UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended | |||||
| or | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ | |||||
Commission File Number: | |||||
________________________
(Exact name of registrant as specified in its charter)
________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (937 ) 445-1936
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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.
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 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of April 15, 2022, there were approximately 136.6 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 | ||||||||||
| 2022 | 2021 | ||||||||||
| Product revenue | $ | $ | |||||||||
| Service revenue | |||||||||||
| Total revenue | |||||||||||
| Cost of products | |||||||||||
| Cost of services | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Research and development expenses | |||||||||||
| Total operating expenses | |||||||||||
| Income (loss) from operations | |||||||||||
| Interest expense | ( | ( | |||||||||
| Other income (expense), net | ( | ||||||||||
| Income (loss) from continuing operations before income taxes | ( | ||||||||||
| Income tax expense (benefit) | |||||||||||
| Income (loss) from continuing operations | ( | ||||||||||
| Loss from discontinued operations, net of tax | ( | ||||||||||
| Net income (loss) | ( | ||||||||||
| Net income (loss) attributable to noncontrolling interests | ( | ||||||||||
| Net income (loss) attributable to NCR | $ | ( | $ | ||||||||
| Amounts attributable to NCR common stockholders: | |||||||||||
| Income (loss) from continuing operations | $ | ( | $ | ||||||||
| Series A convertible preferred stock dividends | ( | ( | |||||||||
| Income (loss) from continuing operations attributable to NCR common stockholders | ( | ||||||||||
| Loss from discontinued operations, net of tax | ( | ||||||||||
| Net income (loss) attributable to NCR common stockholders | $ | ( | $ | ||||||||
| Income (loss) per share attributable to NCR common stockholders: | |||||||||||
| Income (loss) per common share from continuing operations | |||||||||||
| Basic | $ | ( | $ | ||||||||
| Diluted | $ | ( | $ | ||||||||
| Net income (loss) per common share | |||||||||||
| Basic | $ | ( | $ | ||||||||
| Diluted | $ | ( | $ | ||||||||
| Weighted average common shares outstanding | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See Notes to Condensed Consolidated Financial Statements.
3
NCR Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
| In millions | Three months ended March 31 | ||||||||||
| 2022 | 2021 | ||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Other comprehensive income (loss): | |||||||||||
| Currency translation adjustments | |||||||||||
| Currency translation gains (loss) | ( | ( | |||||||||
| Derivatives | |||||||||||
| Unrealized gains (loss) on derivatives | |||||||||||
| Loss (gains) on derivatives recognized during the period | |||||||||||
| Less income tax | ( | ||||||||||
| Employee benefit plans | |||||||||||
| Amortization of prior service cost (benefit) | ( | ( | |||||||||
| Less income tax | |||||||||||
| Other comprehensive income (loss) | ( | ||||||||||
| Total comprehensive income (loss) | ( | ||||||||||
| Less comprehensive income attributable to noncontrolling interests: | |||||||||||
| Net income (loss) | ( | ||||||||||
| Currency translation losses | |||||||||||
| Amounts attributable to noncontrolling interests | ( | ||||||||||
| Comprehensive income (loss) attributable to NCR | $ | ( | $ | ||||||||
See Notes to Condensed Consolidated Financial Statements.
4
NCR Corporation
Condensed Consolidated Balance Sheets (Unaudited)
| In millions, except per share amounts | March 31, 2022 | December 31, 2021 | |||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances of $ | |||||||||||
| Inventories | |||||||||||
| Restricted cash | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangibles, net | |||||||||||
| Operating lease assets | |||||||||||
| Prepaid pension cost | |||||||||||
| Deferred income taxes | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities | |||||||||||
| Short-term borrowings | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Payroll and benefits liabilities | |||||||||||
| Contract liabilities | |||||||||||
| Settlement liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Pension and indemnity plan liabilities | |||||||||||
| Postretirement and postemployment benefits liabilities | |||||||||||
| Income tax accruals | |||||||||||
| Operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies (Note 10) | |||||||||||
Series A convertible preferred stock: par value $ | |||||||||||
| Stockholders’ equity | |||||||||||
| NCR stockholders’ equity | |||||||||||
Preferred stock: par value $ | |||||||||||
Common stock: par value $ | |||||||||||
| Paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total NCR stockholders’ equity | |||||||||||
| Noncontrolling interests in subsidiaries | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements.
