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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020
Commission File Number 001-00395
 ________________________
https://cdn.kscope.io/23d5a61b8a7c57f1b5fe448829e1ef0b-ncrbbpreferred2015a20.jpg
NCR CORPORATION
(Exact name of registrant as specified in its charter)
________________________
 
Maryland
 
31-0387920
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
864 Spring Street NW
Atlanta, GA 30308
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (937445-5000
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     No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  ☐
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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
 
Accelerated filer
o
Non-accelerated filer
o
 
 
Smaller reporting company
 
 
 
 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  



Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
NCR
New York Stock Exchange
As of April 17, 2020, there were approximately 127.8 million shares of the registrant's common stock issued and outstanding.
 




TABLE OF CONTENTS
 
PART I. Financial Information
 
 
 
 
 
Description
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II. Other Information
 
 
 
 
 
Description
Page
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 



2


Part I. Financial Information
 
Item 1.
FINANCIAL STATEMENTS
NCR Corporation
Condensed Consolidated Statements of Operations (Unaudited) 
In millions, except per share amounts
Three months ended March 31
2020

2019
Product revenue
$
474

 
$
539

Service revenue
1,029

 
997

Total revenue
1,503

 
1,536

Cost of products
391

 
453

Cost of services
715

 
672

Selling, general and administrative expenses
255

 
252

Research and development expenses
65

 
59

Total operating expenses
1,426

 
1,436

Income (loss) from operations
77

 
100

Interest expense
(50
)
 
(45
)
Other expense, net
(2
)
 
(8
)
Income (loss) from continuing operations before income taxes
25

 
47

Income tax expense (benefit)
1

 
9

Income (loss) from continuing operations
24

 
38

Loss from discontinued operations, net of tax

 

Net income (loss)
24

 
38

Net income (loss) attributable to noncontrolling interests
1

 
1

Net income (loss) attributable to NCR
$
23

 
$
37

Amounts attributable to NCR common stockholders:
 
 
 
Income (loss) from continuing operations
$
23

 
$
37

Dividends on convertible preferred stock
(6
)
 
(13)

Income (loss) from continuing operations attributable to NCR common stockholders
17

 
24

Loss from discontinued operations, net of tax

 

Net income (loss) attributable to NCR common stockholders
$
17

 
$
24

Income (loss) per share attributable to NCR common stockholders:
 
 
 
Income (loss) per common share from continuing operations
 
 
 
Basic
$
0.13

 
$
0.20

Diluted
$
0.13

 
$
0.20

Net income (loss) per common share
 
 
 
Basic
$
0.13

 
$
0.20

Diluted
$
0.13

 
$
0.20

Weighted average common shares outstanding
 
 
 
Basic
128.0

 
119.3

Diluted
130.5

 
122.2

See Notes to Condensed Consolidated Financial Statements.

3


NCR Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
In millions
Three months ended March 31
2020

2019
Net income (loss)
$
24

 
$
38

Other comprehensive (loss) income:
 
 
 
Currency translation adjustments
 
 
 
Currency translation gains (losses)
(61
)
 
19

Derivatives
 
 
 
Unrealized gains on derivatives
3

 
1

   Gains on derivatives recognized during the period
(1
)
 
(1
)
        Less income tax provision
(1
)
 

Employee benefit plans
 
 
 
   Amortization of prior service benefit
(1
)
 
(2
)
   Amortization of actuarial losses (gains)
(1
)
 
(1
)
        Less income tax benefit
1

 

Other comprehensive income (loss)
(61
)
 
16

Total comprehensive income (loss)
(37
)
 
54

Less comprehensive income attributable to noncontrolling interests:
 
 
 
   Net income (loss)
1

 
1

   Currency translation losses
(1
)
 

Amounts attributable to noncontrolling interests

 
1

Comprehensive income (loss) attributable to NCR
$
(37
)
 
$
53

See Notes to Condensed Consolidated Financial Statements.

