedging instruments | |
| Derivatives not designated as hedging instruments | |
| | Derivatives not designated as hedging instruments | |
| | Derivatives not designated as hedging instruments | |
| Foreign exchange contracts | Other current assets | | $104 | | $— | | Other current liabilities | | $142 | | $1 |
| Total derivatives designated as hedging instruments | | $— | | $1 |
| Derivatives not designated as hedging instruments | |
| Foreign exchange contracts | |
| Foreign exchange contracts | Other current assets | | $101 | | $1 | | Other current liabilities | | $292 | | $1 |
| Total derivatives not designated as hedging instruments | | $1 | | $1 |
| Total derivatives | | $1 | | $2 |
| | |
| | Fair Values of Derivative Instruments |
| | December 31, 2016 |
| | | Fair Values of Derivative Instruments |
| | | | December 31, 2022 |
| In millions | Balance Sheet Location | | Notional Amount | | Fair Value | | Balance Sheet Location | | Notional Amount | | Fair Value | In millions | Balance Sheet Location | | Notional
Amount | | Fair
Value | | Balance Sheet Location | | Notional
Amount | | Fair
Value |
| Derivatives designated as hedging instruments | |
| | Derivatives not designated as hedging instruments | |
| | Derivatives not designated as hedging instruments | |
| | Derivatives not designated as hedging instruments | |
| Foreign exchange contracts | Other current assets | | $251 | | $18 | | Other current liabilities | | $56 | | $1 |
| Total derivatives designated as hedging instruments | | $18 | | $1 |
| Derivatives not designated as hedging instruments | |
| Foreign exchange contracts | |
| Foreign exchange contracts | Other current assets | | $165 | | $1 | | Other current liabilities | | $218 | | $1 |
| Total derivatives not designated as hedging instruments | | $1 | | $1 |
| Total derivatives | | $19 | | $2 |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
The effects of derivative instruments on the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| In millions | Amount of Gain (Loss) Recognized in Other Comprehensive Income (OCI) on Derivative | | | | Amount of (Gain) Loss Reclassified from AOCI into the Consolidated Statements of Operations |
| Derivatives in Cash Flow Hedging Relationships | For the year ended December 31, 2023 | | For the year ended December 31, 2022 | | For the year ended December 31, 2021 | | Location of (Gain) Loss Reclassified from AOCI into the Consolidated Statements of Operations | | For the year ended December 31, 2023 | | For the year ended December 31, 2022 | | For the year ended December 31, 2021 |
| Interest rate contracts | $ | — | | | $ | 116 | | | $ | 5 | | | Cost of services | | $ | — | | | $ | (8) | | | $ | 1 | |
| Interest rate contracts | $ | — | | | $ | 36 | | | $ | 4 | | | Interest expense | | $ | (31) | | | $ | (10) | | | $ | — | |
| | | | | | | | | | | | | |
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| In millions | | | Amount of Gain (Loss) Recognized in the Consolidated Statements of Operations |
| Derivatives not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in the Consolidated Statements of Operations | | For the year ended December 31, 2023 | | For the year ended December 31, 2022 | | For the year ended December 31, 2021 |
| Foreign exchange contracts | Other income (expense), net | | $ | (8) | | | $ | (15) | | | $ | (12) | |
| | | | | | | |
The following tables show the impact of the Company’s cash flow hedge accounting relationships on the Consolidated Statement of Operations for the years ended December 31, were as follows:2023, 2022, and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Location and Amount of (Gain) Loss Recognized in Income on Cash Flow Hedging Relationships for the years ended December 31: |
| In millions | | Cost of Services | | Cost of Products | | Interest Expense |
| | 2023 | 2022 | 2021 | | 2023 | 2022 | 2021 | | 2023 | 2022 | 2021 |
| Total amount of expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded | | $ | 1,758 | | $ | 1,664 | | $ | 1,735 | | | $ | 1,110 | | $ | 1,151 | | $ | 1,032 | | | $ | (294) | | $ | (285) | | $ | (238) | |
| | | | | | | | | | | | |
| Amount of (gain) loss reclassified from Accumulated other comprehensive loss, net of expense | | $ | — | | $ | (8) | | $ | 1 | | | $ | — | | $ | — | | $ | — | | | $ | (31) | | $ | (10) | | $ | — | |
|
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| 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) | | Amount of (Gain) Loss Recognized in the Consolidated Statement of Operations (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| Derivatives in Cash Flow Hedging Relationships | For the year ended December 31, 2017 | For the year ended December 31, 2016 | For the year ended December 31, 2015 | Location of (Gain) Loss Reclassified from AOCI into the Consolidated Statement of Operations (Effective Portion) | For the year ended December 31, 2017 | For the year ended December 31, 2016 | For the year ended December 31, 2015 | Location of (Gain) Loss Recognized in the Consolidated Statement of Operations (Ineffective Portion and Amount Excluded from Effectiveness Testing) | For the year ended December 31, 2017 | For the year ended December 31, 2016 | For the year ended December 31, 2015 |
| Interest rate swap | $— | $— | $(2) | Interest expense | $— | $2 | $5 | Interest expense | $— | $— | $— |
| Foreign exchange contracts | $(16) | $19 | $12 | Cost of products | $(1) | $(3) | $(12) | Other (expense), net | $— | $— | $— |
|
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| 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, 2017 | | For the year ended December 31, 2016 | | For the year ended December 31, 2015 |
| Foreign exchange contracts | Other (expense), net | | $(4) | | $(1) | | $(5) |
Refer to Note 11,16, “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
NCRThe Company 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’sNCR Voyix’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, 20172023 and 2016, NCR2022, the Company did not have any major concentration of credit risk related to financial instruments.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
11.16. 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, 20172023 and 20162022 are set forth as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2023 | | | | December 31, 2022 |
| | | Fair Value Measurements Using | | | | Fair Value Measurements Using |
| In millions | December 31, 2023 | | Quoted Prices
in Active
Markets
for Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable Inputs
(Level 3) | | December 31, 2022 | | 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) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 16 | | | $ | 16 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
Foreign exchange contracts(2) | 5 | | | — | | | 5 | | | — | | | 1 | | | — | | | 1 | | | — | |
| | | | | | | | | | | | | | | |
| Total | $ | 5 | | | $ | — | | | $ | 5 | | | $ | — | | | $ | 17 | | | $ | 16 | | | $ | 1 | | | $ | — | |
| Liabilities: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Foreign exchange contracts(3) | 4 | | | — | | | 4 | | | — | | | 2 | | | — | | | 2 | | | — | |
| Total | $ | 4 | | | $ | — | | | $ | 4 | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 2 | | | $ | — | |
|
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| | December 31, 2017 | | | December 31, 2016 |
| | | Fair Value Measurements Using | | | Fair Value Measurements Using |
| In millions | December 31, 2017 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | | December 31, 2016 | 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) | $90 | $90 | $— | $— | | $5 | $5 | $— | $— |
Foreign exchange contracts (2) | 1 | — | 1 | — | | 19 | — | 19 | — |
| Total | $91 | $90 | $1 | $— | | $24 | $5 | $19 | $— |
| Liabilities: | | | | | | | | | |
Foreign exchange contracts (3) | 2 | — | 2 | — | | 2 | — | 2 | — |
| Total | $2 | $— | $2 | $— | | $2 | $— | $2 | $— |
(1)Included in Cash and cash equivalents in the Consolidated Balance Sheet.Sheets.
(2)Included in OtherPrepaid and other current assets in the Consolidated Balance Sheet.Sheets.
(3)Included in Other current liabilities in the Consolidated Balance Sheet.Sheets.
Deposits Held in Money Market Mutual Funds A portion of the Company’s excess cash is held in money market mutual funds whichthat 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 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.
We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements. We measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments utilize Level 3 inputs to evaluate the likelihood of both our own default and counterparty default. As of December 31, 2023, we determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives and therefore, the valuations are classified in Level 2 of the fair value hierarchy.
Assets Measured at Fair Value on a Non-recurring Basis
CertainFrom time to time, certain assets have beenare measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). NCRThe Company 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, NCRthe Company 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. NCRThe Company carries equity investments in privately-held companies at cost or at fair value when NCRthe Company recognizes an other-than-temporary impairment charge.
No material impairment charges or material non-recurring fair value adjustments were recorded during the years ended December 31, 20172023, December 31, 2022 and December 31, 2016.
As of December 31, 2015, we determined that it was probable that we would dispose of our IPS business, which triggered an impairment assessment of the related assets which include long-lived assets and goodwill. The assets related to the IPS business were valued using a market approach based on an independent third-party market price. Refer to Note 2, "Business Combinations and Divestitures" for additional discussion. On May 27, 2016, NCR completed the sale of all but the Middle East and Africa (MEA) assets of its Interactive Printer Solutions (IPS) business to Atlas Holdings LLC.
2021.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
12. SEGMENT INFORMATION AND CONCENTRATIONS
The Company manages and reports the following three segments:
Software - Our software offerings include industry-based software platforms, applications and application suites for the financial services, retail, hospitality and small business industries. We also offer a portfolio of other industry-oriented software applications including cash management software, video banking software, fraud and loss prevention applications, check and document imaging, remote-deposit capture and customer-facing mobile and digital banking applications for the financial services industry; and secure electronic and mobile payment solutions, sector-specific point of sale software applications, and back-office inventory and store and restaurant management applications for the retail and hospitality industries. Additionally, we provide ongoing software support and maintenance services, as well as consulting and implementation services for our software solutions.
Services - Our global end-to-end services solutions include assessment and preparation, staging, installation, implementation, and maintenance and support for our solutions. We also provide systems management and complete managed services for our product offerings. In addition, we provide installation, maintenance and servicing for third party networking products and computer hardware from select manufacturers.
Hardware - Our hardware solutions include our suite of financial-oriented self-service ATM-related hardware, and our retail- and hospitality-oriented point of sale terminal, self-checkout kiosk and related hardware. We also offer other self-service kiosks, such as self-check in/out kiosks for airlines, and wayfinding solutions for buildings and campuses.
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. Intersegment 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 | | 2017 | | 2016 | | 2015 |
| Revenue by segment | | | | | | |
| Software | | $ | 1,900 |
| | $ | 1,841 |
| | $ | 1,747 |
|
| Services | | 2,373 |
| | 2,306 |
| | 2,218 |
|
Hardware (1) | | 2,243 |
| | 2,396 |
| | 2,408 |
|
| Consolidated revenue | | 6,516 |
| | 6,543 |
| | 6,373 |
|
| Operating income by segment | | | | | | |
| Software | | 567 |
| | 577 |
| | 539 |
|
| Services | | 288 |
| | 201 |
| | 194 |
|
Hardware (1) | | (2 | ) | | 62 |
| | 87 |
|
| Subtotal - segment operating income | | 853 |
| | 840 |
| | 820 |
|
Other adjustments(2) | | 177 |
| | 241 |
| | 685 |
|
| Income from operations | | $ | 676 |
| | $ | 599 |
| | $ | 135 |
|
| |
(1)
| On May 27, 2016, NCR completed the sale of substantially all of its IPS business to Atlas Holdings. The sale included all dedicated assets of the IPS division worldwide, other than in the MEA region. Accordingly, the revenue and operating income results exclude the results of the IPS operations, except for the IPS MEA operations, from May 27, 2016 through the end of the fourth quarter of 2016. |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
(2) The following table presents the other adjustments for NCR for the years ended December 31:
|
| | | | | | | | | | | | |
| In millions | | 2017 | | 2016 | | 2015 |
| Pension mark-to-market adjustments | | $ | 28 |
| | $ | 85 |
| | $ | 454 |
|
| Restructuring/transformation costs | | 29 |
| | 26 |
| | 74 |
|
| Acquisition-related amortization of intangible assets | | 115 |
| | 123 |
| | 125 |
|
| Acquisition-related costs | | 5 |
| | 7 |
| | 11 |
|
| OFAC and FCPA investigations | | — |
| | — |
| | 1 |
|
| Reserve related to subcontract in MEA | | — |
| | — |
| | 20 |
|
| Total other adjustments | | $ | 177 |
| | $ | 241 |
| | $ | 685 |
|
The following table presents revenue from products and services for NCR for the years ended December 31:
|
| | | | | | | | | | | | |
| In millions | | 2017 | | 2016 | | 2015 |
| Product revenue | | $ | 2,579 |
| | $ | 2,737 |
| | $ | 2,711 |
|
| Professional services and installation services revenue | | 1,055 |
| | 1,011 |
| | 944 |
|
| Recurring revenue, including maintenance and cloud revenue | | 2,882 |
| | 2,795 |
| | 2,718 |
|
| Total revenue | | $ | 6,516 |
| | $ | 6,543 |
| | $ | 6,373 |
|
Revenue is attributed to the geographic area/country 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 | | 2017 | | % | | 2016 | | % | | 2015 | | % |
| Revenue by Geographic Area | | | | | | | | | | | | |
| United States | | $ | 3,224 |
| | 50 | % | | $ | 3,106 |
| | 47 | % | | $ | 2,909 |
| | 46 | % |
| Americas (excluding United States) | | 585 |
| | 9 | % | | 637 |
| | 10 | % | | 590 |
| | 9 | % |
| Europe, Middle East and Africa (EMEA) | | 1,786 |
| | 27 | % | | 1,896 |
| | 29 | % | | 1,964 |
| | 31 | % |
| Asia Pacific (APJ) | | 921 |
| | 14 | % | | 904 |
| | 14 | % | | 910 |
| | 14 | % |
| Consolidated revenue | | $ | 6,516 |
| | 100 | % | | $ | 6,543 |
| | 100 | % | | $ | 6,373 |
| | 100 | % |
The following table presents property, plant and equipment by geographic area as of December 31:
|
| | | | | | | | |
| In millions | | 2017 | | 2016 |
| Property, plant and equipment, net | | | | |
| United States | | $ | 204 |
| | $ | 139 |
|
| Americas (excluding United States) | | 19 |
| | 21 |
|
| Europe, Middle East and Africa (EMEA) | | 75 |
| | 70 |
|
| Asia Pacific (APJ) | | 43 |
| | 57 |
|
| Consolidated property, plant and equipment, net | | $ | 341 |
| | $ | 287 |
|
