NCR
Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549________________________FORM 10-K________________________þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018Commission File Number 001-00395 ________________________NCR CORPORATION(Exact name of registrant as specified in its charter)________________________ Maryland 31-0387920(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)864 Spring Street NWAtlanta, GA 30308(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (937) 445-5000Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, par value $0.01 per share New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: None________________________Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes þ No oIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, oran emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growthcompany" in Rule 12b-2 of the Exchange Act.Large accelerated filerþ Accelerated fileroNon-accelerated filero Smaller reporting companyo Emerging growth companyoIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying withany new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þThe aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2018, was approximately $3.5 billion. As ofFebruary 15, 2019, there were approximately 118.9 million shares of common stock issued and outstanding. Table of ContentsDOCUMENTS INCORPORATED BY REFERENCEPart III:Portions of the Registrant’s Definitive Proxy Statement for its Annual Meeting of Stockholders to be filed pursuant to Regulation 14Awithin 120 days after the Registrant’s fiscal year end of December 31, 2018 are incorporated by reference into Part III of this Report.TABLE OF CONTENTS ItemDescriptionPage Forward-Looking Statementsi PART I 1.Business11A.Risk Factors81B.Unresolved Staff Comments212.Properties213.Legal Proceedings214.Mine Safety Disclosures21 PART II 5.Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities236.Selected Financial Data257.Management's Discussion and Analysis of Financial Condition and Results of Operations267A.Quantitative and Qualitative Disclosures about Market Risk468.Financial Statements and Supplementary Data47 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure1219A.Controls and Procedures1219B.Other Information122 PART III 10.Directors, Executive Officers and Corporate Governance12211.Executive Compensation12212.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters12213.Certain Relationships and Related Transactions and Director Independence12214.Principal Accountant Fees and Services122 PART IV 15.Exhibits and Financial Statement Schedule12316.Form 10-K Summary131This Report contains trademarks, service marks and registered marks of NCR Corporation and its subsidiaries, and of other companies, as indicated. Unlessotherwise indicated, the terms “NCR,” the “Company,” “we,” “us,” and “our” refer to NCR Corporation and its subsidiaries.Table of ContentsFORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements use words such as “expect,” “anticipate,” “outlook,” “intend,” “plan,” “believe,” “will,” “should,” “would,” “could,” “provisional” andwords of similar meaning. Statements that describe or relate to our plans, goals, intentions, strategies or financial outlook, and statements that do not relate tohistorical or current fact, are examples of forward-looking statements. The forward-looking statements in this Annual Report include statements regardingNCR’s revenue growth expectations and investments in strategic growth platforms; NCR’s expected shift to recurring revenue streams; NCR’s spendoptimization program in 2019 and its impact on operating margins; NCR’s capital allocations for 2019 including internal investments in strategic growthplatforms; NCR’s expectations regarding acquisition activity; NCR’s expected areas of focus to drive growth and create long-term stockholder value; NCR’splans to diversify revenue and streamline costs; and expectations regarding ATM production rates and ATM revenues. Forward-looking statements are basedon our current beliefs, expectations and assumptions, which may not prove to be accurate, and involve a number of known and unknown risks anduncertainties, many of which are out of our control. Forward-looking statement are not guarantees of future performance, and there are a number of importantfactors that could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements, including thosefactors listed in Item 1A “Risk Factors” and Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations," of this AnnualReport on Form 10-K, including factors relating to: the strength of demand and pricing for ATMs and other financial services hardware and its effect on theresults of our businesses and reportable segments; domestic and global economic and credit conditions including, in particular, those resulting from theimposition or threat of protectionist trade policies or import or export tariffs, global and regional market conditions and spending trends in the financialservices and retail industries, new comprehensive U.S. tax legislation, modified or new global or regional trade agreements, the determination by the UnitedKingdom to exit the European Union, uncertainty over further potential changes in Eurozone participation and fluctuations in oil and commodity prices; thetransformation of our business and shift to recurring revenue; our ability to improve execution in our sales and services organizations; our ability tosuccessfully introduce new solutions and compete in the technology industry; cybersecurity risks and compliance with data privacy and protectionrequirements; the possibility of disruptions in or problems with our data center hosting facilities; defects or errors in our products; the impact of ourindebtedness and its terms on our financial and operating activities; the historical seasonality of our sales; tax rates and U.S. tax legislation; foreign currencyfluctuations; the success of our restructuring plans and cost reduction initiatives, including those in our Hardware segment; manufacturing disruptions,including those caused by or related to outsourced manufacturing; the availability and success of acquisitions, divestitures and alliances; our pensionstrategy and underfunded pension obligations; reliance on third party suppliers; the impact of the terms of our strategic relationship with Blackstone and ourSeries A Convertible Preferred Stock; our multinational operations, including in new and emerging markets; collectability difficulties in subcontractingrelationships in certain geographical markets; development and protection of intellectual property; workforce turnover and the ability to attract and retainskilled employees; uncertainties or delays associated with the transition of key business leaders; environmental exposures from our historical and ongoingmanufacturing activities; and uncertainties with regard to regulations, lawsuits, claims, and other matters across various jurisdictions. Any forward-lookingstatement speaks only as of the date on which it is made. We do not undertake any obligation to publicly update or revise any forward-looking statements,whether as a result of new information, future events or otherwise.iTable of ContentsPART IItem 1. BUSINESSGeneralBusiness and Industries ServedNCR is a leading software- and services-led enterprise provider in the financial, retail, hospitality and telecommunications and technology industries, withbusiness in 180 countries. NCR offers a range of solutions that help businesses of all sizes compete in an ever-evolving landscape of physical and digitalconsumers by providing software, advisory and consulting services, hardware, support and managed services that run businesses end to end. Our portfolioincludes digital first offerings for banking, restaurants and retailers as well as payments, multi-vendor connected device services, automated teller machines(ATMs), point of sale (POS) terminals and self-service technologies. We also resell third-party networking products and provide related service offerings inthe telecommunications and technology sectors. Our solutions create value for our customers by increasing productivity and allowing them to addressconsumer demand for convenience, value and individual service across different commerce channels using a digital first approach.Company HistoryNCR was originally incorporated in 1884 and was a publicly traded company on the New York Stock Exchange prior to its merger with a wholly-ownedsubsidiary of AT&T Corp. (AT&T) on September 19, 1991. On December 31, 1996, AT&T distributed all of its interest in NCR to its stockholders. NCRcommon stock is listed on the New York Stock Exchange and trades under the symbol “NCR”.Operating SegmentsWe categorize our operations into three reportable segments: Software, Services and Hardware.The information required by Item 1 with respect to our reportable segments and financial information regarding our geographic areas and those reportablesegments can be found in Item 7 of Part II of this Report under “Revenue and Operating Income by Segment” as well as in Item 8 of Part II of this Report aspart of Note 13, “Segment Information and Concentrations” of the Notes to Consolidated Financial Statements and in Item 1A of this Report under"Multinational Operations," and is incorporated herein by reference.As of January 1, 2019, NCR began management on an industry basis, changing from the previous model of management on a solution basis. This change toour segment reporting for fiscal year 2019 and future periods is further described in Note 1, "Description of Business and Significant Accounting Policies" ofthe Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.Products and ServicesWe are an enterprise provider selling a portfolio of digital first software, services and hardware. Our offerings fall into the following categories:SoftwareOur software offerings include industry-focused software platforms such as our multi-vendor ATM software application suite (providing ATM managementsystems) for financial services, frictionless commerce, Outdoor Payment Terminals with an Interactive Consumer experience (OPTIC) and Aloha POS Platformand end-to-end payment processing solutions for the retail and hospitality industries, and NCR Silver, a cloud-based POS system for small businesses. Wealso provide a portfolio of other industry-oriented software applications, which include cash management software, video banking software, fraud and lossprevention applications, check and document imaging, remote-deposit capture, and customer-facing mobile and digital banking applications, such as web-enablement and bill payment (including mobile bill payment), for the financial industry; and secure electronic and mobile payment solutions, softwareapplications for quick-service restaurants, table-service restaurants, convenience and fuel retailers and other businesses, and back-office inventory and storeand restaurant management applications, including cloud-based loss prevention video technology and services, for the retail and hospitality industries, aswell as cross-industry human capital management software applications. We also provide in-depth industry and solution based consulting and professionalservices focused on solution implementation, integration, customization and optimization, and cloud hosting services. Our software platforms andapplications, which are delivered on software as a service (SaaS), enterprise license and other bases, are designed to work seamlessly together with ourhardware products or as stand-alone solutions. Our software solutions deliver a consistent and rich consumer experience across channels, while enablingbusiness management to optimize operations and perform advanced data analytics.ServicesDigital Connected Services are an essential and integrated component of NCR’s complete solution offerings to help companies increase availability andsecurity of consumer touchpoints, improve operational efficiency and enhance the customer experience. We provide1Table of Contentsglobal end-to-end services from assessment and preparation, to staging, installation and implementation, and multivendor maintenance and support. We alsoprovide systems management and complete managed services for our product offerings. We build remote and predictive diagnostics into our maintenanceand managed services offerings, which are designed to predict and address information technology and other issues quickly before they happen. In addition,we provide installation, maintenance and managed services for third party networking products to a broad base of customers in the telecommunications andtechnology sectors.HardwareWe provide financial institutions, retailers and independent solution providers with a suite of financial-oriented self-service hardware products. Our financialindustry hardware products include multi-function ATMs, interactive teller machines (ITMs), thin-client ATMs, cash dispensers, cash recycling ATMs andhardware for check and image processing. Our financial services hardware products are designed to quickly, reliably and securely process consumer bankingtransactions while providing low cost of ownership, efficiency and a modernized consumer experience. We also provide retail- and hospitality-orientedhardware products such as point of sale terminals, self-checkout kiosks, order and payment kiosks, bar code scanners, printers and peripherals to retailers,restaurants, food service companies and entertainment and sports venues worldwide. Our retail and hospitality hardware products are designed to improveoperational efficiency, increase customer satisfaction, streamline order and transaction processing and reduce operating costs. We also provide other self-service kiosks, such as self-check in/out kiosk solutions for airlines, hotels and casinos that allow guests to check in/out without assistance, wayfindingsolutions (locating products or navigating through large, complex buildings and campuses), digital signage, bill payment kiosks and gift registries. Thesesolutions create pleasant and convenient experiences for consumers and enable our customers to reduce costs and operate in a digital first environment. Inaddition, we resell third party networking products to a broad base of customers in the telecommunications and technology sectors.Target Markets and Distribution ChannelsNCR provides its software, services and hardware solutions to customers of varying sizes in the financial, retail, hospitality and telecommunications andtechnology industries.Our financial solutions primarily serve the financial industry with particular focus on retail banking, which includes traditional providers of consumerbanking and financial services. These solutions also serve the retail markets through convenience banking products for retailers designed to complementtheir core businesses. Our financial solutions customers are located throughout the world in both developed and emerging markets. We have historically soldmost of our financial solutions through a direct sales channel, although a portion of revenue is derived through distributors and value-added resellers.We provide POS and self-service kiosk solutions to the retail and hospitality industries. Retail customers include department stores, specialty retailers, massmerchandisers, catalog stores, supermarkets, hypermarkets, grocery stores, drug stores, wholesalers, convenience stores, petroleum outlets and smallbusinesses. Hospitality customers include retailers, restaurants, food service providers and sports and entertainment venues (including stadiums, arenas andcinemas) and small businesses. We also provide our self-service solutions to customers in the travel industry, including airlines, airports, car rentalcompanies, and hotel/lodging operators. POS and self-service kiosk solutions are sold through a direct sales force and through relationships with value-addedresellers, distributors, dealers and other indirect sales channels.We provide service and support for our products and solutions through services contracts with our customers. We have also established managed servicescontracts with key customers and continue to pursue additional managed services relationships. Longer term managed services arrangements can helpimprove the efficiency and performance of a customer’s business, and also increase the strategic and financial importance of its relationship with NCR. Wealso service competing technologies—for example, ToshibaTec retail technologies and Diebold Nixdorf ATMs. The primary sales channel for our services isour direct sales teams, which exist across all geographies where we operate around the world. Our services professionals provide these services directly to endcustomers.CompetitionWe face a diverse group of competitors in the industries in which we sell our digital first portfolio of software, services and hardware. The primarycompetitive factors can vary by geographic area where we operate around the world, but typically include: value and quality of the solutions or products;total cost of ownership; industry knowledge of the vendor; the vendor’s ability to provide and support a total end-to-end solution; the vendor’s ability tointegrate new and existing systems; fit of the vendor’s strategic vision with the customer’s strategic direction; and quality of the vendor’s consulting,deployment and support services.In the financial industry, we face a variety of competitors offering financial services and software including, among others, Fidelity National InformationServices Inc., Fiserv, Inc., First Data Corporation, Q2 Holdings, Inc., Kony Inc., Alkami Technology, Inc. and ACI Worldwide, Inc. In addition, we facecompetition from ATM manufacturers including Diebold Nixdorf, Incorporated and Nautilus2Table of ContentsHyosung, and ATM network operators including Cardtronics plc and Euronet Worldwide, Inc., as well as many other regional firms across all geographieswhere we operate around the world.In the retail and hospitality industries we face a variety of competitors across all geographies where we operate around the world. Our competitors vary bymarket segment, product, service offering and geographic area, and include ToshibaTec Corporation, Diebold Nixdorf, Incorporated, Fujitsu Limited, HP Inc.,JDA Software Group, Inc., Oracle Corporation, SAP SE, PAR Technology Corporation and Datalogic S.p.A., among others. In addition, we face newcompetitors including Toast, Inc., Revel Systems, Inc., Square, Inc., Upserve, Inc. and First Data Corporation, among others.We face competition for services from other technology and service providers, as well as from independent service operators, in all geographies where weoperate around the world. The primary services competitors are the companies identified above, as global technology providers continue to focus on servicesas a core business strategy. We also compete with a range of regional and local independent service operators across our various geographies.Research and DevelopmentWe remain focused on designing and developing solutions that anticipate our customers’ changing technological needs as well as consumer preferences. Ourexpenses for research and development were $252 million in 2018, $241 million in 2017, and $225 million in 2016. We anticipate that we will continue tohave significant research and development expenditures in the future in order to provide a continuing flow of innovative, high-quality products and servicesand to help maintain and enhance our competitive position. Information regarding the accounting and costs included in research and development activitiesis included in Note 1, “Basis of Presentation and Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Item 8 of Part II ofthis Report under "Research and Development Costs," and is incorporated herein by reference.Patents and TrademarksNCR seeks patent protection for its innovations, including improvements, associated with its software, hardware, services, solutions, and developments,where such protection is likely to provide value to NCR. NCR owns approximately 1,275 patents in the U.S. and numerous other patents in foreign countries.The foreign patents are generally counterparts of NCR’s U.S. patents. Many of the patents owned by NCR are licensed to others, and NCR is licensed undercertain patents owned by others. NCR looks to monetize its patents to drive additional value from its patent portfolio. NCR also has numerous patentapplications pending in the U.S. and in foreign countries. NCR’s portfolio of patents and patent applications is of significant value to NCR.NCR has registered certain trademarks and service marks in the U.S. and in a number of foreign countries. NCR considers the “NCR” and NCR logo marksand many of its other trademarks and service marks to have significant value to NCR.SeasonalityOur sales are historically seasonal, with lower revenue in the first quarter and higher revenue in the fourth quarter of each year. Such seasonality also causesour working capital cash flow requirements to vary from quarter to quarter depending on variability in the volume, timing and mix of sales. In addition,revenue in the third month of each quarter is typically higher than in the first and second months. Information regarding seasonality and its potential impacton our business is included in Item 1A of this Report under the caption, “Operating Results Fluctuations,” and is incorporated herein by reference.Manufacturing and Raw MaterialsIn most cases, there are a number of vendors providing the services and producing the parts and components that we utilize. However, there are some servicesand components that are purchased from single sources due to price, quality, technology or other reasons. For example, we depend on computer chips andmicroprocessors from Intel and operating systems from Microsoft. Certain parts and components used in the manufacturing of our ATMs and the delivery ofmany of our retail solutions are also supplied by single sources. In addition, there are a number of key suppliers for our businesses who provide us withcritical products for our solutions.As of December 31, 2018, NCR leverages a network of internal and third party partner facilities across the globe to manufacture its products:•ATMs are manufactured in NCR facilities located in Columbus, Georgia, USA; Manaus, Brazil; Budapest, Hungary; and Chennai, India and partnerfacilities located in Chihuahua, Mexico.