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1. Basis of Presentation
These statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the results of operations, financial position and cash flows of Teradata Corporation (“Teradata” or the “Company”) for the interim periods presented herein. The year-end 2013 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates.
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Teradata’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013 Annual Report”). The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
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2. New Accounting Pronouncements
Revenue Recognition. In May 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance that affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The new guidance will supersede the revenue recognition requirements in the current revenue recognition guidance, and most industry-specific guidance. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer are amended to be consistent with the guidance on recognition and measurement in this update. 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. To achieve that core principle, the FASB defines a five step process which includes the following: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early application not permitted. The standard allows entities to apply the standard retrospectively for all periods presented or alternatively an entity is permitted to recognize the cumulative effect of initially applying the guidance as an opening balance sheet adjustment to retained earnings in the period of initial application. The Company is currently evaluating the impact on its consolidated financial position, results of operations and cash flows, as well as the method of transition that will be used in adopting the standard.
Accounting for Share-based Payments with Performance Targets. In June 2014, the FASB issued new guidance that would require that a performance target that affects vesting and that could be achieved after the requisite service period, be treated as a performance condition. A reporting entity should apply existing guidance as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The amendments in this update are effective for annual periods, and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is currently evaluating the impact on its consolidated financial position, results of operations and cash flows.
Recently Adopted Guidance. In July 2013, the FASB issued new guidance requiring the financial statement presentation of an unrecognized tax benefit in a particular jurisdiction, or a portion thereof, as a reduction to a deferred tax asset for a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax credit carryforward, unless the uncertain tax position is not available to reduce, or would not be used to reduce, the NOL or carryforward under the tax law in the same jurisdiction; otherwise, the unrecognized tax benefit should be presented as a gross liability and should not be combined with a deferred tax asset. This new guidance is effective for interim and annual periods beginning after December 15, 2013. On January 1, 2014, the Company adopted the new guidance which did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
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3. Supplemental Financial Information
As of | ||||||||
In millions | September 30, 2014 |
December 31, 2013 |
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Inventories |
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Finished goods |
$ | 27 | $ | 39 | ||||
Service parts |
17 | 17 | ||||||
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Total inventories |
$ | 44 | $ | 56 | ||||
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Deferred revenue |
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Deferred revenue, current |
$ | 380 | $ | 390 | ||||
Long-term deferred revenue |
22 | 25 | ||||||
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Total deferred revenue |
$ | 402 | $ | 415 | ||||
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4. Goodwill and Acquired Intangible Assets
The following table identifies the activity relating to goodwill by operating segment:
In millions | Balance December 31, 2013 |
Additions | Currency Translation Adjustments |
Balance September 30, 2014 |
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Goodwill |
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Americas |
$ | 626 | $ | 28 | $ | (1 | ) | $ | 653 | |||||||
International |
320 | 0 | (15 | ) | 305 | |||||||||||
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Total goodwill |
$ | 946 | $ | 28 | $ | (16 | ) | $ | 958 | |||||||
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The changes to goodwill for the nine months ended September 30, 2014 were due to immaterial acquisitions executed during the period, as well as changes in foreign currency exchange rates.
Acquired intangible assets were specifically identified when acquired, and are deemed to have finite lives. The gross carrying amount and accumulated amortization for Teradata’s acquired intangible assets were as follows:
September 30, 2014 | December 31, 2013 | |||||||||||||||||||
In millions | Amortization Life (in Years) |
Gross Carrying Amount |
Accumulated Amortization and Currency Translation Adjustments |
Gross Carrying Amount |
Accumulated Amortization and Currency Translation Adjustments |
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Acquired intangible assets |
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Intellectual property/developed technology |
1 to 7 | $ | 165 | $ | (86 | ) | $ | 153 | $ | (70 | ) | |||||||||
Customer relationships |
3 to 10 | 77 | (32 | ) | 77 | (23 | ) | |||||||||||||
Trademarks/trade names |
1 to 5 | 15 | (12 | ) | 15 | (7 | ) | |||||||||||||
In-process research and development |
5 | 5 | (2 | ) | 5 | (1 | ) | |||||||||||||
Non-compete agreements |
1 to 3 | 1 | (1 | ) | 1 | (1 | ) | |||||||||||||
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Total |
1 to 10 | $ | 263 | $ | (133 | ) | $ | 251 | $ | (102 | ) | |||||||||
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For the nine months ended September 30, 2014, the gross carrying amount of acquired intangible assets increased with the addition of newly acquired intangible assets associated with immaterial acquisitions. This was partially offset by certain intangible assets previously acquired that became fully amortized and were removed from the balance sheet.