Concentrations No single customer accounts for more than 10% of NCR’s consolidated revenue. As of December 31, 2017, 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.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
13.17. ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in Accumulated Other Comprehensive Income (AOCI)(“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, 2020 | $ | (245) | | | $ | (26) | | | $ | — | | | $ | (271) | |
| Other comprehensive (loss) income before reclassifications | (30) | | | 4 | | | 7 | | | (19) | |
| Amounts reclassified from AOCI | — | | | (2) | | | 1 | | | (1) | |
| Net current period other comprehensive (loss) income | (30) | | | 2 | | | 8 | | | (20) | |
| Balance at December 31, 2021 | $ | (275) | | | $ | (24) | | | $ | 8 | | | $ | (291) | |
| Other comprehensive (loss) income before reclassifications | (129) | | | 21 | | | 117 | | | 9 | |
| Amounts reclassified from AOCI | — | | | (2) | | | (16) | | | (18) | |
| Net current period other comprehensive (loss) income | (129) | | | 19 | | | 101 | | | (9) | |
| Balance at December 31, 2022 | $ | (404) | | | $ | (5) | | | $ | 109 | | | $ | (300) | |
| Other comprehensive (loss) income before reclassifications | $ | 85 | | | $ | (7) | | | $ | — | | | $ | 78 | |
| Amounts reclassified from AOCI | — | | | (1) | | | (24) | | | (25) | |
| Net current period other comprehensive (loss) income | $ | 85 | | | $ | (8) | | | $ | (24) | | | $ | 53 | |
| Spin-Off of NCR Atleos | (105) | | | 8 | | | (85) | | | (182) | |
| Balance at December 31, 2023 | $ | (424) | | | $ | (5) | | | $ | — | | | $ | (429) | |
|
| | | | | | | | | | | | | | | |
| In millions | Currency Translation Adjustments | | Changes in Employee Benefit Plans | | Changes in Fair Value of Effective Cash Flow Hedges | | Total |
| Balance at December 31, 2014 | $ | (125 | ) | | $ | (8 | ) | | $ | (3 | ) | | $ | (136 | ) |
| Other comprehensive (loss) income before reclassifications | (47 | ) | | 43 |
| | 8 |
| | 4 |
|
| Amounts reclassified from AOCI | — |
| | (12 | ) | | (6 | ) | | (18 | ) |
| Net current period other comprehensive (loss) income | (47 | ) | | 31 |
| | 2 |
| | (14 | ) |
| Balance at December 31, 2015 | $ | (172 | ) | | $ | 23 |
| | $ | (1 | ) | | $ | (150 | ) |
| Other comprehensive (loss) income before reclassifications | (52 | ) | | (1 | ) | | 16 |
| | (37 | ) |
| Amounts reclassified from AOCI | — |
| | (16 | ) | | (2 | ) | | (18 | ) |
| Net current period other comprehensive (loss) income | (52 | ) | | (17 | ) | | 14 |
| | (55 | ) |
| Balance at December 31, 2016 | $ | (224 | ) | | $ | 6 |
| | $ | 13 |
| | $ | (205 | ) |
| Other comprehensive (loss) income before reclassifications | 41 |
| | (13 | ) | | (13 | ) | | 15 |
|
| Amounts reclassified from AOCI | — |
| | (8 | ) | | (1 | ) | | (9 | ) |
| Net current period other comprehensive (loss) income | 41 |
| | (21 | ) | | (14 | ) | | 6 |
|
| Balance at December 31, 2017 | $ | (183 | ) | | $ | (15 | ) | | $ | (1 | ) | | $ | (199 | ) |
Reclassifications Out of AOCI
The reclassifications out of AOCI for the years ended December 31 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, 2023 |
| 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 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Cost of services | (1) | | | (1) | | | — | | | (2) | |
| Selling, general and administrative expenses | — | | | — | | | — | | | — | |
| Research and development expenses | — | | | — | | | — | | | — | |
| Interest expense | — | | | — | | | (31) | | | (31) | |
| Total before tax | $ | (1) | | | $ | (1) | | | $ | (31) | | | $ | (33) | |
| Tax expense | | | | | | | 8 | |
| Total reclassifications, net of tax | | | | | | | $ | (25) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, 2022 |
| 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 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Cost of services | (1) | | | (1) | | | (8) | | | (10) | |
| Selling, general and administrative expenses | 1 | | | (1) | | | — | | | — | |
| Research and development expenses | — | | | — | | | — | | | — | |
| Interest expense | — | | | — | | | (10) | | | (10) | |
| Total before tax | $ | — | | | $ | (2) | | | $ | (18) | | | $ | (20) | |
| Tax expense | | | | | | | 2 | |
| Total reclassifications, net of tax | | | | | | | $ | (18) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, 2021 |
| | 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 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Cost of services | — | | | (2) | | | 1 | | | (1) | |
| Selling, general and administrative expenses | (1) | | | — | | | — | | | (1) | |
| Research and development expenses | — | | | 1 | | | — | | | 1 | |
| | | | | | | | |
| Total before tax | $ | (1) | | | $ | (1) | | | $ | 1 | | | $ | (1) | |
| Tax expense | | | | | | | — | |
| Total reclassifications, net of tax | | | | | | | $ | (1) | |
|
| | | | | | | | | | | | | | | | |
| | | For the year ended December 31, 2017 |
| | 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 | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | (1 | ) |
| | Cost of services | (1 | ) | | (6 | ) | | — |
| | (7 | ) |
| | Selling, general and administrative expenses | — |
| | (4 | ) | | — |
| | (4 | ) |
| | Research and development expenses | (1 | ) | | (1 | ) | | — |
| | (2 | ) |
| | Total before tax | $ | (2 | ) | | $ | (11 | ) | | $ | (1 | ) | | $ | (14 | ) |
| | Tax expense | | | | | | | 5 |
|
| | Total reclassifications, net of tax | | | | | | | $ | (9 | ) |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | |
|
| For the year ended December 31, 2016 |
| 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 | $ | — |
| | $ | — |
| | $ | (3 | ) | | $ | (3 | ) |
| Cost of services | (1 | ) | | (10 | ) | | — |
|
| (11 | ) |
| Selling, general and administrative expenses | — |
| | (6 | ) | | — |
|
| (6 | ) |
| Research and development expenses | (1 | ) | | (3 | ) | | — |
|
| (4 | ) |
| Interest expense | — |
| | — |
| | 2 |
|
| 2 |
|
| Total before tax | $ | (2 | ) | | $ | (19 | ) | | $ | (1 | ) |
| $ | (22 | ) |
| Tax expense |
| |
| |
|
| 4 |
|
| Total reclassifications, net of tax |
| |
| |
|
| $ | (18 | ) |
|
| | | | | | | | | | | | | | | | |
| | | For the year ended December 31, 2015 |
| | | 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 | $ | — |
| | $ | (1 | ) | | $ | (12 | ) | | $ | (13 | ) |
| | Cost of services | 1 |
| | (9 | ) | | — |
| | (8 | ) |
| | Selling, general and administrative expenses | 1 |
| | (7 | ) | | — |
| | (6 | ) |
| | Research and development expenses | — |
| | (4 | ) | | — |
| | (4 | ) |
| | Interest expense | — |
| | — |
| | 5 |
| | 5 |
|
| | Total before tax | $ | 2 |
| | $ | (21 | ) | | $ | (7 | ) | | $ | (26 | ) |
| | Tax expense | | | | | | | 8 |
|
| | Total reclassifications, net of tax | | | | | | | $ | (18 | ) |
14. RESTRUCTURING PLAN
In July 2014, we announced a restructuring plan to strategically reallocate resources so that we can focus on higher-growth, higher-margin opportunities in the software-driven omni-channel industry. The program is centered on ensuring that our people and processes are aligned with our continued transformation and includes: rationalizing our product portfolio to eliminate overlap and redundancy; taking steps to end-of-life older commodity product lines that are costly to maintain and provide low margins; moving lower productivity services positions to our new centers of excellence due to the positive impact of services innovation; and reducing layers of management and organizing around divisions to improve decision-making, accountability and strategic execution. As of March 31, 2017, this plan was complete.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
Charges related to the restructuring plan for the years ended December 31 were as follows:
|
| | | | | | | | | | | |
| | For the twelve months ended December 31 |
| In millions | 2017 | | 2016 | | 2015 |
| Severance and other employee-related costs | | | | | |
| ASC 712 charges included in restructuring-related charges | $ | — |
| | $ | 4 |
| | $ | 1 |
|
| ASC 420 charges included in restructuring-related charges | — |
| | — |
| | 19 |
|
| Inventory-related charges | | | | | |
| Charges included in cost of products | — |
| | — |
| | 5 |
|
| Charges included in cost of services | — |
| | 4 |
| | 7 |
|
| Asset-related charges | | | | | |
| External and internal use software impairment charges included in restructuring-related charges | — |
| | 2 |
| | 16 |
|
| Impairment of long-lived assets included in restructuring-related charges | — |
| | — |
| | 13 |
|
| Other exit costs | | | | | |
| Other exit costs included in restructuring-related charges | — |
| | 9 |
| | 13 |
|
| Total restructuring-related charges | $ | — |
| | $ | 19 |
| | $ | 74 |
|
In the year ended December 31, 2016, asset-related charges include the write-off of certain capitalized software for projects that have been abandoned. In the year ended December 31, 2015, asset-related charges include the write-off of certain capitalized software for projects that have been abandoned as well as an impairment of long-lived assets that are no longer considered strategic and were sold.
The results by segment, as disclosed in Note 12, “Segment Information and Concentrations” exclude the impact of these costs, which is consistent with the manner by which management assesses the performance and evaluates the results of each segment.
The following table summarizes the costs recorded in accordance with ASC 420, Exit or Disposal Cost Obligations, and ASC 712, Employers’ Accounting for Postemployment Benefits, and the remaining liabilities as of December 31, 2017 and 2016, which are included in the Consolidated Balance Sheet in other current liabilities.
|
| | | |
| In millions | 2017 | | 2016 |
| Employee Severance and Other Exit Costs | | | |
| Beginning balance as of January 1 | $1 | | $20 |
| Cost recognized during the period | — | | 15 |
| Change in estimated payments | — | | (2) |
| Utilization | (1) | | (32) |
| Ending balance as of December 31 | $— | | $1 |
15.18. SUPPLEMENTAL FINANCIAL INFORMATION
The components of otherOther income (expense), net are summarized as follows for the years ended December 31:
|
| | | | | | | | | | | | |
| In millions | | 2017 | | 2016 | | 2015 |
| Other (expense), net | | | | | | |
| Interest income | | $ | 3 |
| | $ | 4 |
| | $ | 5 |
|
| Foreign currency fluctuations and foreign exchange contracts | | (26 | ) | | (40 | ) | | (21 | ) |
| Divestiture and liquidation losses | | — |
| | (6 | ) | | (34 | ) |
| Other, net | | (8 | ) | | (8 | ) | | (7 | ) |
| Total other (expense), net | | $ | (31 | ) | | $ | (50 | ) | | $ | (57 | ) |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
The components of accounts receivable are summarized as follows:
|
| | | | | | | |
| In millions | December 31, 2017 | | December 31, 2016 |
| Accounts receivable | | | |
| Trade | $ | 1,270 |
| | $ | 1,266 |
|
| Other | 37 |
| | 57 |
|
| Accounts receivable, gross | 1,307 |
| | 1,323 |
|
| Less: allowance for doubtful accounts | (37 | ) | | (41 | ) |
| Total accounts receivable, net | $ | 1,270 |
| | $ | 1,282 |
|
The components of inventory are summarized as follows:
|
| | | | | | | |
| In millions | December 31, 2017 | | December 31, 2016 |
| Inventories | | | |
| Work in process and raw materials | $ | 185 |
| | $ | 154 |
|
| Finished goods | 190 |
| | 149 |
|
| Service parts | 405 |
| | 396 |
|
| Total inventories | $ | 780 |
| | $ | 699 |
|
The components of property, plant and equipment are summarized as follows:
|
| | | | | | | |
| In millions | December 31, 2017 | | December 31, 2016 |
| Property, plant and equipment | | | |
| Land and improvements | $ | 7 |
| | $ | 6 |
|
| Buildings and improvements | 278 |
| | 198 |
|
| Machinery and other equipment | 633 |
| | 598 |
|
| Property, plant and equipment, gross | 918 |
| | 802 |
|
| Less: accumulated depreciation | (577 | ) | | (515 | ) |
| Total property, plant and equipment, net | $ | 341 |
| | $ | 287 |
|
16. GUARANTOR FINANCIAL STATEMENTS
The Company's 5.00% Notes, 4.625% Notes, 5.875% Notes and 6.375% Notes are guaranteed by | | | | | | | | | | | | | | | | | | | | |
| In millions | | 2023 | | 2022 | | 2021 |
| Other income (expense), net | | | | | | |
| Interest income | | $ | 13 | | | $ | 13 | | | $ | 8 | |
| Foreign currency fluctuations and foreign exchange contracts | | (28) | | | (17) | | | (2) | |
| Bank-related fees | | (28) | | | (9) | | | (27) | |
Employee benefit plans(1) | | (8) | | | 40 | | | 9 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Other, net | | (28) | | | (9) | | | (1) | |
| Total other income (expense), net | | $ | (79) | | | $ | 18 | | | $ | (13) | |
(1) For the Company's subsidiary, NCR International, Inc. (Guarantor Subsidiary), which is 100% owned by the Company and has guaranteed fully and unconditionally the obligations to pay principal and interest for these senior unsecured notes. The guarantees are subject to release under certain circumstances as described below:
the designation of the Guarantor Subsidiary as an unrestricted subsidiary under the indenture governing the notes;
the release of the Guarantor Subsidiary from its guarantee under the Senior Secured Credit Facility;
the release or discharge of the indebtedness that required the guarantee of the notes by the Guarantor Subsidiary;
the permitted sale or other disposition of the Guarantor Subsidiary to a third party; and
the Company's exercise of its legal defeasance option of its covenant defeasance option under the indenture governing the notes.
Refer to Note 5, "Debt Obligations" for additional information.
In connection with the previously completed exchange offers for the 5.00% Notes, 4.625% Notes, 5.875% Notes and 6.375% Notes, the Company is required to comply with Rule 3-10 of SEC Regulation S-X (Rule 3-10), and has therefore included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(f) of SEC Regulation S-X.
The following supplemental information sets forth, on a consolidating basis, the condensed statements of operations and comprehensive income (loss), the condensed balance sheets and the condensed statements of cash flows for the parent issuer of
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
these senior unsecured notes, for the Guarantor Subsidiary and for the Company and all of its consolidated subsidiaries. As of October 1, 2017, certain non-guarantor subsidiaries were acquired by, and merged into, the parent issuer. Accordingly, all prior period condensed consolidating guarantor financial statements were updated to reflect the mergers.
|
| | | | | | | | | | | | | | | | | | | |
| Consolidating Statements of Operations and Comprehensive Income (Loss) |
| For the year ended December 31, 2017 |
| | | | | | | | | | |
| (in millions) | Parent Issuer | | Guarantor Subsidiary | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Product revenue | $ | 1,329 |
| | $ | 91 |
| | $ | 1,454 |
| | $ | (295 | ) | | $ | 2,579 |
|
| Service revenue | 2,051 |
| | 29 |
| | 1,857 |
| | — |
| | 3,937 |
|
| Total revenue | 3,380 |
| | 120 |
| | 3,311 |
| | (295 | ) | | 6,516 |
|
| Cost of products | 1,044 |
| | 37 |
| | 1,240 |
| | (295 | ) | | 2,026 |
|
| Cost of services | 1,378 |
| | 10 |
| | 1,238 |
| | — |
| | 2,626 |
|
| Selling, general and administrative expenses | 502 |
| | 3 |
| | 427 |
| | — |
| | 932 |
|
| Research and development expenses | 192 |
| | — |
| | 64 |
| | — |
| | 256 |
|
| Restructuring-related charges | — |
| | — |
| | — |
| | — |