•Self-checkout solutions are manufactured in NCR facilities located in Budapest, Hungary and partner facilities located in Chihuahua, Mexico andXiamen, China.3Table of Contents•Kiosk solutions are manufactured in NCR facilities located in Budapest, Hungary; Manaus, Brazil; and Chennai, India and partner facilities inBuford, Georgia, USA.•POS/Display terminals are manufactured in NCR facilities located in Budapest, Hungary and partner facilities located in Guadalajara, Mexico andXiamen, China.Additionally, NCR outsources the manufacturing of certain printers, bar code scanners and various other retail peripherals such as keyboards and cashdrawers.Further information regarding the potential impact of these relationships on our business operations, and regarding sources and availability of raw materials,is also included in Item 1A of this Report under the caption “Reliance on Third Parties,” and is incorporated herein by reference.Product BacklogOur backlog was approximately $1.44 billion and $1.37 billion at December 31, 2018 and 2017, respectively. The backlog includes orders confirmed forproducts scheduled to be shipped as well as certain professional and transaction services to be provided. Although we believe that the orders included in thebacklog are firm, some orders may be canceled by the customer without penalty. Even when penalties for cancellation are provided for in a customer contract,we may elect to permit cancellation of orders without penalty where management believes it is in our best interests to do so. Further, we have a significantportion of revenue derived from our growing service-based business (including our cloud and hosted businesses), for which backlog information has nothistorically been measured. Therefore, we do not believe that our backlog, as of any particular date, is necessarily indicative of revenue for any future period.EmployeesOn December 31, 2018, NCR had approximately 34,000 employees and contractors worldwide.Environmental MattersCompliance with federal, state, and local environmental regulations relating to the protection of the environment could have a material adverse impact onour capital expenditures, cash flow, financial condition, earnings or competitive position. While NCR does not currently expect to incur material capitalexpenditures related to compliance with such laws and regulations, and while we believe the amounts provided in our Consolidated Financial Statements areadequate in light of the probable and estimable liabilities in this area, there can be no assurances that environmental matters will not lead to a materialadverse impact on our capital expenditures, earnings or competitive position. A detailed discussion of the current estimated impacts of compliance issuesrelating to environmental regulations, particularly the Fox River and Kalamazoo River matters, is reported in Item 8 of Part II of this Report as part of Note10, "Commitments and Contingencies" of the Notes to Consolidated Financial Statements and is incorporated herein by reference. Further informationregarding the potential impact of compliance with federal, state and local environmental regulations is also included in Item 1A of this Report under thecaption “Environmental,” and is incorporated herein by reference.4Table of ContentsExecutive Officers of the RegistrantThe Executive Officers of NCR (as of February 28, 2019) are as follows:Name Age Position and Offices HeldFrank R. Martire 71 Executive ChairmanMichael D. Hayford 59 President and Chief Executive OfficerOwen J. Sullivan 61 Chief Operating OfficerAndre J. Fernandez 50 Executive Vice President and Chief Financial OfficerJames M. Bedore 59 Executive Vice President, General Counsel and SecretaryDebra Bronder 61 Senior Vice President and Chief Human Resources OfficerAdrian Button 46 Senior Vice President, Hardware Product OperationsDaniel W. Campbell 58 Executive Vice President, NCR Global SalesJ. Robert Ciminera 61 Executive Vice President, Global Customer ServicesFrank D'Angelo 73 Executive Vice President and President, NCR BankingPaul Langenbahn 50 Executive Vice President and President, NCR CommerceSet forth below is a description of the background of each of the Executive Officers.Frank R. Martire is Executive Chairman of NCR, a position he has held since May 2018. Mr. Martire most recently served as Non-Executive Chairman ofFidelity National Information Services Inc. (FIS). From 2015 to 2017, he served as Executive Chairman of FIS, and from 2009 to 2015 was President andChief Executive Officer of FIS after its acquisition of Metavante Technologies, Inc. (Metavante). Mr. Martire previously served as Chief Executive Officer ofMetavante from 2003 to 2009 and President from 2003 to 2008. Prior to that, he was President and Chief Operating Officer of Call Solutions Inc. from 2001to 2003, and President and Chief Operating Officer, Financial Institution Systems and Services Group, of Fiserv, Inc., from 1991 to 2001. Mr. Martire serves asChairman of the Board of Directors of J. Alexander's Holdings, Inc. He is also Chairman of the Board of Sacred Heart University, a Board member of theBaptist Health System, Inc., Jacksonville University and Cannae Holdings, Inc., and a member of the Leadership Foundation of the Mayo Clinic. Mr. Martireholds a Master's degree in Finance from the University of New Haven, Connecticut, and a Bachelor of Science degree in Economics from Sacred HeartUniversity. Mr. Martire became a director of NCR on May 31, 2018.Michael D. Hayford is President and Chief Executive Officer of NCR, a position he has held since April 2018. Mr. Hayford was most recently FoundingPartner of Motive Partners, an investment firm focused on technology-enabled companies that power the financial services industry. From 2009 until hisretirement in 2013, Mr. Hayford served as the Executive Vice President and Chief Financial Officer at Fidelity National Information Services Inc. (FIS), afinancial services technology company. Prior to joining FIS, Mr. Hayford was with Metavante Technologies, Inc. (Metavante), a bank technology processingcompany, from 1992 to 2009. He served as the Chief Operating Officer at Metavante from 2006 to 2009 and as the President from 2008 to 2009. From 2007to 2009, Mr. Hayford also served on the Board of Directors of Metavante. Mr. Hayford is a member of the Board of Directors and the Audit Committee ofEndurance International Group Holdings, Inc. and was a member of the Board of Directors and Chairman of the Audit Committee of West Bend MutualInsurance Company from 2007 to 2018. Mr. Hayford became a director of NCR on April 30, 2018.Owen J. Sullivan is Chief Operating Officer of NCR, a position he has held since July 2018. Mr. Sullivan was most recently an independent consultant,providing strategic planning, consulting and executive mentoring, and working with and investing alongside private equity firms and other investor groups.Prior to that, Mr. Sullivan was with ManpowerGroup, a workforce and talent management solutions company, from 2003 to 2013. At ManpowerGroup, heserved as President of the Specialty Brands and Experis units from 2010 to 2013, and he served as the Chief Executive Officer of the Right Management andJefferson Wells International, Inc. subsidiaries from 2004 to 2013 and from 2003 to 2010, respectively. Before joining ManpowerGroup, Mr. Sullivan waswith Sullivan Advisors, LLC, a provider of strategic planning, consulting and executive mentoring for small to medium-sized businesses, from 2001 to 2003.Prior to that, Mr. Sullivan was with Metavante Technologies, Inc., a bank technology processing company, from 1993 to 2001, where he served in variousmanagement roles including as the President of Metavante’s Financial Services Group and Enterprise Solutions Group. Mr. Sullivan is a member of the Boardof Directors of Johnson Financial Group and serves as a member of its Wealth Management, Risk and Succession Committees. Mr. Sullivan is also a memberof the Board of Directors of Computer Task Group, Incorporated and serves as a member of its Compensation and Audit Committees. In addition, Mr. Sullivanis a member of the Board of Directors of Marquette University, and serves as Chairman of the Board and a member of its Executive and Nominating andGovernance Committees.Andre J. Fernandez is Executive Vice President and Chief Financial Officer of NCR, a position he has held since August 2018. Mr. Fernandez was mostrecently with CBS Radio Inc. (CBS Radio), a company which, prior to its merger with Entercom Communications5Table of ContentsCorp., specialized in radio broadcasting along with an integrated suite of digital properties. At CBS Radio, Mr. Fernandez served as President and CEO from2016 to 2017, and as President from 2015 to 2016. Prior to that, Mr. Fernandez was with Journal Communications Inc. (Journal Communications), a publicly-traded diversified media company with operations including television, radio, digital and publishing, from 2008 to 2015. Mr. Fernandez served as Presidentand Chief Operating Officer at Journal Communications from 2014 to 2015, as President and Chief Financial Officer from 2012 to 2014 and as ExecutiveVice President, Finance & Strategy and Chief Financial Officer from 2008 to 2012. Mr. Fernandez is Vice Chairman of the Board of Directors of FroedtertHealth and serves as Chairman of its Finance Committee and as a member of its Leadership Development & Compensation and Strategic PartnershipCommittees. Mr. Fernandez was also a previous member of the Board of Directors of Buffalo Wild Wings Inc. and served as Chairman of its GovernanceCommittee and as a member of its Audit Committee.James M. Bedore is Executive Vice President, General Counsel and Secretary of NCR, a position he has held since November 2018. Prior to that, Mr. Bedoreworked since 1985 as an attorney in private practice with Reinhart Boerner Van Deuren s.c. advising clients on a variety of corporate matters includingmergers and acquisitions, public securities offerings on behalf of issuers and underwriters, private placements, venture capital, bank and other financingarrangements, securities compliance, reporting and disclosure obligations, corporate governance, shareholder rights and executive compensation. Mr. Bedoreholds a Bachelor’s of Business Administration degree from the University of Wisconsin and a Juris Doctor degree from Georgetown University Law Center.Debra Bronder is Senior Vice President and Chief Human Resources Officer for NCR Corporation, a position she has held since July 2018. Most recently, sheled Human Resources for Cardtronics, a global leader in ATM placement and transaction processing, from 2010 to 2017. Prior to that, Ms. Bronder was theExecutive Vice President of Human Resources for Metavante Technologies, Inc. (Metavante), a bank technology processing company, from 1997 to 2009,and with Fidelity National Information Services, Inc. (FIS) from 2009 to 2010, leading the human resources activities for Metavante’s merger with FIS in2009. Ms. Bronder holds a bachelor degree from the University of Wisconsin - Whitewater and has received her Senior Professional in Human Resources(SPHR) certification.Adrian Button became NCR’s Senior Vice President, Hardware Product Operations, in February 2018, and from July 2017, when he joined NCR, to February2018, Mr. Button acted as Senior Vice President Global Operations. Before he joined NCR, Mr. Button spent 19 years in various management roles withdifferent divisions of the General Electric Company (GE). Most recently, Mr. Button served from January 2016 to July 2017 as Vice President, Supply Chain,for GE Industrial Solutions, with oversight of the division’s supply chain and service operations across 41 global factories. Prior to that, Mr. Button served asVice President, Turbomachinery, for GE’s Oil & Gas division from January 2014 to December 2016, as General Manager of Global Operations Leader for GE’sOil & Gas division from March 2011 to December 2013, and in other operations and supply chain roles with GE Aviation. Mr. Button holds a bachelordegree in engineering from the University of Glamorgan, Wales, United Kingdom.Daniel W. Campbell became NCR’s Executive Vice President, NCR Global Sales, in February 2018. Previously, from July 2015 to February 2018, Mr.Campbell served as a Senior Vice President and General Manager at Virtustream, Inc., which he joined after it was acquired by EMC Corporation (EMC) inJuly 2015. With Virtustream, Mr. Campbell led the global sales integration with EMC’s sales organization, built a global strategic alliances and channelsorganization, and co-launched the Virtustream Storage Cloud, an enterprise-class cloud storage platform. Before joining Virtustream, from April 1998through July 2015, Mr. Campbell served in a series of sales and management roles of increasing responsibility at EMC, including most recently as SeniorVice President, Global Specialty Sales from October 2013 to July 2015, and Chief Operating Officer and Senior Vice President, World Wide Sales, BackupRecovery Systems Division from January 2011 to December 2013. Before joining EMC, Mr. Campbell served in various sales and management roles withSperry, Unisys, Motorola and Wang.J. Robert Ciminera became NCR’s Executive Vice President, Global Customer Services in January 2018. Previously, Mr. Ciminera served as NCR’s ExecutiveVice President, Hardware Product Operations, from January 2017 to January 2018, where he was responsible for NCR’s hardware product portfolio. Beforethat, Mr. Ciminera served as NCR’s Senior Vice President, Hardware Solutions and Global Operations from October 2015 to December 2016, as NCR’s SeniorVice President, Integrated Supply Chain Operations from May 2014 to October 2015, and as NCR’s Vice President, Strategic Sourcing and Chief ProcurementOfficer from February 2009, when he joined NCR, through May 2014. Before joining NCR, Mr. Ciminera served in various sourcing, supply chain andproduct management roles with Avaya, Motorola, Symbol Technologies, Lucent and AT&T.Frank D’Angelo is Executive Vice President and President, NCR Banking, a position he has held since October 2018. Mr. D’Angelo’s career spans 35 years inthe financial services, digital banking and payments industries. He currently serves as Chairman of the Board of Evertec Inc., a transaction and paymentsprocessing company in Latin America and the Caribbean and is also an operating partner in Hillpath Capital, a capital investment firm. He is a past Chairmanof the Electronic Funds Transfer Association and served on the Payments Advisor Counsel of the Federal Reserve Bank of Philadelphia. Previously, he wasPresident of Monitise Americas, Inc., a provider of mobile banking, payments and commerce networks. Prior to that post, Mr. D’Angelo was Executive VicePresident of the Payments Solutions Group at Fidelity National Information Services Inc. (FIS) and head of Payments and Digital Banking at MetavanteTechnologies, Inc. He also held several executive positions over a 20-year span at Diebold, including CEO of Diebold Mexico, Vice6Table of ContentsPresident of the Diebold Service organization, as well as Vice President of software engineering and production management. He is a United States Air ForceVeteran.Paul Langenbahn became NCR’s Executive Vice President, Global Software, in January 2017. From April 2014 to December 2016, Mr. Langenbahn served asSenior Vice President and President, Hospitality, and before that, following NCR’s acquisition of Radiant Systems, Inc. in 2011, he served as Vice President,Global Sales, Marketing and Services for NCR’s Hospitality division. Prior to joining NCR in 2011, Mr. Langenbahn was President of Radiant Systems’Hospitality division, and he held various other leadership roles in sales, professional services, solution management and general management at RadiantSystems, where he was instrumental in the company’s development and growth.Available InformationNCR makes available through its website at http://investor.ncr.com, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,definitive proxy statements on Schedule 14A and Current Reports on Form 8-K, and all amendments to such reports and schedules, as soon as reasonablypracticable after these reports are electronically filed or furnished to the U.S. Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d)of the Securities Exchange Act of 1934 (the Exchange Act). The SEC website (www.sec.gov) contains the reports, proxy statements and informationstatements, and other information regarding issuers that file or furnish electronically with the SEC. NCR will furnish, without charge to a security holder uponwritten request, the Notice of Meeting and Proxy Statement for the 2019 Annual Meeting of Stockholders (the 2019 Proxy Statement), portions of which areincorporated herein by reference. NCR also will furnish its Code of Conduct at no cost and any other exhibit at cost. Document requests are available bycalling or writing to:NCR—Investor Relations864 Spring Street NWAtlanta, GA 30308Phone: 800-255-5627E-Mail: investor.relations@ncr.comWebsite: http://investor.ncr.comNCR's website, www.ncr.com, contains a significant amount of information about NCR, including financial and other information for investors. NCRencourages investors to visit its website regularly, as information may be updated and new information may be posted at any time. The contents of NCR'swebsite are not incorporated by reference into this Form 10-K and shall not be deemed “filed” under the Exchange Act.7Table of ContentsItem 1A. RISK FACTORSThe risks and uncertainties described below could materially and adversely affect our business, financial condition, results of operations, could causeactual results to differ materially from our expectations and projections, and could cause the market value of our stock to decline. You should considerthese risk factors when reading the rest of this Annual Report on Form 10-K, including “Management's Discussion and Analysis of Financial Condition andResults of Operations” and our financial statements and related notes included elsewhere in this document. These risk factors may not include all of theimportant factors that could affect our business or our industry or that could cause our future financial results to differ materially from historic or expectedresults or cause the market price of our common stock to fluctuate or decline.Economic Pressures. Our business may be negatively affected by domestic and global economic and credit conditions. Our business is sensitive to thestrength of domestic and global economic and credit conditions, particularly as they affect, either directly or indirectly, the financial, retail and hospitalitysectors of the economy. Economic and credit conditions are influenced by a number of factors, including political conditions, consumer confidence,unemployment levels, interest rates, tax rates, commodity prices and government actions to stimulate economic growth. The imposition or threat ofprotectionist trade policies or import or export tariffs, global and regional market conditions and spending trends in the financial and retail industries, newcomprehensive U.S. tax legislation, modified or new global or regional trade agreements, the determination by the United Kingdom to exit the EuropeanUnion (EU) and the execution of the same, uncertainty over further potential changes in Eurozone participation and fluctuations in oil and commodity prices,among other things, have created a challenging and unpredictable environment in which to market the products and services of our various businesses acrossour different geographies and industries. A negative or unpredictable economic climate could create uncertainty or financial pressures that impact the abilityor willingness of our customers to make capital expenditures, thereby affecting their decision to purchase or roll out our products or services or, especiallywith respect to smaller customers, to pay accounts receivable owed to NCR. Additionally, if customers respond to a negative or unpredictable economicclimate by consolidation, it could reduce our base of potential customers. Negative or unpredictable global economic conditions also may have an adverseeffect on our customers’ ability to obtain financing for the purchase of our products and services from third party financing companies or on the number ofpayment processing transactions related to our newly acquired JetPay Corporation business, which could negatively impact our operating results.Business Model. If we are unsuccessful in transforming our business model, our operating results could be negatively impacted. In recent years, we haveshifted our business model to become a software and services led enterprise provider, along with cloud and mobile solutions, to help our customers deliver arich, integrated and personalized experience to consumers across commerce channels in a digital first environment. We expect to increase our capitalexpenditures and allocate these expenditures primarily to our strategic growth platforms. Our success depends on the return on investment generated from thecapital expenditures and our ability to continue to accelerate our shift to recurring software and services revenue streams we identify as strategic growthplatforms, while improving the Company's cost structure. Our ability to grow these businesses depends on a number of different factors including, amongothers, developing, deploying and supporting the next generation of digital first software and cloud solutions for the industries we serve; market acceptanceof our new and existing software and cloud solutions; successful entry into the payment processing market; enabling our sales force to use a consultativeselling model that better incorporates our comprehensive and new solutions; transforming our services performance, capabilities and coverage to improveefficiency, incorporate remote diagnostic and other technologies and align with and support our new solutions; managing professional services and othercosts associated with large solution roll-outs; and integrating, developing and supporting software gained through acquisitions. In addition, development ofthese businesses may require increased capital and research and development expenses and resource allocation, and while we will seek to have the right levelof investment and the right level of resources focused on these opportunities, these costs may reduce our gross margins and the return on these investmentsmay be lower, or may develop more slowly, than we expect. In addition, we continue to pursue initiatives to expand our customer base by increasing our useof indirect sales channels, and by developing, marketing and selling solutions aimed at the small- to medium-business market. It is not yet certain whetherthese initiatives will yield the anticipated benefits, or whether our solutions will be compelling and attractive to small- and medium-sized businesses. If weare not successful in growing our higher-margin software and services businesses and expanding our customer base at the rate that we anticipate, we may notmeet our growth and gross margin projections or expectations, and operating results could be negatively impacted.Introduction of New Solutions. If we do not swiftly and successfully develop and introduce new solutions in the competitive, rapidly changing environmentin which we do business, our business results will be impacted. The development process for our solutions requires high levels of innovation from ourproduct development teams and suppliers of the components embedded or incorporated in our solutions. We expect to increase our capital expenditures andallocate these expenditures primarily to our strategic growth platforms. In addition, certain of our solutions, including our cloud solutions, may require us tobuild, lease or expand, and maintain, infrastructure (such as hosting centers) to support them. The development process can be lengthy and costly, andrequires us to commit a significant amount of resources to bring our business solutions to market. In addition, our success may be impacted by safety andsecurity technology and industry standards, such as EMV chip technology. We may not be able to anticipate our customers’ needs and technological andindustry trends accurately, or to complete development of new solutions efficiently. In addition, contract terms, market conditions or8Table of Contentscustomer preferences may affect our ability to limit, sunset or end-of-life our older products in a timely or cost-effective fashion. If any of these risksmaterialize, we may be unable to introduce new solutions into the market on a timely basis, if at all, and our business and operating results could beimpacted. Likewise, we sometimes make assurances to customers regarding the operability and specifications of new technologies, and our results could beimpacted if we are unable to deliver such technologies, or if such technologies do not perform as planned. Once we have developed new solutions, if wecannot successfully market and sell those solutions, our business and operating results could be negatively impacted.Data Privacy and Cybersecurity. Cybersecurity and data privacy issues could negatively impact our business. Our products and services, including ourcloud and hosted solutions as well as our newly acquired payment processing business, facilitate financial and other transactions for the customers in theindustries we serve. As a result, we collect, use, transmit and store certain of the transaction and personal information of our customers and the end-users ofour solutions. We also may have access to transaction and personal information of our customers and their customers through or in the course of servicing ourproducts or third party products. Additionally, we collect, use and store personal information of our employees and the personnel of our business partners,such as resellers, suppliers and contractors, in the ordinary course of business. While we have programs and measures in place designed to safeguard this data,and while we have implemented access controls designed to limit the risk of unauthorized use or disclosure by employees and contractors, the techniquesused to obtain unauthorized access to this data are complex and changing, and may be difficult to detect for long periods of time. An attack, disruption,intrusion, denial of service, theft or other breach, or an inadvertent act by an employee or contractor, could result in unauthorized access to, or disclosure of,this data, resulting in claims, costs and reputational harm that could negatively affect our operating results. We may also detect, or may receive notice fromthird parties (including governmental agencies) regarding potential vulnerabilities in our information technology systems, our products, or third partyproducts used in conjunction with our products. Even if these potential vulnerabilities do not result in a data breach, their existence can adversely affectcustomer confidence and our reputation in the marketplace. To the extent such vulnerabilities require remediation, such remedial measures could requiresignificant resources and may not be implemented before such vulnerabilities are exploited. As the cybersecurity landscape evolves, we may also find itnecessary to make significant further investments to protect data and infrastructure.Like most companies, NCR is regularly the subject of attempted cyberattacks. The Company is not aware of any that have caused adverse consequencesmaterial to the Company. Most such attacks are detected and prevented by the Company’s various information technology protections, including but notlimited to firewalls, intrusion prevention systems, denial of service detection, anomaly based detection, anti-virus/anti-malware, endpoint encryption anddetection and response software, Security Information and Event Management (SIEM) system, identity management technology, user behavior analytics,multi-factor authentication and encryption, although there can be no assurance that our protections will always be successful.The Company has an established relationship with a cybersecurity firm, which it engages in connection with certain threatened incidents. The costs arisingfrom those engagements, which depending on the incident may include both investigatory and remedial efforts, have not to date been material to theCompany. The Company also regularly undergoes evaluation of its protections against cybersecurity incidents, including both self-assessments and expertthird-party assessments, and it regularly enhances those protections, both in response to specific threats and as part of the Company’s efforts to stay currentwith advances in cybersecurity defense. When the Company experiences a confirmed cybersecurity incident it generally performs root cause analyses and inappropriate instances will implement additional security controls based on those analyses. In 2018, the Company used approximately 9% of its overall ITbudget on cybersecurity efforts. There can be no assurance that the Company or its cybersecurity consultant will be able to prevent or remediate all futurecybersecurity incidents or that the cost associated with responding to any such incident will not be significant.The personal information and data that we process and store also is increasingly subject to the data security and data privacy laws of many jurisdictions,which are increasing in complexity and sophistication as data becomes more enriched and technology and the global data protection landscape evolves.These laws may conflict with one another, and many of them are subject to frequent modification and differing interpretations. The laws impose a significantcompliance burden and include, for example, the EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act, that goes intoeffect in 2020. Complying with these evolving and varying standards could require significant expense and effort, and could require us to change ourbusiness practices or the functionality of our products and services in a manner adverse to our customers and our business. In addition, violations of theselaws can result in significant fines, penalties, claims by regulators or other third parties, and damage to our brand and business. The GDPR includes fines ofup to 20 million Euros or up to 4% of the annual global revenues of the infringer for failure to comply. The laws also cover the transfer of personalinformation, including transfers of employee information between us and our subsidiaries, across international borders.Defects, Errors and Disruptions. Defects, errors, installation difficulties or development delays could expose us to potential liability, harm our reputationand negatively impact our business. Many of our products are sophisticated and complex, and may incorporate third-party hardware and software. Despitetesting and quality control, we cannot be certain that defects or errors will not be found in our products. If our products contain undetected defects or errors,or otherwise fail to meet our customers’ expectations, we could face9Table of Contentsthe loss of customers, liability exposure and additional development costs. If defects or errors delay product installation or make it more difficult, we couldexperience delays in customer acceptance, or if our products require significant amounts of customer support, it could result in incremental costs to us. Inaddition, our customers who license and deploy our software may do so in both standard and non-standard configurations in different environments withdifferent computer platforms, system management software and equipment and networking configurations, which may increase the likelihood of technicaldifficulties. Our products may be integrated with other components or software, and, in the event that there are defects or errors, it may be difficult todetermine the origin of such defects or errors. Additionally, damage to, or failure or unavailability of, any significant aspect of our cloud hosting facilitiescould interrupt the availability of our cloud offerings, which could cause disruption for our customers, and, in turn, their customers, and expose us to liability.If any of these risks materialize, they could result in additional costs and expenses, exposure to liability claims, diversion of technical and other resources toengage in remediation efforts, loss of customers or negative publicity, each of which could negatively impact our business and operating results.Disruptions in our data center hosting facilities could adversely affect our business. Our software products are increasingly being offered and provided on acloud or other hosted basis through data centers operated by the Company or third parties in the United States and other countries. In addition, certain of theapplications and data that we use in our services offerings and our operations may be hosted or stored at such facilities. These facilities may be vulnerable tonatural disasters, telecommunications failures and similar events, or to intentional acts of misconduct, such as security breaches or attacks. The occurrence ofany of these events or acts, or any other unanticipated problems, at these facilities could result in damage to or the unavailability of these cloud hostingfacilities. Such damage or unavailability could, despite existing disaster recovery and business continuity arrangements, interrupt the availability of ourcloud offerings for our customers. We have from time to time experienced such interruptions and they may occur in the future. In addition, any such damageor unavailability could interrupt the availability of applications or data necessary to provide services or conduct critical operations. Interruptions in theavailability of our cloud offerings or our ability to service our customers could result in the failure to meet contracted up-time or service levels, which couldcause us to issue credits or pay penalties, or cause customers to terminate or not renew subscriptions. Interruptions could also expose us to liability claims,negative publicity and the need to engage in costly remediation efforts, any of which could impact our business and reduce our revenue.Competition. If we do not compete effectively within the technology industry, we will not be successful. We operate in the intensely competitive technologyindustry. This industry is characterized by rapidly changing technology, disruptive technological innovation, evolving industry standards, frequent newproduct introductions, price and cost reductions, and increasingly greater commoditization of products making differentiation difficult. Our competitorsinclude other large companies in the information technology industry, such as Fidelity National Information Services Inc., Fiserv, Inc., First DataCorporation, HP Inc., Diebold Nixdorf, Incorporated, Nautilus Hyosung, ToshibaTec, Oracle Corporation, Fujitsu Limited, Q2 Holdings, Inc. and ACIWorldwide, Inc., most of which have more financial and technical resources, or more widespread distribution and market penetration for their platforms andservice offerings, than we do. We also compete with companies in specific industry segments, such as entry-level ATMs, point-of-sale solutions and imagingsolutions. In addition, as consumers and customers in the financial, retail and hospitality industry adopt new alternative technologies such as cashless andother streamlined payment services and automated shopping solutions, we may face competition from other technology companies.Our future competitive performance and market position depend on a number of factors, including our ability to:•react to competitive product and pricing pressures;•penetrate and meet the changing competitive requirements and deliverables in developing and emerging markets;•exploit opportunities in emerging vertical markets, such as travel and telecommunications and technology;•cross-sell additional products and services to our existing customer base;•rapidly and continually design, develop and market, or otherwise maintain and introduce innovative solutions and related products and services forour customers that are competitive in the marketplace;•react on a timely basis to shifts in market demands and technological innovations, including shifts toward the desire of banks and retailers toprovide digital first experience to their customers and the use of mobile devices in transactions and payments;•compete in reverse auctions for new and continuing business;•reduce costs without creating operating inefficiencies or impairing product or service quality;10Table of Contents•maintain competitive operating margins;•improve product and service delivery quality; and•effectively market and sell all of our diverse solutions.Our business and operating performance also could be impacted by external competitive pressures, such as consolidation, increasing price erosion and theentry of new competitors and technologies into our existing product and geographic markets. In addition, our customers sometimes finance our product salesthrough third party financing companies, and in the case of customer default, these financing companies may be forced to resell this equipment at discountedprices, competing with us and impacting our ability to sell incremental units. The impact of these product and pricing pressures could include lower customersatisfaction, decreased demand for our solutions, loss of market share and reduction of operating profits.Indebtedness and Repurchase Obligations. Our level of indebtedness could limit our financial and operating activities and adversely affect our ability toincur additional debt to fund future needs. At December 31, 2018, we had approximately $3.18 billion of total indebtedness outstanding. Additionally, atDecember 31, 2018, we had approximately $980 million of secured debt available for borrowing under our senior secured credit facility, and approximately$100 million of secured debt available for borrowing under our trade receivables securitization facility. This level of indebtedness could:•require us to dedicate a substantial portion of our cash flow to the payment of principal and interest, thereby reducing the funds available foroperations and future business opportunities;•make it more difficult for us to satisfy our obligations with respect to our outstanding senior unsecured notes, including our change in controlrepurchase obligations;•limit our ability to borrow additional money if needed for other purposes, including working capital, capital expenditures, debt servicerequirements, acquisitions and general corporate or other purposes, on satisfactory terms or at all;•limit our ability to adjust to changing economic, business and competitive conditions;•place us at a competitive disadvantage with competitors who may have less indebtedness or greater access to financing;•make us more vulnerable to an increase in interest rates, a downturn in our operating performance or a decline in general economic conditions; and•make us more susceptible to adverse changes in credit ratings, which could impact our ability to obtain financing in the future and increase the costof such financing.If compliance with our debt obligations materially limits our financial or operating activities, or hinders our ability to adapt to changing industry conditions,we may lose market share, our revenue may decline and our operating results may be negatively affected.The terms of the documents governing our indebtedness include financial and other covenants that could restrict or limit our financial and businessoperations. Our senior secured credit facility and the indentures for our senior unsecured notes include restrictive covenants that, subject to certainexceptions and qualifications, restrict or limit our ability and the ability of our subsidiaries to, among other things:•incur additional indebtedness;•create liens on, sell or otherwise dispose of, our assets;•engage in certain fundamental corporate changes or changes to our business activities;•make certain investments or material acquisitions;•engage in sale-leaseback or hedging transactions;•repurchase our common stock, pay dividends or make similar distributions on our capital stock;•repay certain indebtedness;•engage in certain affiliate transactions; and•enter into agreements that restrict our ability to create liens, pay dividends or make loan repayments.11Table of ContentsThe senior secured credit facility and the indentures also contain certain affirmative covenants, and the senior secured credit facility requires us to complywith financial coverage ratios regarding both our interest expense and our debt relative to our Consolidated EBITDA (as defined in the senior secured creditfacility).These covenants and restrictions could affect our ability to operate our business, and may limit our ability to react to market conditions or take advantage ofpotential business opportunities as they arise. Additionally, our ability to comply with these covenants may be affected by events beyond our control,including general economic and credit conditions and industry downturns.In addition, under our trade receivables securitization facility, we are required, among other things, to maintain certain financial tests relating to the threemonth rolling average ratio of defaults, delinquencies, dilution and days sales outstanding of the receivables pool (as such ratios and tests are described inthe agreement governing our trade receivables securitization facility).If we fail to comply with these covenants and are unable to obtain a waiver or amendment from the applicable lenders, an event of default would result underthese agreements and under other agreements containing related cross-default provisions.