TERADATA CORP /DE/, 10-Q filed on 8/4/2017
Quarterly Report
Document and Entity Information
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jul. 28, 2017
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q2 
 
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 (in shares)
 
126.0 
Condensed Consolidated Statements of Income (Unaudited) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Revenue
 
 
 
 
Product and cloud revenue
$ 166 
$ 243 
$ 332 
$ 451 
Service revenue
347 
356 
672 
693 
Total revenue
513 
599 
1,004 
1,144 
Costs and operating expenses
 
 
 
 
Cost of product and cloud
72 
101 
148 
190 
Cost of services
199 
188 
390 
375 
Selling, general and administrative expenses
165 
172 
320 
346 
Research and development expenses
78 
51 
148 
108 
Impairment of goodwill, acquired intangibles and other assets
0 
0 
0 
80 
Total costs and operating expenses
514 
512 
1,006 
1,099 
(Loss) income from operations
(1)
87 
(2)
45 
Other expense, net
 
 
 
 
Interest expense
(4)
(4)
(7)
(7)
Interest income
3 
2 
5 
3 
Other expense
(1)
0 
(1)
(1)
Total other expense, net
(2)
(2)
(3)
(5)
(Loss) income before income taxes
(3)
85 
(5)
40 
Income tax expense
1 
21 
1 
22 
Net (loss) income
$ (4)
$ 64 
$ (6)
$ 18 
Net (loss) income per weighted average common share
 
 
 
 
Basic (in dollars per share)
$ (0.03)
$ 0.49 
$ (0.05)
$ 0.14 
Diluted (in dollars per share)
$ (0.03)
$ 0.49 
$ (0.05)
$ 0.14 
Weighted average common shares outstanding
 
 
 
 
Basic (in shares)
127.9 
129.8 
129.2 
129.6 
Diluted (in shares)
127.9 
131.5 
129.2 
131.2 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net (loss) income
$ (4)
$ 64 
$ (6)
$ 18 
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustments
5 
(2)
10 
6 
Defined benefit plans:
 
 
 
 
Defined benefit plan adjustment, before tax
1 
2 
2 
2 
Defined benefit plan adjustment, tax portion
0 
(1)
0 
(1)
Defined benefit plan adjustment, net of tax
1 
1 
2 
1 
Other comprehensive income (loss)
6 
(1)
12 
7 
Comprehensive income
$ 2 
$ 63 
$ 6 
$ 25 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Current assets
 
 
Cash and cash equivalents
$ 1,085 
$ 974 
Accounts receivable, net
356 
548 
Inventories
42 
34 
Other current assets
65 
65 
Total current assets
1,548 
1,621 
Property and equipment, net
143 
138 
Capitalized software, net
150 
187 
Goodwill
401 
390 
Acquired intangible assets, net
21 
11 
Deferred income taxes
51 
49 
Other assets
24 
17 
Total assets
2,338 
2,413 
Current liabilities
 
 
Current portion of long-term debt
45 
30 
Accounts payable
97 
103 
Payroll and benefits liabilities
129 
139 
Deferred revenue
431 
369 
Other current liabilities
90 
88 
Total current liabilities
792 
729 
Long-term debt
508 
538 
Pension and other postemployment plan liabilities
107 
96 
Long-term deferred revenue
10 
14 
Deferred tax liabilities
14 
33 
Other liabilities
35 
32 
Total liabilities
1,466 
1,442 
Commitments and contingencies (Note 7)
   
   
Stockholders’ equity
 
 
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively
0 
0 
Common stock: par value $0.01 per share, 500.0 shares authorized, 126.3 and 130.6 shares issued at June 30, 2017 and December 31, 2016, respectively
1 
1 
Paid-in capital
1,266 
1,220 
Accumulated deficit
(318)
(161)
Accumulated other comprehensive loss
(77)
(89)
Total stockholders’ equity
872 
971 
Total liabilities and stockholders’ equity
$ 2,338 
$ 2,413 
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
Jun. 30, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]
 
 
Preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Preferred stock, shares authorized (in shares)
100,000,000.0 
100,000,000.0 
Preferred stock, shares issued (in shares)
0 
0 
Preferred stock, shares outstanding (in shares)
0 
0 
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, shares authorized (in shares)
500,000,000.0 
500,000,000.0 
Common stock, shares issued (in shares)
126,300,000 
130,600,000 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Operating activities
 
 
Net (loss) income
$ (6)
$ 18 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
Depreciation and amortization
70 
65 
Stock-based compensation expense
35 
33 
Deferred income taxes
(20)
(15)
Impairment of goodwill, acquired intangibles and other assets
0 
80 
Changes in assets and liabilities:
 
 
Receivables
192 
122 
Inventories
(8)
11 
Current payables and accrued expenses
(13)
(10)
Deferred revenue
58 
64 
Other assets and liabilities
1 
(19)
Net cash provided by operating activities
309 
349 
Investing activities
 
 
Expenditures for property and equipment
(30)
(17)
Proceeds from sale of property and equipment
0 
5 
Additions to capitalized software
(4)
(36)
Business acquisitions and other investing activities, net
(18)
(4)
Net cash used in investing activities
(52)
(52)
Financing activities
 