Total amortization expense related to acquired intangible assets was $12 million and $35 million for the three and nine months ended September 30, 2014 and $11 million and $33 million for the three and nine months ended September 30, 2013, respectively. The estimated amortization expense for acquired intangible assets for the following periods is as follows:
Remainder of 2014 |
For the year ended (estimated) | |||||||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||||||
Amortization expense |
$ | 13 | $ | 39 | $ | 30 | $ | 22 | $ | 10 | $ | 8 |
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5. Income Taxes
Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period. The Company’s intention is to permanently reinvest its foreign earnings outside of the United States. As a result, the effective tax rates in the periods presented are largely based upon the forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business that apply a broad range of statutory income tax rates, a large majority of which are less than the U.S. statutory rate.
The effective tax rate for the three months ended September 30, 2014 and September 30, 2013 was 23.6% and 25.8%, respectively. The effective tax rate for the nine months ended September 30, 2014 and September 30, 2013 was 26.1% and 25.1%, respectively. The effective tax rate for the three months and nine months ended September 30, 2014 included a discrete tax benefit resulting from an Internal Revenue Service audit settlement of the 2011 tax year, which occurred in the third quarter of 2014. This tax benefit was offset by the impact of the expiration of the U.S. Federal Research and Development Tax Credit (“US R&D Tax Credit”) on December 31, 2013. As a result, there is no tax benefit associated with the US R&D Tax Credit reflected in the marginal effective tax rate for the three months or nine months ended September 30, 2014. The effective tax rate for the three months and nine months ended September 30, 2013 included the marginal effective tax rate benefit of the US R&D Tax Credit for 2013. In addition, the effective tax rate for the nine months ended September 30, 2013 included a one-time discrete $4 million tax benefit associated with the US R&D Tax Credit for 2012, which was retroactively reinstated with the enactment of the American Taxpayer Relief Act of 2012 in January of 2013.
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6. Derivative Instruments and Hedging Activities
As a portion of the Teradata’s operations is conducted outside the United States and in currencies other than the U.S. dollar, the Company is exposed to potential gains and losses from changes in foreign currency exchange rates. In an attempt to mitigate the impact of currency fluctuations, the Company uses foreign exchange forward contracts to hedge transactional exposures resulting predominantly from foreign currency denominated inter-company receivables and payables. The forward contracts are designated as fair value hedges of specified foreign currency denominated inter-company receivables and payables and generally mature in three months or less. The Company does not hold or issue derivative financial instruments for trading purposes, nor does it hold or issue leveraged derivative instruments. By using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to credit risk. The Company manages exposure to counterparty credit risk by entering into derivative financial instruments with highly rated institutions that can be expected to fully perform under the terms of the applicable contracts.
All derivatives are recognized in the Consolidated Balance Sheet at their fair value. The fair values of foreign exchange contracts are based on market spot and forward exchange rates and represent estimates of possible value that may not be realized in the future. Changes in the fair value of derivative financial instruments, along with the loss or gain on the hedged asset or liability, are recorded in current period earnings. The notional amounts represent agreed-upon amounts on which calculations of dollars to be exchanged are based, and are an indication of the extent of Teradata’s involvement in such instruments. These notional amounts do not represent amounts exchanged by the parties and, therefore, are not a measure of the instruments. Across its portfolio of contracts, Teradata has both long and short positions relative to the U.S. dollar. As a result, Teradata’s net involvement is less than the total contract notional amount of the Company’s foreign exchange forward contracts.