4



NCR Corporation
Condensed Consolidated Balance Sheets (Unaudited)
In millions, except per share amounts
March 31, 2020
 
December 31, 2019
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,214

 
$
509

Accounts receivable, net
1,353

 
1,490

Inventories
747

 
784

Other current assets
463

 
361

Total current assets
3,777

 
3,144

Property, plant and equipment, net
399

 
413

Goodwill
2,821

 
2,832

Intangibles, net
580

 
607

Operating lease assets
362

 
391

Prepaid pension cost
176

 
178

Deferred income taxes
808

 
821

Other assets
632

 
601

Total assets
$
9,555

 
$
8,987

Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Short-term borrowings
$
304

 
$
282

Accounts payable
790

 
840

Payroll and benefits liabilities
186

 
308

Contract liabilities
616

 
502

Other current liabilities
510

 
606

Total current liabilities
2,406

 
2,538

Long-term debt
4,081

 
3,277

Pension and indemnity plan liabilities
855

 
858

Postretirement and postemployment benefits liabilities
112

 
111

Income tax accruals
89

 
92

Operating lease liabilities
346

 
369

Other liabilities
244

 
240

Total liabilities
8,133

 
7,485

Commitments and Contingencies (Note 8)

 

Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.4 and 0.4 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively; redemption amount and liquidation preference of $399 as of March 31, 2020 and December 31, 2019, respectively
395

 
395

Stockholders’ equity
 
 
 
NCR stockholders’ equity
 
 
 
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

Common stock: par value $0.01 per share, 500.0 shares authorized, 127.3 and 127.7 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
1

 
1

Paid-in capital
275

 
312

Retained earnings
1,077

 
1,060

Accumulated other comprehensive loss
(329
)
 
(269
)
Total NCR stockholders’ equity
1,024

 
1,104

Noncontrolling interests in subsidiaries
3

 
3

Total stockholders’ equity
1,027

 
1,107

Total liabilities and stockholders’ equity
$
9,555

 
$
8,987

See Notes to Condensed Consolidated Financial Statements.

5


NCR Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
In millions
Three months ended March 31
2020
 
2019
Operating activities
 
 
 
Net income (loss)
$
24

 
$
38

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Loss from discontinued operations

 

Depreciation and amortization
87

 
81

Stock-based compensation expense
25

 
23

Deferred income taxes
5

 
(5
)
Impairment of other assets
1

 

Gain on sale of property, plant and equipment
(2
)
 

Changes in assets and liabilities:
 
 
 
Receivables
137

 
21

Inventories
(48
)
 
(68
)
Current payables and accrued expenses
(183
)
 
(192
)
Contract liabilities
108

 
100

Employee benefit plans
(3
)
 
(4
)
Other assets and liabilities
(90
)
 
(10
)
Net cash provided by (used in) operating activities
61

 
(16
)
Investing activities
 
 
 
Expenditures for property, plant and equipment
(10
)
 
(22
)
Proceeds from sale of property, plant and equipment
7

 

Additions to capitalized software
(69
)
 
(43
)
Business acquisitions, net
(26
)
 
(6
)
Other investing activities, net

 
3

Net cash used in investing activities
(98
)
 
(68
)
Financing activities
 
 
 
Short term borrowings, net
3

 
7

Payments on term credit facilities
(2
)
 
(17
)
Payments on revolving credit facilities
(573
)
 
(375
)
Borrowings on revolving credit facilities
1,397

 
430

Debt issuance costs
(1
)
 

Series A Preferred Stock Dividends
(6
)
 

Repurchases of Common Stock
(41
)
 

Proceeds from employee stock plans
3

 
4

Tax withholding payments on behalf of employees
(24
)
 
(13
)
Net change in client funds obligations
12

 
17

Other financing activities
(3
)
 

Net cash provided by financing activities
765

 
53

Cash flows from discontinued operations
 
 
 
Net cash provided by (used in) operating activities
3

 
(6
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(14
)
 
1

Increase (decrease) in cash, cash equivalents, and restricted cash
717

 
(36
)
Cash, cash equivalents and restricted cash at beginning of period
548

 
522

Cash, cash equivalents and restricted cash at end of period
$
1,265

 
$
486

In millions
March 31
2020
 
2019
Reconciliation of cash, cash equivalents and restricted cash as shown in the Condensed Consolidated Statements of Cash Flows
 
 
 
Cash and cash equivalents
$
1,214

 
$
414

Restricted cash and restricted cash equivalents including funds held for clients included in other assets
51

 
72

Total cash, cash equivalents and restricted cash
$
1,265

 
$
486

See Notes to Condensed Consolidated Financial Statements.