 
Repurchases of common stock
(151)
(51)
Repayments of long-term borrowings
(15)
(15)
Repayments of credit facility borrowings
0 
(180)
Other financing activities, net
12 
19 
Net cash used in financing activities
(154)
(227)
Effect of exchange rate changes on cash and cash equivalents
8 
0 
Increase in cash and cash equivalents
111 
70 
Cash and cash equivalents at beginning of period
974 
839 
Cash and cash equivalents at end of period
$ 1,085 
$ 909 
Basis of Presentation
Basis of Presentation
Basis of Presentation
These statements have been prepared pursuant to the rules and regulations of the United States 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 2016 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, 2016 (the “2016 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. Prior period amounts have been restated to conform to the current year presentation. As a result of the Company's early adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting, in the fourth quarter of 2016, retroactively to January 1, 2016, the restatement of prior year results resulted in a change in net cash provided by operating activities and net cash used by financing activities of $2 million for the six months ended June 30, 2016.
New Accounting Pronouncements
New Accounting Pronouncements
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 new revenue standard will be effective for annual reporting periods beginning after December 15, 2017, with early application 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 (modified retrospective method).
The Company plans to adopt the new accounting guidance effective January 1, 2018 by utilizing the modified retrospective method. The Company is currently evaluating the impact on its consolidated financial position, results of operations and cash flows.
Although the Company is still evaluating the impact on its consolidated financial statements, the Company believes the most significant impacts may include the following items:
•
As the Company transitions to the new go-to-market offerings, such as subscription-based licenses rather than perpetual licenses, the Company could potentially see a more significant impact in the amount of revenue recognized over time under the current rules but upfront under the new rules. This impact could result in revenue that is adjusted to retained earnings in the period of adoption and therefore not recognized in future periods or restated to prior periods due to the Company applying the modified retrospective method of adoption;
•
The Company currently expenses contract acquisition costs and believes that the requirement to defer incremental contract acquisition costs and recognize them over the term of the contract to which the costs relate could have an impact, especially as the Company transitions to longer-term, over-time revenue contracts;
•
The amount of revenue allocated to the delivered items and recognized upfront utilizing the relative selling price model is limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions (i.e., the non-contingent amount) under current rules. Under the new rules, the amounts allocated to delivered items and recognized upfront could be higher if it is probable that a significant reversal in the amount of revenue recognized will not occur in future periods upon the delivery of additional items or meeting other specified performance conditions; and
•
The new standard will impact our internal control environment, including our financial statement disclosure controls, business process controls, new systems and processes, and enhancements to existing systems and processes.
The Company does not expect that the new standard will result in substantive changes in our performance obligations or the amounts of revenue allocated between multiple performance obligations, with the exception of contingent revenue discussed above. The Company is still in the process of evaluating and quantifying these impacts, and our initial assessment may change as the Company continues with implementing new systems, processes, accounting policies and internal controls.
Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. In March 2017, the FASB issued accounting guidance for “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost”. The amendment requires the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period and other components of the net periodic benefit cost be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. For public entities, the amendments are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
Stock Compensation. In May 2017, the FASB issued accounting guidance for "Compensation—Stock Compensation (Topic 718) - Scope of Modification Accounting". The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

Recently Adopted Guidance
Simplifying the measurement for goodwill. In January 2017, the FASB issued guidance to simplify the accounting for the impairment of goodwill. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is required to be applied prospectively and is effective for periods beginning after December 15, 2019, with early adoption permitted. The Company elected to early adopt this accounting guidance effective January 1, 2017. The Company does not expect any impact from the adoption of the new accounting guidance on its consolidated financial statements.
Supplemental Financial Information
Supplemental Financial Information
Supplemental Financial Information
 
As of
In millions
June 30,
2017
 
December 31,
2016
Inventories
 
 
 
Finished goods
$
29

 
$
20

Service parts
13

 
14

Total inventories
$
42

 
$
34

 
 
 
 
Deferred revenue
 
 
 
Deferred revenue, current
$
431

 
$
369

Long-term deferred revenue
10

 
14

Total deferred revenue
$
441

 
$
383

Goodwill and Acquired Intangible Assets
Goodwill and Acquired Intangible Assets
Goodwill and Acquired Intangible Assets
The following table identifies the activity relating to goodwill by operating segment:
In millions
Balance,
December 31,
2016
 
Adjustments
 
Currency
Translation
Adjustments
 
Balance,
June 30,
2017
Goodwill
 
 
 
 
 
 
 
Americas Data and Analytics
$
251

 
$
7

 
$
—

 
$
258

International Data and Analytics
139

 
—

 
4

 
143

Total goodwill
$
390

 
$
7

 
$
4

 
$
401



During the second quarter of 2017, the Company recorded additional goodwill of $7 million, for an immaterial acquisition that occurred during the period.

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:
 
 
 
June 30, 2017
 
December 31, 2016
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
2 to 5

 
$
36

 
$
(16
)
 
$
71

 
$
(61
)
Trademarks/trade names
5

 
—

 
—

 
1

 
(1
)
In-process research and development
5

 
5

 
(4
)
 
5

 
(4
)
Total acquired intangible assets


 
$
41

 
$
(20
)
 
$
77

 
$
(66
)


During the second quarter of 2017, the Company recorded additional intangibles of $13 million, for intellectual property related to an immaterial acquisition that occurred during the period.
The aggregate amortization expense (actual and estimated) for acquired intangible assets is as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In millions
 
2017
 
2016
 
2017
 
2016
Amortization expense
 
$
1

 
$
2

 
$
3

 
$
7

 
 
Actual
 
For the years ended (estimated)
In millions
 
2016
 
2017
 
2018
 
2019
 
2020
 
2021
 
2022
Amortization expense
 
$
10

 
$
8

 
$
5

 
$
4

 
$
3


$
3

 
$
1

Income Taxes
Income Taxes
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 ("U.S."). 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 is as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In millions
 