| | — |
|
| Total operating expenses | 3,116 |
| | 50 |
| | 2,969 |
| | (295 | ) | | 5,840 |
|
| Income (loss) from operations | 264 |
| | 70 |
| | 342 |
| | — |
| | 676 |
|
| Interest expense | (204 | ) | | — |
| | (10 | ) | | 51 |
| | (163 | ) |
| Other (expense) income, net | 11 |
| | 1 |
| | 8 |
| | (51 | ) | | (31 | ) |
| Income (loss) from continuing operations before income taxes | 71 |
| | 71 |
| | 340 |
| | — |
| | 482 |
|
| Income tax expense (benefit) | 113 |
| | 107 |
| | 22 |
| | — |
| | 242 |
|
| Income (loss) from continuing operations before earnings in subsidiaries | (42 | ) | | (36 | ) | | 318 |
| | — |
| | 240 |
|
| Equity in earnings of consolidated subsidiaries | 279 |
| | 291 |
| | — |
| | (570 | ) | | — |
|
| Income (loss) from continuing operations | 237 |
| | 255 |
| | 318 |
| | (570 | ) | | 240 |
|
| Income (loss) from discontinued operations, net of tax | (5 | ) | | — |
| | — |
| | — |
| | (5 | ) |
| Net income (loss) | $ | 232 |
| | $ | 255 |
| | $ | 318 |
| | $ | (570 | ) | | $ | 235 |
|
| Net income (loss) attributable to noncontrolling interests | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
| Net income (loss) attributable to NCR | $ | 232 |
| | $ | 255 |
| | $ | 315 |
| | $ | (570 | ) | | $ | 232 |
|
| Total comprehensive income (loss) | 238 |
| | 269 |
| | 317 |
| | (585 | ) | | 239 |
|
| Less comprehensive income (loss) attributable to noncontrolling interests | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Comprehensive income (loss) attributable to NCR common stockholders | $ | 238 |
| | $ | 269 |
| | $ | 316 |
| | $ | (585 | ) | | $ | 238 |
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Consolidating Statements of Operations and Comprehensive Income (Loss) |
| For the year ended December 31, 2016 |
| | | | | | | | | | |
| (in millions) | Parent Issuer | | Guarantor Subsidiary | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Product revenue | $ | 1,293 |
| | $ | 111 |
| | $ | 1,768 |
| | $ | (435 | ) | | $ | 2,737 |
|
| Service revenue | 1,962 |
| | 36 |
| | 1,808 |
| | — |
| | 3,806 |
|
| Total revenue | 3,255 |
| | 147 |
| | 3,576 |
| | (435 | ) | | 6,543 |
|
| Cost of products | 1,028 |
| | 50 |
| | 1,459 |
| | (435 | ) | | 2,102 |
|
| Cost of services | 1,369 |
| | 12 |
| | 1,278 |
| | — |
| | 2,659 |
|
| Selling, general and administrative expenses | 534 |
| | 4 |
| | 388 |
| | — |
| | 926 |
|
| Research and development expenses | 164 |
| | — |
| | 78 |
| | — |
| | 242 |
|
| Restructuring-related charges | 3 |
| | — |
| | 12 |
| | — |
| | 15 |
|
| Total operating expenses | 3,098 |
| | 66 |
| | 3,215 |
| | (435 | ) | | 5,944 |
|
| Income (loss) from operations | 157 |
| | 81 |
| | 361 |
| | — |
| | 599 |
|
| Interest expense | (165 | ) | | — |
| | (10 | ) | | 5 |
| | (170 | ) |
| Other (expense) income, net | (20 | ) | | (23 | ) | | (2 | ) | | (5 | ) | | (50 | ) |
| Income (loss) from continuing operations before income taxes | (28 | ) | | 58 |
| | 349 |
| | — |
| | 379 |
|
| Income tax expense (benefit) | (20 | ) | | 21 |
| | 91 |
| | — |
| | 92 |
|
| Income (loss) from continuing operations before earnings in subsidiaries | (8 | ) | | 37 |
| | 258 |
| | — |
| | 287 |
|
| Equity in earnings of consolidated subsidiaries | 291 |
| | 304 |
| | — |
| | (595 | ) | | — |
|
| Income (loss) from continuing operations | 283 |
| | 341 |
| | 258 |
| | (595 | ) | | 287 |
|
| Income (loss) from discontinued operations, net of tax | (13 | ) | | — |
| | — |
| | — |
| | (13 | ) |
| Net income (loss) | $ | 270 |
| | $ | 341 |
| | $ | 258 |
| | $ | (595 | ) | | $ | 274 |
|
| Net income (loss) attributable to noncontrolling interests | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Net income (loss) attributable to NCR | $ | 270 |
| | $ | 341 |
| | $ | 254 |
| | $ | (595 | ) | | $ | 270 |
|
| Total comprehensive income (loss) | 215 |
| | 277 |
| | 195 |
| | (473 | ) | | 214 |
|
| Less comprehensive income (loss) attributable to noncontrolling interests | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
| Comprehensive income (loss) attributable to NCR common stockholders | $ | 215 |
| | $ | 277 |
| | $ | 196 |
| | $ | (473 | ) | | $ | 215 |
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Consolidating Statements of Operations and Comprehensive Income (Loss) |
| For the year ended December 31, 2015 |
| | | | | | | | | | |
| (in millions) | Parent Issuer | | Guarantor Subsidiary | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Product revenue | $ | 1,189 |
| | $ | 105 |
| | $ | 2,339 |
| | $ | (922 | ) | | $ | 2,711 |
|
| Service revenue | 1,868 |
| | 33 |
| | 1,761 |
| | — |
| | 3,662 |
|
| Total revenue | 3,057 |
| | 138 |
| | 4,100 |
| | (922 | ) | | 6,373 |
|
| Cost of products | 904 |
| | 43 |
| | 2,047 |
| | (922 | ) | | 2,072 |
|
| Cost of services | 1,289 |
| | 13 |
| | 1,530 |
| | — |
| | 2,832 |
|
| Selling, general and administrative expenses | 567 |
| | 4 |
| | 471 |
| | — |
| | 1,042 |
|
| Research and development expenses | 133 |
| | — |
| | 97 |
| | — |
| | 230 |
|
| Restructuring-related charges | 36 |
| | — |
| | 26 |
| | — |
| | 62 |
|
| Total operating expenses | 2,929 |
| | 60 |
| | 4,171 |
| | (922 | ) | | 6,238 |
|
| Income (loss) from operations | 128 |
| | 78 |
| | (71 | ) | | — |
| | 135 |
|
| Interest expense | (168 | ) | | — |
| | (10 | ) | | 5 |
| | (173 | ) |
| Other (expense) income, net | (47 | ) | | 4 |
| | (9 | ) | | (5 | ) | | (57 | ) |
| Income (loss) from continuing operations before income taxes | (87 | ) | | 82 |
| | (90 | ) | | — |
| | (95 | ) |
| Income tax expense (benefit) | (38 | ) | | 52 |
| | 41 |
| | — |
| | 55 |
|
| Income (loss) from continuing operations before earnings in subsidiaries | (49 | ) | | 30 |
| | (131 | ) | | — |
| | (150 | ) |
| Equity in earnings of consolidated subsidiaries | (104 | ) | | (161 | ) | | — |
| | 265 |
| | — |
|
| Income (loss) from continuing operations | (153 | ) | | (131 | ) | | (131 | ) | | 265 |
| | (150 | ) |
| Income (loss) from discontinued operations, net of tax | (25 | ) | | — |
| | 1 |
| | — |
| | (24 | ) |
| Net income (loss) | $ | (178 | ) | | $ | (131 | ) | | $ | (130 | ) | | $ | 265 |
| | $ | (174 | ) |
| Net income (loss) attributable to noncontrolling interests | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Net income (loss) attributable to NCR | $ | (178 | ) | | $ | (131 | ) | | $ | (134 | ) | | $ | 265 |
| | $ | (178 | ) |
| Total comprehensive income (loss) | (192 | ) | | (154 | ) | | (145 | ) | | 300 |
| | (191 | ) |
| Less comprehensive income (loss) attributable to noncontrolling interests | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Comprehensive income (loss) attributable to NCR common stockholders | $ | (192 | ) | | $ | (154 | ) | | $ | (146 | ) | | $ | 300 |
| | $ | (192 | ) |
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Consolidating Balance Sheet |
| December 31, 2017 |
| | | | | | | | | | |
| (in millions) | Parent Issuer | | Guarantor Subsidiary | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Assets | | | | | | | | | |
| Current assets | | | | | | | | | |
| Cash and cash equivalents | $ | 97 |
| | $ | 11 |
| | $ | 429 |
| | $ | — |
| | $ | 537 |
|
| Accounts receivable, net | 62 |
| | 12 |
| | 1,196 |
| | — |
| | 1,270 |
|
| Inventories | 311 |
| | 7 |
| | 462 |
| | — |
| | 780 |
|
| Due from affiliates | 646 |
| | 1,801 |
| | 283 |
| | (2,730 | ) | | — |
|
| Other current assets | 78 |
| | 39 |
| | 162 |
| | (36 | ) | | 243 |
|
| Total current assets | 1,194 |
| | 1,870 |
| | 2,532 |
| | (2,766 | ) | | 2,830 |
|
| Property, plant and equipment, net | 207 |
| | — |
| | 134 |
| | — |
| | 341 |
|
| Goodwill | 2,228 |
| | — |
| | 513 |
| | — |
| | 2,741 |
|
| Intangibles, net | 503 |
| | — |
| | 75 |
| | — |
| | 578 |
|
| Prepaid pension cost | — |
| | — |
| | 118 |
| | — |
| | 118 |
|
| Deferred income taxes | 334 |
| | — |
| | 157 |
| | (31 | ) | | 460 |
|
| Investments in subsidiaries | 3,008 |
| | 2,942 |
| | — |
| | (5,950 | ) | | — |
|
| Due from affiliates | 31 |
| | 1 |
| | 39 |
| | (71 | ) | | — |
|
| Other assets | 472 |
| | 63 |
| | 51 |
| | — |
| | 586 |
|
| Total assets | $ | 7,977 |
| | $ | 4,876 |
| | $ | 3,619 |
| | $ | (8,818 | ) | | $ | 7,654 |
|
| | | | | | | | | | |
| Liabilities and stockholders’ equity | | | | | | | | | |
| Current liabilities | | | | | | | | | |
| Short-term borrowings | $ | 52 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 52 |
|
| Accounts payable | 382 |
| | — |
| | 380 |
| | — |
| | 762 |
|
| Payroll and benefits liabilities | 124 |
| | — |
| | 95 |
| | — |
| | 219 |
|
| Deferred service revenue and customer deposits | 216 |
| | 6 |
| | 236 |
| | — |
| | 458 |
|
| Due to affiliates | 1,884 |
| | 130 |
| | 716 |
| | (2,730 | ) | | — |
|
| Other current liabilities | 204 |
| | 5 |
| | 225 |
| | (36 | ) | | 398 |
|
| Total current liabilities | 2,862 |
| | 141 |
| | 1,652 |
| | (2,766 | ) | | 1,889 |
|
| Long-term debt | 2,937 |
| | — |
| | 2 |
| | — |
| | 2,939 |
|
| Pension and indemnity plan liabilities | 515 |
| | — |
| | 283 |
| | — |
| | 798 |
|
| Postretirement and postemployment benefits liabilities | 20 |
| | 3 |
| | 110 |
| | — |
| | 133 |
|
| Income tax accruals | 20 |
| | 5 |
| | 123 |
| | — |
| | 148 |
|
| Due to affiliates | — |
| | 39 |
| | 32 |
| | (71 | ) | | — |
|
| Other liabilities | 94 |
| | 36 |
| | 101 |
| | (31 | ) | | 200 |
|
| Total liabilities | 6,448 |
| | 224 |
| | 2,303 |
| | (2,868 | ) | | 6,107 |
|
| Redeemable noncontrolling interest | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
| Series A convertible preferred stock | 810 |
| | — |
| | — |
| | — |
| | 810 |
|
| Stockholders’ equity |
|
| |
|
| |
|
| |
|
| |
|
|
| Total NCR stockholders’ equity | 719 |
| | 4,652 |
| | 1,298 |
| | (5,950 | ) | | 719 |
|
| Noncontrolling interests in subsidiaries | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
| Total stockholders’ equity | 719 |
| | 4,652 |
| | 1,301 |
| | (5,950 | ) | | 722 |
|
| Total liabilities and stockholders’ equity | $ | 7,977 |
| | $ | 4,876 |
| | $ | 3,619 |
| | $ | (8,818 | ) | | $ | 7,654 |
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Consolidating Balance Sheet |
| December 31, 2016 |
| | | | | | | | | | |
| (in millions) | Parent Issuer | | Guarantor Subsidiary | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Assets | | | | | | | | | |
| Current assets | | | | | | | | | |
| Cash and cash equivalents | $ | 67 |
| | $ | 12 |
| | $ | 419 |
| | $ | — |
| | $ | 498 |
|
| Accounts receivable, net | 107 |
| | 25 |
| | 1,150 |
| | — |
| | 1,282 |
|
| Inventories | 272 |
| | 13 |
| | 414 |
| | — |
| | 699 |
|
| Due from affiliates | 658 |
| | 1,509 |
| | 385 |
| | (2,552 | ) | | — |
|
| Other current assets | 120 |
| | 37 |
| | 154 |
| | (33 | ) | | 278 |
|
| Total current assets | 1,224 |
| | 1,596 |
| | 2,522 |
| | (2,585 | ) | | 2,757 |
|
| Property, plant and equipment, net | 142 |
| | — |
| | 145 |
| | — |
| | 287 |
|
| Goodwill | 2,228 |
| | — |
| | 499 |
| | — |
| | 2,727 |
|
| Intangibles, net | 574 |
| | — |
| | 98 |
| | — |
| | 672 |
|
| Prepaid pension cost | — |
| | — |
| | 94 |
| | — |
| | 94 |
|
| Deferred income taxes | 360 |
| | 98 |
| | 82 |
| | 35 |
| | 575 |
|
| Investments in subsidiaries | 2,744 |
| | 2,822 |
| | — |
| | (5,566 | ) | | — |
|
| Due from affiliates | 52 |
| | — |
| | 35 |
| | (87 | ) | | — |
|
| Other assets | 443 |
| | 56 |
| | 62 |
| | — |
| | 561 |
|
| Total assets | $ | 7,767 |
| | $ | 4,572 |
| | $ | 3,537 |
| | $ | (8,203 | ) | | $ | 7,673 |
|
| | | | | | | | | | |
| Liabilities and stockholders’ equity | | | | | | | | | |
| Current liabilities | | | | | | | | | |
| Short-term borrowings | $ | 46 |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 50 |
|
| Accounts payable | 344 |
| | 2 |
| | 435 |
| | — |
| | 781 |
|
| Payroll and benefits liabilities | 140 |
| | — |
| | 94 |
| | — |
| | 234 |
|
| Deferred service revenue and customer deposits | 196 |
| | 5 |
| | 267 |
| | — |
| | 468 |
|
| Due to affiliates | 1,700 |
| | 154 |
| | 698 |
| | (2,552 | ) | | — |
|
| Other current liabilities | 228 |
| | 6 |
| | 231 |
| | (33 | ) | | 432 |
|
| Total current liabilities | 2,654 |
| | 167 |
| | 1,729 |
| | (2,585 | ) | | 1,965 |
|
| Long-term debt | 2,998 |
| | — |
| | 3 |
| | — |
| | 3,001 |
|
| Pension and indemnity plan liabilities | 473 |
| | — |
| | 266 |
| | — |
| | 739 |
|
| Postretirement and postemployment benefits liabilities | 24 |
| | 3 |
| | 100 |
| | — |
| | 127 |
|
| Income tax accruals | 17 |
| | 4 |
| | 121 |
| | — |
| | 142 |
|
| Due to affiliates | — |
| | 35 |
| | 52 |
| | (87 | ) | | — |
|
| Other liabilities | 59 |
| | 5 |
| | 39 |
| | 35 |
| | 138 |
|
| Total liabilities | 6,225 |
| | 214 |
| | 2,310 |
| | (2,637 | ) | | 6,112 |
|
| Redeemable noncontrolling interest | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
| Series A Convertible Preferred Stock | 847 |
| | — |
| | — |
| | — |
| | 847 |
|
| Stockholders’ equity |
| |
| |
| |
| |
|
| Total NCR stockholders’ equity | 695 |
| | 4,358 |
| | 1,208 |
| | (5,566 | ) | | 695 |
|
| Noncontrolling interests in subsidiaries | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Total stockholders’ equity | 695 |
| | 4,358 |
| | 1,212 |
| | (5,566 | ) | | 699 |
|
| Total liabilities and stockholders’ equity | $ | 7,767 |
| | $ | 4,572 |
| | $ | 3,537 |
| | $ | (8,203 | ) | | $ | 7,673 |
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Consolidating Statement of Cash Flows |
| For the year ended December 31, 2017 |
| | | | | | | | | | |
| (in millions) | Parent Issuer | | Guarantor Subsidiary | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Net cash provided by (used in) operating activities | $ | 459 |
| | $ | (180 | ) | | $ | 486 |
| | $ | (10 | ) | | $ | 755 |
|
| Investing activities | | | | | | | | | |
| Expenditures for property, plant and equipment | (87 | ) | | — |
| | (41 | ) | | — |
| | (128 | ) |
| Proceeds from the sale of property, plant and equipment | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
| Additions to capitalized software | (133 | ) | | — |
| | (33 | ) | | — |
| | (166 | ) |
| Acquisitions | (8 | ) | | — |
| | — |
| | — |
| | (8 | ) |
| Proceeds from (payments of) intercompany notes | 230 |
| | 180 |
| | 2 |
| | (412 | ) | | — |
|
| Proceeds from divestitures | 3 |
| | — |
| | — |
| | — |
| | 3 |
|
| Investments in equity affiliates | 3 |
| | — |
| | — |
| | (3 | ) | | — |
|
| Other investing activities, net | (1 | ) | | — |
| | 4 |
| | — |
| | 3 |
|
| Net cash provided by (used in) investing activities | 7 |
| | 180 |
| | (62 | ) | | (415 | ) | | (290 | ) |
| Financing activities | | | | | | | | | |
| Short term borrowings, net | (5 | ) | | — |
| | 1 |
| | — |
| | (4 | ) |
| Payments on term credit facilities | (56 | ) | | — |
| | (5 | ) | | — |
| | (61 | ) |
| Payments on revolving credit facilities | (1,700 | ) | | — |
| | (240 | ) | | — |
| | (1,940 | ) |
| Borrowings on revolving credit facilities | 1,700 |
| | — |
| | 240 |
| | — |
| | 1,940 |
|
| Tax withholding payments on behalf of employees | (31 | ) | | — |
| | — |
| | — |
| | (31 | ) |
| Proceeds from employee stock plans | 15 |
| | — |
| | — |
| | — |
| | 15 |
|
| Other financing activities | (1 | ) | | — |
| | (2 | ) | | — |
| | (3 | ) |
| Dividend distribution to consolidated subsidiaries | — |
| | — |
| | (10 | ) | | 10 |
| | — |
|
| Repurchases of Company common stock | (350 | ) | | — |
| | — |
| | — |
| | (350 | ) |
| Equity contribution | — |
| | — |
| | (3 | ) | | 3 |
| | — |
|