The contract notional amount of the Company’s foreign exchange forward contracts was $85 million ($5 million on a net basis) at September 30, 2014, and $152 million ($24 million on a net basis) at December 31, 2013. The fair value derivative assets and liabilities recorded in other current assets and accrued liabilities at September 30, 2014 and December 31, 2013, were not material.
Gains and losses from the Company’s fair value hedges (foreign currency forward contracts and related hedged items) were immaterial for the three and nine months ended September 30, 2014 and September 30, 2013. Gains and losses from foreign exchange forward contracts are fully recognized each period and reported along with the offsetting gain or loss of the related hedged item, either in cost of products or in other income, depending on the nature of the related hedged item.
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7. Commitments and Contingencies
In the normal course of business, the Company is subject to proceedings, lawsuits, governmental investigations, claims and other matters, including those that relate to the environment, health and safety, employee benefits, export compliance, intellectual property, tax matters and other regulatory compliance and general matters.
Guarantees and Product Warranties. Guarantees associated with the Company’s business activities are reviewed for appropriateness and impact to the Company’s financial statements. Periodically, the Company’s customers enter into various leasing arrangements coordinated with a leasing company. In some instances, the Company guarantees the leasing company a minimum value at the end of the lease term on the leased equipment. As of September 30, 2014, the maximum future payment obligation of this guaranteed value and the associated liability balance was $4 million.
The 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 and cost of replacement parts. For each consummated sale, the Company recognizes the total customer revenue and records the associated warranty liability using pre-established warranty percentages for that product class.
The following table identifies the activity relating to the warranty reserve for the nine months ended September 30:
In millions | 2014 | 2013 | ||||||
Warranty reserve liability |
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Beginning balance at January 1 |
$ | 8 | $ | 8 | ||||
Provisions for warranties issued |
11 | 10 | ||||||
Settlements (in cash or in kind) |
(13 | ) | (11 | ) | ||||
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Balance at September 30 |
$ | 6 | $ | 7 | ||||
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The Company also offers extended and/or enhanced coverage to its customers in the form of maintenance contracts. The Company accounts for these contracts by deferring the related maintenance revenue over the extended and/or enhanced coverage period. Costs associated with maintenance support are expensed as incurred. Amounts associated with these maintenance contracts are not included in the table above.
In addition, the Company provides its customers with certain indemnification rights. In general, the Company agrees to indemnify the customer if a third party asserts patent or other infringement on the part of the customer for its use of the Company’s products. The Company has entered into indemnification agreements with the officers and directors of its subsidiaries. From time to time, the Company also enters into agreements in connection with its acquisition and divesture activities that include indemnification obligations by the Company. The fair value of these indemnification obligations is not readily determinable due to the conditional nature of the Company’s potential obligations and the specific facts and circumstances involved with each particular agreement, and as such the Company has not recorded a liability in connection with these indemnification arrangements. Historically, payments made by the Company under these types of agreements have not had a material effect on the Company’s consolidated financial condition, results of operations or cash flows.
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8. Fair Value Measurements
Fair value measurements are established utilizing a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as significant other observable inputs, such as quoted prices in active markets for similar assets or liabilities, or quoted prices in less-active markets for identical assets; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company’s assets and liabilities measured at fair value on a recurring basis include money market funds and foreign currency exchange contracts. A portion of the Company’s excess cash reserves are held in money market funds which generate interest income based on the prevailing market rates. Money market funds are included in cash and cash equivalents in the Company’s balance sheet. Money market fund holdings are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy. When deemed appropriate, the Company minimizes its exposure to changes in foreign currency exchange rates through the use of derivative financial instruments, specifically, forward foreign exchange contracts. The fair value of these contracts are measured at the end of each interim reporting period using observable inputs other than quoted prices, specifically market spot and forward exchange rates. As such, these derivative instruments are classified within Level 2 of the valuation hierarchy. Fair value gains for open contracts are recognized as assets and fair value losses are recognized as liabilities. The fair value derivative assets and liabilities recorded in other current assets and accrued liabilities at September 30, 2014 and December 31, 2013, were not material. Any realized gains or losses would be mitigated by corresponding gains or losses on the underlying exposures.