•Upon an event of default under the senior secured credit facility, the lenders could, among other things, declare outstanding amounts due andpayable, refuse to lend additional amounts to us, or require us to deposit cash collateral in respect of outstanding letters of credit. If we were unableto repay or pay the amounts due, the lenders could, among other things, proceed against the collateral granted to them to secure such indebtedness,which includes certain of our domestic assets and the equity interests of certain of our domestic and foreign subsidiaries.•Upon an event of default under the indentures, the trustee or holders of our senior unsecured notes could declare all outstanding amountsimmediately due and payable.•Upon an event of default under our trade receivables securitization facility, the lenders could, among other things, terminate the facility, declare allcapital and other obligations to be immediately due and payable, replace us as servicer, take over receivables lock-box accounts and redirect thecollections of domestic accounts receivable from those accounts, and exercise available rights against the domestic accounts receivable pledged byNCR Receivables, LLC.Despite our current levels of debt, we may still incur substantially more debt, including secured debt, and similar liabilities, which would increase the risksdescribed in these risk factors relating to indebtedness and repurchase obligations. The agreements relating to our debt limit, but do not prohibit, our abilityto incur additional debt, and the amount of debt that we could incur could be substantial. In addition, certain types of liabilities are not considered“Indebtedness” under our senior secured credit facility or the indentures governing our senior unsecured notes, and the senior secured credit facility andindentures do not impose any limitation on the amount of liabilities incurred by the subsidiaries, if any, that might be designated as “unrestrictedsubsidiaries” (as defined in the indentures). Accordingly, we could incur significant additional debt or similar liabilities in the future, including additionaldebt under our senior secured credit facility, some of which could constitute secured debt. In addition, if we form or acquire any subsidiaries in the future,those subsidiaries also could incur debt or similar liabilities. If new debt or similar liabilities are added to our current debt levels, the related risks that we nowface could increase.Our cash flows may not be sufficient to service our indebtedness, and if we are unable to satisfy our obligations under our indebtedness, we may be requiredto seek other financing alternatives, which may not be successful. Our ability to make timely payments of principal and interest on our debt obligationsdepends on our ability to generate positive cash flows from operations, which is subject to general economic conditions, competitive pressures and certainfinancial, business and other factors beyond our control. If our cash flows and capital resources are insufficient to make these payments, we may be requiredto seek additional financing sources, reduce or delay capital expenditures, sell assets or operations or refinance our indebtedness. These actions could havean adverse effect on our business, financial condition and results of operations. In addition, we may not be able to take any of these actions, and, even ifsuccessful, these actions may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our outstandingindebtedness will depend on, among other things, the condition of the capital markets and our financial condition at such time. There can be no assurancethat we will be able to restructure or refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot make scheduled payments onour debt, we will be in default and the outstanding principal and interest on our debt could be declared to be due and payable, in which case we could beforced into bankruptcy or liquidation or required to substantially restructure or alter our business operations or debt obligations.Borrowings under our senior secured credit facility and trade receivables securitization facility bear interest at a variable rate, which subjects us to interestrate risk, which could cause our debt service obligations to increase significantly. All of our borrowings under our senior secured credit facility and tradereceivables securitization facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations onthis variable rate indebtedness would increase even though the amount12Table of Contentsborrowed remained the same. Although we may enter into interest rate swaps or similar instruments to reduce interest rate volatility in connection with ourvariable rate borrowings, we cannot provide assurances that we will be able to do so or that such swaps or instruments will be effective.We may not be able to raise the funds necessary to finance a required repurchase of our senior unsecured notes or our Series A Convertible Preferred Stock.Upon the occurrence of a change in control under the applicable indenture governing the applicable senior unsecured notes, holders of those notes mayrequire us to repurchase their notes. On any date during the three months commencing on and immediately following March 16, 2024 and the three monthscommencing on and immediately following every third anniversary of such date, holders of our Series A Convertible Preferred Stock will have the right torequire us to repurchase any or all of our outstanding Series A Convertible Preferred Stock. In addition, upon certain change of control events involving theCompany, holders of Series A Convertible Preferred Stock can require us, subject to certain exceptions, to repurchase any or all of their Series A ConvertiblePreferred Stock.It is possible that we would not have sufficient funds at the time that we are required to make any such purchase of notes or Series A Convertible PreferredStock (or both). We cannot assure the holders of the senior unsecured notes and Series A Convertible Preferred Stock that we will have sufficient financialresources, or will be able to arrange financing, to pay the repurchase price in cash with respect to any such notes or Series A Convertible Preferred Stock thatholders have requested to be repurchased upon a change in control or scheduled redemption. Our failure to repurchase the senior unsecured notes of a serieswhen required would result in an event of default with respect to such notes which could, in turn, constitute a default under the terms of our otherindebtedness, if any. If we are unable to repurchase all shares of Series A Convertible Preferred Stock that holders have requested to be purchased, then we arerequired to pay dividends on the shares not repurchased at a rate equal to 8.0% per annum, accruing daily from such date until the full purchase price, plus allaccrued dividends, are paid in full in respect of such shares of Series A Convertible Preferred Stock.In addition, a change in control may constitute an event of default under our senior secured credit facility and our trade receivables securitization facility thatwould permit the lenders to accelerate the maturity of the borrowings thereunder and would require us to make a similar change in control offer to holders ofour existing senior unsecured notes.Certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, may not constitute a change incontrol under the indentures governing our secured notes or the terms of our Series A Convertible Preferred Stock.A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our accessto capital. Any rating assigned to our debt could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, futurecircumstances relating to the basis of the rating, such as adverse changes, so warrant. Any future lowering of our ratings likely would make it more difficult ormore expensive for us to obtain additional debt financing.Operating Results Fluctuations. Our revenue, operating results, and margins could fluctuate for a number of reasons, including those described below:Seasonality. Our sales are historically seasonal, with lower revenue in the first quarter and higher revenue in the fourth quarter of each year. Such seasonalityalso causes our working capital cash flow requirements to vary from quarter to quarter depending on the variability in the volume, timing and mix of productsales. In addition, revenue in the third month of each quarter is typically higher than in the first and second months, particularly as our business model shiftsto include more software and cloud solutions. These factors, among other things, may adversely affect our ability to manage working capital, make ourforecasting process more difficult and impact our ability to predict financial results accurately.Income Taxes. We are a United States based multinational company subject to income taxes in the United States and a number of foreign jurisdictions. Ourdomestic and international tax liabilities are dependent on the distribution of our earnings among these different jurisdictions, and our provision for incometaxes and cash tax liability could be adversely affected if the distribution of earnings is higher than expected in jurisdictions with higher statutory tax rates.On December 22, 2017, the U.S. President signed into law new legislation, referred to as the Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform"), thatsignificantly revises the Internal Revenue Code of 1986, as amended. Among other things, the new legislation reduces the U.S. corporate income tax rate,subjects interest deductions to potential limitations, alters the expensing of capital expenditures, adopts elements of a territorial tax system, includes a one-time mandatory deemed repatriation tax on accumulated non-U.S. earnings of U.S. entities, and introduces certain anti-base erosion provisions. Since thepassing of U.S. Tax Reform, additional guidance in the form of notices and proposed regulations which interpret various aspects of U.S. Tax Reform havebeen issued. As of the filing of this document, additional guidance is expected. Changes could be made to the proposed regulations as they become finalized,future13Table of Contentslegislation could be enacted, more regulations and notices could be issued, all of which may impact our financial results. We continue to assess the overallimpact of the legislation, and there can be no assurances that the additional guidance will have an overall favorable impact on our business, financialcondition or effective tax rate. If we are unable to manage the adverse impacts of the legislation, they could have a material effect on our financial condition,results of operations and cash flows.We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets andliabilities. Our deferred tax assets, net of valuation allowances, totaled approximately $663 million and $608 million at December 31, 2018 and 2017,respectively. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portionor all of a deferred tax asset will not be realized. If we are unable to generate sufficient future taxable income, if there is a material change in the actualeffective tax rates or if there is a change to the time period within which the underlying temporary differences become taxable or deductible, then we could berequired to increase our valuation allowance against our deferred tax assets, which could result in a material increase in our effective tax rate.In addition, changes in foreign tax laws or tax rulings could affect our financial position and results of operations. For example, in light of continuing globalfiscal challenges, various levels of government and international organizations such as the Organization for Economic Co-operation and Development(OECD) and European Union (EU) are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue. These tax reformefforts, such as the OECD-led Based Erosion and Profit Sharing project (BEPS), are designed to ensure that corporate entities are taxed on a larger percentageof their earnings. Although some countries have passed tax laws based on findings from the BEPS project, the final nature, timing and extent of any such taxreforms or other legislative or regulatory actions is unpredictable, and it is difficult to assess their overall effect. But, these changes could increase oureffective tax rate and adversely impact our financial results.We are also subject to ongoing audits of our income tax returns in various jurisdictions both in the U.S. and internationally. While we believe that our taxpositions will be sustained, the outcomes of such audits could result in the assessment of additional taxes, which could adversely impact our cash flows andfinancial results.Foreign Currency. Our revenue and operating income are subject to variability due to the effects of foreign currency fluctuations against the U.S. Dollar.Overall, we have exposure to approximately 50 functional currencies. We pay the majority of expenses attributable to our foreign operations in the functionalcurrency of the country in which such operations are conducted, and in 2018 a significant portion of our revenue was generated in currencies other than theU.S. Dollar. As a result, significant currency fluctuations could adversely affect our results of operations, including sales and gross margins. For example, anincrease in the value of the U.S. Dollar relative to foreign currencies could result in lower revenue and increased losses from currency exchange rates. Weendeavor to mitigate some of the effects of currency fluctuations with our hedging strategies; however, the volatility of foreign currency exchange rates isdependent on many factors that cannot be forecasted with reliable accuracy and our derivative instruments may not prove effective in reducing ourexposures.Cost/Expense Reductions. Our success in achieving targeted cost and expense reductions through formal restructuring or spend optimization programs,including the spend optimization program we announced in the fourth quarter of 2018 to drive cost savings through operational efficiencies, our continuousimprovement programs, our performance improvement programs and other similar programs depends on a number of factors, including our ability to achieveinfrastructure rationalizations, drive lower component and product development costs, improve supply chain efficiencies, utilize next-generationtechnologies, simplify and rationalize product portfolios, and optimize the efficiency of our customer services and professional services consulting resources.If we do not successfully execute on these initiatives or if we experience delays in completing the implementation of these initiatives, our results ofoperations or financial condition could be adversely affected.Manufacturing. At December 31, 2018, NCR leveraged a network of internal and third party partner facilities across the globe to manufacture its products:•ATMs are manufactured in NCR facilities located in Columbus, Georgia, USA; Manaus, Brazil; Budapest, Hungary; and Chennai, India and partnerfacilities located in Chihuahua, Mexico.•Self-checkout solutions are manufactured in NCR facilities located in Budapest, Hungary and partner facilities located in Chihuahua, Mexico andXiamen, China.•Kiosk solutions are manufactured in NCR facilities located in Budapest, Hungary; Manaus, Brazil; and Chennai, India and partner facilities inBuford, Georgia, USA.