| Borrowings (repayments) of intercompany notes | — |
| | (2 | ) | | (410 | ) | | 412 |
| | — |
|
| Net cash provided by (used in) financing activities | (428 | ) | | (2 | ) | | (429 | ) | | 425 |
| | (434 | ) |
| Cash flows from discontinued operations | | | | | | | | | |
| Net cash used in discontinued operations operating activities | (8 | ) | | — |
| | — |
| | — |
| | (8 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | 1 |
| | 15 |
| | — |
| | 16 |
|
| Increase (decrease) in cash and cash equivalents | 30 |
| | (1 | ) | | 10 |
| | — |
| | 39 |
|
| Cash and cash equivalents at beginning of period | 67 |
| | 12 |
| | 419 |
| | — |
| | 498 |
|
| Cash and cash equivalents at end of period | $ | 97 |
| | $ | 11 |
| | $ | 429 |
| | $ | — |
| | $ | 537 |
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Consolidating Statement of Cash Flows |
| For the year ended December 31, 2016 |
| | | | | | | | | | |
| (in millions) | Parent Issuer | | Guarantor Subsidiary | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Net cash provided by (used in) operating activities | $ | 336 |
| | $ | (160 | ) | | $ | 721 |
| | $ | (3 | ) | | $ | 894 |
|
| Investing activities | | | | | | | | | |
| Expenditures for property, plant and equipment | (33 | ) | | — |
| | (40 | ) | | — |
| | (73 | ) |
| Additions to capitalized software | (114 | ) | | — |
| | (40 | ) | | — |
| | (154 | ) |
| Proceeds from (payments of) intercompany notes | 365 |
| | 115 |
| | — |
| | (480 | ) | | — |
|
| Proceeds from divestitures | 22 |
| | — |
| | 25 |
| | — |
| | 47 |
|
| Investments in equity affiliates | (9 | ) | | 50 |
| | — |
| | (41 | ) | | — |
|
| Other investing activities, net | (9 | ) | | — |
| | — |
| | — |
| | (9 | ) |
| Net cash provided by (used in) investing activities | 222 |
| | 165 |
| | (55 | ) | | (521 | ) | | (189 | ) |
| Financing activities | | | | | | | | | |
| Short term borrowings, net | (4 | ) | | — |
| | (4 | ) | | — |
| | (8 | ) |
| Payments on term credit facilities | (89 | ) | | — |
| | (8 | ) | | — |
| | (97 | ) |
| Payments on revolving credit facilities | (1,151 | ) | | — |
| | (280 | ) | | — |
| | (1,431 | ) |
| Borrowings on revolving credit facilities | 1,051 |
| | — |
| | 280 |
| | — |
| | 1,331 |
|
| Debt issuance costs | (9 | ) | | — |
| | — |
| | — |
| | (9 | ) |
| Tax withholding payments on behalf of employees | (16 | ) | | — |
| | — |
| | — |
| | (16 | ) |
| Proceeds from employee stock plans | 15 |
| | — |
| | — |
| | — |
| | 15 |
|
| Other financing activities | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Dividend distribution to consolidated subsidiaries | — |
| | — |
| | (53 | ) | | 53 |
| | — |
|
| Repurchases of Company common stock | (250 | ) | | — |
| | — |
| | — |
| | (250 | ) |
| Equity contribution | — |
| | — |
| | 9 |
| | (9 | ) | | — |
|
| Borrowings (repayments) of intercompany notes | (16 | ) | | — |
| | (464 | ) | | 480 |
| | — |
|
| Net cash provided by (used in) financing activities | (469 | ) | | — |
| | (522 | ) | | 524 |
| | (467 | ) |
| Cash flows from discontinued operations | | | | | | | | | |
| Net cash used in discontinued operations operating activities | (39 | ) | | — |
| | — |
| | — |
| | (39 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | (13 | ) | | (16 | ) | | — |
| | (29 | ) |
| Increase (decrease) in cash and cash equivalents | 50 |
| | (8 | ) | | 128 |
| | — |
| | 170 |
|
| Cash and cash equivalents at beginning of period | 17 |
| | 20 |
| | 291 |
| | — |
| | 328 |
|
| Cash and cash equivalents at end of period | $ | 67 |
| | $ | 12 |
| | $ | 419 |
| | $ | — |
| | $ | 498 |
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Consolidating Statement of Cash Flows |
| For the year ended December 31, 2015 |
| | | | | | | | | | |
| (in millions) | Parent Issuer | | Guarantor Subsidiary | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Net cash provided by (used in) operating activities | $ | 423 |
| | $ | (335 | ) | | $ | 670 |
| | $ | (77 | ) | | $ | 681 |
|
| Investing activities | | | | | | | | | |
| Expenditures for property, plant and equipment | (25 | ) | | — |
| | (54 | ) | | — |
| | (79 | ) |
| Proceeds from sales of property, plant and equipment | — |
| | — |
| | 19 |
| | — |
| | 19 |
|
| Additions to capitalized software | (111 | ) | | — |
| | (39 | ) | | — |
| | (150 | ) |
| Proceeds from (payments of) intercompany notes | 217 |
| | 347 |
| | — |
| | (564 | ) | | — |
|
| Investments in equity affiliates | (1 | ) | | — |
| | — |
| | 1 |
| | — |
|
| Other investing activities, net | (6 | ) | | — |
| | 7 |
| | — |
| | 1 |
|
| Net cash provided by (used in) investing activities | 74 |
| | 347 |
| | (67 | ) | | (563 | ) | | (209 | ) |
| Financing activities | | | | | | | | | |
| Short term borrowings, net | 3 |
| | — |
| | 5 |
| | — |
| | 8 |
|
| Payments on revolving credit facilities | (376 | ) | | — |
| | (7 | ) | | — |
| | (383 | ) |
| Payments on revolving credit facilities | (729 | ) | | — |
| | (965 | ) | | — |
| | (1,694 | ) |
| Borrowings on revolving credit facilities | 829 |
| | — |
| | 869 |
| | — |
| | 1,698 |
|
| Tax withholding payments on behalf of employees | (16 | ) | | — |
| | — |
| | — |
| | (16 | ) |
| Proceeds from employee stock plans | 15 |
| | — |
| | — |
| | — |
| | 15 |
|
| Dividend distribution to consolidated subsidiaries | — |
| | — |
| | (77 | ) | | 77 |
| | — |
|
| Series A convertible preferred stock issuance | 794 |
| | — |
| | — |
| | — |
| | 794 |
|
| Equity contribution | — |
| | — |
| | 1 |
| | (1 | ) | | — |
|
| Borrowings (repayments) of intercompany notes | — |
| | — |
| | (564 | ) | | 564 |
| | — |
|
| Tender offer share repurchase | (1,005 | ) | | — |
| | — |
| | — |
| | (1,005 | ) |
| Net cash provided by (used in) financing activities | (485 | ) | | — |
| | (738 | ) | | 640 |
| | (583 | ) |
| Cash flows from discontinued operations | | | | | | | | | |
| Net cash used in discontinued operations operating activities | (43 | ) | | — |
| | — |
| | — |
| | (43 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | (1 | ) | | (28 | ) | | — |
| | (29 | ) |
| Increase (decrease) in cash and cash equivalents | (31 | ) | | 11 |
| | (163 | ) | | — |
| | (183 | ) |
| Cash and cash equivalents at beginning of period | 48 |
| | 9 |
| | 454 |
| | — |
| | 511 |
|
| Cash and cash equivalents at end of period | $ | 17 |
| | $ | 20 |
| | $ | 291 |
| | $ | — |
| | $ | 328 |
|
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
17. QUARTERLY INFORMATION (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| In millions, except per share amounts | | First | | Second | | Third | | Fourth |
| 2017 | | | | | | | | |
| Total revenue | | $ | 1,478 |
| | $ | 1,593 |
| | $ | 1,663 |
| | $ | 1,782 |
|
| Gross margin | | 413 |
| | 463 |
| | 473 |
| | 515 |
|
| Operating income | | 117 |
| | 178 |
| | 200 |
| | 181 |
|
| Income (loss) from continuing operations (attributable to NCR) | | 57 |
| | 97 |
| | 118 |
| | (35 | ) |
| Income (loss) from discontinued operations, net of tax | | — |
| | 5 |
| | — |
| | (10 | ) |
| Net (loss) income attributable to NCR common stockholders | | (17 | ) | | 90 |
| | 106 |
| | (56 | ) |
| Income (loss) per share attributable to NCR common stockholders: | | | | | | | | |
| Income (loss) per common share from continuing operations | | | | | | | | |
| Basic | | $ | (0.14 | ) | | $ | 0.70 |
| | $ | 0.87 |
| | $ | (0.38 | ) |
| Diluted | | $ | (0.14 | ) | | $ | 0.64 |
| | $ | 0.77 |
| | $ | (0.38 | ) |
| Net (loss) income per common share: | | | | | | | | |
| Basic | | $ | (0.14 | ) | | $ | 0.74 |
| | $ | 0.87 |
| | $ | (0.46 | ) |
| Diluted | | $ | (0.14 | ) | | $ | 0.67 |
| | $ | 0.77 |
| | $ | (0.46 | ) |
| | | | | | | | | |
| 2016 | | | | | | | | |
| Total revenue | | $ | 1,444 |
| | $ | 1,620 |
| | $ | 1,677 |
| | $ | 1,802 |
|
| Gross margin | | 380 |
| | 446 |
| | 477 |
| | 479 |
|
| Operating income | | 101 |
| | 163 |
| | 189 |
| | 146 |
|
| Income from continuing operations (attributable to NCR) | | 32 |
| | 76 |
| | 107 |
| | 68 |
|
| (Loss) from discontinued operations, net of tax | | — |
| | — |
| | (2 | ) | | (11 | ) |
| Net income attributable to NCR common stockholders | | 21 |
| | 63 |
| | 92 |
| | 45 |
|
| Income per share attributable to NCR common stockholders: | | | | | | | | |
| Income per common share from continuing operations | | | | | | | | |
| Basic | | $ | 0.16 |
| | $ | 0.51 |
| | $ | 0.76 |
| | $ | 0.45 |
|
| Diluted | | $ | 0.16 |
| | $ | 0.49 |
| | $ | 0.69 |
| | $ | 0.43 |
|
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.16 |
| | $ | 0.51 |
| | $ | 0.74 |
| | $ | 0.36 |
|
| Diluted | | $ | 0.16 |
| | $ | 0.49 |
| | $ | 0.68 |
| | $ | 0.35 |
|
Operating income for the quarteryear ended December 31, 2017 was impacted by2023, the actuarial lossesloss related to the remeasurement of our pension plan assets and liabilities. The actuarial losses included in pension expense recognized inliabilities was $7 million. For the quarteryear ended December 31, 2017 decreased operating income by $28 million, net income attributable to NCR by $25 million, basic earnings per share from continuing operations by $0.21, and diluted earnings per share from continuing operations by $0.21.
Operating income for2022, the quarter ended December 31, 2016 was impacted by actuarial lossesgain related to the remeasurement of our pension plan assets and liabilities. The actuarial losses included in pension expense recognized inliabilities was $41 million. For the quarteryear ended December 31, 2016 decreased operating income by $85 million,2021, the actuarial gain related to the remeasurement of our pension plan assets and liabilities was $7 million.
The components of inventory are summarized as follows:
| | | | | | | | | | | |
| In millions | December 31, 2023 | | December 31, 2022 |
| Inventories | | | |
| Work in process and raw materials | $ | 14 | | | $ | 48 | |
| Finished goods | 112 | | | 166 | |
| Service parts | 128 | | | 143 | |
| Total inventories | $ | 254 | | | $ | 357 | |
The components of property, plant and equipment, net income attributable to NCR by $78 million, basic earnings per share from continuing operations by $0.63, and diluted earnings per share from continuing operations by $0.50.are summarized as follows:
| | | | | | | | | | | |
| In millions | December 31, 2023 | | December 31, 2022 |
| Property, plant and equipment | | | |
| Land and improvements | $ | 1 | | | $ | 2 | |
| Buildings and improvements | 208 | | 145 | |
| Machinery and other equipment | 476 | | | 570 | |
| Finance lease assets | 71 | | | 59 | |
| Property, plant and equipment, gross | 756 | | | 776 | |
| Less: accumulated depreciation | (544) | | | (549) | |
| Total property, plant and equipment, net | $ | 212 | | | $ | 227 | |
| | | |
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.
NCR Corporation
Notes to Consolidated Financial Statements-(Continued)
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
18. SUBSEQUENT EVENTS
The following table sets forth the Company’s unaudited results of operations for each of the quarters in the fiscal years 2023 and 2022, which has been retrospectively adjusted to reflect NCR Atleos historical financial results as discontinued operations. The December 31, 2023 quarterly information has been revised for the impact of the fraudulent ACH disbursements, as discussed in Note 20, “Revised 2023 Quarterly Financial Information (Unaudited)”. The following quarterly financial data should be read in conjunction with our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
On
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| In millions, except per share amounts | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| 2023 | | | | | | | | |
| Total revenue | | $ | 922 | | | $ | 967 | | | $ | 978 | | | $ | 963 | |
| Gross margin | | 234 | | | 276 | | | 271 | | | 181 | |
| Income (loss) from operations | | 29 | | | 67 | | | 71 | | | (130) | |
| Income from continuing operations | | (65) | | | (41) | | | (222) | | | (258) | |
| Income (loss) from discontinued operations, net of taxes | | 73 | | | 57 | | | 94 | | | (61) | |
| Net income (loss) | | 8 | | | 16 | | | (128) | | | (319) | |
| Net (loss) income attributable to common stockholders | | 3 | | | 13 | | | (133) | | | (322) | |
| Income (loss) per share attributable to common stockholders: | | | | | | | | |
| Continuing operations | | $ | (0.49) | | | $ | (0.32) | | | $ | (1.60) | | | $ | (1.85) | |
| Discontinued operations | | 0.51 | | | 0.41 | | | 0.66 | | | (0.43) | |
| Net income attributable to common shareholders | | 0.02 | | | 0.09 | | | (0.94) | | | (2.28) | |
| Diluted earnings (loss) per share: | | | | | | | | |
| Continuing operations | | $ | (0.49) | | | $ | (0.32) | | | $ | (1.60) | | | $ | (1.85) | |
| Discontinued operations | | 0.51 | | | 0.41 | | | 0.66 | | | (0.43) | |
| Diluted earnings per share attributable to common shareholders | | 0.02 | | | 0.09 | | | (0.94) | | | (2.28) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| 2022 | | | | | | | | |
| Total revenue | | $ | 917 | | | $ | 950 | | | $ | 960 | | | $ | 966 | |
| Gross margin | | 210 | | | 224 | | | 281 | | | 263 | |
| Income (loss) from operations | | (1) | | | 24 | | | 55 | | | 58 | |
| Income from continuing operations | | (96) | | | (57) | | | (38) | | | (12) | |
| Income (loss) from discontinued operations, net of taxes | | 61 | | | 100 | | | 107 | | | (6) | |
| Net income (loss) | | (35) | | | 43 | | | 69 | | | (18) | |
| Net (loss) income attributable to common stockholders | | (38) | | | 37 | | | 65 | | | (20) | |
| Income (loss) per share attributable to common stockholders: | | | | | | | | |
| Continuing operations | | $ | (0.72) | | | $ | (0.46) | | | $ | (0.31) | | | $ | (0.12) | |
| Discontinued operations | | 0.44 | | | 0.73 | | | 0.78 | | | (0.03) | |
| Net income attributable to common shareholders | | (0.28) | | | 0.27 | | | 0.47 | | | (0.15) | |
| Diluted earnings (loss) per share: | | | | | | | | |
| Continuing operations | | $ | (0.72) | | | $ | (0.46) | | | $ | (0.31) | | | $ | (0.12) | |
| Discontinued operations | | 0.44 | | | 0.73 | | | 0.78 | | | (0.03) | |
| Diluted earnings per share attributable to common shareholders | | (0.28) | | | 0.27 | | | 0.47 | | | (0.15) | |
| | | | | | | | |
20. REVISED 2023 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
As described in Note 1, “Basis of Presentation and Significant Accounting Policies”, in February 8, 2018,2024, the Company identified fraudulent ACH disbursements from a Company bank account. Through September 30, 2023, the Company incorrectly recorded approximately $11 million in an accounts receivable clearing account instead of as operating expenses, of which $2 million related to annual periods prior to 2023. The Company evaluated the impact of the errors and concluded they are not material to any previously issued interim consolidated financial statements. As a result of these errors, and the related income tax effects, the
Company has revised the financial information for NCR announced that,Voyix as of and for each of the periods ended March 31, 2023, June 30, 2023 and September 30, 2023. Additionally, the Company corrected other immaterial errors which originally resulted in the understatement of operating expenses related to accelerateprepaid assets and accrued expenses. The Company intends to reflect these revisions in its transformation journey, it would evaluate programsQuarterly Reports to prioritize driving sustainable margin improvement, higher productivitybe filed on Form 10-Q.
