TERADATA CORP /DE/, 10-Q filed on 11/7/2014
Quarterly Report
Document and Entity Information
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Oct. 31, 2014
Document Information
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
TDC 
 
Entity Registrant Name
TERADATA CORP /DE/ 
 
Entity Central Index Key
0000816761 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
153.0 
Condensed Consolidated Statements of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Revenue
 
 
 
 
Product revenue
$ 294 1
$ 306 1
$ 867 1
$ 858 1
Service revenue
373 
360 
1,104 
1,065 
Total revenue
667 
666 
1,971 
1,923 
Costs and operating expenses
 
 
 
 
Cost of products
119 
118 
316 
312 
Cost of services
198 
190 
601 
569 
Selling, general and administrative expenses
181 
183 
557 
547 
Research and development expenses
46 
43 
152 
140 
Total costs and operating expenses
544 
534 
1,626 
1,568 
Income from operations
123 
132 
345 
355 
Other expense, net
(8)
(1)
Income before income taxes
123 
132 
337 
354 
Income tax expense
29 
34 
88 
89 
Net income
$ 94 
$ 98 
$ 249 
$ 265 
Net income per weighted average common share
 
 
 
 
Basic
$ 0.61 
$ 0.60 
$ 1.59 
$ 1.62 
Diluted
$ 0.60 
$ 0.59 
$ 1.57 
$ 1.59 
Weighted average common shares outstanding
 
 
 
 
Basic
154.5 
163.2 
156.6 
164.0 
Diluted
157.1 
166.4 
159.1 
167.1 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Net income
$ 94 
$ 98 
$ 249 
$ 265 
Other comprehensive (loss) income:
 
 
 
 
Foreign currency translation adjustments
(28)
13 
(28)
(4)
Defined benefit plans:
 
 
 
 
Defined benefit plan adjustment, before tax
(2)
(6)
(1)
(6)
Defined benefit plan adjustment, tax portion
Other comprehensive (loss) income
(30)
(29)
(8)
Comprehensive income
$ 64 
$ 107 
$ 220 
$ 257 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current Assets
 
 
Cash and cash equivalents
$ 848 
$ 695 
Accounts receivable, net
522 
717 
Inventories
44 
56 
Other current assets
92 
95 
Total current assets
1,506 
1,563 
Property and equipment, net
157 
161 
Capitalized software, net
198 
195 
Goodwill
958 
946 
Acquired intangible assets, net
130 
149 
Deferred income taxes
23 
24 
Other assets
46 
58 
Total assets
3,018 
3,096 
Current liabilities
 
 
Current portion of long-term debt
45 
26 
Accounts payable
118 
114 
Payroll and benefits liabilities
127 
136 
Deferred revenue
380 
390 
Other current liabilities
101 
110 
Total current liabilities
771 
776 
Long-term debt
210 
248 
Pension and other postemployment plan liabilities
73 
76 
Long-term deferred revenue
22 
25 
Deferred tax liabilities
68 
87 
Other liabilities
32 
27 
Total liabilities
1,176 
1,239 
Commitments and contingencies (Note 7)
   
   
Stockholders' equity
 
 
Preferred stock: par value $0.01 per share, 100.0 shares authorized, 0.0 shares issued and outstanding at September 30, 2014 and December 31, 2013
Common stock: par value $0.01 per share, 500.0 shares authorized, 191.8 and 190.9 shares issued at September 30, 2014 and December 31, 2013, respectively
Paid-in capital
1,031 
973 
Treasury stock: 38.5 and 31.6 shares at September 30, 2014 and December 31, 2013, respectively
(1,477)
(1,184)
Retained earnings
2,282 
2,033 
Accumulated other comprehensive income
33 
Total stockholders' equity
1,842 
1,857 
Total liabilities and stockholders' equity
$ 3,018 
$ 3,096 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
100.0 
100.0 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
500.0 
500.0 
Common stock, shares issued
191.8 
190.9 
Treasury stock, shares
38.5 
31.6 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Operating activities
 
 
Net income
$ 249 
$ 265 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
128 
109 
Stock-based compensation expense
36 
39 
Excess tax benefit from stock-based compensation
(2)
(7)
Deferred income taxes
(17)
Loss on investments
Changes in assets and liabilities:
 