5
NCR Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
| In millions | Three months ended March 31 | ||||||||||
| 2022 | 2021 | ||||||||||
| Operating activities | |||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Loss from discontinued operations | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income taxes | |||||||||||
| Loss (gain) on disposal of property, plant and equipment | |||||||||||
| Changes in assets and liabilities, net of effects of business acquired: | |||||||||||
| Receivables | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Current payables and accrued expenses | ( | ||||||||||
| Contract liabilities | |||||||||||
| Employee benefit plans | ( | ( | |||||||||
| Other assets and liabilities | ( | ||||||||||
| Net cash provided by operating activities | $ | $ | |||||||||
| Investing activities | |||||||||||
| Expenditures for property, plant and equipment | $ | ( | $ | ( | |||||||
| Additions to capitalized software | ( | ( | |||||||||
| Business acquisitions, net of cash acquired | ( | ( | |||||||||
| Purchases of short-term investments | ( | ||||||||||
| Proceeds from sales of short-term investments | |||||||||||
| Other investing activities, net | ( | ||||||||||
| Net cash used in investing activities | $ | ( | $ | ( | |||||||
| Financing activities | |||||||||||
| Short term borrowings, net | $ | $ | |||||||||
| Payments on term credit facilities | ( | ( | |||||||||
| Payments on revolving credit facilities | ( | ( | |||||||||
| Borrowings on revolving credit facilities | |||||||||||
| Debt issuance costs and bridge commitment fees | ( | ||||||||||
| Cash dividend paid for Series A preferred shares dividends | ( | ( | |||||||||
| Proceeds from employee stock plans | |||||||||||
| Tax withholding payments on behalf of employees | ( | ( | |||||||||
| Net change in client funds obligations | |||||||||||
| Principal payments for finance lease obligations | ( | ( | |||||||||
| Other financing activities | ( | ||||||||||
| Net cash provided by financing activities | $ | $ | |||||||||
| Cash flows from discontinued operations | |||||||||||
| Net cash provided by (used in) operating activities of discontinued operations | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Increase in cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
Supplemental disclosures of noncash investing and financing activities During the three months ended March 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, “Business Combinations”, for additional information on the LibertyX acquisition.
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, 2021 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Employee stock purchase and stock compensation plans | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock issued in acquisition of LibertyX | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividends | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| March 31, 2022 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||
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, 2020 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase and stock compensation plans | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividends | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Repurchase of Common Stock | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| March 31, 2021 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
8
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Index to Financial Statements and Supplemental Data
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change in reportable segments Effective January 1, 2022, the Company realigned its reportable segments to correspond with changes to its operating model, management structure and organizational responsibilities. The reportable segments effective January 1, 2022 include: Payments & Network, Digital Banking, Self-Service Banking, Retail, and Hospitality. Additionally, effective January 1, 2022, the Company manages Corporate & Other, which includes income and expenses that are not specifically attributable to an individual reportable segment and thus will be reflected only in consolidated results, as well as our Telecommunications & Technology business, an immaterial operating segment. We have reclassified prior period segment disclosures to conform to current period presentation. Refer to Note 4, “Segment Information and Concentrations”, for additional information on our reportable segments.
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 orderly wind down our operations in Russia beginning in the first quarter of 2022. As a result of these actions, the operations of the business in Russia were significantly reduced, and our results for the three months ending March 31, 2022 reflect the impact of the impairment and write down of the assets and liabilities of the entity, severance charges, and the assessment of collectability on revenue recognition. We recognized a loss of $19 million for the three months ending March 31, 2022 related to these actions, recognized primarily in Cost of products, Cost of services and Selling, general and administrative expenses on the Condensed Consolidated Statement of Operations.
9
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
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.
Although our estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. In particular, a number of estimates have been and will continue to be affected by the ongoing variants of the novel coronavirus (COVID-19) pandemic, macroeconomic pressures and geopolitical challenges. The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of the pandemic, 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 of COVID-19 and other 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.