The following table sets forth the Company’s results of operations for each of the first three quarters in the year ended December 31, 2023, which has been retrospectively adjusted to reflect NCR Atleos historical financial results as discontinued operations and process efficiencies focusingthe revision impact of the fraudulent ACH disbursements and other immaterial errors. The following quarterly financial data should be read in conjunction with our consolidated financial statements included elsewhere in this Annual Report on investingForm 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | |
| In millions, except per share amounts | | As reported | | Discontinued operations | | Adjustment | | As recasted and revised | |
| Product revenue | | $ | 521 | | | $ | 229 | | | $ | — | | | $ | 292 | | |
| Service revenue | | 1,370 | | | 740 | | | — | | | 630 | | |
| Total revenue | | 1,891 | | | 969 | | | — | | | 922 | | |
| Cost of products | | 456 | | | 187 | | | — | | | 269 | | |
| Cost of services | | 969 | | | 550 | | | — | | | 419 | | |
| Selling, general and administrative expenses | | 292 | | | 138 | | | 2 | | | 156 | | |
| Research and development expenses | | 64 | | | 15 | | | — | | | 49 | | |
| Total operating expenses | | 1,781 | | | 890 | | | 2 | | | 893 | | |
| Income (loss) from operations | | 110 | | | 79 | | | (2) | | | 29 | | |
| Loss on extinguishment of debt | | — | | | — | | | — | | | — | | |
| Interest expense | | (83) | | | — | | | — | | | (83) | | |
| Other income (expense), net | | (3) | | | 1 | | | — | | | (4) | | |
| Income (loss) from continuing operations before income taxes | | 24 | | | 80 | | | (2) | | | (58) | | |
| Income tax expense (benefit) | | 14 | | | 7 | | | — | | | 7 | | |
| Income from continuing operations | | 10 | | | 73 | | | (2) | | | (65) | | |
| Income (loss) from discontinued operations, net of tax | | — | | | (73) | | | — | | | 73 | | |
| Net income (loss) | | 10 | | | — | | | (2) | | | 8 | | |
| Net income (loss) attributable to noncontrolling interests | | 1 | | | 1 | | | — | | | — | | |
| Net income attributable to noncontrolling interests of discontinued operations | | — | | | (1) | | | — | | | 1 | | |
| Net income (loss) attributable to NCR Voyix | | 9 | | | — | | | (2) | | | 7 | | |
| Amounts attributable to NCR Voyix common stockholders | | | | | | | | | |
| Income (loss) from continuing operations | | 9 | | | | | | | (65) | | |
| Series A convertible preferred stock dividends | | (4) | | | | | | | (4) | | |
| Income (loss) from continuing operations attributable to NCR Voyix | | 5 | | | | | | | (69) | | |
| Income (loss) from discontinued operations, net of tax | | — | | | | | | | 72 | | |
| Net income (loss) attributable to NCR Voyix common stockholders | | 5 | | | | | | | 3 | | |
| Income (loss) per share attributable to common stockholders: | | | | | | | | | |
| Basic earnings (loss) per share: | | | | | | | | | |
| Continuing operations | | $ | 0.04 | | | | | | | $ | (0.49) | | |
| Discontinued operations | | — | | | | | | | 0.51 | | |
| Net income attributable to common shareholders | | $ | 0.04 | | | | | | | $ | 0.02 | | |
| Diluted earnings (loss) per share: | | | | | | | | | |
| Continuing operations | | $ | 0.04 | | | | | | | $ | (0.49) | | |
| Discontinued operations | | — | | | | | | | 0.51 | | |
| Diluted earnings per share attributable to common shareholders | | $ | 0.04 | | | | | | | $ | 0.02 | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2023 | | Six months ended June 30, 2023 | |
| In millions, except per share amounts | | As reported | | Discontinued operations | | Adjustment | | As recasted and revised | | As reported | | Discontinued operations | | Adjustment | | As recasted and revised | |
| Product revenue | | $ | 576 | | | $ | 259 | | | $ | — | | | $ | 317 | | | $ | 1,097 | | | $ | 488 | | | $ | — | | | $ | 609 | | |
| Service revenue | | 1,410 | | | 760 | | | — | | | 650 | | | 2,780 | | | 1,500 | | | — | | | 1,280 | | |
| Total revenue | | 1,986 | | | 1,019 | | | — | | | 967 | | | 3,877 | | | 1,988 | | | — | | | 1,889 | | |
| Cost of products | | 478 | | | 205 | | | — | | | 273 | | | 934 | | | 392 | | | — | | | 542 | | |
| Cost of services | | 970 | | | 552 | | | — | | | 418 | | | 1,939 | | | 1,102 | | | — | | | 837 | | |
| Selling, general and administrative expenses | | 333 | | | 169 | | | 3 | | | 167 | | | 625 | | | 307 | | | 5 | | | 323 | | |
| Research and development expenses | | 57 | | | 15 | | | — | | | 42 | | | 121 | | | 30 | | | — | | | 91 | | |
| Total operating expenses | | 1,838 | | | 941 | | | 3 | | | 900 | | | 3,619 | | | 1,831 | | | 5 | | | 1,793 | | |
| Income (loss) from operations | | 148 | | | 78 | | | (3) | | | 67 | | | 258 | | | 157 | | | (5) | | | 96 | | |
| Loss on extinguishment of debt | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Interest expense | | (91) | | | — | | | — | | | (91) | | | (174) | | | — | | | — | | | (174) | | |
| Other income (expense), net | | (8) | | | 1 | | | — | | | (9) | | | (11) | | | 2 | | | — | | | (13) | | |
| Income (loss) from continuing operations before income taxes | | 49 | | | 79 | | | (3) | | | (33) | | | 73 | | | 159 | | | (5) | | | (91) | | |
| Income tax expense (benefit) | | 30 | | | 21 | | | (1) | | | 8 | | | 44 | | | 28 | | | (1) | | | 15 | | |
| Income from continuing operations | | 19 | | | 58 | | | (2) | | | (41) | | | 29 | | | 131 | | | (4) | | | (106) | | |
| Income (loss) from discontinued operations, net of tax | | (1) | | | (58) | | | — | | | 57 | | | (1) | | | (131) | | | — | | | 130 | | |
| Net income (loss) | | 18 | | | — | | | (2) | | | 16 | | | 28 | | | — | | | (4) | | | 24 | | |
| Net income (loss) attributable to noncontrolling interests | | (1) | | | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Net income (loss) attributable to noncontrolling interests from discontinued operations | | — | | | 1 | | | — | | | (1) | | | — | | | — | | | — | | | — | | |
| Net income (loss) attributable to NCR Voyix | | 19 | | | — | | | (2) | | | 17 | | | 28 | | | — | | | (4) | | | 24 | | |
| Amounts attributable to NCR Voyix common stockholders | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | 20 | | | | | | | (41) | | | 29 | | | | | | | (106) | | |
| Series A convertible preferred stock dividends | | (4) | | | | | | | (4) | | | (8) | | | | | | | (8) | | |
| Income (loss) from continuing operations attributable to NCR Voyix | | 16 | | | | | | | (45) | | | 21 | | | | | | | (114) | | |
| Income (loss) from discontinued operations, net of tax | | (1) | | | | | | | 58 | | | (1) | | | | | | | 130 | | |
| Net income (loss) attributable to NCR Voyix common stockholders | | 15 | | | | | | | 13 | | | 20 | | | | | | | 16 | | |
| Income (loss) per share attributable to common stockholders: | | | | | | | | | | | | | | | | | |
| Basic earnings (loss) per share: | | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 0.11 | | | | | | | $ | (0.32) | | | $ | 0.15 | | | | | | | $ | (0.81) | | |
| Discontinued operations | | (0.01) | | | | | | | 0.41 | | | (0.01) | | | | | | | 0.92 | | |
| Net income attributable to common shareholders | | $ | 0.11 | | | | | | | $ | 0.09 | | | $ | 0.14 | | | | | | | $ | 0.11 | | |
| Diluted earnings (loss) per share: | | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 0.11 | | | | | | | $ | (0.32) | | | $ | 0.15 | | | | | | | $ | (0.81) | | |
| Discontinued operations | | (0.01) | | | | | | | 0.41 | | | (0.01) | | | | | | | 0.92 | | |
| Diluted earnings per share attributable to common shareholders | | $ | 0.11 | | | | | | | $ | 0.09 | | | $ | 0.14 | | | | | | | $ | 0.11 | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2023 | | Nine months ended September 30, 2023 | |
| In millions, except per share amounts | | As reported | | Discontinued operations | | Adjustment | | As recasted and revised | | As reported | | Discontinued operations | | Adjustment | | As recasted and revised | |
| Product revenue | | $ | 560 | | | $ | 242 | | | $ | — | | | $ | 318 | | | $ | 1,657 | | | $ | 730 | | | $ | — | | | $ | 927 | | |
| Service revenue | | 1,457 | | | 797 | | | — | | | 660 | | | 4,237 | | | 2,297 | | | — | | | 1,940 | | |
| Total revenue | | 2,017 | | | 1,039 | | | — | | | 978 | | | 5,894 | | | 3,027 | | | — | | | 2,867 | | |
| Cost of products | | 465 | | | 196 | | | — | | | 269 | | | 1,399 | | | 588 | | | — | | | 811 | | |
| Cost of services | | 925 | | | 488 | | | 1 | | | 438 | | | 2,864 | | | 1,591 | | | 1 | | | 1,274 | | |
| Selling, general and administrative expenses | | 331 | | | 175 | | | 6 | | | 162 | | | 956 | | | 481 | | | 11 | | | 486 | | |
| Research and development expenses | | 54 | | | 16 | | | — | | | 38 | | | 175 | | | 46 | | | — | | | 129 | | |
| Total operating expenses | | 1,775 | | | 875 | | | 7 | | | 907 | | | 5,394 | | | 2,706 | | | 12 | | | 2,700 | | |
| Income (loss) from operations | | 242 | | | 164 | | | (7) | | | 71 | | | 500 | | | 321 | | | (12) | | | 167 | | |
| Loss on extinguishment of debt | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Interest expense | | (85) | | | (2) | | | — | | | (83) | | | (259) | | | (2) | | | — | | | (257) | | |
| Other income (expense), net | | (44) | | | (19) | | | — | | | (25) | | | (55) | | | (17) | | | — | | | (38) | | |
| Income (loss) from continuing operations before income taxes | | 113 | | | 143 | | | (7) | | | (37) | | | 186 | | | 302 | | | (12) | | | (128) | | |
| Income tax expense (benefit) | | 236 | | | 49 | | | (2) | | | 185 | | | 280 | | | 77 | | | (3) | | | 200 | | |
| Income from continuing operations | | (123) | | | 94 | | | (5) | | | (222) | | | (94) | | | 225 | | | (9) | | | (328) | | |
| Income (loss) from discontinued operations, net of tax | | — | | | (94) | | | — | | | 94 | | | (1) | | | (225) | | | — | | | 224 | | |
| Net income (loss) | | (123) | | | — | | | (5) | | | (128) | | | (95) | | | — | | | (9) | | | (104) | | |
| Net income (loss) attributable to noncontrolling interests | | 1 | | | 1 | | | — | | | — | | | 1 | | | 1 | | | — | | | — | | |
| Net income (loss) attributable to noncontrolling interest from discontinued operations | | — | | | (1) | | | — | | | 1 | | | — | | | (1) | | | — | | | 1 | | |
| Net income (loss) attributable to NCR Voyix | | (124) | | | — | | | (5) | | | (129) | | | (96) | | | — | | | (9) | | | (105) | | |
| Amounts attributable to NCR Voyix common stockholders | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | (124) | | | | | | | (222) | | | (95) | | | | | | | (328) | | |
| Series A convertible preferred stock dividends | | (4) | | | | | | | (4) | | | (12) | | | | | | | (12) | | |
| Income (loss) from continuing operations attributable to NCR Voyix | | (128) | | | | | | | (226) | | | (107) | | | | | | | (340) | | |
| Income (loss) from discontinued operations, net of tax | | — | | | | | | | 93 | | | (1) | | | | | | | 223 | | |
| Net income (loss) attributable to NCR Voyix common stockholders | | (128) | | | | | | | (133) | | | (108) | | | | | | | (117) | | |
| Income (loss) per share attributable to common stockholders: | | | | | | | | | | | | | | | | | |
| Basic earnings (loss) per share | | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | (0.91) | | | | | | | $ | (1.60) | | | $ | (0.76) | | | | | | | $ | (2.41) | | |
| Discontinued operations | | — | | | | | | | 0.66 | | | (0.01) | | | | | | | 1.58 | | |
| Net income attributable to common shareholders | | $ | (0.91) | | | | | | | $ | (0.94) | | | $ | (0.77) | | | | | | | $ | (0.83) | | |
| Diluted earnings (loss) per share: | | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | (0.91) | | | | | | | $ | (1.60) | | | $ | (0.76) | | | | | | | $ | (2.41) | | |
| Discontinued operations | | — | | | | | | | 0.66 | | | (0.01) | | | | | | | 1.58 | | |
| Diluted earnings per share attributable to common shareholders | | $ | (0.91) | | | | | | | $ | (0.94) | | | $ | (0.77) | | | | | | | $ | (0.83) | | |
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There is no impact to our Consolidated Statements of Comprehensive Income (Loss) for each of the first three quarterly periods in software products that accelerate growth, driving growth2023, other than the impact to Net income (loss) as presented above. There is no impact to our Consolidated Statements of Changes in services through structural improvementsStockholders’ Equity for the quarterly periods in 2023 other than the impact to Retained earnings as a result of the changes in Net income (loss) as presented above.
The impacts to our Consolidated Balance Sheets, prior to being recast for discontinued operations, as of March 31, 2023, June 30, 2023 and optimizing its hardware production, sourcingSeptember 30, 2023, was as follows:
•to correct our March 31, 2023 Accounts receivable, net, Total current assets and supply chain strategy.Total assets from $1,009 million, $3,070 million and $11,442 million, respectively to $1,007 million, $3,068 million and $11,440 million, respectively, and to correct Total liabilities and stockholders’ equity from $11,442 million to $11,440 million.
•to correct our June 30, 2023 Accounts receivable, net, Total current assets, Deferred income taxes and Total assets from $986 million, $2,954 million, $589 million and $11,279 million, respectively, to $981 million, $2,949 million, $590
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Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
million, and $11,275 million, respectively, and to correct Total liabilities and stockholders’ equity from $11,279 million to $11,275 million.
•to correct our September 30, 2023 Accounts receivable, net, Prepaid and other current assets, Total current assets, Deferred tax assets and Total assets from $950 million, $473 million, $3,093 million, $430 million and $13,223 million, respectively, to $940 million, $472 million, $3,082 million, $433 million and $13,215 million, respectively, and to correct Other current liabilities, Total current liabilities, total liabilities and Total liabilities and stockholders’ equity from $660 million, $2,680 million, $11,576 million and $13,223 million, respectively, to $661 million, $2,681 million, $11,577 million and $13,215 million, respectively.
There is no net impact of the adjustments described above to our Consolidated Statements of Cash Flows to “Net cash provided by operating activities” for each of the first three quarterly periods in 2023, as the impact to Net income (loss) is offset by the changes to operating assets and liabilities, net of effects of business acquired noted above.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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Item 9A. | CONTROLS AND PROCEDURES |
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
NCR has
We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)“Exchange Act”). Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive and Chief Financial Officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023. Based on this evaluation, our Chief Executive and Chief Financial Officers have concluded that, due to ensurethe material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2023 to provide reasonable assurance that that information required to be disclosed by NCRus in the reports that it fileswe file or submitssubmit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC rules and forms. Disclosure controlsforms and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by NCR in the reports that it files or submits under the Exchange Act is(ii) accumulated and communicated to NCR’sour management, including itsour Chief Executive and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure. Based
Management’s Report on their evaluationInternal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the endassets of the period covered by this Report, conductedcompany; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed, under theirthe supervision and with the participation of management, the Company’sour Chief Executive and Chief Financial Officers, the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework. Based on this assessment, we determined that, as of December 31, 2023, our internal control over financial reporting was not effective based on those criteria due to the material weaknesses in internal control over financial reporting described below.
We have concludedidentified the following material weaknesses in our internal control over financial reporting as of December 31, 2023:
•We did not design and maintain effective controls to prevent or timely detect unauthorized Automated Clearing House (“ACH”) disbursements; and
•We did not design and maintain effective controls related to accounts receivable and accounts payable clearing accounts. Specifically, controls were not designed at a sufficient level of precision to timely reconcile and review the reasonableness and supportability of clearing account balances, including review of the nature and aging of the individual clearing account balances.
Although not materially impacting any previously reported periods, these material weaknesses resulted in errors in our historical 2022 and 2021 financial statements and the revision of interim periods in 2023. Additionally, these material weaknesses could result in material misstatements to our consolidated financial statements that NCR’s disclosurewould not be prevented or detected.
PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2023 as stated in their report which appears in Item 8 of this report.
Remediation Plan for Material Weaknesses in Internal Control Over Financial Reporting
Since our management became aware of these unauthorized ACH disbursements, we have enabled enhanced security settings on certain of our bank accounts and have blocked ACH direct debit transactions for substantially all accounts subject to identified exceptions. We have been implementing and continue to implement measures designed to ensure that the control deficiencies contributing to the material weaknesses described above are remediated. These remediation actions are ongoing and include or are expected to include:
•designing and implementing a monitoring control to (i) perform at least an annual review of all our bank account attributes and (ii) regularly review bank account activity for large and/or unusual transactions for all bank accounts permitting ACH direct debit transactions;
•designing and implementing a monthly control, with a sufficient level of precision, to timely reconcile and review the reasonableness and supportability of accounts receivable and accounts payable clearing account balances, including a review of the nature and aging of the individual clearing account balances;
•designing and implementing enhanced review controls specific to accounts receivable and accounts payable clearing accounts to ensure clear and precise escalation protocols for unreconciled items and the timely resolution of any matters escalated; and
•supplementing existing training materials regarding fraud prevention and detection and incident escalation and resolution procedures.
As we continue to evaluate and work to improve our internal control over financial reporting, we may decide to take additional measures to address control deficiencies or modify the remediation plans described above. We believe that these actions will remediate the material weaknesses described above; however, the material weaknesses will not be considered remediated until we have completed the design and implementation of the applicable controls and proceduresthose controls operate for a sufficient period of time and management has concluded, through testing, that these controls are effective to meet such objectivesoperating effectively.
Our management has analyzed the material weaknesses and that NCR’s disclosure controlsperformed additional analyses and procedures adequately alert them on a timely basis to material information relating to the Company (including itsin preparing our consolidated subsidiaries) required to befinancial statements included in NCR’s Exchange Act filings.Item 8 of this Report. Based on these analyses and procedures, we believe that our financial statements fairly present, in all material respects, our financial condition, results of operations and cash flows at and for the periods presented.
Changes in Internal Control over Financial Reporting
Throughout 2017, in order to facilitate our adoption of the new revenue recognition accounting standard on January 1, 2018, we implemented internal controls to help ensure we properly evaluated our customer contracts, executed key system changes, and assessed the impact to our consolidated financial statements. We expect to continue to implement additional internal controls related to the adoption of this standard in the first quarter of 2018. There have been no other changes in our internal control over financial reporting that occurred during the last fiscal quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations due to, for example, the potential for human error or circumvention of controls, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework. Based on our assessment, we determined that, as of December 31, 2017, the Company’s internal control over financial reporting was effective based on those criteria.
PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 as stated in their report which appears in Item 8 of this Report.
Item 9B. OTHER INFORMATION
Adoption or Termination of 10b5-1 Trading Plans
During the fiscal quarter ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of the SEC’s Regulation S-K.
2024 Executive Severance Plan
On March 13, 2024, the Company adopted the NCR Voyix Corporation 2024 Executive Severance Plan (the “2024 Plan”), following approval of the 2024 Plan by the Compensation Committee of the Company’s Board of Directors. The 2024 Plan replaces and supersedes each of (i) the Amended and Restated NCR Change in Control Severance Plan effective December 31, 2008, as amended and (ii) the NCR Executive Severance Plan, effective December 12, 2014, as amended. Under the 2024 Plan, (a) the Company’s chief executive officer is entitled to a separation benefit of 2.0 times his annual base salary and target bonus in the event of a qualifying termination (with a separation benefit of 2.5 times his annual base salary and target bonus in the event of a qualifying termination in connection with a change in control) (b) the Company’s chief financial officer is entitled to a separation benefit of 1.5 times his annual base salary and target bonus in the event of a qualifying termination (with a separation benefit of 2.0 times his annual base salary and target bonus in the event of a qualifying termination in connection with a change in control), and (c) other executives of the Company are entitled to a separation benefit of 1.0 times his or her annual base salary and target bonus in the event of a qualifying termination (with a separation benefit of 2.0 times his or her annual base salary and target bonus in the event of a qualifying termination in connection with a change in control).
The foregoing summary is not complete and is qualified in its entirety by the 2024 Plan, a copy of which is attached hereto as Exhibit 10.1.3 and is incorporated herein by reference.
Updates to Preliminary Financial Results
On February 29, 2024 and March 4, 2024, the Company furnished Current Reports on Form 8-K that attached a press release and supplemental materials setting forth its preliminary fourth quarter 2023 financial results and certain other financial information. Subsequent to these furnished Form 8-Ks, the Company identified immaterial adjustments impacting the fourth quarter 2023, increasing selling, general and administrative expenses in connection with the accounts receivable and accounts payable clearing account reconciliations and decreasing Income tax expense. This Annual Report on Form 10-K updates the following for the year ended December 31, 2023: our Selling & general administrative expenses (from $738 million reported in the Form 8-Ks to $740 million), Income tax expense (from $205 million reported in the Form 8-Ks to $204 million) and Net loss (from $(585) million reported in the Form 8-Ks to $(586) million), as well as conforming changes to other measures and information related to the correction. The Company has also updated the earnings presentation and supplemental materials included in the Form 8-Ks on the investor relations portion of the Company’s website to reflect the correction.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III
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Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE |
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth
We incorporate by reference in the following paragraphs of this Item 10 the information required by this Item 10 will be set forthabout our directors, executive officers and our corporate governance contained under the headings “Election“Proposal 1: Election of Directors,” “SectionBiographical Information About Our Executive Officers” and “Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,” and “Committees of the Board” in theReports” from our Definitive Proxy Statement for our 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 20172023 year and is incorporated herein by reference. The information required by this Item 10 regarding our executive officers is set forth under the heading “Executive Officers of the Registrant” in Part I of this Form 10-K and is incorporated herein by reference.(“2024 Proxy Statement”).
We have not materially changed the procedures by which stockholders may recommend nominees to the Company’s Board of Directors.
We have a Code of Conduct that sets the standard for ethics and compliance for all of our directors and employees, including our chiefprincipal executive officer, our chiefprincipal financial officer and our chiefprincipal accounting officer. Our Code of Conduct is available on the Corporate Governance page at our website at http://www.ncr.com/www.ncrvoyix.com/company/corporate-governance/code-of-conduct under the heading “Code of Conduct.” We intend to disclose any amendmentssatisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiversa waiver from, a provision of theour Code of Conduct with respect to any director as well as our principal executive officer, principal financial officer, and principal accounting officer,by posting such information on the Corporate Governance page of our website promptly followingat the date of such amendment or waiver.address and location set forth above.
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Item 11. | EXECUTIVE COMPENSATION |
The information requiredItem 11. EXECUTIVE COMPENSATION
We incorporate by reference in this Item 11 will be set forththe information relating to executive and director compensation and the report of the Compensation Committee contained under the headings “Executive Compensation - Compensation“Compensation Discussion & Analysis,” “Compensation and Human Resource Committee,”Analysis” and “Board Compensation and Human Resource Committee Report on ExecutiveCorporate Governance - Director Compensation” in the Definitivefrom our 2024 Proxy Statement for our 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 2017 year, and is incorporated hereinStatement.
Item 12. SECURITY OWNERSHIPS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
We incorporate by reference.
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Item 12. | SECURITY OWNERSHIPS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required byreference in this Item 12 willthe information relating to ownership of our common stock by certain persons contained under the heading “Security Ownership of Certain Beneficial Owners and Management” from our 2024 Proxy Statement.
The following table provides certain information as of December 31, 2023 concerning the shares of our common stock that may be set forthissued under existing equity compensation plans. For more information on these plans, see Note 9, “Stock Compensation Plans” in the notes to the accompanying consolidated financial statements.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
We incorporate by reference in this Item 13 the information regarding certain relationships and related transactions between us and our affiliates and the independence of our directors contained under the headings “NCR Stock Ownership”“Additional Information - Relationships and “Equity Compensation Plan Information” in the Definitive Proxy Statement for our 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 2017 year, and is incorporated herein by reference.
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Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by this Item 13 will be set forth under the headings “Related PersonRelated Party Transactions” and “Corporate Governance” in the Definitive“Board and Corporate Governance - Board Independence” from our 2024 Proxy Statement for our 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 2017 year, and is incorporated herein by reference.Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information requiredWe incorporate by reference in this Item 14 will be set forththe information regarding principal accounting fees and services contained under the heading “Fees Paid to Independent Registered Public Accounting Firm” in the Definitive“Proposal Three: Ratification of Reappointment of Auditors” from our 2024 Proxy Statement for our 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 2017 year, and is incorporated herein by reference.Statement.
PART IV
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Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULE |
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a)(1) Financial Statements: The following is an index of the consolidated financial statements of the Company and the Report of Independent Registered Public Accounting Firm filed as part of this Form 10-K:
(2) Financial Statement Schedule: Financial Statement Schedule II—Valuation and Qualifying Accounts for the years ended December 31, 2023, 2022 and 2021 is included in this Form 10-K.10-K on page 135. All other schedules to our consolidated financial statements have been omitted because they are not required under the related instructionsinstruction or are not applicable.inapplicable, or because we have included the required information in our consolidated financial statements or related notes.
(3) Exhibits: See Index of Exhibits below for a listing of all exhibits to this Form 10-K. The management contracts and compensatory plans or arrangements required to be filed as an exhibit to this Form 10-K are identified in the Index of Exhibits by an asterisk (*).
(b) The following is an index of all exhibits to this Form 10-K. Exhibits identified in parentheses in the index below, on file with the SEC, are incorporated herein by reference as exhibits hereto.
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2.1 | | SeparationAgreement and Distribution Agreement,Plan of Merger, dated as of August 27, 2007, betweenOctober 19, 2018, among JetPay Corporation, NCR Corporation and TeradataOrwell Acquisition Corporation (Exhibit 10.12.1 to the Current Report on Form 8-K of TeradataNCR Corporation dated September 6, 2007).October 22, 2018) |
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| | Acquisition Agreement, dated as of January 25, 2021, among Cardtronics plc, NCR Corporation and Cardtronics USA, Inc. (Exhibit 2.1 to the Current Report on Form 8-K of NCR Corporation dated January 25, 2021) |
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| | Separation and Distribution Agreement, dated as of October 16, 2023, by and between NCR Voyix Corporation and NCR Atleos Corporation (Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 17, 2023 (the “October 17, 2023 8-K”)) |
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| | Articles of Amendment to the Articles of Incorporation of NCR Voyix Corporation, dated as of October 16, 2023 (Exhibit 3.1 to the October 17, 2023 8-K) |
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| | Articles of Amendment and Restatement of NCR Corporation (Exhibit 3.1 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2016)2019 (the “Second Quarter 2019 Quarterly Report”)). |
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| | Amended and Restated By-laws of NCR Voyix Corporation, dated as of October 16, 2023 (Exhibit 3.3 to the October 17, 2023 8-K) |
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| | BylawsRedline of Amended and Restated By-laws of NCR Voyix Corporation, dated as amended and restated on February 20, 2018of October 16, 2023 (Exhibit 3.23.4 to the Current Report on Form 8-K of NCR Corporation dated February 23, 2018).October 17, 2023 8-K) |
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| 4.1 | | Common Stock Certificate of NCR Corporation (Exhibit 4.1 to the NCR Corporation Annual Report on Form 10-K for the year ended December 31, 1999). |
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| | Indenture, dated September 17, 2012,as of August 21, 2019, among NCR Corporation, as issuer, NCR International, Inc. and Radiant Systems Inc. as subsidiary guarantors and U.S.Wells Fargo Bank, National Association as trustee (Exhibit 4.01 to the Current Report on Form 8-K of NCR Corporation dated September 17, 2012). |
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| | Indenture, dated December 18, 2012, among NCR Corporation, as issuer, NCR International Inc. and Radiant Systems Inc. as subsidiary guarantors and U.S. Bank National Association, as trustee (Exhibit 4.01 to the Current Report on Form 8-K of NCR Corporation dated December 18, 2012). |
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| | Indenture, dated December 19, 2013, between NCR Escrow Corp. and U.S. Bank National Association relating to the $400 million aggregate principal amount of 5.875% senior notes due 2021 (the “5.875% Notes”) (Exhibit 4.1 to the Current Report on Form 8-K of NCR Corporation dated December 19, 2013August 21, 2019 (the “December 19, 2013“August 21, 2019 Form 8-K”)). |
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| Supplemental Indenture, dated as of October 14, 2021 (relating to the Indenture dated as of August 21, 2019), among ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR Corporation, NCR International, Inc., and Wells Fargo Bank, National Association. |
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| | Indenture, dated as of August 21, 2019, among NCR Corporation, NCR International, Inc. and Wells Fargo Bank, National Association (Exhibit 4.3 to the August 21, 2019 Form 8-K). |
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| | First Supplemental Indenture, relatingdated as of October 14, 2021 (relating to the 5.875% Notes,Indenture dated January 10, 2014,as of August 21, 2019), among ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR Corporation, NCR International, Inc., and Wells Fargo Bank, National Association. |
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| | Indenture, dated as of August 20, 2020, among NCR Corporation, NCR International, Inc. and Wells Fargo Bank, National Association (Exhibit 4.1 to Current Report on Form 8-K of NCR Corporation dated August 20, 2020 (the “August 20, 2020 Form 8-K”)). |
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| | Supplemental Indenture, dated as of October 14, 2021 (relating to the Indenture dated as of August 20, 2020), among ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR Corporation, NCR International, Inc., and Wells Fargo Bank, National Association, as trustee. |
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| | Indenture, dated as of August 20, 2020, among NCR Corporation, NCR International, Inc. and Wells Fargo Bank, National Association (Exhibit 4.3 to the August 20, 2020 Form 8-K). |
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| | Supplemental Indenture, dated as of October 14, 2021 (relating to the Indenture dated as of August 20, 2020), among ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR Corporation, NCR International, Inc., and Wells Fargo Bank, National Association, as trustee. |
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| | Indenture, dated as of April 6, 2021, among NCR Corporation, NCR International, Inc. and U.S. Bank National Association as trustee (Exhibit 4.1 to the Current Report of NCR Corporation dated January 10, 2014 (the “January 10, 2014 Form 8-K”)). |
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| | Indenture, dated December 19, 2013, between NCR Escrow Corp. and U.S. Bank National Association relating to the $700 million aggregate principal amount of 6.375% senior notes due 2023 (the “6.375% Notes”) (Exhibit 4.2 to the December 19, 2013 Form 8-K). |
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| | First Supplemental Indenture relating to the 6.375% Notes, dated January 10, 2014, among NCR Corporation, NCR International, Inc. and U.S. Bank National Association, as trustee (Exhibit 4.2 to the January 10, 2014 Form 8-K). |
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10.1 | | Separation and Distribution Agreement, dated as of February 1, 1996, and amended and restated as of March 29, 1996, by and among NCR Corporation, AT&T Corp. and Lucent Technologies Inc. (Exhibit 10.1 to Amendment No. 3 to the Lucent Technologies Inc. Registration Statement on Form S-1 (No. 333-00703) (the “Lucent Registration Statement Amendment No. 3”)). |
| | |
10.2 | | Employee Benefits Agreement, dated as of November 20, 1996, by and between AT&T Corp. and NCR Corporation (Exhibit 10.2 to the NCR Corporation Annual Report on Form 10-K for the year ended December 31, 1996 (the “1996 Annual Report”)). |
| | |
10.3 | | Patent License Agreement, effective as of March 29, 1996, by and among AT&T Corp., NCR Corporation, and Lucent Technologies Inc. (Exhibit 10.7 to Amendment No. 4 to the Lucent Technologies Inc. Registration Statement on Form S-1 (No. 333-0073) (the “Lucent Registration Statement Amendment No. 4”)). |
| | |
10.4 | | Amended and Restated Technology License Agreement, effective as of March 29, 1996, by and among AT&T Corp., NCR Corporation, and Lucent Technologies Inc. (Exhibit 10.8 to the Lucent Registration Statement Amendment No. 4). |
| | |
10.5 | | Tax Sharing Agreement, dated as of February 1, 1996, and amended and restated as of March 29, 1996, by and among AT&T Corp., NCR Corporation, and Lucent Technologies Inc. (Exhibit 10.6 to the Lucent Registration Statement Amendment No. 3). |
| | |
| | Tax Sharing Agreement, dated as of September 21, 2007, between NCR Corporation and Teradata Corporation (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated September 21, 2007)April 6, 2021). |
| | |
| | Supplemental Indenture, dated as of October 14, 2021 (relating to the Indenture dated as of April 6, 2021), among ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR International, Inc., and U.S. Bank National Association, as trustee. |
| 10.7 | |
| | Description of Registrant’s Securities Registered Under Section 12 of the Exchange Act. |
| | |
| | NCR Management Stock Plan (Exhibit 10.8Indenture relating to the 1996 Annual Report). *Notes, dated September 27, 2023, between NCR Atleos Escrow Corporation and Citibank, N.A. (Exhibit 4.1 to the Company’s Current Report on 8-K filed on September 28, 2023 (the “September 28, 2023 8-K”) |
| | |
| | Form of 9.500% Senior Secured Notes due 2029 (included in Exhibit 4.1) (Exhibit 4.2 to the September 28, 2023 8-K) |