2017
 
2016
 
2017
 
2016
Effective tax rate
 
(33.3
)%
 
24.7
%
 
(20.0
)%
 
55.0
%

For the three and six months ended June 30, 2017, no material non-recurring discrete tax items were recorded. Discrete tax items related to interest accruals on uncertain tax positions and equity based compensation resulted in income tax expense of $1 million, on a pre-tax net loss of $3 million and $5 million for the three and six months ended June 30 2017, causing a negative tax rate of (33.3)% and (20.0)% for the respective periods.
For the three months ended June 30, 2016, there was a $1.0 million favorable tax benefit recognized due to the release of a reserve taken for a previously uncertain tax position. For the six months ended June 30, 2016, there were discrete tax items resulting from the $76 million intangible asset impairment recorded in the first quarter of 2016, of which $57 million was related to non-deductible goodwill and $19 million was related to intangible assets for which $6 million of deferred tax benefit had been recorded. In addition, there was a $2 million favorable tax benefit recognized due to the release of a reserve taken for a previously uncertain tax position.
Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities
As a portion of Teradata’s operations is conducted outside the U.S. 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 sheets 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 following table identifies the contract notional amount of the Company’s foreign exchange forward contracts:
 
As of
In millions
June 30,
2017
 
December 31,
2016
Contract notional amount of foreign exchange forward contracts
$
137

 
$
156

Net contract notional amount of foreign exchange forward contracts
$
15

 
$
16


The fair value of derivative assets and liabilities recorded in other current assets and accrued liabilities at June 30, 2017 and December 31, 2016, 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 six months ended June 30, 2017 and June 30, 2016. 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 (expense), depending on the nature of the related hedged item.
Commitments and Contingencies
Commitments and Contingencies
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.

The Company, through internal processes, discovered certain questionable expenditures for travel, gifts and other expenses at one of its international subsidiaries doing business in a single foreign country, Turkey. Teradata promptly initiated an internal investigation into the matter, with the assistance of outside counsel and forensic accountants, to determine whether the expenditures may have violated the U.S. Foreign Corrupt Practices Act (“FCPA”) or other potentially applicable anti-corruption laws. In late February 2017, the Company voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”) to alert them to the relevant events and the Company's internal investigation. Teradata has periodically updated the government regarding the status of the Company's internal investigation and findings, including remedial actions and terminations, and plans to continue to cooperate fully.

Based on information known at this time, it is currently believed that the questionable expenditures were limited to a single subsidiary’s business operations in Turkey and involved specific individuals who are no longer with the Company. Teradata’s operations in Turkey have constituted less than one half of one percent of consolidated revenues each year as reported by the Company since 2012. Under the circumstances, Teradata currently does not anticipate a material adverse effect on its business or financial condition as a result of this matter; however, the ultimate resolution of this matter with the DOJ and SEC cannot be predicted. Any determination that the Company’s operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, civil and criminal penalties, and equitable remedies, including disgorgement or injunctive relief.
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 June 30, 2017, 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 under other current liabilities in the balance sheet using pre-established warranty percentages for that product class.
The following table identifies the activity relating to the warranty reserve for the six months ended June 30:
In millions
2017
 
2016
Warranty reserve liability
 
 
 
Beginning balance at January 1
$
5

 
$
6

Provisions for warranties issued
3

 
4

Settlements (in cash or in kind)
(4
)
 
(5
)
Balance at June 30
$
4

 
$
5


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.
Concentrations of Risk. The Company is potentially subject to concentrations of credit risk on accounts receivable and financial instruments such as hedging instruments, and cash and cash equivalents. Credit risk includes the risk of nonperformance by counterparties. The maximum potential loss may exceed the amount recognized on the balance sheet. Exposure to credit risk is managed through credit approvals, credit limits, selecting major international financial institutions (as counterparties to hedging transactions) and monitoring procedures. Teradata’s business often involves large transactions with customers, and if one or more of those customers were to default in its obligations under applicable contractual arrangements, the Company could be exposed to potentially significant losses. However, management believes that the reserves for potential losses were adequate at June 30, 2017 and December 31, 2016.
The Company is also potentially subject to concentrations of supplier risk. Our hardware components are assembled exclusively by Flextronics International Ltd. (“Flextronics”). Flextronics procures a wide variety of components used in the manufacturing process on behalf of the Company. Although many of these components are available from multiple sources, Teradata utilizes preferred supplier relationships to provide more consistent and optimal quality, cost and delivery. Typically, these preferred suppliers maintain alternative processes and/or facilities to ensure continuity of supply. Given the Company’s strategy to outsource its manufacturing activities to Flextronics and to source certain components from single suppliers, a disruption in production at Flextronics or at a supplier could impact the timing of customer shipments and/or Teradata’s operating results. In addition, a significant change in the forecasts to any of these preferred suppliers could result in purchase obligations for components that may be in excess of demand.
Fair Value Measurements
Fair Value Measurements
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, foreign exchange forward 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 June 30, 2017 and December 31, 2016, 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 June 30, 2017 and December 31, 2016 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, June 30, 2017
$
489

 
$
489

 
$
—

 
$
—

Money market funds, December 31, 2016
$
473

 
$
473

 
$
—

 
$
—

Earnings per Share
Earnings per Share
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
June 30,
 
Six Months Ended 
 June 30,
In millions, except per share amounts
2017
 
2016
 
2017
 
2016
Net loss attributable to common stockholders
$
(4
)
 
$
64

 
$
(6
)
 
$
18

Weighted average outstanding shares of common stock
127.9

 
129.8

 
129.2

 
129.6

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

 
1.7

 
—

 
1.6

Common stock and common stock equivalents
127.9

 
131.5

 
129.2

 
131.2

Loss per share:
 
 
 
 
 
 
 
Basic
$
(0.03
)
 
$
0.49

 
$
(0.05
)
 
$
0.14

Diluted
$
(0.03
)
 
$
0.49

 
$
(0.05
)
 
$
0.14


For the three and six months ended June 30, 2017, due to the net loss attributable to Teradata common stockholders, potential common shares that would cause dilution, such as employee stock options, restricted stock and other stock awards, have been excluded from the diluted share count because their effect would have been anti-dilutive. The fully diluted shares would have been 129.5 million and 130.7 million for the three and six months ended June 30, 2017.