Cash, Cash Equivalents, and Restricted Cash The reconciliation of cash, cash equivalents and restricted cash in the Condensed Consolidated Statements of Cash Flows is as follows:
| In millions | March 31 | |||||||||||||||||||
| Balance Sheet Location | 2022 | 2021 | ||||||||||||||||||
| Cash and cash equivalents | Cash and cash equivalents | $ | $ | |||||||||||||||||
| Long term restricted cash | Other assets | |||||||||||||||||||
| Funds held for client | Restricted cash | |||||||||||||||||||
| Cash included in settlement processing assets | Restricted cash | |||||||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||||||||||||||
Contract Assets and Liabilities The following table presents the net contract asset and contract liability balances as of March 31, 2022 and December 31, 2021.
| In millions | Location in the Condensed Consolidated Balance Sheet | March 31, 2022 | December 31, 2021 | ||||||||||||||
| Current portion of contract liabilities | Contract liabilities | $ | $ | ||||||||||||||
| Non-current portion of contract liabilities | Other liabilities | $ | $ | ||||||||||||||
During the three months ended March 31, 2022, the Company recognized $228 million in revenue that was included in contract liabilities as of December 31, 2021. During the three months ended March 31, 2021 the Company recognized $255 million in revenue that was included in contract liabilities as of December 31, 2020.
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, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $4.2 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
10
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
Recent Accounting Pronouncements
Adoption of New Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, with new guidance for convertible preferred stock, which eliminates considerations related to the beneficial conversion feature model. The standard also requires an average stock price when calculating the denominator for diluted earnings per share to be used for stock units where the settlement of the number of shares is based on the stock price. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption was permitted no earlier than fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The adoption of this accounting standards update did not have a material effect on the Company's net income, cash flows, earnings per share or financial condition.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, with new guidance for freestanding equity-classified written call options. The new guidance requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, 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, earnings per share or financial condition.
Accounting Pronouncements Issued But Not Yet Adopted
In October 2021, the FASB issued accounting standards update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, with new guidance for contract assets and contract liabilities acquired in a business combination. The new guidance requires contract assets and contract liabilities, such as deferred revenue, acquired in a business combination to be recognized 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 fair value on the acquisition date. The accounting standards update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted and should be applied prospectively to acquisitions occurring on or after the effective date. The adoption of this accounting standards update is not expected to have a material effect on the Company's net income, cash flows, earnings per share or financial condition.
Although there are several other new accounting pronouncements issued by FASB, the Company does not believe any of these accounting pronouncements had or will have a material impact on its consolidated financial statements.
2. BUSINESS COMBINATIONS
Acquisition of LibertyX
On January 5, 2022, NCR completed its acquisition of Moon Inc., dba LibertyX, a leading cryptocurrency software provider, with the goal of enabling NCR 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. We 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 NCR awards pursuant to an exchange ratio as defined in the acquisition agreement. LibertyX stock option awards were converted into NCR 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
11
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
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 portion of the purchase price. Total purchase consideration for the LibertyX acquisition was approximately $69 million. As a result of the acquisition, LibertyX became a wholly-owned subsidiary of NCR.
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 acquisition as set forth below. The provisional amounts for intangible assets are based on third-party valuations performed. The allocation of the purchase price is provisional as of March 31, 2022 and may be subject to future adjustments, within the measurement period, as the Company obtains additional information to finalize the accounting for the business combination, including additional refinement to finalize valuations, among other items. The preliminary allocation of the purchase price is as follows:
| In millions | Fair Value | ||||
| Cash acquired | $ | ||||
| Tangible assets acquired | |||||
| Acquired intangible assets other than goodwill | |||||
| Acquired goodwill | |||||
| Deferred tax liabilities | ( | ||||
| Liabilities assumed | ( | ||||
| Total purchase consideration | $ | ||||
Goodwill represents the future economic benefits arising from other assets acquired that could not be individually separately recognized. The goodwill arising from the acquisition consists of revenue and cost synergies expected from combining the operations of NCR and LibertyX and is not deductible for tax purposes. The goodwill arising from the LibertyX acquisition has been allocated to our Payments & Network segment. Refer to Note 3, “Goodwill and Purchased Intangible Assets”, for the carrying amounts of goodwill by segment.
The following table sets forth the components of the intangible assets acquired as of the acquisition date:
| Fair Value | Weighted Average Amortization Period (1) | ||||||||||
| (In millions) | (In years) | ||||||||||
| Direct customer relationships | $ | ||||||||||
| Technology - Software | |||||||||||
| Non-compete | |||||||||||
| Tradenames | |||||||||||
| Total acquired intangible assets | $ | ||||||||||
(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 have been included within NCR's results since the closing date of the acquisition. Supplemental pro forma information and actual revenue and earnings since the acquisition date have not been provided as the acquisition did not have a material impact on the Company's Condensed Consolidated Statements of Operations.