| | |
| | First AmendmentSecond Supplemental Indenture, dated as of September 14, 2023, among NCR Corporation, NCR Atleos, LLC, ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR International, Inc., and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association), as trustee, relating to Registrant's 5.000% Notes due 2028 (Exhibit 4.3 to the NCR Management Stock Plan dated April 30, 2003 (Exhibit 10.4 to the NCR CorporationCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003). *filed November 14, 2023) |
| | |
| | Second Supplemental Indenture, dated as of September 14, 2023, among NCR Corporation, NCR Atleos, LLC, ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR International, Inc., and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association), as trustee, relating to Registrant's 5.125% Notes due 2029 (Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2023). |
| | |
| | | | | | | | |
| | Second Supplemental Indenture, dated as of September 14, 2023, among NCR Corporation, NCR Atleos, LLC, ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR International, Inc., and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association), as trustee, relating to Registrant's 5.250% Notes due 2030 (Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2023). |
| | |
| | AmendmentSecond Supplemental Indenture, dated as of September 14, 2023, among NCR Corporation, NCR Atleos, LLC, ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR International, Inc., and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association), as trustee, relating to Registrant’s 5.750% Notes due 2027 (Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2023). |
| | |
| | Second Supplemental Indenture, dated as of September 14, 2023, among NCR Management StockCorporation, NCR Atleos, LLC, ATM National, LLC, Cardtronics Holdings, LLC, Cardtronics, Inc., Cardtronics USA, Inc., CATM Holdings LLC, NCR International, Inc., and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association), as trustee, relating to Registrant's 6.125% Notes due 2029 (Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2023). |
| | |
| | Amended and Restated NCR Change in Control Severance Plan effective as of December 31, 2008 (Exhibit 10.17.210.24.2 to the NCR Corporation Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Annual Report”)). * |
| | |
| | Form of Stock Option Agreement under the NCR Management Stock Plan (Exhibit 10.6.3 to the NCR Corporation Annual Report on Form 10-K for the year ended December 31, 2005 (the “2005 Annual Report”)). * |
| | |
| | Form of Restricted Stock Agreement under the NCR Management Stock Plan (Exhibit 10.6.4 to the 2005 Annual Report). * |
| | |
| | NCR Corporation 2011 Amended and Restated Stock Incentive Plan (formerly the NCR 2006 Stock Incentive Plan, as amended and restated effective as of December 31, 2008) (the “2011 Stock Incentive Plan”) (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated April 27, 2011). * |
| | |
| | Form of 2009 Stock Option Agreement under the NCR Corporation 2011 Stock Incentive Plan (Exhibit 10.5 to the Current Report on Form 8-K of NCR Corporation dated December 12, 2008). * |
| | |
|
| | |
| | Form of 2010 Stock Option Agreement under the 2011 Stock Incentive Plan (Exhibit 10.2 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (the "First Quarter 2010 Quarterly Report")).* |
| | |
| | Form of 2011 Stock Option Agreement under the 2011 Stock Incentive Plan (Exhibit 10.1 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2011). * |
| | |
| | Amended and Restated NCR Management Incentive Plan (Exhibit 10.2 to the Current Report on Form 8-K of NCR Corporation dated April 27, 2011). * |
| | |
| | NCR Director Compensation Program effective April 21, 2009 (the “2009 NCR Director Compensation Program”)
(Exhibit 10.7 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (the “First Quarter 2009 Form 10-Q”)). *
|
| | |
| | 2009 Director Option Grant Statement under the 2009 NCR Director Compensation Program (Exhibit 10.8 to the First Quarter 2009 Form 10-Q). * |
| | |
| | 2009 Director Restricted Stock Unit Grant Statement under the 2009 NCR Director Compensation Program (Exhibit 10.9 to the First Quarter 2009 Form 10-Q). * |
| | |
| | Amended and Restated NCR Change in Control Severance Plan effective December 31, 2008 (Exhibit 10.24.2 to the 2008 Annual Report). * |
| | |
| | First Amendment to the Amended and Restated NCR Change in Control Severance Plan (Exhibit 10.6 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2011). * |
| | |
| | Second Amendment to the Amended and Restated NCR Change in Control Severance Plan. * |
| | |
| | Employment Agreement with William Nuti, dated July 29, 2005Plan (Exhibit 10.110.11.2 to the Current Report on Form 8-K of NCR Corporation dated July 27, 2005). * |
| | |
| | Letter Agreement, dated July 26, 2006, with William Nuti (Exhibit 10.4 to the Current Report on Form 8-K of NCR Corporation dated July 25, 2006). * |
| | |
| | Second Amendment, effective as of December 12, 2008, to Letter Agreement with William Nuti dated July 29, 2005, as amended July 26, 2006 (Exhibit 10.30.2 to the 20082017 Annual Report). * |
| | |
| | NCR Voyix Corporation 2024 Executive Severance Plan adopted March 13, 2024.* |
| | | Letter Agreement, dated March 11, 2015, between NCR Corporation and William Nuti (Exhibit 10.5 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (the “First Quarter 2015 Quarterly Report”)).*
| | |
| | NCR Director Compensation Program Effective April 27, 2010 (Exhibit 10.1 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “Second Quarter 2010 Quarterly Report”)). * |
| | |
| | Form of 2010 Director Option Grant Statement (Exhibit 10.2 to the Second Quarter 2010 Quarterly Report). * |
| | |
| | Form of 2010 Director Restricted Stock Unit Grant Statement (Exhibit 10.3 to the Second Quarter 2010 Quarterly Report). * |
| | |
| | Letter Agreement with Robert Fishman dated March 17, 2010 (Exhibit 10.7 to the First Quarter 2010 Quarterly Report). * |
| | |
| | NCR Corporation 2011 Economic Profit Plan (Exhibit 10.3 to the Current Report on Form 8-K of NCR Corporation dated April 27, 2011). * |
| | |
|
| | |
| | First Amendment to NCR Corporation 2011 Economic Profit Plan (Exhibit 10.29.1 to the NCR Corporation Annual Report on Form 10-K for the year ended December 31, 2011). * |
| | |
| | Second Amendment to NCR Corporation 2011 Economic Profit Plan, dated January 25, 2012 (Exhibit 10.1 to the First Quarter 2012 Quarterly Report). |
| | |
| | Third Amendment to NCR Corporation 2011 Economic Profit Plan (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated October 1, 2013). * |
| | |
| | Fourth Amendment to NCR Corporation 2011 Economic Profit Plan (Exhibit 10.18.4 to the NCR Corporation Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Annual Report”)). * |
| | |
| | Amended and Restated NCR Corporation Economic Profit Plan (Exhibit 10.2 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (the “Second Quarter 2015 Quarterly Report)).* |
| | |
| | Equity Subscription Agreement, dated July 26, 2011, among NCR Corporation, Scopus Industrial S.A., Scopus Tecnologia Ltda. and NCR Brasil - Indústria de Equipamentos Para Automação Ltda., including Schedule I - The form of Shareholders' Agreement (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated July 26, 2011). |
| |
| | NCR Corporation 2013 Stock Incentive Plan (the “2013 Stock Incentive Plan”) (Appendix A to the NCR Corporation Proxy Statement on Schedule 14A for the NCR Corporation 2013 Annual Meeting of Stockholders). * |
| | |
| | Form of 2015 Performance Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.1 to the First Quarter 2015 Quarterly Report).* |
| | |
| | Form of 2015 Time Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.2 to the First Quarter 2015 Quarterly Report).* |
| | |
| | Form of 2015 Single-Metric Performance-Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.3 to the First Quarter 2015 Quarterly Report).* |
| | |
| | Form of 2016 Time Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended March 31, 2016 (the “First Quarter 2016 Quarterly Report”)). * |
| | |
| | Form of 2016 Performance Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.2 to the First Quarter 2016 Quarterly Report). * |
| | |
| | Form of 2016 Single-Metric Performance Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.3 to the First Quarter 2016 Quarterly Report). * |
| | |
| | Form of Vision 2020 Award (for Awardees Other than the Chief Executive Officer): 2016 Price-Contingent Restricted Stock Unit Agreement - $35 Price Target - under the 2013 Stock Incentive Plan (Exhibit 10.5 to the First Quarter 2016 Quarterly Report). * |
| | |
| | Form of Vision 2020 Award (for Awardees Other than the Chief Executive Officer): 2016 Price-Contingent Restricted Stock Unit Agreement - $40 Price Target - under the 2013 Stock Incentive Plan (Exhibit 10.6 to the First Quarter 2016 Quarterly Report). * |
| | |
| | Agreement between NCR and the Trustees of the NCR Pension Plan (UK), dated November 14, 2013 (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated November 14, 2013). |
| | |
| | Amended and Restated NCR Executive Severance Plan (Exhibit 10.1 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (the “Second Quarter 2015 Quarterly Report”)). * |
| | |
| | First Amendment to the Amended and Restated NCR Executive Severance Plan (Exhibit 10.21.1 to the 2017 Annual Report). * |
| | |
| | Receivables Financing Agreement, dated as of November 21, 2014, by and among NCR Receivables LLC, as borrower, NCR Corporation as servicer, PNC Bank, National Association, as administrative agent, and PNC Bank, National Association, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, Victory Receivables Corporation and the other lender parties from time to time party thereto (Exhibit 10.1Executive Officer Cash Severance Policy (Annex A to the Current Report on Form 8-K of NCR Corporation dated November 21, 2014 (the “November 21, 2014 Form 8-K”)). |
| May 2, 2022) * |
| | |
| | |
| | First Amendment to Receivables Financing Agreement, dated as of November 21, 2016, by and among NCR Receivables LLC, as borrower, NCR Corporation, as servicer, PNC Bank, National Association, as administrative agent, and PNC Bank, National Association, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, Victory Receivables Corporation and the other lender parties from time to time party thereto (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated November 23, 2016).
|
| | |
| | Purchase and Sale Agreement, dated as of November 21, 2014, among NCR Receivables LLC, as buyer, and NCR Corporation and the other originator parties from time to time party thereto (Exhibit 10.2 to the November 21, 2014 Form 8-K). |
| | |
| | Amended and Restated NCR Executive Severance Plan (Exhibit 10.1 to the Second Quarter 2015 Quarterly Report).* |
| | |
| | First Amendment to the Amended and Restated NCR Executive Severance Plan.* |
| | |
| | Employment Letter of Frederick Marquardt dated April 4, 2014 (as amended May 1, 2014). (Exhibit 10.40 to the 2014 Annual Report). * |
| | |
| | Employment Contract, dated June 23, 2014, between NCR GmbH and Michael Bayer (Exhibit 10.41 to the 2014 Annual Report). * |
| | |
| | Letter regarding additional terms of employment of Michael Bayer, dated June 23, 2014 (Exhibit 10.41.1 to the 2014 Annual Report). * |
| | |
| | Employment Transfer Letter (revised) of Michael Bayer, dated July 30, 2015 (Exhibit 10.4 to the Second Quarter 2015 Quarterly Report).* |
| | |
| | NCR Director Compensation Program effective April 23, 2013, as amended effective February 24, 2014 (the “2013 NCR Director Compensation Program”) (Exhibit 10.42 to the 2014 Annual Report). * |
| | |
| | 2014 Director Restricted Stock Unit Grant Statement under the 2013 NCR Director Compensation Program (Exhibit 10.42.1 to the 2014 Annual Report). * |
| | |
| | 2015 Director Restricted Stock Unit Grant Statement under the 2013 NCR Director Compensation Program (Exhibit 10.3 to the Second Quarter 2015 Quarterly Report).* |
| | |
| | 2016 Director Restricted Stock Unit Grant Statement under the 2013 NCR Director Compensation Program (Exhibit 10.2 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended June 30, 2016 (the “Second Quarter 2016 Quarterly Report”)). * |
| | |
| | Investment Agreement dated as of November 11, 2015, by and between NCR Corporation and the affiliates of Blackstone Capital Partners VI, L.P. and Blackstone Tactical Opportunities L.L.C. named therein (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated November 11, 2015). |
| | |
| | Registration Rights Agreement, dated as of December 4, 2015, by and between NCR Corporation and the affiliates of Blackstone Capital Partners VI, L.P. and Blackstone Tactical Opportunities L.L.C. named therein (Exhibit 10.1 to the December 2, 2015 Form 8-K). |
| | |
10.27 | | NCR Employee Stock Purchase Plan, as amended and restated effective January 1, 2017 (Appendix A to the NCR Corporation Proxy Statement on Schedule 14A for the NCR Corporation 2016 Annual Meeting of Stockholders). * |
| | |
| | Incremental Revolving Facility Agreement (TLA-2 Conversion), dated as of June 24, 2021, among NCR Corporation, the Foreign Borrowers thereto, the Subsidiary Loan Parties thereto, the Incremental Revolving Lenders thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, including, as Exhibit A thereto, the Amended Credit Agreement, dated as of August 22, 2011, as amended and restated as of July 25, 2013, as further amended and restated as of March 31, 2016, by andJune 24, 2021, among NCR Corporation, the Foreign Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Exhibit 10.1 to Current Report on Form 8-K of NCR Corporation dated June 21, 2021 (the “June 21, 2021 Form 8-K”)). |
| | |
| | Fifth Amendment to the Credit Agreement, dated as of December 27, 2022, by and among NCR Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated April 4, 2016 (the “April 4, 2016 Form 8-K”)).December 27, 2022) * |
| | |
| | | | | | | | |
| | Reaffirmation Agreement, dated as of June 21, 2021, among NCR Corporation, certain foreign and domestic subsidiaries of NCR Corporation party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Exhibit 10.2 to the June 21, 2021 Form 8-K). |
| | |
| | Amended and Restated Guarantee and Collateral Agreement, dated as of August 22, 2011, as amended and restated as of January 6, 2014, as further amended and restated as of March 31, 2016, by and among NCR Corporation, the Foreign Borrowers party thereto, the subsidiaries of NCR Corporation identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent (Exhibit 10.2 to the April 4, 2016 Form 8-K). |
| | |
| | Supplement No. 1, dated as of September 30, 2021, to the Amended and Restated Guarantee and Collateral Agreement, dated as of August 22, 2011, as amended and restated as of January 6, 2014, as further amended and restated as of March 31, 2016, among NCR Corporation, the Foreign Borrowers from time to time party thereto, the Subsidiary Loan Parties from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Exhibit 10.5 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended September 30, 2021). |
| | |
| | Annex A to Credit Agreement dated as of August 22, 2011, as amended and restated as of July 25, 2013, as further amended and restated as of March 31, 2016, among NCR Corporation, the Foreign Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A. (Exhibit 10.1 to the Second Quarter 2016 Quarterly Report). |
| | |
| | Employment Contract, dated September 15, 2016, between NCR Corporation and Mark D. Benjamin (Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended September 30, 2016). * |
| | |
| | Underwriting Agreement, dated March 13, 2017, among NCR Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and the selling stockholders party thereto (Exhibit 1.1 to the Current Report on Form 8-K of NCR Corporation dated March 10, 2017). |
| | |
| | Second Amended and Restated NCR Management Incentive Plan (Appendix A to the NCR Corporation Proxy Statement on Schedule 14A for the NCR Corporation 2017 Annual Meeting of Stockholders (the “2017 Proxy Statement”). * |
| | |
| | Stock Repurchase Agreement, dated as of March 10, 2017, by and between NCR Corporation, Blackstone BCP VI SBS ESC Holdco L.P., Blackstone NCR Holdco L.P., BTO NCR Holdings - ESC L.P., and BTO NCR Holdings L.P. (Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended March 31, 2017 (the “First Quarter 2017 Quarterly Report”)). |
| | |
| | Waiver and Amendment of Investment Agreement, dated as of March 13 2017, by and between NCR Corporation, Blackstone BCP VI SBS ESC Holdco L.P., Blackstone NCR Holdco L.P., BTO NCR Holdings - ESC L.P. and BTG NCR Holdings L.P. (Exhibit 10.2 to the First Quarter 2017 Quarterly Report). |
| | |
| | NCR Corporation 2017 Stock Incentive Plan (the “2017 Stock Incentive Plan”) (Appendix B to the 2017 Proxy Statement). * |
| | |
| | Form of 2017 Performance-Based Restricted2018 Stock UnitOption Award Agreement under the 2013NCR Corporation 2017 Stock Incentive Plan and(the “2017 Stock Incentive Plan”) (Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended March 31, 2018). * |
| | |
| | Form of 2019 Stock Option Award Agreement under the 2017 Stock Incentive Plan (Exhibit 10.310.1 to the FirstQuarterly Report on Form 10-Q of NCR Corporation for the quarter ended March 31, 2019 (the “First Quarter 20172019 Quarterly Report)Report”)). * |
| | |
| | Form of 2017 Performance-Vesting Restricted Stock Unit2020 Premium-Priced Option Award Agreement under the 2013 Stock Incentive Plan and 2017 Stock Incentive Plan (Exhibit 10.410.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended March 31, 2020 (the “First Quarter 2020 Quarterly Report”)). * |
| | |
| | Form of 2020 Premium-Priced Option Award Agreement under the 2017 Stock Incentive Plan (Executive Chairman; President and Chief Executive Officer) (Exhibit 10.2 to the First Quarter 20172020 Quarterly Report). * |
| | |
| | Form of 2017 Time-Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan and 2017 Stock Incentive Plan (Exhibit 10.5 to the First Quarter 2017 Quarterly Report). * |
| | |
| | Form of 2017 Single-Metric Performance-Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan and 2017 Stock Incentive Plan (Exhibit 10.6 to the First Quarter 2017 Quarterly Report). * |