•POS/Display terminals are manufactured in NCR facilities located in Budapest, Hungary and partner facilities located in Guadalajara, Mexico andXiamen, China.Additionally, at December 31, 2018, NCR outsourced the manufacturing of certain printers, bar code scanners and various other retail peripherals such askeyboards and cash drawers.14Table of ContentsOn April 23, 2018, we announced our intention to streamline our manufacturing operations by closing two manufacturing plants in the Columbus, Georgiaarea and another in Beijing, China, and to move the manufacturing operations at those plants to other existing NCR facilities and to current third partysuppliers in order to shift the cost structure to more variable model to adjust with changes in demand.Additionally, in 2018, we experienced supply constraints and product quality challenges, which impacted the timely delivery of hardware products to ourcustomers. If these challenges continue or we develop or experience other problems relating to product quality or on-time delivery to customers that we areunable to quickly manage and resolve, whether due to the geographical diversity of our manufacturing base, the use of contract or outsourced manufacturing,or otherwise, we could experience business interruption that could negatively impact our business and operating results.Contractual Obligations for Professional Services. Our contracts for professional services consulting work may contemplate that services will be performedover multiple periods, especially in connection with large solution roll-outs. Our profitability under those contracts is largely a function of performing ourcontractual obligations within the estimated costs and time periods specified. If we exceed these estimated costs or cannot otherwise complete the contractedservices within the specified periods, our profitability related to these contracts could be negatively impacted. In addition, if we are unable to maintainappropriate utilization rates for our consultants, we may not be able to sustain profitability on these contracts.Acquisitions, Divestitures and Alliances. As we selectively acquire and divest technologies, products and businesses and we begin to include or exclude, asthe case may be, the financial results related to these transactions, our operating results could fluctuate materially, depending on the size, nature, structureand timing of the transactions.Underfunded Pension Obligation. At December 31, 2018, our obligation for benefits under our pension plans was $2,855 million and our pension plan assetstotaled $2,222 million, which resulted in an underfunded pension obligation of $633 million. While we rebalanced our U.S. and international plan assets inorder to reduce volatility and made several discretionary contributions to our pension plans, our remaining underfunded pension obligation continues torequire ongoing cash contributions. Our underfunded pension obligation also may be affected by future transfers and settlements relating to our internationalpension plans.In addition, certain of the plan assets remain subject to financial market risk, and our actuarial and other assumptions underlying our expected future benefitpayments, long-term expected rate of return and future funding expectations for our plans depend on, among other things, interest rate levels and trends andcapital market expectations. Further volatility in the performance of financial markets, changes in any of these actuarial assumptions (including thosedescribed in our “Critical Accounting Policies and Estimates” section of the “Management's Discussion and Analysis of Financial Condition and Results ofOperations” included in Item 7 of Part II of this Report) or changes in regulations regarding funding requirements could require material increases to ourexpected cash contributions to our pension plans in future years.See the “Effects of Pension, Postemployment and Postretirement Benefit Plans” and “Financial Condition, Liquidity And Capital Resources” sections of the“Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II of this Report and Note 9,“Employee Benefit Plans” in the Notes to the Consolidated Financial Statements included in Item 8 of Part II of this Report for further information regardingthe funded status of our pension plans and potential future cash contributions.Stock-based Compensation. Similar to other companies, we use stock awards as a form of compensation for certain employees and non-employee directors.All stock-based awards are required to be recognized in our financial statements based on their fair values. The amount recognized for stock compensationexpense could vary depending on a number of assumptions or changes that may occur. For example, assumptions such as the risk-free rate, expected holdingperiod and expected volatility that drive our valuation model could change. Other examples that could have an impact include changes in the mix and typeof awards, changes in our compensation plans, changes in our tax rate, changes in our forfeiture rate, differences in actual results compared to management’sestimates for performance-based awards or an unusually high amount of expirations of stock awards.Changes in Accounting Principles. We prepare our consolidated financial statements in accordance with accounting principles generally accepted in theUnited States. These principles are subject to interpretation by the SEC and various bodies formed to create and interpret appropriate accounting principlesand guidance. Changes in accounting principles may have an adverse effect on our financial results, as well as our processes and related controls, and mayretroactively affect previously reported results. For additional information regarding updated accounting principles and standards, including the new revenuerecognition standard, see Item 7 of Part II of this Report and Note 1, “Basis of Presentation and Significant Accounting Policies” in the Notes to theConsolidated Financial Statements included in Item 8 of Part II of this Report.15Table of ContentsActivist Stockholders. While we seek to actively engage with stockholders and consider their views on business and strategy, we could be subject to actionsor proposals from stockholders or others that do not align with our business strategies or the interests of our other stockholders. Responding to thesestockholders could be costly and time-consuming, disrupt our business and operations, and divert the attention of our Board of Directors and seniormanagement. Uncertainties associated with such activities could interfere with our ability to effectively execute our strategic plan, impact customer retentionand long-term growth, and limit our ability to hire and retain personnel. In addition, actions of these stockholders may cause periods of fluctuation in ourstock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects ofour business.Reliance on Third Parties. If third party suppliers upon which we rely are not able to fulfill our needs, our ability to bring our products to market in atimely fashion could be affected. There are a number of vendors providing the services and producing the parts and components that we utilize in or inconnection with our products. However, there are some services and components that are licensed or purchased from single sources due to price, quality,technology, functionality or other reasons. For example, we depend on transaction processing services from Accenture, computer chips and microprocessorsfrom Intel and operating systems from Microsoft. Certain parts and components used in the manufacturing of our ATMs and the delivery of many of our retailsolutions are also supplied by single sources. In addition, there are a number of key suppliers for our businesses that provide us with critical products for oursolutions. If we were unable to secure the necessary services or maintain current demand as we experienced in 2018, including contract manufacturing, parts,software, components or products from a particular vendor, and we had to find an alternative supplier, our new and existing product shipments and solutiondeliveries, or the provision of contracted services, could be delayed, impacting our business and operating results.We have, from time to time, formed alliances with third parties that have complementary products, software, services and skills. These alliances representmany different types of relationships, such as outsourcing arrangements to manufacture hardware and subcontract agreements with third parties to performservices and provide products and software to our customers in connection with our solutions. For example, we rely on Jabil Inc. to provide contractmanufacturing services for our automated teller machines and self-service checkout solutions, primarily for our customers in the Americas. We also rely onthird parties for cash replenishment services for our ATM products. These alliances introduce risks that we cannot control, such as nonperformance by thirdparties and difficulties with or delays in integrating elements provided by third parties into our solutions. Lack of information technology infrastructure,shortages in business capitalization, and manual processes and data integrity issues, particularly with smaller suppliers can also create product time delays,inventory and invoicing problems, and staging delays, as well as other operating issues. The failure of third parties to provide high-quality products orservices that conform to required specifications or contractual arrangements could impair the delivery of our solutions on a timely basis, create exposure fornon-compliance with our contractual commitments to our customers and impact our business and operating results. Also, some of these third parties haveaccess to confidential NCR and customer data, personal data, and sensitive data, the integrity and security of which are of significant importance to theCompany.Work Environment. Continuous improvement, customer experience, restructuring and cost reduction initiatives could negatively impact productivity andbusiness results. In the past, we have undertaken restructuring plans, and, in addition, as part of our ongoing efforts to optimize our cost structure, from timeto time, we shift and realign our internal organizational structure and resources. For example, on April 23, 2018, we announced our intentions to streamlineour manufacturing operations by closing two manufacturing plants in the Columbus, Georgia area and another in Beijing, China, and to move themanufacturing operations at those plants to other existing NCR facilities and to current third party suppliers. These activities could temporarily result inreduced productivity levels. If we are not able to timely execute on these initiatives, or if the costs to complete these initiatives is higher than anticipated, ourresults of operations or financial condition could be adversely affected. In addition to these initiatives, we have initiatives to improve the experience of ourcustomers, invest in growing identified strategic growth platforms, and shift the mix of revenue in our business to recurring software and services. Wetypically have many such initiatives underway. If we are not successful in implementing and managing these various initiatives and minimizing anyresulting loss in productivity, we may not be able to achieve targeted cost savings or productivity gains, and our business and operating results could benegatively impacted.On January 8, 2018, we opened our new world headquarters in Atlanta, Georgia, and have relocated our headquarters operations to this facility. From time totime we may undertake similar projects with respect to our office, manufacturing or other facilities. Implementation of relocation plans such as these couldresult in business disruption due to a lack of business continuity, which, among other things, could have a negative impact on our productivity and businessand operating results.If we do not retain key employees, or attract quality new and replacement employees, we may not be able to meet our business objectives. Our employees arevital to our success, including the successful transformation of the Company into a software and solutions driven business. Therefore, our ability to retain ourkey business leaders and our highly skilled software development, technical, sales, consulting and other key personnel, including key personnel of acquiredbusinesses, is critical. These key employees may decide to leave NCR for other opportunities, or may be unavailable for health or other reasons. In addition,as our business model evolves, we may need to attract employees with different skill sets, experience and attributes to support that evolution. If we are unableto retain our key personnel,16Table of Contentsor we are unable to attract highly qualified new and replacement employees by offering competitive compensation, secure work environments and leadershipopportunities now and in the future, our business and operating results could be negatively impacted. In addition, a failure to ensure the effective and timelytransfer of knowledge and a smooth transition of key employees, including, among others, our Chief Executive Officer, Chief Operating Officer, ChiefFinancial Officer, Chief Technology Officer, Chief Human Resources Officer and General Counsel, could hinder business continuity, personnel retention andoperational execution, which, among other things, could have a negative impact on our productivity and business and operating results. Uncertainties ordelays associated with the transition of key business leaders could also cause fluctuation in our stock price.Our ability to effectively manage our business could be negatively impacted if we do not invest in and maintain reliable technology infrastructure andinformation systems. It is periodically necessary to add to, replace, upgrade or modify our technology infrastructure and internal information systems. If weare unable to expand, replace, upgrade or modify such systems in a timely and cost-effective manner, especially in light of demands on our informationtechnology resources, our ability to capture and process financial transactions and, therefore, our financial condition, results of operations, or ability tocomply with legal and regulatory reporting obligations, may be negatively impacted.Series A Convertible Preferred Stock. The issuance of shares of our Series A Convertible Preferred Stock reduces the relative voting power of holders ofour common stock, and the conversion and sale of those shares would dilute the ownership of such holders and may adversely affect the market price of ourcommon stock. As of December 31, 2018, 0.9 million shares of our Series A Convertible Preferred Stock were outstanding, representing approximately 20% ofour outstanding common stock, including the Series A Convertible Preferred Stock on an as-converted basis. Holders of Series A Convertible Preferred Stockare entitled to a cumulative dividend at the rate of 5.5% per annum, payable quarterly in arrears. The dividends are to be paid in-kind, through the issuance ofadditional shares of Series A Convertible Preferred Stock, for the first sixteen dividend payment dates, and thereafter in cash or in-kind at our option. If we failto timely declare and pay a dividend, the dividend rate will increase to 8.0% per annum until such time as all accrued but unpaid dividends have been paid infull.As holders of our Series A Convertible Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our common stock on all matterssubmitted to a vote of the holders of our common stock, the Series A Convertible Preferred Stock, and the subsequent issuance of additional shares of Series AConvertible Preferred Stock through the payment of in-kind dividends, effectively reduces the relative voting power of the holders of our common stock.In addition, the conversion of the Series A Convertible Preferred Stock to common stock would dilute the ownership interest of existing holders of ourcommon stock, and any sales in the public market of the common stock issuable upon conversion of the Series A Convertible Preferred Stock would increasethe number of shares of our common stock available for public trading, and could adversely affect prevailing market prices of our common stock. Under acustomary registration rights agreement, in March 2016 we registered for resale the shares of Series A Convertible Preferred Stock, and the shares of commonstock issuable upon conversion of the Series A Convertible Preferred Stock, and in March 2017, entities affiliated with The Blackstone Group L.P. (which werefer to as the Blackstone Purchasers) offered for sale 342,000 shares of Series A Convertible Preferred Stock in an underwritten public offering. Further salesby Blackstone of shares of our Series A Convertible Preferred Stock, or common stock issuable upon conversion of the Series A Convertible Preferred Stock,in the public market, or the perception that such sales might occur, could have an adverse effect on the price of our common stock.The Blackstone Purchasers and the other holders of our Series A Convertible Preferred Stock may exercise influence over us. As of December 31, 2018, theoutstanding shares of our Series A Convertible Preferred Stock represented approximately 20% of our outstanding common stock, including the Series AConvertible Preferred Stock on an as-converted basis. The terms of the Series A Convertible Preferred Stock require the approval of a majority of our Series AConvertible Preferred Stock by a separate class vote for us to:•amend our organizational documents in a manner that would have an adverse effect on the Series A Convertible Preferred Stock; or•issue securities that are senior to, or equal in priority with, the Series A Convertible Preferred Stock.In addition, our November 2015 Investment Agreement with Blackstone (the Investment Agreement), and the terms of the Series A Convertible PreferredStock, grant the Blackstone Purchasers certain rights to designate directors to serve on our Board, which directors are elected by a separate class vote of theholders of the Series A Convertible Preferred Stock. For so long as the Blackstone Purchasers beneficially own shares of Series A Convertible Preferred Stock(and/or shares of common stock issued upon conversion of Series A Convertible Preferred Stock) that represent, on an as-converted basis, at least 50% of theBlackstone Purchasers' initial shares of Series A Convertible Preferred Stock on an as-converted basis, the Blackstone Purchasers have the right to designatetwo directors for election17Table of Contentsto our Board. For so long as the Blackstone Purchasers beneficially own shares of Series A Convertible Preferred Stock (and/or shares of common stock issuedupon conversion of Series A Convertible Preferred Stock) that represent, on an as-converted basis, at least 25% but less than 50% of Blackstone’s initialshares of Series A Convertible Preferred Stock on an as-converted basis, the Blackstone Purchasers will have the right to designate one director for election toour Board.The directors designated by the Blackstone Purchasers also are entitled to serve on committees of our Board, subject to applicable law and stock exchangerules. Notwithstanding the fact that all directors will be subject to fiduciary duties to us and to applicable law, the interests of the directors designated by theBlackstone Purchasers and elected by the holders of our Series A Convertible Preferred Stock may differ from the interests of our security holders as a wholeor of our other directors.The Investment Agreement also imposes a number of affirmative and negative covenants on us, and gives the Blackstone Purchasers a consent right withrespect to certain actions taken by us, including:•entering into material transactions with related parties, or repurchasing or redeeming shares of common stock from related parties, subject to certainexceptions; and•increasing or decreasing the maximum number of directors on our Board to more than eleven persons or to such number as would require theresignation of one of the directors nominated by Blackstone.As a result, the holders of our Series A Convertible Preferred Stock, and in particular, the Blackstone Purchasers, have the ability to influence the outcome ofany matter submitted for the vote of the holders of our common stock. Blackstone and its affiliates are in the business of making or advising on investmentsin companies, including businesses that may directly or indirectly compete with certain portions of our business, and they may have interests that divergefrom, or even conflict with, those of our other stockholders. They may also pursue acquisition opportunities that may be complementary to our business, and,as a result, those acquisition opportunities may not be available to us.Our Series A Convertible Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our commonstockholders, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of our Series A ConvertiblePreferred Stock, including the Blackstone Purchasers, differing from those of our common stockholders. The holders of our Series A Convertible PreferredStock have the right to receive a liquidation preference entitling them to be paid out of our assets available for distribution to stockholders before anypayment may be made to holders of any other class or series of capital stock, an amount equal to the greater of (a) 100% of the liquidation preference thereofplus all accrued dividends or (b) the amount that such holder would have been entitled to receive upon our liquidation, dissolution and winding up if alloutstanding shares of Series A Convertible Preferred Stock had been converted into common stock immediately prior to such liquidation, dissolution orwinding up.In addition, dividends on the Series A Convertible Preferred Stock accrue and are cumulative at the rate of 5.5% per annum, payable quarterly in arrears. If wefail to timely declare and pay a dividend, the dividend rate will increase to 8.0% per annum until such time as all accrued but unpaid dividends have beenpaid in full. The dividends are to be paid in kind, through the issuance of additional shares of Series A Convertible Preferred Stock, for the first sixteendividend payment dates, and thereafter in cash or in-kind at our option.The holders of our Series A Convertible Preferred Stock also have certain redemption rights or put rights, including the right to require us to repurchase all orany portion of the Series A Convertible Preferred Stock on any date during the three months commencing on and immediately following March 16, 2024 andthe three months commencing on and immediately following every third anniversary of such date, at 100% of the liquidation preference thereof plus allaccrued but unpaid dividends, and the right, subject to certain exceptions, to require us to repurchase all or any portion of the Series A Convertible PreferredStock upon certain change of control events at the greater of (a) 100% of the liquidation preference thereof plus all accrued but unpaid dividends and (b) theconsideration