The Company’s assets measured at fair value on a recurring basis and subject to fair value disclosure requirements at September 30, 2014 and December 31, 2013 were as follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets |
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Money market funds, September 30, 2014 |
$ | 395 | $ | 395 | $ | 0 | $ | 0 | ||||||||
Money market funds, December 31, 2013 |
$ | 318 | $ | 318 | $ | 0 | $ | 0 |
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9. Debt
Teradata’s five-year revolving credit agreement (the “Credit Facility”), has a borrowing capacity of up to $300 million. The Credit Facility ends on June 15, 2017, at which point any remaining outstanding borrowings would be due for repayment unless extended by agreement of the parties for up to two additional one-year periods. The interest rate charged on borrowings pursuant to the Credit Facility can vary depending on the interest rate option the Company chooses to utilize and the Company’s leverage ratio at the time of the borrowing. In the near term, Teradata would anticipate choosing a floating rate based on the London Interbank Offered Rate (“LIBOR”). The Credit Facility is unsecured and contains certain representations and warranties, conditions, affirmative, negative and financial covenants, and events of default customary for such facilities.
As of September 30, 2014, the Company had no borrowings outstanding under the Credit Facility, leaving $300 million in additional borrowing capacity available under the Credit Facility. The Company was in compliance with all covenants as of September 30, 2014.
Teradata’s senior unsecured $300 million five-year term loan is payable in quarterly installments, which commenced on June 30, 2012, with all remaining principal due in April 2016. The outstanding principal amount of the term loan agreement bears interest at a floating rate based upon a negotiated base rate or a Eurodollar rate plus in each case a margin based on the leverage ratio of the Company. As of September 30, 2014, the term loan principal outstanding was $255 million, and carried an interest rate of 1.1875%. The Company was in compliance with all covenants as of September 30, 2014.
Teradata’s term loan is recognized on the Company’s balance sheet at its unpaid principal balance, and is not subject to fair value measurement. However, given that the loan carries a variable rate, the Company estimates that the unpaid principal balance of the term loan would approximate its fair value. If measured at fair value in the financial statements, the Company’s term loan would be classified as Level 2 in the fair value hierarchy.
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11. Segment and Other Supplemental Information
Teradata manages its business in two geographic regions, which are also the Company’s operating segments: (1) the Americas region (North America and Latin America); and (2) the International region (Europe, Middle East, Africa, Asia Pacific and Japan). Management evaluates the performance of its segments based on revenue and segment margin. Corporate-related costs are fully-allocated to the segments, but for management reporting purposes assets are not allocated to the segments.