| | |
| | Form of 20172020 Director Restricted Stock Unit Grant Statement under the 2013 Stock Incentive Plan and 2017 Stock Incentive Plan (Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended June 30, 20172020 (the “Second Quarter 20172020 Quarterly Report”)). * |
| | |
| | Form of 2017 Stock Option Award Agreement underFirst Amendment to the 20132017 Stock Incentive Plan (Appendix A to the NCR Corporation Proxy Statement on Schedule 14A for the NCR Corporation 2020 Annual Meeting of Stockholders). * |
| | |
| | Form of Senior Executive Team 2022 Performance-Based Restricted Stock Unit Award Agreement (With Relative TSR Metric) under the NCR Corporation 2017 Stock Incentive Plan. (Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended March 31, 2022 (the “First Quarter 2022 Quarterly Report”)). * |
| | |
| | Form of Senior Executive Team 2022 Performance-Based Restricted Stock Unit Award Agreement (with LTI EBITDA and LTI Recurring Revenue Metric) under the NCR Corporation 2017 Stock Incentive Plan (Exhibit 10.210.9.8 to the Second Quarter 2017 Quarterly Report)Annual Report on Form 10-K of NCR Corporation for the year ended December 31, 2022).* |
| | |
| | | | | | | | |
| | Form of Senior Executive Team Qualified Transaction 2023 Performance-Based Restricted Stock Unit Award Agreement (with Relative TSR Metric) under the NCR Corporation 2017 Stock Incentive Plan (Exhibit 10.9.9 to the Annual Report on Form 10-K of NCR Corporation for the year ended December 31, 2022).* |
| | |
| | Form of Senior Executive Team 2023 Performance-Based Restricted Stock Unit Award Agreement (with Relative TSR Metric) under the NCR Corporation 2017 Stock Incentive Plan (Exhibit 10.9.10 to the Annual Report on Form 10-K of NCR Corporation for the year ended December 31, 2022).* |
| | |
| | Form of Senior Executive Team 2021 Performance-Based Restricted Stock Unit Award Agreement under the NCR Corporation 2017 Stock Incentive Plan (Exhibit 10.9.11 to the Annual Report on Form 10-K of NCR Corporation for the year ended December 31, 2022).* |
| | |
| | Form of the Senior Executive Team 2021 Market Stock Unit Award Agreement under the NCR Corporation 2017 Stock Incentive Plan (Exhibit 10.9.12 to the Annual Report on Form 10-K of NCR Corporation for the year ended December 31, 2022). * |
| | |
| | NCR Director Compensation Program effective May 1, 2017 (Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended September 30, 2017). * |
| | |
| | Employment Agreement, dated April 27, 2018, between Michael Hayford and NCR Corporation (Exhibit 10.4 to the Second Quarter 2018 Quarterly Report). * |
| | |
| | Statement Regarding Computation of Ratio of EarningsEmployment Agreement, dated April 27, 2018, between Frank Martire and NCR Corporation (Exhibit 10.5 to Fixed Charges and Preferred Stock Dividends.the Second Quarter 2018 Quarterly Report). * |
| | |
| | Employment Agreement, dated July 18, 2018, between Owen Sullivan and NCR Corporation (Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended September 30, 2018 (the “Third Quarter 2018 Quarterly Report”)). * |
| | |
| | Employment Agreement, dated June 15, 2020, between Timothy Oliver and NCR Corporation (Exhibit 10.4 to the Second Quarter 2020 Quarterly Report). * |
| | |
| | NCR Corporation Deferred Compensation Plan (Exhibit 10.30 to 2020 Annual Report). * |
| | |
| | Letter Agreement, dated October 1, 2021, between Don Layden and NCR Corporation (Exhibit 10.2 to the First Quarter 2022 Quarterly Report). * |
| | |
| | Employment Agreement, dated September 25, 2023, between David Wilkinson and NCR Corporation (Exhibit 10.17 to the Company’s Quarterly Report filed on November 14, 2023).* |
| | |
| | Amendment to Employment Agreement, dated March 13, 2024, between David Wilkinson and NCR Voyix Corporation.* |
| | |
| | Letter Agreement, dated June 9, 2023, between Brian Webb-Walsh and NCR Corporation.* |
| | |
| | Amendment to Letter Agreement, dated March 13, 2024, between Brian Webb-Walsh and NCR Voyix Corporation.* |
| | |
| | Letter Agreement, dated July 26, 2023, between Kelli Sterrett and NCR Corporation.* |
| | |
| | Letter Agreement, dated April 14, 2011, between Kelly Moyer and NCR Corporation.* |
| | |
| | Amendment to Letter Agreement, dated August 19, 2023, between Kelly Moyer and NCR Corporation.* |
| | |
| | Letter Agreement, dated October 21, 2016, between Eric Schoch and NCR Corporation.* |
| | |
| | Amendment to Letter Agreement, dated September 15, 2023, between Eric Schoch and NCR Corporation.* |
| | |
| | | | | | | | |
| | Amendment to Employment Agreement, dated February 16, 2023, between Michael D. Hayford and NCR Corporation (Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 17, 2023). * |
| | |
| | Amendment to Employment Agreement, dated February 13, 2023, between Owen J. Sullivan and NCR Corporation (Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 17, 2023). * |
| | |
| | Amendment to Employment Agreement, dated February 13, 2023, between Timothy C. Oliver and NCR Corporation (Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 17, 2023). * |
| | |
| | Amendment to Employment Agreement, dated February 13, 2023, between Donald W. Layden and NCR Corporation (Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 17, 2023). * |
| | |
| | Credit Agreement, dated as of September 27, 2023, among NCR Atleos LLC, NCR Atleos Escrow Corporation, the lenders party thereto, any foreign borrower party thereto and Bank of America, N.A., as administrative agent (Exhibit 10.1 to the September 28, 2023 8-K) |
| | |
| | Transition Services Agreement, dated as of October 16, 2023, by and between NCR Voyix Corporation and NCR Atleos Corporation (Exhibit 10.1 to the October 17, 2023 8-K) |
| | |
| | Tax Matters Agreement, dated as of October 16, 2023, by and between NCR Voyix Corporation and NCR Atleos Corporation (Exhibit 10.2 to the October 17, 2023 8-K) |
| | |
| | Employee Matters Agreement, dated as of October 16, 2023, by and between NCR Voyix Corporation and NCR Atleos Corporation (Exhibit 10.3 to the October 17, 2023 8-K) |
| | |
| | Patent and Technology Cross-License Agreement, dated as of October 16, 2023, by and between NCR Voyix Corporation and NCR Atleos Corporation (Exhibit 10.4 to the October 17, 2023 8-K) |
| | |
| | Trademark License and Use Agreement, dated as of October 16 ,2023, by and between NCR Voyix Corporation and NCR Atleos Corporation (Exhibit 10.5 to the October 17, 2023 8-K) |
| | |
| | Master Services Agreement, dated October 16, 2023, by and between NCR Voyix Corporation and Cardtronics USA, Inc. (Exhibit 10.6 to the October 17, 2023 8-K) |
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| | Manufacturing Services Agreement, dated October 16 2023, by and between NCR Voyix Corporation and Terafina Software Solutions Private Limited and NCR Corporation India Private Limited (Exhibit 10.7 to the October 17, 2023 8-K) |
| | |
| | Credit Agreement, dated as of October 16, 2023, by and between NCR Voyix Corporation, the foreign borrowers party thereto, the lenders and issuing banks party thereto and Bank of America, N.A., as administrative agent (Exhibit 10.8 to the October 17, 2023 8-K) |
| | |
| | Fourth Amendment to the Receivables Purchase Agreement, dated as of August 7, 2023, by and among NCR Corporation, as servicer, NCR Receivables LLC, as seller, NCR Canada Receivables LP, as Canadian guarantor, NCR Canada Corp., as Canadian servicer, MUFG Bank, Ltd. and PNC Bank, National Association, as committed purchasers, Victory Receivables Corporation, as a conduit purchaser, PNC Bank, National Association, as group agent and as administrative agent and PNC Capital Markets LLC, as structuring agent. |
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| | Fifth Amendment to the Receivables Purchase Agreement, dated as of September 1, 2023, by and among NCR Corporation, as servicer, NCR Receivables LLC, as seller NCR Canada Receivables LP, as Canadian guarantor, NCR Canada Corp., as Canadian servicer, MUFG Bank, Ltd. and PNC Bank, National Association as committed purchasers, Victory Receivables Corporation, as a conduit purchaser, PNC Bank, National Association, as group agent and as administrative agent and PNC Capital Markets LLC, as structuring agent (Exhibit 10.2 to the Company's Current Report on Form 8-K dated September 7, 2023) |
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| | | | | | | | |
| | Sixth Amendment to the Receivables Purchase Agreement, dated as of September 27, 2023, by and among NCR Corporation, as servicer, NCR Receivables LLC, as seller, NCR Canada Receivables LP, as Canadian guarantor, NCR Canada Corp., as Canadian servicer, MUFG Bank, Ltd. and PNC Bank, National Association, as committed purchasers, Victory Receivables Corporation, as a conduit purchaser, PNC Bank, National Association, as group agent and as administrative agent and PNC Capital Markets LLC, as structuring agent. |
| | |
| | Seventh Amendment to Receivables Purchase Agreement, dated as of October 16, 2023, by and among NCR Receivables LLC, as seller, NCR Canada Receivables LP, as guarantor, NCR Corporation, as servicer, NCR Canada Corp., as servicer, PNC Bank, National Association, as administrative agent, and PNC Bank, National Association, MUFG Bank, Ltd., Victory Receivables Corporation and the other purchasers from time to time party thereto (Exhibit 10.9 to the October 17, 2023 8-K) |
| | |
| | First Amendment to Amended and Restated Purchase and Sale Agreement, dated as of October 16, 2023, among NCR Receivables LLC, as buyer, and NCR Corporation, as initial servicer and as an originator, Cardtronics USA, Inc. as a released original and ATM National, LLC, as a released originator (Exhibit 10.10 to the October 17, 2023 8-K) |
| | |
| | Release Under Canadian Purchase and Sale Agreement, dated as of October 16, 2023, among NCR Canada Receivables LP, as buyer, NCR Canada Corp., as initial servicer and as originator, and Canada Holdings, Inc., as a released originator (Exhibit 10.11 to the October 17, 2023 8-K) |
| | |
| | Seventh Amendment dated as of August 31, 2023, among NCR Corporation, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 7, 2023) |
| | |
| | Receivables Purchase Agreement, dated as of September 30, 2021, by and among NCR Receivables LLC, as seller, NCR Canada Receivables LP, as guarantor, NCR Corporation, as servicer, NCR Canada Corp., as servicer, PNC Bank, National Association, as administrative agent, and PNC Bank, National Association, MUFG Bank, Ltd., Victory Receivables Corporation and the other purchasers from time to time party thereto, as purchasers (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated September 30, 2021 (the “September 30, 2021 Form 8-K”)). |
| | |
| | Amended and Restated Purchase and Sale Agreement, dated as of September 30, 2021, among NCR Receivables LLC, as buyer, and NCR Corporation, Cardtronics USA, Inc., ATM National, LLC and the other originators from time to time party thereto, as originators (Exhibit 10.2 to the September 30, 2021 Form 8-K). |
| | |
| | Canadian Purchase and Sale Agreement, dated as of September 30, 2021, among NCR Canada Receivables LP, as buyer, and NCR Canada Corp. and the other originator originators from time to time party thereto, as originators (Exhibit 10.3 to the September 30, 2021 Form 8-K). |
| | |
| | Performance Guaranty, dated as of September 30, 2021, by NCR Corporation, as performance guarantor, and PNC Bank, National Association, as administrative agent (Exhibit 10.4 to the September 30, 2021 Form 8-K). |
| | |
| | First Amendment to the Receivables Purchase Agreement, dated as of August 22, 2022, by and among NCR Receivables LLC, NCR Canada Receivables, LP, NCR Corporation, NCR Canada Corp., MUFG Bank, Ltd., Victory Receivables Corporation, PNC Bank, National Association, and PNC Capital Markets LLC. (Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended September 30, 2022 (the “Third Quarter 2022 Quarterly Report”)). |
| | |
| | Second Amendment to the Receivables Purchase Agreement, dated as of September 20, 2022, by and among NCR Receivables LLC, NCR Canada Receivables, LP, NCR Corporation, NCR Canada Corp., MUFG Bank, Ltd., Victory Receivables Corporation, PNC Bank, National Association, and PNC Capital Markets LLC. (Exhibit 10.2 to the Third Quarter 2022 Quarterly Report). |
| | |
| | Third Amendment to the Receivables Purchase Agreement, dated as of December 27, 2022, by and among NCR Receivables LLC, NCR Canada Receivables, LP, NCR Corporation, NCR Canada Corp., MUFG Bank, Ltd., Victory Receivables Corporation, PNC Bank, National Association, and PNC Capital Markets LLC. (Exhibit 10.19.6 to the Annual Report on Form 10-K of NCR Corporation for the year ended December 31, 2022) |
| | |
| | Subsidiaries of NCR Corporation.the Registrant. |
| | | | | | | | |
| | |
| | Consent of Independent Registered Public Accounting Firm. |
| | |
| | |
| Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934. |
| | |
| | Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934. |
| |
| | Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934. |
| |
| | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
| | NCR Voyix Corporation Clawback Policy |
| 99.1 | |
| 101 | | Tax Opinion of Wachtell, Lipton, Rosen & Katz in connection with the Spin off of Teradata, dated August 27, 2007 (Exhibit 99.2 to the CurrentThe following materials from NCR Corporation’s Annual Report on Form 8-K10-K for the year ended December 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) consolidated statements of NCR Corporation dated September 30, 2007).operations for the fiscal years ended December 31, 2023, 2022 and 2021; (ii) consolidated statements of comprehensive income for the fiscal years ended December 31, 2023, 2022 and 2021; (iii) consolidated balance sheets as of December 31, 2023 and 2022; (iv) consolidated statements of cash flows for the fiscal years ended December 31, 2023, 2022 and 2021; (v) consolidated statements of changes in stockholders’ equity for fiscal years ended December 31, 2023, 2022 and 2021; and (vi) the notes to the consolidated financial statements. |
| | |
| 104 | | Cover Page Interactive Data File, formatted in inline XBRL and contained in Exhibit 101.
|
| 101 | | Financials in XBRL Format.
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* Management contracts or compensatory plans/arrangementsarrangements.
Item 16. FORM 10-K SUMMARY
None.
| |
Item 16. | FORM 10-K SUMMARY |
None.
NCR Voyix Corporation
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Column A | | Column B | | Column C | | Column D | | Column E |
| | | | Additions | | | | |
| Description | | Balance at Beginning of Period | | Charged to Costs & Expenses | | Charged to Other Accounts | | Deductions | | Balance at End of Period |
| Year Ended December 31, 2023 | | | | | | | | | | |
| Allowance for doubtful accounts | | $21 | | $26 | | $— | | $15 | | $32 |
| Deferred tax asset valuation allowance | | $274 | | $25 | | $5 | | $93 | | $211 |
| | | | | | | | | | |
| Year Ended December 31, 2022 | | | | | | | | | | |
| Allowance for doubtful accounts | | $19 | | $15 | | $— | | $13 | | $21 |
| Deferred tax asset valuation allowance | | $225 | | $81 | | $14 | | $46 | | $274 |
| | | | | | | | | | |
| Year Ended December 31, 2021 | | | | | | | | | | |
| Allowance for doubtful accounts | | $40 | | $8 | | $— | | $29 | | $19 |
| Deferred tax asset valuation allowance | | $209 | | $27 | | $13 | | $24 | | $225 |
|
| | | | | | | | | | |
| Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | Additions | | | | |
| Description | | Balance at Beginning of Period | | Charged to Costs & Expenses | | Charged to Other Accounts | | Deductions | | Balance at End of Period |
| Year Ended December 31, 2017 | | | | | | | | | | |
| Allowance for doubtful accounts | | $41 | | $10 | | $— | | $14 | | $37 |
| Deferred tax asset valuation allowance | | $445 | | $— | | $— | | $30 | | $415 |
| | | | | | | | | | | |
| Year Ended December 31, 2016 | | | | | | | | | | |
| Allowance for doubtful accounts | | $47 | | $9 | | $— | | $15 | | $41 |
| Deferred tax asset valuation allowance | | $346 | | $— | | $99 | | $— | | $445 |
| | | | | | | | | | | |
| Year Ended December 31, 2015 | | | | | | | | | | |
| Allowance for doubtful accounts | | $19 | | $32 | | $— | | $4 | | $47 |
| Deferred tax asset valuation allowance | | $294 | | $— | | $52 | | $— | | $346 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| | NCR CORPORATION |
| | | |
| Date: | March 14, 2024 | By: | | /s/ Brian Webb-Walsh |
| | | | | NCR CORPORATION |
| | | |
Date: | February 26, 2018 | By: | | /s/ Robert Fishman |
| | | | Robert Fishman
Brian Webb-Walsh
Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| | | | | | | | |
| Signature | Title |
| | |
| Signature | Title |
| | |
| /s/ William R. NutiJames Kelly | Chairman of the Board of Directors, |
| James Kelly | | William R. Nuti
| | |
| /s/ David Wilkinson | and Chief Executive Officer and Director |
| David Wilkinson | | (Principal Executive Officer) |
| | |
| /s/ Robert P. FishmanBrian Webb-Walsh | Executive Vice President and Chief Financial Officer |
| Brian Webb-Walsh | Robert P. Fishman | (Principal Financial and Accounting Officer) |
| | |
| /s/ Kelly Moyer | | Chief Accounting Officer |
| Kelly Moyer | (Principal Accounting Officer) |
| | |
| /s/ Gregory R. Blank | Director |
| Gregory Blank | | Gregory R. Blank
| | |
| /s/ Catherine L. Burke | Director |
| Catherine L. Burke | |
| | |
| /s/ Janet Haugen | Director |
| Janet Haugen | |
| | |
| /s/ Chinh E. ChuGeorgette Kiser | Director |
| Georgette Kiser | | Chinh E. Chu
| | |
| /s/ Kirk Larsen | Director |
| Kirk Larsen | |
| | |
| /s/ Laura Miller | Director |
| Laura Miller | |
| | |
| /s/ Richard L. ClemmerKevin Reddy | Director |
| Kevin Reddy | | Richard L. Clemmer
| | |
| /s/ Laura Sen | Director |
| Laura Sen | | |
| | /s/ Gary Daichendt | Director
| Date: | Gary DaichendtMarch 14, 2024 | |
| | |
| | Director |
| Robert P. DeRodes | |
| | |
| /s/ Deborah A. Farrington | Director |
| Deborah A. Farrington | |
| | |
| /s/ Kurt P. Kuehn | Director |
| Kurt P. Kuehn | |
| | |
| /s/ Linda Fayne Levinson | Director |
| Linda Fayne Levinson | |
| | |
| /s/ Matthew Thompson | Director |
| Matthew Thompson | |
| | |
Date: | February 26, 2018 | |