6


NCR Corporation
Condensed Consolidated Statements of Changes in Stockholder's Equity (Unaudited)
 
 
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, 2019
 
127

 
$
1

 
$
312

 
$
1,060

 
$
(269
)
 
$
3

 
$
1,107

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Net income
 

 

 

 
23

 

 
1

 
24

     Other comprehensive income (loss)
 

 

 

 

 
(60
)
 
(1
)
 
(61
)
Total comprehensive income (loss)
 

 

 

 
23

 
(60
)
 

 
(37
)
Employee stock purchase and stock compensation plans
 
2

 

 
4

 

 

 

 
4

Series A convertible preferred stock dividends
 

 

 

 
(6
)
 

 

 
(6
)
Repurchase of Company common stock
 
(2
)
 

 
(41
)
 

 

 

 
(41
)
March 31, 2020
 
127

 
$
1

 
$
275

 
$
1,077

 
$
(329
)
 
$
3

 
$
1,027

See Notes to Condensed Consolidated Financial Statements.



7




NCR Corporation
Condensed Consolidated Statements of Changes in Stockholder's Equity (Unaudited) - (Continued)
 
 
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, 2018
 
119

 
$
1

 
$
34

 
$
606

 
$
(246
)
 
$
4

 
$
399

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Net income
 

 

 

 
37

 

 
1

 
38

     Other comprehensive income
 

 

 

 

 
16

 

 
16

Total comprehensive income
 

 

 

 
37

 
16

 
1

 
54

Employee stock purchase and stock compensation plans
 
1

 

 
14

 

 

 

 
14

Series A convertible preferred stock dividends
 

 

 

 
(13
)
 

 

 
(13
)
March 31, 2019
 
120

 
$
1

 
$
48

 
$
630

 
$
(230
)
 
$
5

 
$
454

See Notes to Condensed Consolidated Financial Statements.



8


NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

Index to Financial Statements and Supplemental Data


9

NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)


1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Condensed Consolidated Financial Statements have been prepared by NCR Corporation (NCR, the Company, we or us) without audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments, unless otherwise disclosed) necessary for a fair statement of the consolidated results of operations, financial position, and cash flows for each period presented. The consolidated results for the interim periods are not necessarily indicative of results to be expected for the full year. The 2019 year-end Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States (GAAP). These financial statements should be read in conjunction with NCR’s Form 10-K for the year ended December 31, 2019.

Use of Estimates The preparation of financial statements in accordance with 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 period reported. Actual results could differ from those estimates.

Evaluation of Subsequent Events The Company evaluated subsequent events through the date that our Condensed Consolidated Financial Statements were issued. Except as described within Note 17, Subsequent Events, no matters were identified that required adjustment of the Condensed Consolidated Financial Statements or additional disclosure.

Reclassifications Certain prior-period amounts have been reclassified in the accompanying Condensed Consolidated Financial Statements and Notes thereto in order to conform to the current period presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.

Contract Assets and Liabilities The following table presents the net contract asset and contract liability balances as of March 31, 2020 and December 31, 2019.
In millions
Location in the Condensed Consolidated Balance Sheet
 
March 31, 2020
 
December 31, 2019
Current portion of contract assets
Other current assets
 
$
9

 
$
9

Current portion of contract liabilities
Contract liabilities
 
$
616

 
$
502

Non-current portion of contract liabilities
Other liabilities
 
$
75

 
$
81



During the three months ended March 31, 2020, the Company recognized $198 million in revenue that was included in contract liabilities as of December 31, 2019.

Remaining Performance Obligations Remaining performance obligations represent the transaction price of orders for which products have not been delivered or services have not been performed. As of March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $4.0 billion. The Company expects to recognize revenue on approximately three-quarters of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter. The majority of our professional services are expected to be recognized over the next 12 months but this is contingent upon a number of factors, including customers’ needs and schedules.

The Company has made two elections that affect the value of remaining performance obligations described above. We do not disclose remaining performance obligations for Software as a Service (SaaS) contracts where variable consideration is directly allocated based on usage or when the original expected length is one year or less.

Recent Accounting Pronouncements

Issued

In December 2019, the Financial Accounting Standards Board ("FASB") issued an accounting standards update with new guidance which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This accounting standards update also adds guidance to reduce complexity in certain areas,

10

NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

including recognizing measures for the accounting for income taxes. This accounting standards update is effective for fiscal years and interim periods beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on our consolidated financial statements.