the holders would have received if they had converted their shares of Series A Convertible Preferred Stock into common stock immediatelyprior to the change of control event.These dividend and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capitalexpenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series A Convertible Preferred Stockcould also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. Thepreferential rights could also result in divergent interests between the holders of our Series A Convertible Preferred Stock and holders of our common stock.18Table of ContentsMultinational Operations. Our multinational operations, including in new and emerging markets, expose us to business and legal risks. For the years endedDecember 31, 2018 and 2017, the percentage of our revenue from outside of the United States was 52% and 50%, respectively, and we expect our percentageof revenue generated outside the United States to continue to be significant. In addition, we continue to seek to further penetrate existing internationalmarkets, and to identify opportunities to enter into or expand our presence in developing and emerging markets. While we believe that our geographicdiversity may help to mitigate some risks associated with geographic concentrations of operations, our ability to manufacture and sell our solutionsinternationally, including in new and emerging markets, is subject to risks, which include, among others:•the impact of ongoing and future economic and credit conditions on the stability of national and regional economies and industries within thoseeconomies;•political conditions and local regulations that could adversely affect demand for our solutions, our ability to access funds and resources, or ourability to sell products in these markets;•the impact of a downturn in the global economy, or in regional economies, on demand for our products;•currency exchange rate fluctuations that could result in lower demand for our products as well as generate currency translation losses;•limited availability of local currencies to pay vendors, employees and third parties and to distribute funds outside of the country;•changes to global or regional trade agreements that could limit our ability to sell products in these markets;•the imposition of import or export tariffs, taxes, trade policies or import and export controls that could increase the expense of, or limit demand forour products;•changes to and compliance with a variety of laws and regulations that may increase our cost of doing business or otherwise prevent us fromeffectively competing internationally;•government uncertainty or limitations on the ability to enforce legal rights and remedies, including as a result of new, or changes to, laws andregulations;•reduced protection for intellectual property rights in certain countries;•implementing and managing systems, procedures and controls to monitor our operations in foreign markets;•changing competitive requirements and deliverables in developing and emerging markets;•longer collection cycles and the financial viability and reliability of contracting partners and customers;•managing a geographically dispersed workforce, work stoppages and other labor conditions or issues;•disruptions in transportation and shipping infrastructure; and•the impact of civil unrest relating to war and terrorist activity on the economy or markets in general, or on our ability, or that of our suppliers, tomeet commitments.In addition, as a result of our revenue generated outside of the United States, the amount of cash and cash equivalents that is held by our foreign subsidiariescontinues to be significant. U.S. Tax Reform includes a one-time mandatory deemed repatriation tax ("repatriation tax") on accumulated earnings of ourforeign subsidiaries. Also, under U.S. Tax Reform, the future earnings accumulated after December 31, 2017 held by our foreign subsidiaries will be currentlytaxed in the U.S., and as such, distributions of earnings to the U.S. no longer generates additional negative U.S. income tax consequences. However, anydistributions of earnings from foreign subsidiaries may be subject to foreign withholding taxes, which would reduce the amount of cash and cash equivalentsthat are available for our use.Acquisitions, Divestitures and Alliances. If we do not successfully integrate acquisitions or effectively manage alliance activities, we may not drive futuregrowth. As part of our overall solutions strategy, we have made, and intend to continue to make, investments in companies, products, services andtechnologies, either through acquisitions, investments, joint ventures or strategic alliances. Acquisitions and alliance activities inherently involve risks. Therisks we may encounter include those associated with:•assimilating and integrating different business operations, corporate cultures, personnel, infrastructures (such as data centers) and technologiesor products acquired or licensed;•the potential for unknown liabilities within the acquired or combined business; and•the possibility of conflict with joint venture or alliance partners regarding strategic direction, prioritization of objectives and goals, governancematters or operations.19Table of ContentsFurther, we may make acquisitions and investments in order to acquire or obtain access to new technology or products that expand our offerings. There is riskthat the new technology or products, including but not limited to entry into the payment processing market, may not perform as anticipated and may notmeet estimated growth projections or expectations, or investment recipients may not successfully execute their business plans. There is also risk that keyemployees of an acquired business may not remain with us as long as expected. In the event that these risks materialize, we may not be able to fully realizethe benefit of our investments, and our operating results could be adversely affected. An acquisition or alliance, and the integration of an acquired business,may also disrupt our ongoing business or we may not be able to successfully incorporate acquired products, services or technologies into our solutions andmaintain quality. Further, we may not achieve the projected synergies once we have integrated the business into our operations, which may lead to additionalcosts not anticipated at the time of acquisition.Circumstances associated with divestitures could adversely affect our results of operations and financial condition. We continue to evaluate the strategic fitof our other businesses and products and may decide to sell a business or product based on such an evaluation. Despite a decision to divest a business orproduct, we may encounter difficulty in finding buyers or executing alternative exit strategies at acceptable prices and terms and in a timely manner. Inaddition, prospective buyers may have difficulty obtaining financing. Divestitures could involve additional risks, including:•difficulties in the separation of operations, services, products and personnel;•the need to provide significant ongoing post-closing transition support to a buyer;•the diversion of management’s attention from other business concerns;•the retention of certain current or future liabilities in order to induce a buyer to complete a divestiture;•the obligation to indemnify or reimburse a buyer for certain past liabilities of a divested business;•the disruption of our business; and•the potential loss of key employees.We may not be successful in managing these or any other significant risks that we may encounter in divesting a business or product, which could have anadverse effect on our business.Environmental. Our historical and ongoing manufacturing activities subject us to environmental exposures. Our facilities and operations are subject to awide range of environmental protection laws, and we have investigatory and remedial activities underway at a number of facilities that we currently own oroperate, or formerly owned or operated, to comply, or to determine compliance, with such laws. In addition, our products are subject to environmental laws ina number of jurisdictions. Given the uncertainties inherent in such activities, there can be no assurances that the costs required to comply with applicableenvironmental laws will not impact future operating results. We have also been identified as a potentially responsible party in connection with certainenvironmental matters, including the Fox River and Kalamazoo River matters, as further described in Note 10, "Commitments and Contingencies" of theNotes to Consolidated Financial Statements included in Item 8 of Part II of this Report; in “Environmental Matters” within Item 1 of Part I of this Report; andin “Environmental and Legal Contingencies” within the “Critical Accounting Policies and Estimates” section of “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” included in Item 7 of Part II of this Report, and we incorporate such disclosures by reference and make them apart of this discussion of risk factors.Intellectual Property. Our continuing ability to be a leading technology and services solutions provider could be negatively affected if we do not protectintellectual property that drives innovation. It is critical to our continued development of leading technologies that we are able to protect and enhance ourproprietary rights in our intellectual property through patent, copyright, trademark and trade secret laws. These efforts include protection of the products andthe application, diagnostic and other software we develop. To the extent we are not successful in protecting our proprietary rights, our business could beadversely impacted. Also, many of our offerings rely on technologies developed by others, and if we are unable to continue to obtain licenses for suchtechnologies, our business could be adversely impacted. From time to time, we receive notices from third parties regarding patent and other intellectualproperty claims. Whether such claims have merit, they may require significant resources to defend. If an infringement claim is successful and we are requiredto pay damages, or we are unable to license the infringed technology or to substitute similar non-infringing technology, our business could be adverselyaffected.Internal Controls. If we do not maintain effective internal controls, accounting policies, practices, and information systems necessary to ensure reliablereporting of our results, our ability to comply with our legal obligations could be negatively affected. Our internal controls, accounting policies andpractices, and internal information systems enable us to capture and process transactions in a timely and accurate manner in compliance with applicableaccounting standards, laws and regulations, taxation requirements and federal securities laws and regulations. Our internal controls and policies are beingclosely monitored by management as we continue to20Table of Contentsimplement a worldwide Enterprise Resource Planning (ERP) system. While we believe these controls, policies, practices and systems are adequate to ensuredata integrity, unanticipated and unauthorized actions of employees or contractors (both domestic and international), temporary lapses in internal controlsdue to shortfalls in transition planning and oversight, or resource constraints, could lead to improprieties and undetected errors that could impact ourfinancial condition, results of operations, or compliance with legal obligations. Moreover, while management has concluded that the Company’s internalcontrol over financial reporting was effective as of December 31, 2018 (as set forth in “Management’s Report on Internal Control over Financial Reporting”included in Item 9A of Part II of this Report), due to their inherent limitations, such controls may not prevent or detect misstatements in our reported financialstatements. Such limitations include, among other things, the potential for human error or circumvention of controls. Further, the Company’s internal controlover financial reporting is subject to the risk that controls may become inadequate because of a failure to remediate control deficiencies, changes inconditions or a deterioration of the degree of compliance with established policies and procedures.Contingencies. We face uncertainties with regard to regulations, lawsuits and other related matters. In the normal course of business, we are subject toproceedings, lawsuits, claims and other matters, including, for example, those that relate to the environment, health and safety, labor and employment,employee benefits, import/export compliance, intellectual property, data privacy and security, product liability, commercial disputes and regulatorycompliance, among others. Because such matters are subject to many uncertainties, their outcomes are not predictable and we must make certain estimatesand assumptions in our financial statements. While we believe that amounts provided in our Consolidated Financial Statements with respect to such mattersare currently adequate in light of the probable and estimable liabilities, there can be no assurances that the amounts required to satisfy alleged liabilities fromsuch matters will not impact future operating results. Additionally, we are subject to diverse and complex laws and regulations, including those relating tocorporate governance, public disclosure and reporting, environmental safety and the discharge of materials into the environment, product safety, import andexport compliance, data privacy and security, antitrust and competition, government contracting, anti-corruption, and labor and human resources, which arerapidly changing and subject to many possible changes in the future. Compliance with these laws and regulations, including changes in accountingstandards, taxation requirements, and federal securities laws among others, may create a substantial burden on us, and substantially increase costs to ourorganization or could have an impact on our future operating results.Additionally, doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and regulations of the U.S. government andvarious international jurisdictions. For example, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as theForeign Corrupt Practices Act (FCPA), which generally prohibits U.S. companies or agents acting on behalf of such companies from making improperpayments to foreign officials for the purpose of obtaining or keeping business. Our international operations are also subject to economic sanction programsadministered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). If we are not in compliance with such laws and regulations, we maybe subject to criminal and civil penalties, which may cause harm to our reputation and to our brand and could have an adverse effect on our business,financial condition and results of operations.Item 1B. UNRESOLVED STAFF COMMENTSNone.Item 2. PROPERTIESAs of December 31, 2018, NCR operated 208 facilities consisting of approximately 5.6 million square feet in 61 countries throughout the world, which aregenerally used by all of NCR's operating segments. On a square footage basis, 14% of these facilities are owned and 86% are leased. Within the total facilityportfolio, NCR operates 14 research and development and manufacturing facilities totaling 1.4 million square feet, 86% of which is leased. The remaining 4.2million square feet of space includes office, repair, and warehousing space and other miscellaneous sites, and is 86% leased. NCR also owns 7 land parcelstotaling 2.6 million square feet in 2 countries.NCR is headquartered in Atlanta, Georgia, USA. Our address at our corporate headquarters is 864 Spring Street Northwest, Atlanta Georgia, 30308, USA.Item 3. LEGAL PROCEEDINGSInformation regarding legal proceedings is included in Item 8 of Part II of this Report as part of Note 10, "Commitments and Contingencies" of the Notes toConsolidated Financial Statements and is incorporated herein by reference.Item 4. MINE SAFETY DISCLOSURES21Table of ContentsNot applicable.22Table of ContentsPART IIItem 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASESOF EQUITY SECURITIESMarket InformationNCR common stock is listed on the New York Stock Exchange (NYSE) and trades under the symbol “NCR”. There were approximately 85,703 holders ofNCR common stock as of February 15, 2019.DividendsHistorically NCR has not paid cash dividends and does not anticipate the payment of cash dividends on NCR common stock in the immediate future. Thedeclaration of dividends is restricted under our senior secured credit facility and the terms of the indentures for our senior unsecured notes, and would befurther subject to the discretion of NCR’s Board of Directors.Stock Performance GraphThe following graph compares the relative investment performance of NCR stock, the Standard & Poor’s MidCap 400 Stock Index, Standard & Poor’s 500Information Technology Sector and the Standard & Poor’s 500 Stock Index. This graph covers the five-year period from December 31, 2013 throughDecember 31, 2018. Company / Index 2014 2015 2016 2017 2018NCR Corporation $86 $72 $119 $100 $68S&P 500 Stock Index $114 $115 $129 $157 $150S&P 500 Information Technology Sector $120 $127 $145 $201 $201S&P MidCap 400 Stock Index $110 $107 $130 $151 $134(1)In each case, assumes a $100 investment on December 31, 2013, and reinvestment of all dividends, if any.23Table of ContentsPurchase of Company Common StockOn October 19, 2016, the Board approved a share repurchase program, with no expiration from the date of authorization, for the systematic repurchase of theCompany’s common stock to offset the dilutive effects of the Company’s employee stock purchase plan, equity awards and in-kind dividends on theCompany’s Series A Convertible Preferred Stock. Availability under this program accrues quarterly based on the average value of dilutive issuances duringthe quarter.On March 12, 2017, the Board approved a second share repurchase program that provides for the repurchase of up to $300 million of the Company’s commonstock.No shares were repurchased under these programs during the three months ended December 31, 2018.As of December 31, 2018, $290 million was available for repurchases under the March 2017 program, and approximately $323 million was available forrepurchases under the October 2016 dilution offset program. The timing and amount of repurchases under these programs depend upon market conditionsand may be made from time to time in open market purchases, privately negotiated transactions, accelerated stock repurchase programs, issuer self-tenderoffers or otherwise. The repurchases will be made in compliance with applicable securities laws and may be discontinued at any time.The Company occasionally purchases vested restricted stock or exercised stock options at the current market price to cover withholding taxes. For the threemonths ended December 31, 2018, 239,846 shares of vested restricted stock were purchased at an average price of $25.86 per share.The Company’s ability to repurchase its common stock is restricted under the Company’s senior secured credit facility and terms of the indentures for theCompany’s senior unsecured notes, which prohibit certain share repurchases, including during the occurrence of an event of default, and establish limits onthe amount that the Company is permitted to allocate to share repurchases and other restricted payments. The limitations are calculated using formulas basedgenerally on 50% of the Company’s consolidated net income for the period beginning in the third quarter of 2012 through the end of the most recently endedfiscal quarter, subject to certain other adjustments and deductions, with certain prescribed minimums. These formulas are described in greater detail in theCompany’s senior secured credit facility and the indentures for the Company’s senior unsecured notes, each of which is filed with the SEC.24Table of ContentsItem 6. SELECTED FINANCIAL DATAIn millions, except per share and employee and contractor amounts For the years ended December 312018 2017 2016 2015 2014 Continuing Operations (a,d) Revenue$6,405 $6,516 $6,543 $6,373 $6,591 Income from operations$191 $691 $674 $571 $477 Interest expense$(168) $(163) $(170) $(173) $(181) Income tax expense (benefit) (b)$73 $242 $92 $55 $(48) Income (loss) from continuing operations attributable to NCR commonstockholders$(36) $237 $283 $(154) $181 (Loss) income from discontinued operations, net of tax$(52) $(5) $(13) $(24) $10 Basic earnings (loss) per common share attributable to NCR commonstockholders: From continuing operations (a,d)$(0.72) $1.05 $1.86 $(0.94) $1.08 From discontinued operations$(0.44) $(0.04) $(0.10) $(0.15) $0.06 Total basic earnings (loss) per common share$(1.16) $1.01 $1.76 $(1.09) $1.14 Diluted earnings (loss) per common share attributable to NCR commonstockholders: (c) From continuing operations (a,d)$(0.72) $1.01 $1.80 $(0.94) $1.06 From discontinued operations$(0.44) $(0.04) $(0.09) $(0.15) $0.06 Total diluted earnings (loss) per common share$(1.16) $0.97 $1.71 $(1.09) $1.12 Cash dividends per share$— $— $— $— $— As of December 31 Total assets$7,761 $7,654 $7,673 $7,635 $8,566 Total debt$3,165 $2,991 $3,051 $3,252 $3,618 Series A convertible preferred stock$859 $810 $847 $798 $— Total NCR stockholders' equity$395 $719 $695 $720 $1,871 Number of employees and contractors34,000 34,000 33,500 32,600 30,200 (a) Continuing operations excludes the costs and insurance recoveries relating to certain environmental obligations associated with discontinuedoperations, including those relating to the Fox River and Kalamazoo River matters.