Options to purchase 4.5 million shares of common stock for the three and six months ended June 30, 2017 and 5.1 million and 5.4 million shares of common stock for the three and six months ended June 30, 2016 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.
Segment and Other Supplemental Information
Segment and Other Supplemental Information
Segment and Other Supplemental Information
Effective July 1, 2016, following the sale of the marketing applications business, Teradata is managing its business in two operating segments: (1) Americas region (North America and Latin America); and (2) International region (Europe, Middle East, Africa, Asia Pacific and Japan). For purposes of discussing results by segment, management excludes the impact of certain items, consistent with the manner by which management evaluates the performance of each segment. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by Teradata management to make decisions regarding the segments and to assess financial performance. The chief operating decision maker evaluates the performance of the segments based on revenue and multiple profit measures, including segment gross profit. For management reporting purposes assets are not allocated to the segments.
The following table presents segment revenue and segment gross margin for the Company:
 
Three Months Ended
June 30,
 
Six Months Ended 
 June 30,
In millions
2017
 
2016
 
2017
 
2016
Segment revenue
 
 
 
 
 
 
 
 Americas Data and Analytics
$
271

 
$
325

 
$
538

 
$
620

 International Data and Analytics
242

 
239

 
466

 
455

Total Data and Analytics
513

 
564

 
1,004

 
1,075

Marketing Applications
—

 
35

 
—

 
69

Total revenue
513

 
599

 
1,004

 
1,144

Segment gross profit
 
 
 
 
 
 
 
 Americas Data and Analytics
158

 
194

 
309

 
369

 International Data and Analytics
107

 
121

 
207

 
223

Total Data and Analytics
265

 
315

 
516

 
592

Marketing Applications
—

 
17

 
—

 
34

Total segment gross profit
265

 
332

 
516

 
626

Stock-based compensation costs
(3
)
 
(4
)
 
(7
)
 
(8
)
Amortization of acquisition-related intangible assets costs
—

 
—

 
—

 
(2
)
Acquisition, integration, reorganization and transformation-related costs
(2
)
 
(2
)
 
(4
)
 
(5
)
Amortization of capitalized software costs
(18
)
 
(16
)
 
(39
)
 
(32
)
Selling, general and administrative expenses
165

 
172

 
320

 
346

Research and development expenses
78

 
51

 
148

 
108

Impairment of goodwill, acquired intangibles and other assets
—

 
—

 
—

 
80

(Loss) income from operations
$
(1
)
 
$
87

 
$
(2
)
 
$
45



Prior period segment information has been reclassified to conform to the current period presentation. Certain items, including amortization of certain capitalized software costs, were excluded from segment gross profit to conform to the way the Company manages and reviews the results by segment.


The following table presents a further disaggregation of revenue for the Company:
 
Three Months Ended
June 30,
 
Six Months Ended 
 June 30,
In millions
2017
 
2016
 
2017
 
2016
Product - rights to upgrades, subscription and cloud
$
75

 
$
69

 
$
151

 
$
139

Maintenance - software and hardware
182

 
174

 
358

 
342

Total recurring revenue
257

 
243

 
509

 
481

Product - perpetual licenses and hardware
91

 
154

 
181

 
274

Consulting services
165

 
167

 
314

 
320

Marketing applications
—

 
35

 
—

 
69

Total revenue
$
513

 
$
599

 
$
1,004

 
$
1,144

Reorganization and Business Transformation
Reorganization and Business Transformation
Reorganization and Business Transformation
In the fourth quarter of 2015, the Company announced a plan to realign Teradata’s business by reducing its cost structure and focusing on the Company’s core data and analytics business. This business transformation included exiting the marketing applications business, rationalizing costs, and modifying the Company’s go-to-market approach. The Company incurred the following costs for the six months ended June 30:
 