Adopted

In June 2016, the FASB issued an accounting standards update with new guidance on accounting for credit losses on financial instruments. The new guidance includes an impairment model for estimating credit losses that is based on expected losses, rather than incurred losses. This accounting standards update is effective prospectively for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted. The adoption of this accounting standards update did not have a material effect on the Company's net income, cash flows or financial condition.

In August 2018, the Financial Accounting Standards Board (FASB) issued an accounting standards update with new guidance on fair value measurement disclosure requirements that requires the disclosure of additions to and transfers into and out of Level 3 of the fair value hierarchy. This accounting standards update also requires disclosure about the uncertainty in measurement as of the reporting date. The new standard became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted. The adoption of this accounting standards update did not have a material impact on our financial statement disclosures.

In August 2018, the FASB issued an accounting standards update related to accounting for implementation costs incurred in a cloud computing arrangement that is also a service contract. If a cloud computing arrangement also includes an internal-use software, an intangible asset is recognized, and a liability is recognized for any payments related to the software license. However, if a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract and any fees associated with the service are expensed as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The adoption of this accounting standards update did not have a material effect on the Company's net income, cash flows or financial condition.

2. SEGMENT INFORMATION AND CONCENTRATIONS

The Company manages and reports the following segments:

Banking - We offer solutions to enable customers in the financial services industry to reduce costs, generate new revenue streams and enhance customer loyalty. These solutions include a comprehensive line of ATM and payment processing hardware and software; cash management and video banking software and customer-facing digital banking services; and related installation, maintenance, and managed and professional services. 
Retail - We offer solutions to customers in the retail industry designed to improve selling productivity and checkout processes as well as increase service levels. The solutions offered serve the following customer markets in the retail industry: food, drug and mass merchandisers; department and specialty retailers; convenience and fuel retailers, and small and medium retailers. These solutions primarily include retail-oriented technologies, such as point of sale terminals and point of sale software; a retail software platform with a comprehensive suite of retail software applications; innovative self-service kiosks, such as self-checkout; as well as bar-code scanners. We also offer installation, maintenance, managed and professional services as well as payment processing solutions.
Hospitality - We offer solutions to customers in the hospitality industry, serving businesses in the following markets: quick service restaurants, table service restaurants, small and medium restaurants and travel and entertainment venues. Our solutions include point of sale hardware and software solutions, installation, maintenance, managed and professional services as well as payment processing solutions.
Other - This category includes telecommunications and technology solutions where we offer maintenance as well as managed and professional services for third-party hardware provided to select manufacturers who value and leverage our global service capability.

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. 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.

11

NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

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:
In millions
Three months ended March 31
2020
 
2019
Revenue by segment
 
 
 
Banking
$
763

 
$
758

Retail
472

 
511

Hospitality
169

 
193

Other
99

 
74

Consolidated revenue
$
1,503

 
$
1,536

Operating income by segment
 
 
 
Banking
$
103

 
$
95

Retail
5

 
26

Hospitality
(9
)
 
16

Other
5

 
10

Subtotal - segment operating income
104

 
147

Other adjustments (1)
27

 
47

Income from operations
$
77

 
$
100



(1) 
The following table presents the other adjustments for NCR:
In millions
Three months ended March 31
2020
 
2019
Transformation and restructuring costs
$
5

 
$
26

Acquisition-related amortization of intangible assets
22

 
21

Total other adjustments
$
27

 
$
47



The following table presents revenue by geography for NCR:
In millions
Three months ended March 31
2020
 
2019
Americas
$
892

 
$
920

Europe, Middle East and Africa (EMEA)
403

 
419

Asia Pacific (APJ)
208

 
197

Total revenue
$
1,503

 
$
1,536



The following tables present revenue from products and services for NCR:
In millions
Three months ended March 31
2020
 
2019
Product revenue
$
474

 
$
539

Professional services and installation services revenue
227

 
238

Recurring revenue, including maintenance, cloud revenue and payments
802

 
759

Total revenue
$
1,503

 
$
1,536




12

NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

In millions
Three months ended March 31
2020
 
2019
Software
$
474

 
$
467

Services
636

 
585

Hardware
393

 
484

Total revenue
$
1,503

 
$
1,536



3. GOODWILL AND LONG-LIVED ASSETS

Hospitality Goodwill Assessment In addition to our annual goodwill impairment test performed in the fourth quarter, we perform interim impairment tests for long-lived and intangible assets, including goodwill, whenever events or changes in circumstances indicate that the carrying amount of the asset (group) may not be recoverable.