(b) Income tax expense in 2018 and 2017 includes amounts related to the impact of U.S. Tax Reform. See Note 7, "Income Taxes" in the Notes toConsolidated Financial Statements in Item 8 of Part II of this Report for further discussion.(c) See Note 1, “Basis of Presentation and Significant Accounting Policies” in the Notes to Consolidated Financial Statements in Item 8 of Part II of thisReport for further discussion of the diluted earnings (loss) per common share attributable to NCR common stockholders from continuing operations,discontinued operations and total.(d) The following income (expense) amounts, net of tax are included in income from continuing operations attributable to NCR for the years endedDecember 31:25Table of ContentsIn millions 2018 2017 2016 2015 2014Pension mark-to-market adjustments $44 $(25) $(78) $(445) $(63)Transformation and restructuring costs (182) (20) (21) (50) (116)Acquisition related amortization of intangibles (68) (79) (83) (85) (80)Acquisition related costs (5) (3) (5) (8) (20)Divestiture and liquidation losses — — (5) (29) —Reserve related to subcontract in MEA — — — (13) —OFAC and FCPA investigations — — — — (2)Goodwill and long-lived asset impairment charges (174) — — — —U.S. Tax reform and other valuation allowances (45) (130) — — —Total $(430) $(257) $(192) $(630) $(281)26Table of ContentsIndex to Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) PageBusiness Overview282018 Overview28Overview of Strategic Initiatives and Trends28Results of Operations30Financial Condition, Liquidity and Capital Resources37Critical Accounting Policies and Estimates40Recently Issued Accounting Pronouncements4627Table of ContentsItem 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)BUSINESS OVERVIEWNCR is a leading software- and services-led enterprise provider in the financial, retail, hospitality and telecommunications and technology industries, withbusiness in 180 countries. NCR offers a range of solutions that help businesses of all sizes compete in an ever-evolving landscape of physical and digitalconsumers by providing software, advisory and consulting services, hardware, support and managed services that run businesses end to end. Our portfolioincludes, but is not limited to, digital first offerings for banking, restaurants and retailers as well as payments, multi-vendor connected device services,automated teller machines (ATMs), point of sale (POS) terminals and self-service technologies. We also resell third-party networking products and providerelated service offerings in the telecommunications and technology sectors. Our solutions create value for our customers by increasing productivity andallowing them to address consumer demand for convenience, value and individual service across different commerce channels using a digital first approach.We have three operating segments: Software, Services and Hardware. Each of our operating segments derives its revenue in each of the sales theaters in whichNCR operates. As of January 1, 2019, NCR began management of its business on an industry basis, changing from the previous model of management on asolution basis. This change to our segment reporting for fiscal year 2019 and future periods is further described in Note 1, "Description of Business andSignificant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.NCR provides specific solutions for customers of varying sizes in the industries we serve. NCR's solutions are built on a foundation of long-establishedindustry knowledge and expertise.NCR’s reputation is founded upon over 134 years of providing quality products, services and solutions to our customers. At the heart of our customer andother business relationships is a commitment to acting responsibly, ethically and with the highest level of integrity. This commitment is reflected in NCR’sCode of Conduct, which is available on the Corporate Governance page of our website. 2018 OVERVIEWAs more fully discussed in later sections of this MD&A, the following were significant themes and events for 2018:•Revenue was $6.4 billion, which decreased 2% from the prior year, driven by lower Hardware revenue;•Software revenue increased 1% from the prior year, driven by cloud revenue growth of 7%;•Services revenue increased 4% and operating margin rate expanded 110 basis points from the prior year;•Hardware revenue decreased 9% and operating margin rate declined 590 basis points from the prior year;•Recurring revenue, which includes cloud, software maintenance and hardware maintenance, increased 3% from the prior year and comprised 46% oftotal revenue;•Cash flows from operations and free cash flow were $572 million and $223 million, respectively, in 2018;•Completed the acquisition of JetPay Corporation to expand our offerings to include end-to-end payment processing; and•We repurchased approximately 6.1 million shares of our common stock for $210 million during the twelve months ended December 31, 2018.OVERVIEW OF STRATEGIC INITIATIVES AND TRENDSThe rise of digital first commerce, mobile engagement and globalization have dramatically altered the relationship between business and consumer.Increasingly, mega-trends such as big data, the Internet of things and the cloud are driving the next generation of changes in consumer behavior. Consumersnow expect businesses to provide a rich, integrated and personalized experience across all commerce channels, including online, mobile and in-store. NCR isat the forefront of this commerce shift, assisting businesses of every size in their digital first channel transformation journeys. Our mission is to be the leadingsoftware- and services-led enterprise provider in the financial, retail, hospitality and telecommunications and technology industries, with solutions designedto allow businesses in the industries we serve to deliver a rich, integrated and personalized experience to consumers across digital and physical commercechannels, enabling our customers to move their business forward in a digital first environment. To fulfill this mission, we have developed a long-term growthstrategy built on taking better care of our customers, improving execution of new product introductions, accelerating revenue growth and executing spendoptimization programs. We believe that our mission and long-term strategy position NCR to continue to drive growth, sustainable revenue, profit and cashflow, and to improve value for all of our stakeholders.To deliver on our mission and strategy, we are focused on the following main initiatives in 2019:28Table of Contents•Customer Care - Improve the customer experience and execution of new product introductions;•Stockholder Value - Accelerate profitable top-line revenue growth by investing in and shifting our revenue mix to recurring software and servicesrevenue streams we identify as strategic growth platforms, while improving the Company’s cost structure;•Strategic Growth Platforms and Targeted Acquisitions - Increase capital expenditures in strategic growth platforms and target acquisitions to gainsolutions that drive the highest growth and return on investment;•Talent and Employee Care - Develop, reward and retain talent with competitive recruiting, training and effective incentive-based compensationprograms; and•Sales Enablement - Provide our sales force with top-performing and secure products packaged to target our desired revenue mix and drive customerdelight and stockholder value, as well as invest in appropriate training programs to enable success.Potentially significant risks to the execution of our initiatives and achievement of our strategy include the strength of demand for the products we offer orwill offer in the future consistent with our strategy and its effect on our businesses; domestic and global economic and credit conditions including, inparticular, those resulting from the imposition or threat of protectionist trade policies or import or export tariffs, global and regional market conditions andspending trends in the financial, retail and hospitality industries, modified or new global or regional trade agreements, the determination by the UnitedKingdom to exit the European Union and the execution of the same; uncertainty over further potential changes in Eurozone participation and fluctuations inoil and commodity prices; our ability to transform our business model and to sell higher-margin software and services with recurring revenue, including ourability to successfully streamline our hardware operations; the success of our restructuring plans and spend optimization program; our ability to improveexecution of new product offering or integration of acquired product offerings; market acceptance of new solutions; competition in the informationtechnology industry; cybersecurity risks and compliance with data privacy and protection requirements; disruptions in or problems with our data centerhosting facilities; defects or errors in our products; the historical seasonality of our sales; tax rates and new US tax legislation; and foreign currencyfluctuations.Cybersecurity Risk ManagementSimilar to most companies, NCR is subject to more frequent and increasingly sophisticated cybersecurity attacks. The Company maintains cybersecurity riskmanagement policies and procedures including disclosure controls, which it regularly evaluates for updates, for handling and responding to cybersecurityevents. These policies and procedures include internal notifications and engagements and, as necessary, cooperation with law enforcement. Personnelinvolved in handling and responding to cybersecurity events periodically undertake tabletop exercises to simulate an event. The internal notificationprocedures include notifying the applicable Company attorneys, which, depending on the level of severity assigned to the event, may include direct noticeto, among others, the Company’s General Counsel, Ethics & Compliance Officer, and Chief Privacy Officer. Company attorneys support efforts to evaluatethe materiality of any incidents, determine whether notice to third parties such as customers or vendors is required, determine whether any prohibition oninsider trading is appropriate, and assess whether disclosure to stockholders or governmental filings, including with the SEC, are required. The internalnotification procedures also include notifying various NCR Information Technology Services managers, subject matter experts in the Company’s softwaredepartment and Company leadership, depending on the level of severity assigned to the event.For further information on potential risks and uncertainties see Item 1A "Risk Factors."29Table of ContentsRESULTS OF OPERATIONSThe following table shows our results for the years ended December 31:In millions 2018 2017 2016Revenue $6,405 $6,516 $6,543Gross margin 1,675 1,855 1,818Gross margin as a percentage of revenue 26.2% 28.5% 27.8%Operating expenses Selling, general and administrative expenses $1,005 $923 $904 Research and development expenses 252 241 225 Restructuring-related charges — — 15 Asset impairment charges 227 — —Income from operations $191 $691 $674The following tables show our revenue by geographic theater for the years ended December 31:In millions2018% of Total 2017% of Total % Increase(Decrease)% Increase(Decrease)ConstantCurrency (1)Americas$3,70758% $3,80959% (3)%(2)%Europe, Middle East Africa (EMEA)1,75127% 1,78627% (2)%(4)%Asia Pacific (APJ)94715% 92114% 3%4%Consolidated revenue$6,405100% $6,516100% (2)%(2)%In millions2017% of Total 2016% of Total % Increase(Decrease)% Increase(Decrease)AdjustedConstantCurrency (1)Americas$3,80959% $3,74357% 2%4%Europe, Middle East Africa (EMEA)1,78627% 1,89629% (6)%(4)%Asia Pacific (APJ)92114% 90414% 2%3%Consolidated revenue$6,516100% $6,543100% —%1%The following table shows our revenue by segment for the years ended December 31:In millions2018% of Total 2017% of Total % Increase(Decrease)% Increase(Decrease)ConstantCurrency (1)Software$1,91230% $1,90029% 1%1%Services2,46038% 2,37337% 4%4%Hardware2,03332% 2,24334% (9)%(9)%Consolidated revenue$6,405100% $6,516100% (2)%(2)%In millions2017% of Total 2016% of Total % Increase(Decrease)% Increase(Decrease)AdjustedConstantCurrency (1)Software$1,90029% $1,84128% 3%3%Services2,37337% 2,30635% 3%3%Hardware2,24334% 2,39637% (6)%(2)%Consolidated revenue$6,516100% $6,543100% —%1%30Table of Contents(1) The tables above include presentations of period-over-period revenue growth or decline on an adjusted constant currency or constant currency basis.Revenue growth on a constant currency basis is a non-GAAP measure that excludes the effects of foreign currency fluctuations. We calculate this informationby translating prior period revenue growth at current period monthly average exchange rates. Revenue growth on an adjusted constant currency basisexcludes the effects of foreign currency fluctuations and the impact of the IPS divestiture, and is calculated by translating prior period revenue growth atcurrent period monthly average exchange rates and, for the 2017 comparison, by excluding the prior period results of the divested IPS business for thecomparable period after the completion of the sale in May 2016. We believe that examining period-over-period revenue growth or decline excluding foreigncurrency fluctuations and adjusting for the impact of the IPS divestiture is useful for assessing the underlying performance of our business and providesadditional insight into historical and/or future performance, and our management uses revenue growth adjusted for constant currency and the impact of theIPS divestiture to evaluate period-over-period operating performance on a more consistent and comparable basis. These non-GAAP measures should not beconsidered substitutes for, or superior to, period-over-period revenue growth under GAAP.The following table provides a reconciliation of region revenue % growth (GAAP) to revenue % growth adjusted constant currency (non-GAAP) for the yearsended December 31: 2018 2017 Revenue %Growth(GAAP)Favorable(unfavorable)FX impactRevenue %GrowthConstantCurrency (non-GAAP) Revenue %Growth(GAAP)Favorable(unfavorable)FX impactDivestitureImpactRevenue %GrowthAdjustedConstantCurrency(non-GAAP)Americas(3)%(1)%(2)% 2%—%(2)%4%EMEA(2)%2%(4)% (6)%(1)%(1)%(4)%APJ3%(1)%4% 2%1%(2)%3%Consolidated revenue(2)%—%(2)% —%—%(1)%1%The following table provides a reconciliation of segment revenue % growth (GAAP) to revenue % growth adjusted constant currency (non-GAAP) for theyears ended December 31: 2018 2017 Revenue %Growth(GAAP)Favorable(unfavorable)FX impactRevenue %GrowthConstantCurrency (non-GAAP) Revenue %Growth(GAAP)Favorable(unfavorable) FXimpactDivestitureImpactRevenue %GrowthAdjustedConstantCurrency(non-GAAP)Software1%—%1% 3%—%—%3%Services4%—%4% 3%—%—%3%Hardware(9)%—%(9)% (6)%1%(5)%(2)%Consolidated Revenue(2)%—%(2)% —%—%(1)%1%2018 compared to 2017 results discussionRevenueRevenue decreased 2% in 2018 from 2017 due to lower Hardware revenue. The decline in Hardware revenue was partially offset by growth in Services andSoftware revenue. Foreign currency fluctuations did not have an impact on the revenue comparison.Software revenue increased 1% due to growth in cloud revenue of 7% and professional services revenue of 2% which was partially offset by a decrease insoftware license revenue of 8%. Services revenue increased 4% from 2017 driven by growth in both implementation services and hardware maintenanceservices. Hardware revenue was down 9% due to declines in Automated Teller Machine (ATM) revenue, self-checkout (SCO) revenue and point-of-sale (POS)revenue.31Table of ContentsGross MarginGross margin as a percentage of revenue was 26.2% in 2018 compared to 28.5% in 2017. Gross margin for the year ended December 31, 2018 included $102million related to restructuring and transformation costs and $23 million related to amortization of acquisition-related intangible assets. Gross margin for theyear ended December 31, 2017 included $11 million related to restructuring and transformation costs and $50 million related to amortization of acquisitionrelated intangible assets. Excluding these items, gross margin as a percentage of revenue decreased from 29.4% to 28.1%.For the year ended December 31, 2018, gross margin as a percentage of revenue expanded in our Services segment, which reflects the results of our strategicfocus on business process improvement initiatives and a mix shift towards higher value managed services. The Services gross margin rate expansion wasoffset by a decline in our Software and Hardware segments. The decline in Software gross margin rate was primarily due to lower software license revenue aswell as higher mix of third party software content. The decline in Hardware gross margin rate was due to increased costs associated with alleviating supplychain constraints which were largely resolved by the end of 2018 as we executed our manufacturing network redesign strategy.2017 compared to 2016 results discussionRevenueRevenue was flat in 2017 from 2016 due to growth in Software and Services revenue offset by lower Hardware revenue. Foreign currency fluctuations did nothave a significant impact on the revenue comparison and the IPS divestiture unfavorably impacted the revenue comparison by 1%.Software revenue increased 3% driven by growth in cloud, software maintenance and professional services. Services revenue increased 3% from 2016 drivenby growth in both implementation services and hardware maintenance services. Hardware revenue was down 6% due to declines in Automated TellerMachine (ATM) revenue and consumables revenue as a result of the IPS divestiture, offset by increases in self-checkout (SCO) revenue and point-of-sale(POS) revenue.Gross MarginGross margin as a percentage of revenue was 28.5% in 2017 compared to 27.8% in 2016. Gross margin for the year ended December 31, 2017 included $11million related to restructuring and transformation costs and $50 million related to amortization of acquisition related intangible assets. Gross margin for theyear ended December 31, 2016 included $4 million related to restructuring and transformation costs and $58 million related to amortization of acquisition-related intangible assets. Excluding these items, gross margin as a percentage of revenue increased from 28.7% to 29.4% driven by continued focus onproductivity improvements in our Services segment.Effects of Pension, Postemployment, and Postretirement Benefit PlansNCR's income from continuing operations for the years ended December 31 was impacted by certain employee benefit plans as reflected in the table below:In millions2018 2017 2016Pension (benefit) expense$(31) $36 $103Postemployment expense40 24 10Postretirement (benefit)(4) (3) (11)Total expense$5 $57 $102In 2018, pension benefit was $31 million compared to pension expense of $36 million in 2017 and pension expense of $103 million in 2016. In 2018,pension benefit included actuarial gains of $45 million compared to actuarial losses of $28 million in 2017 and $85 million in 2016. Actuarial gains in 2018were due to an increase in the discount rates as well as a favorable impact from a mortality update in the United Kingdom. Discount rates in 2017 remainedconsistent with 2016 and actuarial losses in 2017 were primarily due to a mortality update in the United States. Actuarial losses in 2016 were due to adecrease in the discount rates from the prior year, offset by a higher than expected return on global pension assets.32Table of ContentsThe components of pension, postemployment and postretirement, other than service cost, are included in other income (expense), net for all periodspresented. Service cost is included within the income statement line items within income from operations as other employee compensation costs arising fromservice rendered during the periods presented.