Six Months Ended June 30,
In millions
2017
 
2016
Employee severance and other employee related cost
$
2

 
$
10

Asset write-downs
6

 
80

Professional services, legal and other transformation costs
18

 
19

Total reorganization and business transformation cost
$
26

 
$
109


For the six months ended June 30, 2017, costs incurred above includes $8 million for an inventory charge and other associated transformation costs related to the discontinuation of Teradata's prior hardware platforms. In addition to the costs and charges incurred above, the Company made cash payments of less than $1 million for the six months ended June 30, 2017 and $16 million for the six months ended June 30, 2016 for employee severance that did not have a material impact on its Statement of Operations due to Teradata's accounting for its postemployment benefits under Accounting Standards Codification 712, Compensation - Nonretirement Postemployment Benefits (“ASC 712”), which uses actuarial estimates and defers the immediate recognition of gains or losses.
Subsequent Events
Subsequent Events
Subsequent Events
From July 1, 2017 through August 3, 2017, the Company purchased 1,279,206 shares of its common stock at an average price per share of $32.03, and a total cost of approximately $41 million. As of August 3, 2017 the Company had approximately $341 million of share repurchase authorization remaining.
New Accounting Pronouncements (Policies)
Revenue Recognition 
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 new revenue standard will be effective for annual reporting periods beginning after December 15, 2017, with early application 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 (modified retrospective method).
The Company plans to adopt the new accounting guidance effective January 1, 2018 by utilizing the modified retrospective method. The Company is currently evaluating the impact on its consolidated financial position, results of operations and cash flows.
Although the Company is still evaluating the impact on its consolidated financial statements, the Company believes the most significant impacts may include the following items:
•
As the Company transitions to the new go-to-market offerings, such as subscription-based licenses rather than perpetual licenses, the Company could potentially see a more significant impact in the amount of revenue recognized over time under the current rules but upfront under the new rules. This impact could result in revenue that is adjusted to retained earnings in the period of adoption and therefore not recognized in future periods or restated to prior periods due to the Company applying the modified retrospective method of adoption;
•
The Company currently expenses contract acquisition costs and believes that the requirement to defer incremental contract acquisition costs and recognize them over the term of the contract to which the costs relate could have an impact, especially as the Company transitions to longer-term, over-time revenue contracts;
•
The amount of revenue allocated to the delivered items and recognized upfront utilizing the relative selling price model is limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions (i.e., the non-contingent amount) under current rules. Under the new rules, the amounts allocated to delivered items and recognized upfront could be higher if it is probable that a significant reversal in the amount of revenue recognized will not occur in future periods upon the delivery of additional items or meeting other specified performance conditions; and
•
The new standard will impact our internal control environment, including our financial statement disclosure controls, business process controls, new systems and processes, and enhancements to existing systems and processes.
The Company does not expect that the new standard will result in substantive changes in our performance obligations or the amounts of revenue allocated between multiple performance obligations, with the exception of contingent revenue discussed above. The Company is still in the process of evaluating and quantifying these impacts, and our initial assessment may change as the Company continues with implementing new systems, processes, accounting policies and internal controls.
New Accounting Pronouncements 
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 new revenue standard will be effective for annual reporting periods beginning after December 15, 2017, with early application 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 (modified retrospective method).
The Company plans to adopt the new accounting guidance effective January 1, 2018 by utilizing the modified retrospective method. The Company is currently evaluating the impact on its consolidated financial position, results of operations and cash flows.
Although the Company is still evaluating the impact on its consolidated financial statements, the Company believes the most significant impacts may include the following items:
•
As the Company transitions to the new go-to-market offerings, such as subscription-based licenses rather than perpetual licenses, the Company could potentially see a more significant impact in the amount of revenue recognized over time under the current rules but upfront under the new rules. This impact could result in revenue that is adjusted to retained earnings in the period of adoption and therefore not recognized in future periods or restated to prior periods due to the Company applying the modified retrospective method of adoption;
•
The Company currently expenses contract acquisition costs and believes that the requirement to defer incremental contract acquisition costs and recognize them over the term of the contract to which the costs relate could have an impact, especially as the Company transitions to longer-term, over-time revenue contracts;
•
The amount of revenue allocated to the delivered items and recognized upfront utilizing the relative selling price model is limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions (i.e., the non-contingent amount) under current rules. Under the new rules, the amounts allocated to delivered items and recognized upfront could be higher if it is probable that a significant reversal in the amount of revenue recognized will not occur in future periods upon the delivery of additional items or meeting other specified performance conditions; and
•
The new standard will impact our internal control environment, including our financial statement disclosure controls, business process controls, new systems and processes, and enhancements to existing systems and processes.
The Company does not expect that the new standard will result in substantive changes in our performance obligations or the amounts of revenue allocated between multiple performance obligations, with the exception of contingent revenue discussed above. The Company is still in the process of evaluating and quantifying these impacts, and our initial assessment may change as the Company continues with implementing new systems, processes, accounting policies and internal controls.
Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. In March 2017, the FASB issued accounting guidance for “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost”. The amendment requires the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period and other components of the net periodic benefit cost be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. For public entities, the amendments are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
Stock Compensation. In May 2017, the FASB issued accounting guidance for "Compensation—Stock Compensation (Topic 718) - Scope of Modification Accounting". The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

Recently Adopted Guidance
Simplifying the measurement for goodwill. In January 2017, the FASB issued guidance to simplify the accounting for the impairment of goodwill. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is required to be applied prospectively and is effective for periods beginning after December 15, 2019, with early adoption permitted. The Company elected to early adopt this accounting guidance effective January 1, 2017. The Company does not expect any impact from the adoption of the new accounting guidance on its consolidated financial statements.
Supplemental Financial Information (Tables)
Supplemental Financial Information
 
As of
In millions
June 30,
2017
 
December 31,
2016
Inventories
 
 
 
Finished goods
$
29

 
$
20

Service parts
13

 
14

Total inventories
$
42

 
$
34

 
 
 
 
Deferred revenue
 
 
 
Deferred revenue, current
$
431

 
$
369

Long-term deferred revenue
10

 
14

Total deferred revenue
$
441

 
$
383

Goodwill and Acquired Intangible Assets (Tables)
Goodwill by Operating Segment 
The following table identifies the activity relating to goodwill by operating segment:
In millions
Balance,
December 31,
2016
 
Adjustments
 
Currency
Translation
Adjustments
 
Balance,
June 30,
2017
Goodwill
 
 
 
 
 
 
 
Americas Data and Analytics
$
251

 
$
7

 
$
—

 
$
258

International Data and Analytics
139

 
—

 
4

 
143

Total goodwill
$
390

 
$
7

 
$
4

 
$
401

Gross Carrying Amount and Accumulated Amortization for Teradata's Acquired Intangible Assets 
The gross carrying amount and accumulated amortization for Teradata’s acquired intangible assets were as follows:
 