Late in the quarter ended March 31, 2020, there was significant market volatility driven by the novel coronavirus (COVID-19) pandemic which drove uncertainty around our full year revenue and operating income expectations. As a result, we withdrew our full year outlook for 2020 on March 31, 2020, which was previously provided during our fourth quarter 2019 earnings conference call on February 11, 2020. Given the rapidly changing environment, we considered if there was an indication the carrying value of net assets were in excess of the fair value for each of our reporting units. This consideration included the expected impacts to the current year cash flows, the potential impacts to future cash flows as well as the excess of the fair value over the carrying value from the prior year annual assessment. As a result, we determined there was an indication that the carrying value of the net assets assigned to the Hospitality reporting unit may not be recoverable.

The fair value of the Hospitality 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 discounted cash flow (DCF) analysis. A number of significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including revenue growth, operating income margin and discount rate. The market approach is performed using the Guideline Public Companies (GPC) method which is based on earnings multiple data of peer companies.

For the Hospitality reporting unit, the Company expects the COVID-19 pandemic to have a significant impact to our customers in the table service market, travel and entertainment market and small and medium business market in the near term. The Company expects the long term growth strategy to remain intact with previous growth expectations returning in 2021. Based on these assumptions, the Company determined the fair value of the Hospitality segment continues to be greater than the carrying value and therefore, no impairment existed as of March 31, 2020. However, if the actual results or the anticipated timing of the recovery from the COVID-19 pandemic differ from our expectations for the Hospitality, or any, reporting unit, there is a possibility we would have to perform another interim impairment test in 2020, which could lead to an impairment of goodwill or other assets.

Goodwill by Segment The carrying amounts of goodwill by segment as of March 31, 2020 and December 31, 2019 are included in the table below. Foreign currency fluctuations are included within other adjustments.

13

NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

 
December 31, 2019
 
 
 
 
 
 
 
March 31, 2020
In millions
Goodwill
 
Accumulated Impairment Losses
 
Total
 
Additions
 
Impairment
 
Other
 
Goodwill
 
Accumulated Impairment Losses
 
Total
Banking
$
1,774

 
$
(101
)
 
$
1,673

 
$

 
$

 
$
(3
)
 
$
1,771

 
$
(101
)
 
$
1,670

Retail
638

 
(34
)
 
604

 

 

 
(9
)
 
629

 
(34
)
 
595

Hospitality
402

 
(23
)
 
379

 
3

 

 
(2
)
 
403

 
(23
)
 
380

Other
187

 
(11
)
 
176

 

 

 

 
187

 
(11
)
 
176

Total goodwill
$
3,001

 
$
(169
)
 
$
2,832

 
$
3

 
$

 
$
(14
)
 
$
2,990

 
$
(169
)
 
$
2,821



Identifiable Intangible Assets NCR's purchased intangible assets, reported in intangibles, net in the Condensed Consolidated Balance Sheets, were specifically identified when acquired, and are deemed to have finite lives. The gross carrying amount and accumulated amortization for NCR’s identifiable intangible assets were as set forth in the table below.

 
Amortization
Period
(in Years)
 
March 31, 2020
 
December 31, 2019
In millions
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
Identifiable intangible assets
 
 
 
 
 
 
 
 
 
Reseller & customer relationships
1 - 20
 
$
735

 
$
(284
)
 
$
735

 
$
(270
)
Intellectual property
2 - 8
 
524

 
(403
)
 
529

 
(397
)
Customer contracts
8
 
89

 
(89
)
 
89

 
(89
)
Tradenames
1 - 10
 
78

 
(70
)
 
78

 
(68
)
Total identifiable intangible assets
 
 
$
1,426

 
$
(846
)
 
$
1,431

 
$
(824
)


The aggregate amortization expense (actual and estimated) for identifiable intangible assets for the following periods is:
In millions
Three months ended March 31, 2020
Remainder of 2020 (estimated)
Amortization expense
$
22

$
60



 
 
For the years ended December 31 (estimated)
In millions
 
2021
 
2022
 
2023
 
2024
 
2025
Amortization expense
 
$
73

 
$
68

 
$
66

 
$
59

 
$
51

    