Acquisition of Cardtronics plc (2021)
12
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
3. GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill by Segment As described in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies”, effective January 1, 2022, the Company realigned its reportable segments to correspond with changes to its operating model, management structure and organizational responsibilities. In connection with the change in reportable segments, during the first quarter of 2022, the Company determined its reporting units and then assigned goodwill to the new reporting units based on the relative fair value allocation approach. We have reclassified prior period goodwill disclosures to conform to the current period presentation.
The carrying amounts of goodwill by segment as of March 31, 2022 and December 31, 2021 are included in the table below. Foreign currency fluctuations are included within other adjustments.
| December 31, 2021 | March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| In millions | Goodwill | Accumulated Impairment | Total | Additions | Impairment | Other | Goodwill | Accumulated Impairment | Total | ||||||||||||||||||||||||||||||||
| Payments & Network | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Digital Banking | |||||||||||||||||||||||||||||||||||||||||
| Self-Service Banking | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Retail | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Hospitality | ( | ( | |||||||||||||||||||||||||||||||||||||||
Other(1) | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total goodwill | $ | $ | ( | $ | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
(1) Other segment includes the goodwill associated with our Technology & Telecommunications reporting unit.
Additions during the first quarter of 2022 include immaterial purchase accounting adjustments related to the Cardtronics acquisition as well as the goodwill acquired through the LibertyX transaction on January 5, 2022. For additional information on these business combinations, refer to Note 2, “Business Combinations”.
Due to the change in reportable segments, management performed an interim goodwill impairment analysis immediately before and as of the effective date of January 1, 2022. The assessment as of December 31, 2021 was performed based on a qualitative assessment of the historical Banking, Retail, Hospitality and Telecommunications & Technology reporting units. No impairment was identified. The assessment as of January 1, 2022 was performed 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 the potential impacts of the COVID-19 pandemic to the current and future cash flows as well as macroeconomic conditions, industry and market considerations, and financial performance, including forecasted revenue, earnings and capital expenditures of each reporting unit. Based on this analysis, it was determined that the fair value of all reporting units were substantially in excess of the carrying value. However, if the actual results differ from our expectations for any of our reporting units, there is a possibility we would have to perform additional interim impairment tests, which could lead to an impairment of goodwill or other assets.
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, 2022 | December 31, 2021 | |||||||||||||||||||||||||||
| In millions | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||||||||
| Identifiable intangible assets | |||||||||||||||||||||||||||||
| Reseller & customer relationships | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
| Intellectual property | ( | ( | |||||||||||||||||||||||||||
| Customer contracts | ( | ( | |||||||||||||||||||||||||||
| Tradenames | ( | ( | |||||||||||||||||||||||||||
| Total identifiable intangible assets | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
13
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
Amortization expense related to identifiable intangible assets was $41 million and $20 million for the three months ended March 31, 2022 and 2021, respectively. The estimated aggregate amortization expense for identifiable intangible assets for the following periods is:
| For the years ended December 31 | |||||||||||||||||||||||||||||||||||
| In millions | Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |||||||||||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
As described in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies”, effective January 1, 2022, the Company realigned its reportable segments to correspond with changes to its operating model, management structure and organizational responsibilities. We have reclassified prior period segment disclosures to conform to the current period presentation. As a result of the change, the Company manages and reports the following segments:
•Payments & Network - We provide a cost-effective way for financial institutions, fintechs, and neobanks to reach and serve their customers through our network of automated teller machines ("ATMs") and multi-functioning financial services kiosks. We offer credit unions, banks, digital banks, fintechs, stored-value debit card issuers, and other consumer financial services providers access to our Allpoint retail-based ATM network, providing convenient and fee-free cash withdrawal and deposit access to their customers and cardholders as well as the ability to convert a digital value to cash, or vice versa, via NCRPay360. We also provide ATM branding, management and services to financial institutions and businesses.
•Digital Banking - NCR Digital Banking 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 compelling customer experience.
•Self-Service 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 hardware and software, and related installation, maintenance, and managed and professional services.
•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 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 solutions, and bar-code scanners.
•Hospitality - We offer technology solutions to customers in the hospitality industry, including table-service, quick-service and fast casual restaurants of all sizes, that are designed to improve operational efficiency, increase customer satisfaction, streamline order and transaction processing and reduce operating costs. Our solutions include POS hardware and software solutions, installation, maintenance, managed and professional services as well as payment processing solutions.
Corporate and Other includes income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment along with any immaterial operating segment(s).