 
Receivables
199 
126 
Inventories
12 
(19)
Current payables and accrued expenses
(10)
(86)
Deferred revenue
(13)
(5)
Other assets and liabilities
(8)
18 
Net cash provided by operating activities
583 
447 
Investing activities
 
 
Expenditures for property and equipment
(37)
(44)
Additions to capitalized software
(57)
(56)
Business acquisitions and other investing activities, net
(49)
(39)
Net cash used in investing activities
(143)
(139)
Financing activities
 
 
Repurchases of common stock
(282)
(187)
Repayments of long-term borrowings
(19)
(11)
Excess tax benefit from stock-based compensation
Other financing activities, net
20 
23 
Net cash used in financing activities
(279)
(168)
Effect of exchange rate changes on cash and cash equivalents
(8)
(7)
Increase in cash and cash equivalents
153 
133 
Cash and cash equivalents at beginning of period
695 
729 
Cash and cash equivalents at end of period
$ 848 
$ 862 
Basis of Presentation
Basis of Presentation

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.

New Accounting Pronouncements
New Accounting Pronouncements

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.

Supplemental Financial Information
Supplemental Financial Information

3. Supplemental Financial Information

 

     As of  
In millions    September 30,
2014
     December 31,
2013
 

Inventories

     

Finished goods

   $ 27       $ 39   

Service parts

     17         17   
  

 

 

    

 

 

 

Total inventories

   $ 44       $ 56   
  

 

 

    

 

 

 

Deferred revenue

     

Deferred revenue, current

   $ 380       $ 390   

Long-term deferred revenue

     22         25   
  

 

 

    

 

 

 

Total deferred revenue

   $ 402       $ 415   
  

 

 

    

 

 

 
Goodwill and Acquired Intangible Assets
Goodwill and Acquired Intangible Assets

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
 

Goodwill

          

Americas

   $ 626       $ 28       $ (1   $ 653   

International

     320         0         (15     305   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total goodwill

   $ 946       $ 28       $ (16   $ 958   
  

 

 

    

 

 

    

 

 

   

 

 

 

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
 

Acquired intangible assets

             

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
     

 

 

    

 

 

   

 

 

    

 

 

 

Total

     1 to 10       $ 263       $ (133   $ 251       $ (102
     

 

 

    

 

 

   

 

 

    

 

 

 

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   
Income Taxes
Income Taxes

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.

Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities

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.

Commitments and Contingencies
Commitments and Contingencies

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

    

Beginning balance at January 1

   $ 8      $ 8   

Provisions for warranties issued

     11        10   

Settlements (in cash or in kind)

     (13     (11
  

 

 

   

 

 

 

Balance at September 30

   $ 6      $ 7   
  

 

 

   

 

 

 

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.

Fair Value Measurements
Fair Value Measurements

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)
 

Assets

           

Money market funds, September 30, 2014

   $ 395       $ 395       $ 0       $ 0   

Money market funds, December 31, 2013

   $ 318       $ 318       $ 0       $ 0   
Debt
Debt

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.

Earnings Per Share
Earnings Per Share

10. Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted average number of shares outstanding during the reported period. The calculation of diluted earnings per share is similar to basic earnings per share, except that the weighted average number of shares outstanding includes the dilution from potential shares resulting from stock options, restricted stock awards and other stock awards.

 

The components of basic and diluted earnings per share are as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
In millions, except per share amounts    2014      2013      2014      2013  

Net income available for common stockholders

   $ 94       $ 98       $ 249       $ 265   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average outstanding shares of common stock

     154.5         163.2         156.6         164.0   

Dilutive effect of employee stock options, restricted stock and other stock awards

     2.6         3.2         2.5         3.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Common stock and common stock equivalents

     157.1         166.4         159.1         167.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic

   $ 0.61       $ 0.60       $ 1.59       $ 1.62   

Diluted

   $ 0.60       $ 0.59       $ 1.57       $ 1.59   

Certain options to purchase shares of common stock were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares for the period, and therefore would have been anti-dilutive. For the three months ended September 30, 2014 and September 30, 2013 there were 2.2 million and 0.7 million shares of common stock excluded from the computation of diluted earnings per share. For the nine months ended September 30, 2014 and September 30, 2013 there were 2.2 million and 0.5 million shares of common stock excluded from the computation of diluted earnings per share.