4. DEBT OBLIGATIONS

The following table summarizes the Company's short-term borrowings and long-term debt:

14

NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

 
March 31, 2020
 
December 31, 2019
In millions, except percentages
Amount
 
Weighted-Average Interest Rate
 
Amount
 
Weighted-Average Interest Rate
Short-Term Borrowings
 
 
 
 
 
 
 
Current portion of Senior Secured Credit Facility (1)
$
7

 
4.30%
 
$
8

 
4.30%
Trade Receivables Securitization Facility
293

 
2.65%
 
270

 
2.65%
Other (1)
4

 
4.25%
 
4

 
2.82%
 
Total short-term borrowings
$
304

 
 
 
$
282

 
 
Long-Term Debt
 
 
 
 
 
 
 
Senior Secured Credit Facility:
 
 
 
 
 
 
 
 
Term loan facility (1)
$
739

 
4.30%
 
$
740

 
4.30%
 
Revolving credit facility (1)
1,070

 
3.77%
 
265

 
3.76%
Senior notes:


 
 
 
 
 
 
 
5.00% Senior Notes due 2022
600

 
 
 
600

 
 
 
6.375% Senior Notes due 2023
700

 
 
 
700

 
 
 
5.750% Senior Notes due 2027
500

 
 
 
500

 
 
 
6.125% Senior Notes due 2029
500

 
 
 
500

 
 
Deferred financing fees
(31
)
 
 
 
(32
)
 
 
Other (1)
3

 
%
 
4

 
0.05%
 
Total long-term debt
$
4,081

 
 
 
$
3,277

 
 
(1) 
Interest rates are weighted-average interest rates as of March 31, 2020 and December 31, 2019.

Senior Secured Credit Facility On August 28, 2019, the Company entered into an amended and restated senior secured credit facility with and among certain subsidiaries of NCR (the Foreign Borrowers), the lenders party thereto and JPMorgan Chase Bank, NA (JPMCB) as the administrative agent, refinancing its term loan facility and revolving credit facility thereunder (the Senior Secured Credit Facility). The Senior Secured Credit Facility consists of a term loan facility with an aggregate principal commitment of $750 million, of which $746 million was outstanding as of March 31, 2020. Additionally, the Senior Secured Credit Facility provides for a five-year revolving credit facility with an aggregate principal amount of $1.1 billion, of which $1.07 billion was outstanding as of March 31, 2020. The revolving credit facility also allows a portion of the availability to be used for letters of credit, and as of March 31, 2020, there were $28 million of letters of credit outstanding.

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 of the term loan facility is required to be repaid in equal quarterly installments of approximately 0.25% of the aggregate principal amount that began with the fiscal quarter ending December 31, 2019, with the balance being due at maturity on August 28, 2026. Borrowings under the revolving portion of the credit facility are due August 28, 2024. Revolving loans outstanding under the Senior Secured Credit Facility denominated in U.S. Dollars bear interest at the Company's option at (a) London Inter-bank Offered Rate ("LIBOR"), plus a margin ranging from 1.25% to 2.25% or (b) a base rate equal to the highest of (i) the federal funds rate plus 0.50%, (ii) the rate of interest last quoted by the Wall Street Journal as the “prime rate” and (iii) the one-month LIBOR rate plus 1.00% (the Base Rate), plus, a margin ranging from 0.25% to 1.25%, in each case, depending on the Company’s consolidated leverage ratio. Revolving loans denominated in Euro bear interest at the EURIBOR, plus a margin ranging from 1.25% to 2.25% depending on the Company’s consolidated leverage ratio. The terms of the Senior Secured Credit Facility also require certain other fees and payments to be made by the Company, including a commitment fee on the undrawn portion of the revolving credit facility. Term loans outstanding under the Senior Secured Credit Facility bear interest, at NCR's option, at LIBOR plus 2.50% per annum or the Base Rate plus a 1.50% margin per annum. In the event that LIBOR is no longer available or in certain other circumstances as described in the Senior Secured Credit Facility, the Senior Secured Credit Facility provides a mechanism for determining an alternative rate of interest. There is no assurance that any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, LIBOR.