The following table presents regional segment revenue and segment gross margin for the Company:
Three Months Ended September 30, |
Nine Months Ended September 30, |
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In millions | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Segment revenue |
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Americas |
$ | 405 | $ | 409 | $ | 1,163 | $ | 1,169 | ||||||||
International |
262 | 257 | 808 | 754 | ||||||||||||
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Total revenue |
667 | 666 | 1,971 | 1,923 | ||||||||||||
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Segment gross margin |
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Americas |
231 | 233 | 671 | 668 | ||||||||||||
International |
119 | 125 | 383 | 374 | ||||||||||||
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Total gross margin |
350 | 358 | 1,054 | 1,042 | ||||||||||||
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Selling, general and administrative expenses |
181 | 183 | 557 | 547 | ||||||||||||
Research and development expenses |
46 | 43 | 152 | 140 | ||||||||||||
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Total income from operations |
123 | 132 | 345 | 355 | ||||||||||||
Other expense, net |
0 | 0 | (8 | ) | (1 | ) | ||||||||||
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Income before income taxes |
$ | 123 | $ | 132 | $ | 337 | $ | 354 | ||||||||
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The following table presents revenue by product and services for the Company:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Products (software and hardware)(1) |
$ | 294 | $ | 306 | $ | 867 | $ | 858 | ||||||||
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Consulting services |
200 | 200 | 592 | 593 | ||||||||||||
Maintenance services |
173 | 160 | 512 | 472 | ||||||||||||
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Total services |
373 | 360 | 1,104 | 1,065 | ||||||||||||
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Total revenue |
$ | 667 | $ | 666 | $ | 1,971 | $ | 1,923 | ||||||||
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(1) Our analytic database software and hardware products are often sold and delivered together in the form of a “node” of capacity as an integrated technology solution. Accordingly, it is impracticable to provide the breakdown of revenue from various types of software and hardware products.
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Revenue Recognition. In May 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance that affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The new guidance will supersede the revenue recognition requirements in the current revenue recognition guidance, and most industry-specific guidance. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer are amended to be consistent with the guidance on recognition and measurement in this update. 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. To achieve that core principle, the FASB defines a five step process which includes the following: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early application not permitted. The standard allows entities to apply the standard retrospectively for all periods presented or alternatively an entity is permitted to recognize the cumulative effect of initially applying the guidance as an opening balance sheet adjustment to retained earnings in the period of initial application. The Company is currently evaluating the impact on its consolidated financial position, results of operations and cash flows, as well as the method of transition that will be used in adopting the standard.
Accounting for Share-based Payments with Performance Targets. In June 2014, the FASB issued new guidance that would require that a performance target that affects vesting and that could be achieved after the requisite service period, be treated as a performance condition. A reporting entity should apply existing guidance as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The amendments in this update are effective for annual periods, and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is currently evaluating the impact on its consolidated financial position, results of operations and cash flows.
Recently Adopted Guidance. In July 2013, the FASB issued new guidance requiring the financial statement presentation of an unrecognized tax benefit in a particular jurisdiction, or a portion thereof, as a reduction to a deferred tax asset for a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax credit carryforward, unless the uncertain tax position is not available to reduce, or would not be used to reduce, the NOL or carryforward under the tax law in the same jurisdiction; otherwise, the unrecognized tax benefit should be presented as a gross liability and should not be combined with a deferred tax asset. This new guidance is effective for interim and annual periods beginning after December 15, 2013. On January 1, 2014, the Company adopted the new guidance which did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
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As of | ||||||||
In millions | September 30, 2014 |
December 31, 2013 |
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Inventories |
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Finished goods |
$ | 27 | $ | 39 | ||||
Service parts |
17 | 17 | ||||||
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Total inventories |
$ | 44 | $ | 56 | ||||
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Deferred revenue |
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Deferred revenue, current |
$ | 380 | $ | 390 | ||||
Long-term deferred revenue |
22 | 25 | ||||||