Segment and Other Supplemental Information
Segment and Other Supplemental Information

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,
 
In millions    2014      2013      2014     2013  

Segment revenue

          

Americas

   $ 405       $ 409       $ 1,163      $ 1,169   

International

     262         257         808        754   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total revenue

     667         666         1,971        1,923   
  

 

 

    

 

 

    

 

 

   

 

 

 

Segment gross margin

          

Americas

     231         233         671        668   

International

     119         125         383        374   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total gross margin

     350         358         1,054        1,042   
  

 

 

    

 

 

    

 

 

   

 

 

 

Selling, general and administrative expenses

     181         183         557        547   

Research and development expenses

     46         43         152        140   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total income from operations

     123         132         345        355   

Other expense, net

     0         0         (8     (1
  

 

 

    

 

 

    

 

 

   

 

 

 

Income before income taxes

   $ 123       $ 132       $ 337      $ 354   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consulting services

     200         200         592         593   

Maintenance services

     173         160         512         472   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total services

     373         360         1,104         1,065   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 667       $ 666       $ 1,971       $ 1,923   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

New Accounting Pronouncements (Policies)

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.

Supplemental Financial Information (Tables)
Supplemental Financial Information
     As of  
In millions    September 30,
2014
     December 31,
2013
 

Inventories

     

Finished goods

   $ 27       $ 39   

Service parts

     17         17   
  

 

 

    

 

 

 

Total inventories

   $ 44       $ 56   
  

 

 

    

 

 

 

Deferred revenue

     

Deferred revenue, current

   $ 380       $ 390   

Long-term deferred revenue

     22         25   
  

 

 

    

 

 

 

Total deferred revenue

   $ 402       $ 415   
  

 

 

    

 

 

 
Goodwill and Acquired Intangible Assets (Tables)

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
 

Goodwill

          

Americas

   $ 626       $ 28       $ (1   $ 653   

International

     320         0         (15     305   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total goodwill

   $ 946       $ 28       $ (16   $ 958   
  

 

 

    

 

 

    

 

 

   

 

 

 

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
 

Acquired intangible assets

             

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
     

 

 

    

 

 

   

 

 

    

 

 

 

Total

     1 to 10       $ 263       $ (133   $ 251       $ (102
     

 

 

    

 

 

   

 

 

    

 

 

 

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   
Commitments and Contingencies (Tables)
Warranty Reserve Activity

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

    

Beginning balance at January 1

   $ 8      $ 8   

Provisions for warranties issued

     11        10   

Settlements (in cash or in kind)

     (13     (11
  

 

 

   

 

 

 

Balance at September 30

   $ 6      $ 7   
  

 

 

   

 

 

 
Fair Value Measurements (Tables)
Assets and Liabilities Measured at Fair Value on Recurring Basis and Subject to Fair Value Disclosure Requirements

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)
 

Assets

           

Money market funds, September 30, 2014

   $ 395       $ 395       $ 0       $ 0   

Money market funds, December 31, 2013

   $ 318       $ 318       $ 0       $ 0   
Earnings Per Share (Tables)
Components of Basic and Diluted Earnings Per Share

The components of basic and diluted earnings per share are as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
In millions, except per share amounts    2014      2013      2014      2013  

Net income available for common stockholders

   $ 94       $ 98       $ 249       $ 265   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average outstanding shares of common stock

     154.5         163.2         156.6         164.0   

Dilutive effect of employee stock options, restricted stock and other stock awards

     2.6         3.2         2.5         3.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Common stock and common stock equivalents

     157.1         166.4         159.1         167.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic

   $ 0.61       $ 0.60       $ 1.59       $ 1.62   

Diluted

   $ 0.60       $ 0.59       $ 1.57       $ 1.59   
Segment and Other Supplemental Information (Tables)

The following table presents regional segment revenue and segment gross margin for the Company:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
In millions    2014      2013      2014     2013  

Segment revenue

          

Americas

   $ 405       $ 409       $ 1,163      $ 1,169   

International

     262         257         808        754   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total revenue

     667         666         1,971        1,923   
  

 

 

    

 

 

    

 

 

   

 

 

 

Segment gross margin

          