Eliminations includes revenues from contracts with customers and the related costs that are reported in the Payments & Network segment as well as in the Retail or Hospitality segments, including merchant acquiring services that are monetized via payments.
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 Adjusted EBITDA. Adjusted EBITDA is defined as GAAP net income (loss) from continuing operations attributable to NCR plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus stock-based compensation expense; plus other income
14
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
(expense); plus pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization of acquisition-related intangibles, restructuring charges, among others. The special items are considered non-operational 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 NCR.
Special Item Related to Russia The war in Eastern Europe and related sanctions imposed on Russia and related actors by the United States and other jurisdictions required us to orderly wind down our operations in Russia beginning in the first quarter of 2022. As a result, for the three months ending March 31, 2022, our presentation of segment revenue and Adjusted EBITDA exclude the impact of our operating results in Russia, as well as the impact of impairments taken to write down the carrying value of assets and liabilities, severance charges, and the assessment of collectability on revenue recognition. We consider this to be a special item and management has reviewed the results of its business segments excluding these impacts. We have not adjusted the presentation of the prior year period due to the immaterial impact of Russia to income from continuing operations for the three months ended March 31, 2021.
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 condensed consolidated financial statements as a whole. Intersegment sales and transfers are not material.
The following table presents revenue and Adjusted EBITDA by segment:
| In millions | Three months ended March 31 | ||||||||||
| 2022 | 2021 | ||||||||||
| Revenue by segment | |||||||||||
| Payments & Network | $ | $ | |||||||||
| Digital Banking | |||||||||||
| Self-Service Banking | |||||||||||
| Retail | |||||||||||
| Hospitality | |||||||||||
| Other | |||||||||||
| Eliminations | ( | ( | |||||||||
| Total segment revenue | $ | $ | |||||||||
Other adjustment (1) | |||||||||||
| Consolidated revenue | $ | $ | |||||||||
| Adjusted EBITDA by segment | |||||||||||
| Payments & Network | $ | $ | |||||||||
| Digital Banking | |||||||||||
| Self-Service Banking | |||||||||||
| Retail | |||||||||||
| Hospitality | |||||||||||
| Corporate and Other | ( | ( | |||||||||
| Eliminations | ( | ( | |||||||||
| Total Adjusted EBITDA | $ | $ | |||||||||
(1) Other adjustment reflects the revenue attributable to the Company's operations in Russia for the three months ending March 31, 2022 that were excluded from management's measure of revenue due to our announcement to suspend sales to Russia and anticipated orderly wind down of our operations in Russia. The revenue attributable to the Russia operations for the prior period of $8 million are included in the respective segments.
For the three months ended March 31, 2022, the operations of Cardtronics are included in the Payments & Network and Self-Service Banking segments.
15
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
The following table reconciles net income (loss) from continuing operations to Adjusted EBITDA:
| In millions | Three months ended March 31 | ||||||||||
| 2022 | 2021 | ||||||||||
| Net income (loss) from continuing operations attributable to NCR | $ | ( | $ | ||||||||
| Transformation costs | |||||||||||
| Acquisition-related amortization of intangibles | |||||||||||
| Acquisition-related costs | |||||||||||
| Interest expense | |||||||||||
| Interest income | ( | ( | |||||||||
| Depreciation and amortization (excluding acquisition-related amortization of intangibles) | |||||||||||
| Income tax expense (benefit) | |||||||||||
| Stock-based compensation expense | |||||||||||
| Russia | |||||||||||
| Total Adjusted EBITDA | $ | $ | |||||||||
The following table presents revenue by geography for NCR:
| In millions | Three months ended March 31 | ||||||||||
| 2022 | 2021 | ||||||||||
| Americas | $ | $ | |||||||||
| Europe, Middle East and Africa (EMEA) | |||||||||||
| Asia Pacific (APJ) | |||||||||||
| Total revenue | $ | $ | |||||||||
The following table presents the recurring revenue for NCR:
| In millions | Three months ended March 31 | ||||||||||
| 2022 | 2021 | ||||||||||
Recurring revenue (1) | $ | $ | |||||||||
| All other products and services | |||||||||||
| Total revenue | $ | $ | |||||||||
(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.
16
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
The following table summarizes the Company's short-term borrowings and long-term debt:
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| 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) | $ | $ | ||||||||||||||||||||||||
Other (1) | ||||||||||||||||||||||||||
| Total short-term borrowings | $ | $ | ||||||||||||||||||||||||