 
 
June 30, 2017
 
December 31, 2016
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
2 to 5

 
$
36

 
$
(16
)
 
$
71

 
$
(61
)
Trademarks/trade names
5

 
—

 
—

 
1

 
(1
)
In-process research and development
5

 
5

 
(4
)
 
5

 
(4
)
Total acquired intangible assets


 
$
41

 
$
(20
)
 
$
77

 
$
(66
)
Aggregate Amortization Expense for Acquired Intangible Assets 
The aggregate amortization expense (actual and estimated) for acquired intangible assets is as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In millions
 
2017
 
2016
 
2017
 
2016
Amortization expense
 
$
1

 
$
2

 
$
3

 
$
7

 
 
Actual
 
For the years ended (estimated)
In millions
 
2016
 
2017
 
2018
 
2019
 
2020
 
2021
 
2022
Amortization expense
 
$
10

 
$
8

 
$
5

 
$
4

 
$
3


$
3

 
$
1

Income Taxes (Tables)
Effective Tax Rate
The effective tax rate is as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In millions
 
2017
 
2016
 
2017
 
2016
Effective tax rate
 
(33.3
)%
 
24.7
%
 
(20.0
)%
 
55.0
%
Derivative Instruments and Hedging Activities (Tables)
Schedule of Foreign Exchange Contracts
The following table identifies the contract notional amount of the Company’s foreign exchange forward contracts:
 
As of
In millions
June 30,
2017
 
December 31,
2016
Contract notional amount of foreign exchange forward contracts
$
137

 
$
156

Net contract notional amount of foreign exchange forward contracts
$
15

 
$
16

Commitments and Contingencies (Tables)
Warranty Reserve Activity
The following table identifies the activity relating to the warranty reserve for the six months ended June 30:
In millions
2017
 
2016
Warranty reserve liability
 
 
 
Beginning balance at January 1
$
5

 
$
6

Provisions for warranties issued
3

 
4

Settlements (in cash or in kind)
(4
)
 
(5
)
Balance at June 30
$
4

 
$
5

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 June 30, 2017 and December 31, 2016 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, June 30, 2017
$
489

 
$
489

 
$
—

 
$
—

Money market funds, December 31, 2016
$
473

 
$
473

 
$
—

 
$
—

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
June 30,
 
Six Months Ended 
 June 30,
In millions, except per share amounts
2017
 
2016
 
2017
 
2016
Net loss attributable to common stockholders
$
(4
)
 
$
64

 
$
(6
)
 
$
18

Weighted average outstanding shares of common stock
127.9

 
129.8

 
129.2

 
129.6

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

 
1.7

 
—

 
1.6

Common stock and common stock equivalents
127.9

 
131.5

 
129.2

 
131.2

Loss per share:
 
 
 
 
 
 
 
Basic
$
(0.03
)
 
$
0.49

 
$
(0.05
)
 
$
0.14

Diluted
$
(0.03
)
 
$
0.49

 
$
(0.05
)
 
$
0.14

Segment and Other Supplemental Information (Tables)
Regional Segment Revenue and Gross Margin 
The following table presents segment revenue and segment gross margin for the Company:
 
Three Months Ended
June 30,
 
Six Months Ended 
 June 30,
In millions
2017
 
2016
 
2017
 
2016
Segment revenue
 
 
 
 
 
 
 
 Americas Data and Analytics
$
271

 
$
325

 
$
538

 
$
620

 International Data and Analytics
242

 
239

 
466

 
455

Total Data and Analytics
513

 
564

 
1,004

 
1,075

Marketing Applications
—

 
35

 
—

 
69

Total revenue
513

 
599

 
1,004

 
1,144

Segment gross profit
 
 
 
 
 
 
 
 Americas Data and Analytics
158

 
194

 
309

 
369

 International Data and Analytics
107

 
121

 
207

 
223

Total Data and Analytics
265

 
315

 
516

 
592

Marketing Applications
—

 
17

 
—

 
34

Total segment gross profit
265

 
332

 
516

 
626

Stock-based compensation costs
(3
)
 
(4
)
 
(7
)
 
(8
)
Amortization of acquisition-related intangible assets costs
—

 
—

 
—

 
(2
)
Acquisition, integration, reorganization and transformation-related costs
(2
)
 
(2
)
 
(4
)
 
(5
)
Amortization of capitalized software costs
(18
)
 
(16
)
 
(39
)
 
(32
)
Selling, general and administrative expenses
165

 
172

 
320

 
346

Research and development expenses
78

 
51

 
148

 
108

Impairment of goodwill, acquired intangibles and other assets
—

 
—

 
—

 
80

(Loss) income from operations
$
(1
)
 
$
87

 
$
(2
)
 
$
45

Revenue by Product and Services 
The following table presents a further disaggregation of revenue for the Company:
 
Three Months Ended
June 30,
 
Six Months Ended 
 June 30,
In millions
2017
 
2016
 
2017
 
2016
Product - rights to upgrades, subscription and cloud
$
75

 
$
69

 
$
151

 
$
139

Maintenance - software and hardware
182

 
174

 
358

 
342

Total recurring revenue
257

 
243

 
509

 
481

Product - perpetual licenses and hardware
91

 
154

 
181

 
274

Consulting services
165

 
167

 
314

 
320

Marketing applications
—

 
35

 
—

 
69

Total revenue
$
513

 
$
599

 
$
1,004

 
$
1,144

 

Reorganization and Business Transformation (Tables)
Restructuring and Related Costs
The Company incurred the following costs for the six months ended June 30:
 