Americas

     231         233         671        668   

International

     119         125         383        374   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total gross margin

     350         358         1,054        1,042   
  

 

 

    

 

 

    

 

 

   

 

 

 

Selling, general and administrative expenses

     181         183         557        547   

Research and development expenses

     46         43         152        140   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total income from operations

     123         132         345        355   

Other expense, net

     0         0         (8     (1
  

 

 

    

 

 

    

 

 

   

 

 

 

Income before income taxes

   $ 123       $ 132       $ 337      $ 354   
  

 

 

    

 

 

    

 

 

   

 

 

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consulting services

     200         200         592         593   

Maintenance services

     173         160         512         472   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total services

     373         360         1,104         1,065   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 667       $ 666       $ 1,971       $ 1,923   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

Supplemental Financial Information (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Finished goods
$ 27 
$ 39 
Service parts
17 
17 
Total inventories
44 
56 
Deferred revenue, current
380 
390 
Long-term deferred revenue
22 
25 
Total deferred revenue
$ 402 
$ 415 
Goodwill by Operating Segment (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Goodwill
 
Balance December 31, 2013
$ 946 
Additions
28 
Currency Translation Adjustments
(16)
Balance September 30, 2014
958 
Americas
 
Goodwill
 
Balance December 31, 2013
626 
Additions
28 
Currency Translation Adjustments
(1)
Balance September 30, 2014
653 
International
 
Goodwill
 
Balance December 31, 2013
320 
Additions
Currency Translation Adjustments
(15)
Balance September 30, 2014
$ 305 
Gross Carrying Amount and Accumulated Amortization for Teradata Acquired Intangible Assets (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended
Sep. 30, 2014
Dec. 31, 2013
Acquired Finite-Lived Intangible Assets
 
 
Accumulated Amortization and Currency Translation Adjustments
$ (133)
$ (102)
Gross Carrying Amount
263 
251 
Intellectual property/developed technology
 
 
Acquired Finite-Lived Intangible Assets
 
 
Accumulated Amortization and Currency Translation Adjustments
(86)
(70)
Gross Carrying Amount
165 
153 
Customer relationships
 
 
Acquired Finite-Lived Intangible Assets
 
 
Accumulated Amortization and Currency Translation Adjustments
(32)
(23)
Gross Carrying Amount
77 
77 
Trademarks/trade names
 
 
Acquired Finite-Lived Intangible Assets
 
 
Accumulated Amortization and Currency Translation Adjustments
(12)
(7)
Gross Carrying Amount
15 
15 
In-process research and development
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
5 years 
 
Accumulated Amortization and Currency Translation Adjustments
(2)
(1)
Gross Carrying Amount
Non-compete agreements
 
 
Acquired Finite-Lived Intangible Assets
 
 
Accumulated Amortization and Currency Translation Adjustments
(1)
(1)
Gross Carrying Amount
$ 1 
$ 1 
Minimum
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
1 year 
 
Minimum |
Intellectual property/developed technology
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
1 year 
 
Minimum |
Customer relationships
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
3 years 
 
Minimum |
Trademarks/trade names
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
1 year 
 
Minimum |
Non-compete agreements
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
1 year 
 
Maximum
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
10 years 
 
Maximum |
Intellectual property/developed technology
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
7 years 
 
Maximum |
Customer relationships
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
10 years 
 
Maximum |
Trademarks/trade names
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
5 years 
 
Maximum |
Non-compete agreements
 
 
Acquired Finite-Lived Intangible Assets
 
 
Original Amortization Life (in Years)
3 years 
 
Goodwill And Acquired Intangible Assets - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Acquired Finite-Lived Intangible Assets
 
 
 
 
Amortization of intangible assets
$ 12 
$ 11 
$ 35 
$ 33 
Aggregate Amortization Expense for Acquired Intangible Assets (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Finite-Lived Intangible Assets [Line Items]
 
Amortization expense - 2014
$ 13 
Amortization expense - 2015
39 
Amortization expense - 2016
30 
Amortization expense - 2017
22 
Amortization expense - 2018
10 
Amortization expense - 2019
$ 8 
Income Taxes - Additional information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Income Taxes
 
 
 