The obligations of the Company and Foreign Borrowers under the Senior Secured Credit Facility are guaranteed by certain of the Company's wholly-owned domestic subsidiaries. The Senior Secured Credit Facility and these guarantees are secured by a first

15

NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

priority lien and security interest in certain equity interests owned by the Company and the guarantor subsidiaries 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, subject to certain exclusions. These security interests would be released if the Company achieves an “investment grade” rating and will remain released so long as the Company maintains that rating.
The Senior Secured Credit Facility includes affirmative and negative covenants that restrict or limit the ability of the Company and its subsidiaries to, among other things, incur indebtedness; create liens on assets; engage in certain fundamental corporate changes or changes to the Company's business activities; make investments; sell or otherwise dispose of assets; engage in sale-leaseback or hedging transactions; repurchase stock, pay dividends or make similar distributions; repay other indebtedness; engage in certain affiliate transactions; or enter into agreements that restrict the Company's ability to create liens, pay dividends or make loan repayments. The Senior Secured Credit Facility also includes a financial covenant that require the Company to maintain:
a consolidated leverage ratio on the last day of any fiscal quarter, not to exceed (i) in the case of any fiscal quarter ending on or prior to March 31, 2021, (a) the sum of 4.50 and an amount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00, and (ii) in the case of any fiscal quarter ending after March 31, 2021 and on or prior to March 31, 2023, (a) the sum of 4.25 and an amount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00; and (iii) in the case of any fiscal quarter ending after March 31, 2023, (a) the sum of 4.00 and an amount (not to exceed 0.50) to reflect debt used to reduce our unfunded pension liabilities to (b) 1.00.
The Company has the option to elect to increase the maximum permitted leverage ratio by 0.25 in connection with the consummation of any material acquisition (as defined in the Senior Secured Credit Facility) for four fiscal quarters, but in no event will the maximum permitted leverage ratio, inclusive of all increases, exceed 4.75 to 1.00. At March 31, 2020, the maximum consolidated leverage ratio under the Senior Secured Credit Facility was 4.75 to 1.00.

The Senior Secured Credit Facility also includes provisions for events of default, which are customary for similar financings. Upon the occurrence of an event of default, the lenders may, among other things, terminate the loan commitments, accelerate all loans and require cash collateral deposits in respect of outstanding letters of credit. If the Company is unable to pay or repay the amounts due, the lenders could, among other things, proceed against the collateral granted to them to secure such indebtedness.

The Company may request, at any time and from time to time, but the lenders are not obligated to fund, the establishment of one or more incremental term loans and/or revolving credit facilities (subject to the agreement of existing lenders or additional financial institutions to provide such term loans and/or revolving credit facilities) with commitments in an aggregate amount not to exceed the greater of (i) $150 million, and (ii) such amount as would not cause the leverage ratio under the Senior Secured Credit Facility, calculated on a pro forma basis including the incremental facility and assuming that it and the revolver are fully drawn, to exceed 3.00 to 1.00, and the proceeds of which can be used for working capital requirements and other general corporate purposes.

Senior Unsecured Notes On September 17, 2012, the Company issued $600 million aggregate principal amount of 5.00% senior unsecured notes due in 2022 (the 5.00% Notes). The 5.00% Notes were sold at 100% of the principal amount and will mature on July 15, 2022. On December 19, 2013, the Company issued $700 million aggregate principal amount of 6.375% senior unsecured notes due in 2023 (the 6.375% Notes). The 6.375% Notes were sold at 100% of the principal amount and will mature on December 15, 2023. On August 21, 2019, the Company issued $500 million aggregate principal amount of 5.750% senior unsecured notes due in 2027 (the 5.750% Notes) and $500 million aggregate principal amount of 6.125% senior unsecured notes due in 2029 (the 6.125% Notes). The 5.750% Notes were sold at 100% of the principal amount and will mature on September 1, 2027. The 6.125% Notes were sold at 100% of the principal amount and will mature on September 1, 2029.

Subsequent to the end of the quarter, on April 13, 2020, the Company issued $400 million aggregate principal amount of 8.125% senior unsecured notes due in 2025. Refer to Note 17, Subsequent Events for further disclosure regarding the debt offering.

The senior unsecured notes are guaranteed, fully and unconditionally, on an unsecured senior basis, by our 100% owned subsidiary, NCR International, Inc.