Six Months Ended June 30,
In millions
2017
 
2016
Employee severance and other employee related cost
$
2

 
$
10

Asset write-downs
6

 
80

Professional services, legal and other transformation costs
18

 
19

Total reorganization and business transformation cost
$
26

 
$
109

Basis of Presentation - Narrative (Details) (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Change in Accounting Estimate [Line Items]
 
 
Net cash used in financing activities
$ 154 
$ 227 
Net cash provided by operating activities
309 
349 
Accounting Standards Update 2016-09
 
 
Change in Accounting Estimate [Line Items]
 
 
Net cash used in financing activities
 
2 
Net cash provided by operating activities
 
$ 1 
Supplemental Financial Information (Details) (USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Inventories
 
 
Finished goods
$ 29 
$ 20 
Service parts
13 
14 
Total inventories
42 
34 
Deferred revenue
 
 
Deferred revenue, current
431 
369 
Long-term deferred revenue
10 
14 
Total deferred revenue
$ 441 
$ 383 
Goodwill and Acquired Intangible Assets - Goodwill by Operating Segment (Details) (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Goodwill [Roll Forward]
 
December 31, 2016
$ 390 
Adjustments
7 
Currency Translation Adjustments
4 
June 30, 2017
401 
Americas Data and Analytics
 
Goodwill [Roll Forward]
 
December 31, 2016
251 
Adjustments
7 
Currency Translation Adjustments
0 
June 30, 2017
258 
International Data and Analytics
 
Goodwill [Roll Forward]
 
December 31, 2016
139 
Adjustments
0 
Currency Translation Adjustments
4 
June 30, 2017
$ 143 
Goodwill and Acquired Intangible Assets - Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Jun. 30, 2017
Finite-Lived Intangible Assets [Line Items]
 
Goodwill acquired during period
$ 7 
Intellectual Property
 
Finite-Lived Intangible Assets [Line Items]
 
Finite-lived intangible assets acquired
$ 13 
Goodwill and Acquired Intangible Assets - Gross Carrying Amount and Accumulated Amortization for Teradata Acquired Intangible Assets (Details) (USD $)
In Millions, unless otherwise specified
6 Months Ended 12 Months Ended
Jun. 30, 2017
Dec. 31, 2016
Acquired Finite-Lived Intangible Assets
 
 
Gross Carrying Amount
$ 41 
$ 77 
Accumulated Amortization and Currency Translation Adjustments
(20)
(66)
Intellectual property/developed technology
 
 
Acquired Finite-Lived Intangible Assets
 
 
Gross Carrying Amount
36 
71 
Accumulated Amortization and Currency Translation Adjustments
(16)
(61)
Trademarks/trade names
 
 
Acquired Finite-Lived Intangible Assets
 
 
Amortization Life (in Years)
5 years 
5 years 
Gross Carrying Amount
0 
1 
Accumulated Amortization and Currency Translation Adjustments
0 
(1)
In-process research and development
 
 
Acquired Finite-Lived Intangible Assets
 
 
Amortization Life (in Years)
5 years 
5 years 
Gross Carrying Amount
5 
5 
Accumulated Amortization and Currency Translation Adjustments
$ (4)
$ (4)
Minimum |
Intellectual property/developed technology
 
 
Acquired Finite-Lived Intangible Assets
 
 
Amortization Life (in Years)
2 years 
2 years 
Maximum |
Intellectual property/developed technology
 
 
Acquired Finite-Lived Intangible Assets
 
 
Amortization Life (in Years)
5 years 
5 years 
Goodwill and Acquired Intangible Assets - Aggregate Amortization Expense for Acquired Intangible Assets (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
 
 
 
 
 
Amortization expense
$ 1 
$ 2 
$ 3 
$ 7 
$ 10 
Amortization expense - Remainder of 2017
8 
 
8 
 
 
Amortization expense - 2018
5 
 
5 
 
 
Amortization expense - 2019
4 
 
4 
 
 
Amortization expense - 2020
3 
 
3 
 
 
Amortization expense - 2021
3 
 
3 
 
 
Amortization expense - 2022
$ 1 
 
$ 1 
 
 
Income Taxes - Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Income Tax Disclosure [Abstract]
 
 
 
 
Effective tax rate
(33.30%)
24.70% 
(20.00%)
55.00% 
Discrete tax expense (benefit)
$ 0 
 
$ 0 
 
Income tax expense
1 
21 
1 
22 
Pre-tax net loss
3 
(85)
5 
(40)
Favorable tax benefit
 
1.0 
 
 
Impairment of goodwill, acquired intangibles and other assets
 
 
 
76 
Non-deductible goodwill
 
 
 
57 
Impairment of intangible assets, indefinite-lived (excluding goodwill)
 
 
 
19 
Deferred income taxes benefit
 
 
 
6 
Unrecognized tax benefits, decrease resulting from prior period tax positions
 
 
 
$ 2 
Derivative Instruments and Hedging Activities - Narrative (Details) (USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Derivative
 
 
Net contract notional amount of foreign exchange forward contracts
$ 15 
$ 16 
Foreign Exchange Contract
 
 
Derivative
 
 
Contract notional amount of foreign exchange forward contracts
$ 137 
$ 156 
Commitments and Contingencies - Narrative (Details) (USD $)
66 Months Ended
Jun. 30, 2017
Loss Contingencies [Line Items]
 
Maximum future payment obligation of the guaranteed value and associated liabilities
$ 4,000,000 
Geographic Concentration Risk |
Sales Revenue, Net |
TURKEY
 
Loss Contingencies [Line Items]
 
Concentration risk, percentage
0.50% 
Commitments and Contingencies - Warranty Reserve Activity (Details) (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Movement in Standard Product Warranty Accrual [Roll Forward]
 