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Total deferred revenue |
$ | 402 | $ | 415 | ||||
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The following table identifies the activity relating to goodwill by operating segment:
In millions | Balance December 31, 2013 |
Additions | Currency Translation Adjustments |
Balance September 30, 2014 |
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Goodwill |
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Americas |
$ | 626 | $ | 28 | $ | (1 | ) | $ | 653 | |||||||
International |
320 | 0 | (15 | ) | 305 | |||||||||||
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Total goodwill |
$ | 946 | $ | 28 | $ | (16 | ) | $ | 958 | |||||||
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The gross carrying amount and accumulated amortization for Teradata’s acquired intangible assets were as follows:
September 30, 2014 | December 31, 2013 | |||||||||||||||||||
In millions | Amortization Life (in Years) |
Gross Carrying Amount |
Accumulated Amortization and Currency Translation Adjustments |
Gross Carrying Amount |
Accumulated Amortization and Currency Translation Adjustments |
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Acquired intangible assets |
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Intellectual property/developed technology |
1 to 7 | $ | 165 | $ | (86 | ) | $ | 153 | $ | (70 | ) | |||||||||
Customer relationships |
3 to 10 | 77 | (32 | ) | 77 | (23 | ) | |||||||||||||
Trademarks/trade names |
1 to 5 | 15 | (12 | ) | 15 | (7 | ) | |||||||||||||
In-process research and development |
5 | 5 | (2 | ) | 5 | (1 | ) | |||||||||||||
Non-compete agreements |
1 to 3 | 1 | (1 | ) | 1 | (1 | ) | |||||||||||||
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Total |
1 to 10 | $ | 263 | $ | (133 | ) | $ | 251 | $ | (102 | ) | |||||||||
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The estimated amortization expense for acquired intangible assets for the following periods is as follows:
Remainder of 2014 |
For the year ended (estimated) | |||||||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||||||
Amortization expense |
$ | 13 | $ | 39 | $ | 30 | $ | 22 | $ | 10 | $ | 8 |
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The following table identifies the activity relating to the warranty reserve for the nine months ended September 30:
In millions | 2014 | 2013 | ||||||
Warranty reserve liability |
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Beginning balance at January 1 |
$ | 8 | $ | 8 | ||||
Provisions for warranties issued |
11 | 10 | ||||||
Settlements (in cash or in kind) |
(13 | ) | (11 | ) | ||||
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Balance at September 30 |
$ | 6 | $ | 7 | ||||
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The Company’s assets measured at fair value on a recurring basis and subject to fair value disclosure requirements at September 30, 2014 and December 31, 2013 were as follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets |
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Money market funds, September 30, 2014 |
$ | 395 | $ | 395 | $ | 0 | $ | 0 | ||||||||
Money market funds, December 31, 2013 |
$ | 318 | $ | 318 | $ | 0 | $ | 0 |
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The following table presents regional segment revenue and segment gross margin for the Company:
Three Months Ended September 30, |
Nine Months Ended September 30, |
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In millions | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Segment revenue |
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Americas |
$ | 405 | $ | 409 | $ | 1,163 | $ | 1,169 | ||||||||
International |
262 | 257 | 808 | 754 | ||||||||||||
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Total revenue |
667 | 666 | 1,971 | 1,923 | ||||||||||||
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Segment gross margin |
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Americas |
231 | 233 | 671 | 668 | ||||||||||||
International |
119 | 125 | 383 | 374 | ||||||||||||
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Total gross margin |
350 | 358 | 1,054 | 1,042 | ||||||||||||
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Selling, general and administrative expenses |
181 | 183 | 557 | 547 | ||||||||||||
Research and development expenses |
46 | 43 | 152 | 140 | ||||||||||||
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Total income from operations |
123 | 132 | 345 | 355 | ||||||||||||
Other expense, net |
0 | 0 | (8 | ) | (1 | ) | ||||||||||
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Income before income taxes |
$ | 123 | $ | 132 | $ | 337 | $ | 354 | ||||||||
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The following table presents revenue by product and services for the Company:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Products (software and hardware)(1) |
$ | 294 | $ | 306 | $ | 867 | $ | 858 | ||||||||
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Consulting services |
200 | 200 | 592 | 593 | ||||||||||||
Maintenance services |
173 | 160 | 512 | 472 | ||||||||||||
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Total services |
373 | 360 | 1,104 | 1,065 | ||||||||||||
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Total revenue |
$ | 667 | $ | 666 | $ | 1,971 | $ | 1,923 | ||||||||
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(1) Our analytic database software and hardware products are often sold and delivered together in the form of a “node” of capacity as an integrated technology solution. Accordingly, it is impracticable to provide the breakdown of revenue from various types of software and hardware products.
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