The terms of the indentures for these notes limit the ability of the Company and certain of its subsidiaries to, among other things, incur additional debt or issue redeemable preferred stock; pay dividends or make certain other restricted payments or investments; incur liens; sell assets; incur restrictions on the ability of the Company's subsidiaries to pay dividends to the Company; enter into affiliate transactions; engage in sale and leaseback transactions; and consolidate, merge, sell or otherwise dispose of all or substantially all of the Company's or such subsidiaries' assets. These covenants are subject to significant exceptions and

16

NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

qualifications. For example, if these notes are assigned an "investment grade" rating by Moody's or S&P and no default has occurred or is continuing, certain covenants will be terminated.

Trade Receivables Securitization Facility In November 2014, the Company established a revolving trade receivables securitization facility (the A/R Facility) with PNC Bank, National Association (PNC) as the administrative agent, and various lenders. In November 2019, the Company amended the A/R Facility to increase the maximum commitment made available under the Facility and extended the maturity date to November 2021. The amendment also included other modifications including the scope of receivables subject to the facility and related eligibility requirements, the adoption of a new benchmark for determining overnight funding rates and the fees and interest payable to the agent and lenders party thereto. The A/R Facility now provides for up to $300 million in funding based on the availability of eligible receivables and other customary factors and conditions, of which $293 million was outstanding as of March 31, 2020.

Under the A/R Facility, NCR sells and/or contributes certain of its U.S. trade receivables to a wholly-owned, bankruptcy-remote subsidiary as they are originated, and advances by the lenders to that subsidiary are secured by those trade receivables.  The assets of this financing subsidiary are restricted as collateral for the payment of its obligations under the A/R Facility, and its assets and credit are not available to satisfy the debts and obligations owed to the creditors of the Company. The Company includes the assets, liabilities and results of operations of this financing subsidiary in its consolidated financial statements. The financing subsidiary owned $548 million and $603 million of outstanding accounts receivable as of March 31, 2020 and December 31, 2019, respectively, and these amounts are included in accounts receivable, net in the Company’s Condensed Consolidated Balance Sheets.

The financing subsidiary will pay annual commitments and other customary fees to the lenders, and advances by a lender under the A/R Facility will accrue interest (i) at a reserve-adjusted LIBOR rate or a base rate equal to the highest of (a) the applicable lender’s prime rate or (b) the federal funds rate plus 0.50%, if the lender is funding as a committed lender under the terms of the A/R Facility, or (ii) based on commercial paper interest rates if the lender is funding as a commercial paper conduit lender.  Advances may be prepaid at any time without premium or penalty.

The A/R Facility contains various customary affirmative and negative covenants and default and termination provisions which provide for the acceleration of the advances under the A/R Facility in circumstances including, but not limited to, failure to pay interest or principal when due, breach of representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness.

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 March 31, 2020 and December 31, 2019 was $4.22 billion and $3.70 billion, respectively. Management's fair value estimates were based on quoted prices for recent trades of NCR’s long-term debt, quoted prices for similar instruments, and inquiries with certain investment communities.


5. INCOME TAXES

Income tax provisions for interim (quarterly) periods are based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual items. Income tax expense was $1 million for the three months ended March 31, 2020 compared to income tax expense of $9 million for the three months ended March 31, 2019. The change was primarily driven by lower income before taxes and an increase in discrete tax benefits in the three months ended March 31, 2020.

In connection with preparing the financial statements for the quarter ended March 31, 2020, the Company identified and recorded income tax benefits of $2 million related to an error in the calculation of the permanent differences on executive stock compensation and $3 million for the write-off of income tax payables incorrectly recorded in prior periods. The Company determined the impact of these errors were not material to the annual or interim financial statements of previous periods and the effect of correcting these errors was not material to the Condensed Consolidated Financial Statements for the three months ended  March 31, 2020 and is not expected to be material to the 2020 annual financial statements.

The Company engages in continuous discussions and negotiations with taxing authorities regarding tax matters, and 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 March 31, 2020, we estimate that it is reasonably possible that gross unrecognized tax benefits may decrease by $30 million to $37 million in the next 12 months.



17

NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

6. STOCK COMPENSATION PLANS

As of March 31, 2020, the Company’s primary type of stock-based compensation was restricted stock units and stock options. Stock-based compensation expense for the following periods were:
In millions
Three months ended March 31
2020
 
2019
Restricted stock units
$
19

 
$
20

Stock options
4

 
2

Employee stock purchase plan
2

 
1

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