 
Beginning balance at January 1
$ 5 
$ 6 
Provisions for warranties issued
3 
4 
Settlements (in cash or in kind)
(4)
(5)
Balance at June 30
$ 4 
$ 5 
Fair Value Measurements - Assets and Liabilities Measured at Fair Value on Recurring Basis and Subject to Fair Value Disclosure Requirements (Details) (Fair Value, Measurements, Recurring, USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Money market funds
$ 489 
$ 473 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Money market funds
489 
473 
Significant Other Observable Inputs (Level 2)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Money market funds
0 
0 
Significant Unobservable Inputs (Level 3)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Money market funds
$ 0 
$ 0 
Earnings per Share - Components of Basic and Diluted Earnings Per Share (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Earnings Per Share [Abstract]
 
 
 
 
Net loss attributable to common stockholders
$ (4)
$ 64 
$ (6)
$ 18 
Weighted average outstanding shares of common stock (in shares)
127.9 
129.8 
129.2 
129.6 
Dilutive effect of employee stock options, restricted stock and other stock awards (in shares)
0 
1.7 
0 
1.6 
Common stock and common stock equivalents (in shares)
127.9 
131.5 
129.2 
131.2 
Loss per share:
 
 
 
 
Basic (in dollars per share)
$ (0.03)
$ 0.49 
$ (0.05)
$ 0.14 
Diluted (in dollars per share)
$ (0.03)
$ 0.49 
$ (0.05)
$ 0.14 
Earnings per Share - Narrative (Details)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Earnings Per Share [Abstract]
 
 
 
 
Fully diluted shares (in shares)
129.5 
 
130.7 
 
Antidilutive options to purchase were excluded from computation of diluted earnings per share (in shares)
4.5 
5.1 
4.5 
5.4 
Segment and Other Supplemental Information - Narrative (Details)
6 Months Ended
Jun. 30, 2017
segment
Segment Reporting [Abstract]
 
Number of operating segments
2 
Segment and Other Supplemental Information - Regional Segment Revenue and Gross Margin for Company (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Segment Reporting Information
 
 
 
 
Segment revenue
$ 513 
$ 599 
$ 1,004 
$ 1,144 
Segment gross profit
265 
332 
516 
626 
Stock-based compensation costs
(3)
(4)
(7)
(8)
Amortization of acquisition-related intangible assets costs
0 
0 
0 
(2)
Acquisition, integration, reorganization and transformation-related costs
(2)
(2)
(4)
(5)
Amortization of capitalized software costs
(18)
(16)
(39)
(32)
Selling, general and administrative expenses
165 
172 
320 
346 
Research and development expenses
78 
51 
148 
108 
Impairment of goodwill, acquired intangibles and other assets
0 
0 
0 
80 
(Loss) income from operations
(1)
87 
(2)
45 
Americas Data and Analytics
 
 
 
 
Segment Reporting Information
 
 
 
 
Segment revenue
271 
325 
538 
620 
Segment gross profit
158 
194 
309 
369 
International Data and Analytics
 
 
 
 
Segment Reporting Information
 
 
 
 
Segment revenue
242 
239 
466 
455 
Segment gross profit
107 
121 
207 
223 
Total Data and Analytics
 
 
 
 
Segment Reporting Information
 
 
 
 
Segment revenue
513 
564 
1,004 
1,075 
Segment gross profit
265 
315 
516 
592 
Marketing Applications
 
 
 
 
Segment Reporting Information
 
 
 
 
Segment revenue
0 
35 
0 
69 
Segment gross profit
0 
17 
0 
34 
Impairment of goodwill, acquired intangibles and other assets
 
 
$ 6 
$ 80 
Segment and Other Supplemental Information - Revenue by Product and Services (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Segment Reporting [Abstract]
 
 
 
 
Product - rights to upgrades, subscription and cloud
$ 75 
$ 69 
$ 151 
$ 139 
Maintenance - software and hardware
182 
174 
358 
342 
Total recurring revenue
257 
243 
509 
481 
Product - perpetual licenses and hardware
91 
154 
181 
274 
Consulting services
165 
167 
314 
320 
Marketing applications
0 
35 
0 
69 
Total revenue
$ 513 
$ 599 
$ 1,004 
$ 1,144 
Reorganization and Business Transformation (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Restructuring Cost and Reserve [Line Items]
 
 
 
 
Asset write-downs
$ 0 
$ 0 
$ 0 
$ 80 
Marketing Applications
 
 
 
 
Restructuring Cost and Reserve [Line Items]
 
 
 
 
Employee severance and other employee related cost
 
 
2 
10 
Asset write-downs
 
 
6 
80 
Professional services, legal and other transformation costs
 
 
18 
19 
Total reorganization and business transformation cost
 
 
26 
109 
Other Restructuring |
Marketing Applications
 
 
 
 
Restructuring Cost and Reserve [Line Items]
 
 
 
 
Total reorganization and business transformation cost
 
 
8 
 
Employee Severance |
Marketing Applications
 
 
 
 
Restructuring Cost and Reserve [Line Items]
 
 
 
 
Payments for restructuring
 
 
$ 1 
$ 16 
Subsequent Events (Details) (Subsequent Event, USD $)
In Millions, except Share data, unless otherwise specified
1 Months Ended
Aug. 3, 2017
Subsequent Event
 
Subsequent Event [Line Items]
 
Shares repurchased (in shares)
1,279,206 
Shares repurchased average price per share (in dollars per share)
$ 32.03 
Shares repurchased
$ 41 
Share repurchase authorization remaining
$ 341