 
Effective income tax rate
23.60% 
25.80% 
26.10% 
25.10% 
Tax benefit associated with the U.S. Federal Research and Development Tax Credit
$ 0 
$ 4 
$ 0 
$ 4 
Derivative Instruments and Hedging Activities - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Derivative
 
 
Notional amount of foreign exchange forward contracts on a net basis
$ 5 
$ 24 
Foreign Exchange Contract
 
 
Derivative
 
 
Notional amount of foreign exchange forward contracts
$ 85 
$ 152 
Commitments and Contingencies - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Loss Contingencies [Line Items]
 
Maximum future payment obligation of the guaranteed value and associated liabilities
$ 4 
Warranty Reserve Activity (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Guarantor Obligations [Line Items]
 
 
Beginning balance at January 1
$ 8 
$ 8 
Provisions for warranties issued
11 
10 
Settlements (in cash or in kind)
(13)
(11)
Balance at September 30
$ 6 
$ 7 
Assets and Liabilities Measured at Fair Value on Recurring Basis and Subject to Fair Value Disclosure Requirements (Detail) (Money market funds, USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Money market funds
$ 395 
$ 318 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Money market funds
395 
318 
Significant Other Observable Inputs (Level 2)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Money market funds
Significant Unobservable Inputs (Level 3)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Money market funds
$ 0 
$ 0 
Debt - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Extension
Revolving Credit Facility
 
Debt Instrument
 
Revolving credit agreement period (in years)
5 years 
Credit facility maximum borrowing capacity
$ 300 
Credit facility agreement expiration date
Jun. 15, 2017 
Credit facility, number of one-year extensions
Credit facility, duration of extension term (in years)
1 year 
Credit facility outstanding balance
Credit facility borrowing capacity
300 
Senior Unsecured Term Loan
 
Debt Instrument
 
Term loan, face amount
300 
Term loan, commencement date
Jun. 30, 2012 
Term loan, frequency of periodic payment
Quarterly installments 
Term of loan, years
5 years 
Term loan, due date
Apr. 05, 2016 
Term loan payable
$ 255 
Interest rate on term loan
1.1875% 
Components of Basic and Diluted Earnings Per Share (Detail) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
 
 
 
 
Net income available for common stockholders
$ 94 
$ 98 
$ 249 
$ 265 
Weighted average outstanding shares of common stock
154.5 
163.2 
156.6 
164.0 
Dilutive effect of employee stock options, restricted stock and other stock awards
2.6 
3.2 
2.5 
3.1 
Common stock and common stock equivalents
157.1 
166.4 
159.1 
167.1 
Basic
$ 0.61 
$ 0.60 
$ 1.59 
$ 1.62 
Diluted
$ 0.60 
$ 0.59 
$ 1.57 
$ 1.59 
Earnings Per Share - Additional Information (Detail)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share
 
 
 
 
Antidilutive options to purchase were excluded from computation of diluted earnings per share
2.2 
0.7 
2.2 
0.5 
Segment and Other Supplemental Information - Additional Information (Detail)
9 Months Ended
Sep. 30, 2014
Segment
Segment Reporting Information
 
Number of operating segments
Regional Segment Revenue and Gross Margin for Company (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Segment Reporting Information
 
 
 
 
Revenue
$ 667 
$ 666 
$ 1,971 
$ 1,923 
Gross margin
350 
358 
1,054 
1,042 
Selling, general and administrative expenses
181 
183 
557 
547 
Research and development expenses
46 
43 
152 
140 
Income from operations
123 
132 
345 
355 
Other expense, net
(8)
(1)
Income before income taxes
123 
132 
337 
354 
Americas
 
 
 
 
Segment Reporting Information
 
 
 
 
Revenue
405 
409 
1,163 
1,169 
Gross margin
231 
233 
671 
668 
International
 
 
 
 
Segment Reporting Information
 
 
 
 
Revenue
262 
257 
808 
754 
Gross margin
$ 119 
$ 125 
$ 383 
$ 374 
Revenue by Product and Services (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Segment Reporting Information
 
 
 
 
Products (software and hardware)
$ 294 1
$ 306 1
$ 867 1
$ 858 1
Consulting services
200 
200 
592 
593 
Maintenance services
173 
160 
512 
472 
Total services
373 
360 
1,104 
1,065 
Total revenue
$ 667 
$ 666 
$ 1,971 
$ 1,923