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased $82 million to $1,005 million in 2018 from $923 million in 2017. As a percentage of revenue, theseexpenses were 15.7% in 2018 and 14.2% in 2017. In 2018, selling, general and administrative expenses included $67 million of transformation andrestructuring costs, $62 million of acquisition-related amortization of intangibles and $6 million of acquisition-related costs. In 2017, selling, general andadministrative expenses included $14 million of transformation and restructuring costs, $65 million of acquisition-related amortization of intangibles and $5million of acquisition-related costs. Excluding these items, selling, general and administrative expenses increased as a percentage of revenue from 12.9% in2017 to 13.6% in 2018 due to continued investment in the business.Selling, general, and administrative expenses decreased $19 million to $923 million in 2017 from $904 million in 2016. As a percentage of revenue, theseexpenses were 14.2% in 2017 and 13.8% in 2016. In 2017, selling, general, and administrative expenses included $14 million of transformation andrestructuring costs, $65 million of acquisition-related amortization of intangibles and $5 million of acquisition-related costs. In 2016, selling, general, andadministrative expenses included $7 million of transformation and restructuring costs, $65 million of amortization of acquisition-related intangible assetsand $7 million of acquisition-related costs. Excluding these items, selling, general and administrative expenses increased as a percentage of revenue from12.6% in 2016 to 12.9% in 2017 due to increased sales investment as we expanded our strategic offers and go to market strategy.Research and Development ExpensesResearch and development expenses increased $11 million to $252 million in 2018 from $241 million in 2017. As a percentage of revenue, these costs were3.9% in 2018 and 3.7% in 2017. In 2018, research and development expenses included $10 million of costs related to our transformation and restructuringcosts. In 2017, research and development expenses included $4 million of transformation costs. After considering this item, research and developmentexpenses increased slightly from 3.6% in 2017 to 3.8% in 2018.Research and development expenses increased $16 million to $241 million in 2017 from $225 million in 2016. As a percentage of revenue, these costs were3.7% in 2017 and 3.4% in 2016. In 2017, research and development expenses included $4 million of transformation costs. After considering this item,research and development expenses increased from 3.4% in 2016 to 3.6% in 2017 driven by planned incremental investments to further advance our softwareand hardware solutions.Asset Impairment ChargesIn 2018, asset impairment charges were $227 million which included a $146 million impairment of goodwill assigned to the Hardware reporting unit anda $37 million impairment charge related to long-lived assets held and used in our Hardware operations. Refer to Note 4, "Goodwill and Purchased IntangibleAssets" of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for additional discussion. Additionally, in 2018, werecorded $44 million for the write-off of certain internal and external use software capitalization projects that are no longer considered strategic based onreview by the new management team and as a result, the projects have been abandoned. In 2017 and 2016, there were no significant asset impairment chargesrecorded.Restructuring-Related ChargesIn 2016, the Company recorded restructuring-related charges of $15 million related to the restructuring program announced in July 2014. The charges consistof severance and other employee related costs of $4 million, other exit costs of $9 million and asset-related charges of $2 million. This program wascompleted during 2016 and therefore, no additional charges are included in 2017 and 2018.Interest ExpenseInterest expense was $168 million in 2018 compared to $163 million in 2017 and $170 million in 2016. Interest expense in all years was primarily related tothe Company's senior unsecured notes and borrowings under the Company's senior secured credit facility.Other Income (Expense), netOther income (expense), net was income of $16 million in 2018, expense of $46 million in 2017 and expense of $125 million in 2016, with the componentsreflected in the following table:33Table of ContentsIn millions2018 2017 2016Interest income$5 $3 $4Foreign currency fluctuations and foreign exchange contracts(26) (26) (40)Bank-related fees(8) (8) (8)Employee benefit plan45 (15) (75)Divestiture and liquidation losses— — (6)Other income (expense), net$16 $(46) $(125)Income TaxesOur effective tax rate was 187% in 2018, 50% in 2017, and 24% in 2016. During 2018, our tax rate was impacted by lower income before tax as well as ourfinal assessment of the impact as a result of U.S. Tax Reform enacted in December 2017. We filed tax method changes that resulted in lower deferred taxassets subject to the downward rate remeasurement, and we recorded a valuation allowance on deferred tax assets related to foreign tax credits not able to beutilized as a result of U.S. Tax Reform. The net impact of these adjustments was an income tax expense of $37 million. During 2017, our tax rate wasimpacted by a $130 million provisional expense primarily related to the application of the newly enacted 21% corporate income tax rate to our net U.S.deferred income tax assets and the repatriation tax. During 2016, our tax rate was impacted by a less favorable mix of earnings, primarily driven by actuarialpension losses in foreign jurisdictions with a valuation allowance against deferred tax assets.During the year ended December 31, 2018, the Company identified two out of period adjustments that net to $2 million of income tax benefit. The firstadjustment was due to an error in the calculation of deferred tax liabilities associated with software capitalization resulting in $13 million of income taxbenefit which should have been recorded in the fourth quarter of 2017 when deferred taxes were remeasured in connection with U.S. Tax Reform. The secondadjustment was to write-off income tax assets related to expired foreign tax credits resulting in $11 million of income tax expense which should have beenrecorded between 2010 through 2017. The Company determined the impact of these errors was not material to the annual or interim financial statements ofprevious periods and the effect of correcting these errors was not material to 2018 annual financial statements.During 2018, the Internal Revenue Service (IRS) finalized an examination of our 2011, 2012 and 2013 income tax returns. We also concluded audits in Israeland Korea. While we are subject to numerous federal, state and foreign tax audits, we believe that appropriate reserves exist for issues that might arise fromthese audits. Should these audits be settled, the resulting tax effect could impact the tax provision and cash flows in future periods. During 2019, theCompany expects to resolve certain tax matters related to U.S. and foreign jurisdictions. These resolutions could have a material impact on the effective taxrate in 2019.We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of adeferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based onthe evaluation of positive and negative evidence. This evidence includes historical taxable income/loss, projected future taxable income, the expectedtiming of the reversal of existing temporary differences and the implementation of tax planning strategies. Given current earnings and anticipated futureearnings at certain subsidiaries, the Company believes that there is a reasonable possibility sufficient positive evidence may become available that wouldallow the release of a valuation allowance within the next twelve months.Loss from Discontinued OperationsIn 2018, loss from discontinued operations was $52 million, net of tax, primarily related to updates in estimates and assumptions for the Fox River reserve, aruling on the Kalamazoo environmental matter as well as audit settlements partially related to Teradata.In 2017, loss from discontinued operations was $5 million, net of tax, primarily related to updates in estimates and assumptions for the Fox River reservepartially offset by insurance recoveries received during the year.In 2016, loss from discontinued operations was $13 million, net of tax, primarily related to updates in estimates and accruals for litigation expenses related tothe Fox River reserve.Revenue and Operating Income by Segment34Table of ContentsAs described in Note 13, “Segment Information and Concentrations” of the Notes to Consolidated Financial Statements, the Company managed and reportedits businesses through December 31, 2018 in the following segments:•Software - Our software offerings include industry-based software platforms, applications and application suites for the financial services, retail,hospitality and small business industries. We also offer a portfolio of other industry-oriented software applications, including cash managementsoftware, video banking software, fraud and loss prevention applications, check and document imaging, remote-deposit capture and customer-facingmobile and digital banking applications for the financial services industry, and secure electronic and mobile payment solutions, sector-specificpoint of sale software applications, and back-office inventory and store and restaurant management applications for the retail and hospitalityindustries. Additionally, we provide ongoing software support and maintenance services, as well as consulting and implementation services for oursoftware solutions.•Services - Our global end-to-end services solutions include assessment and preparation, staging, installation, implementation, and maintenance andsupport for our solutions. We also provide systems management and complete managed services for our product offerings. In addition, we provideinstallation, maintenance and servicing for third party networking products and computer hardware from select manufacturers.•Hardware - Our hardware solutions include our suite of financial-oriented self-service ATM-related hardware, and our retail- and hospitality-oriented point of sale terminal, self-checkout kiosk and related hardware. We also offer other self-service kiosks, such as self-check in/out kiosks forairlines, and wayfinding solutions for buildings and campuses.Each of these segments derives its revenue by selling in the sales theaters in which NCR operates. Segments are measured for profitability by the Company’schief operating decision maker based on revenue and segment operating income. For purposes of discussing our operating results by segment, we exclude theimpact of certain non-operational items from segment operating income, consistent with the manner by which management reviews each segment, evaluatesperformance, and reports our segment results under GAAP. 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 NCR management to make decisions regarding the segments and to assess our financial performance. Oursegment results are reconciled to total Company results reported under GAAP in Note 13, “Segment Information and Concentrations” of the Notes toConsolidated Financial Statements included in Item 8 of Part II of this Report.In the segment discussions below, we have disclosed the impact of foreign currency fluctuations and the IPS divestiture as it relates to our segment revenuedue to their significance.Software SegmentThe following table presents the Software revenue and segment operating income for the years ended December 31: In millions2018 2017 2016Revenue$1,912 $1,900 $1,841Operating income$492 $563 $573Operating income as a percentage of revenue25.7% 29.6% 31.1%Software revenue increased 1% in 2018 compared to 2017 driven by growth in cloud revenue of 7% and professional services revenue of 2%, offset by adecline in software license revenue of 8% as well as software maintenance of 2%. Cloud revenue increased due to additional revenue from existing customers.Professional services revenue grew due to demand for the Company's channel transformation and digital enablement solutions. Software license revenuedeclined due to lower software license revenue attached to hardware. Software maintenance revenue declined due to lower software license sales from priorperiods. Foreign currency fluctuations had no impact on the revenue comparison.Software revenue increased 3% in 2017 compared to 2016 driven by growth in cloud revenue of 6%, software maintenance revenue of 1%, professionalservices revenue of 5%, offset by a decline in software license revenue of 1%. Cloud revenue increased due to prior period bookings. Software maintenancerevenue grew due to software license growth in prior periods. Professional services revenue grew due to demand for the Company's channel transformationand digital enablement solutions. Software license revenue declined due to lower software license revenue attached to hardware. Foreign currencyfluctuations had no impact on the revenue comparison.35Table of ContentsOperating income decreased in 2018 compared to 2017 primarily driven by lower software license revenue as well as higher third party software content.Operating income decreased in 2017 compared to 2016 driven by decrease in software license revenue but partially offset by improved efficiency in cloudand software maintenance.Services SegmentThe following table presents the Services revenue and segment operating income for the years ended December 31: In millions2018 2017 2016Revenue$2,460 $2,373 $2,306Operating income$321 $282 $198Operating income as a percentage of revenue13.0% 11.9% 8.6%Services revenue increased 4% in 2018 compared to 2017 primarily driven by increased customer demand in managed services offerings and increasedsatisfaction from existing customers. Foreign currency fluctuations had no impact on the revenue comparison.Services revenue increased 3% in 2017 compared to 2016 primarily driven by growth in implementation services as well as hardware maintenance as a resultof our focus on improving the customer experience. Foreign currency fluctuations had no impact on the revenue comparison.Operating income increased in 2018 compared to 2017 primarily due to higher revenue and sustainable improvements achieved through our Servicestransformation initiatives. Operating income increased in 2017 compared to 2016 primarily driven by continued focus on productivity and efficiencyimprovements.Hardware SegmentThe following table presents the Hardware revenue and segment operating income for the years ended December 31: In millions2018 2017 2016Revenue$2,033 $2,243 $2,396Operating (loss) income$(125) $(5) $59Operating (loss) income as a percentage of revenue(6.1)% (0.2)% 2.5%Hardware revenue decreased 9% in 2018 compared to 2017 driven by declines in ATM revenue of 3%, self-checkout revenue of 15% and point-of-salerevenue of 12%. While there were supply chain constraints throughout the year due to increased demand for our new ATM product family, by the end of theyear, we largely resolved supply chain constraints and our overall plan to improve manufacturing operations were progressing with strong production levelsexiting the year. Self-checkout revenue decreased due to the timing of customer roll-outs in the current year. Point-of-sale revenue declined due to severallarge customer roll-outs in the prior year. Foreign currency fluctuations had no impact on the revenue comparison.Hardware revenue decreased 6% in 2017 compared to 2016 driven by the impact of the IPS divestiture in the prior year and declines in ATM revenueof 17% partially offset by growth in self-checkout revenue of 16% and point-of-sale revenue of 20%. Self-checkout revenue increased due to storetransformation. Point-of-sale revenue increased due to growth from a new solution in the petroleum and convenience sector. ATM revenue decreased mainlydue to due to delays in customer spending in North America as well as declines in the Middle East and Africa. Foreign currency fluctuations positivelyimpacted the year-over-year comparison by 1% and the IPS divestiture negatively impacted the year-over-year revenue comparison by 5%.Operating income decreased in 2018 compared to 2017 driven by lower revenue, an unfavorable product mix, pricing pressure, and higher cost associatedwith improving the supply chain constraints. Operating income decreased in 2017 compared to 2016 driven by lower volume and the impact on new productintroductions.36Table of ContentsFINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCESIn the year ended December 31, 2018, cash provided by operating activities was $572 million and in the year ended December 31, 2017 cash provided byoperating activities was $752 million. The decrease was due to lower earnings and lower working capital.NCR’s management uses a non-GAAP measure called “free cash flow” to assess the financial performance of the Company. We define free cash flow as netcash provided by (used in) operating activities and cash provided by (used in) discontinued operations, less capital expenditures for property, plant andequipment, less additions to capitalized software plus discretionary pension contributions and settlements. Free cash flow does not have a uniform definitionunder GAAP, and therefore NCR’s definition of this measure may differ from that of other companies. We believe free cash flow information is useful forinvestors because it relates the operating cash flows from the Company’s continuing and discontinued operations to the capital that is spent and to improvebusiness operations. In particular, free cash flow indicates the amount of cash available after capital expenditures for, among other things, investments in theCompany’s existing businesses, strategic acquisitions and investments, repurchase of NCR stock and repayment of debt obligations. Free cash flow does notrepresent the residual cash flow available for discretionary expenditures, since there may be other non-discretionary expenditures that are not deducted fromthe measure. This non-GAAP measure should not be considered a substitute for, or superior to, cash flows from operating activities under GAAP. The tablebelow reconciles net cash provided by (used in) operating activities, the most directly comparable GAAP measure, to NCR’s non-GAAP measure of free cashflow for the years ended December 31: In millions2018 2017 2016Net cash provided by operating activities$572 $752 $896Capital expenditures for property, plant and equipment(143) (128) (73)Additions to capitalized software(170) (166) (154)Net cash used in discontinued operations(36) (8) (39)Pension discretionary contributions and settlements— — —Free cash flow (non-GAAP)$223 $450 $630In 2018, net cash provided by operating activities decreased $180 million, and net cash used in discontinued operations increased $28 million, whichcontributed to a net decrease in free cash flow of $227 million in comparison to 2017. Additionally, capital expenditures for property, plant and equipmentincreased $15 million primarily due to expenditures related to the new global headquarters in Atlanta Georgia. Additions to capitalized software increased $4million due to continued investment in software solution enhancements. The net cash used in discontinued operations in 2018 increased $28 million incomparison to 2017 primarily due to increased remediation spend associated with the Fox River environmental matters in 2018.In 2017, net cash provided by operating activities decreased $144 million, and net cash used in discontinued operations decreased $31 million, whichcontributed to a net decrease in free cash flow of $180 million in comparison to 2016. Additionally, capital expenditures for property, plant andequipment increased $55 million primarily due to expenditures related to the new global headquarters in Atlanta Georgia. Expenditures related to the newglobal headquarters were approximately $60 million offset by approximately $44 million of reimbursements by the lessor which was included in net cashprovided by operating activities. Additions to capitalized software increased $12 million due to continued investment in software solution enhancements.The net cash used in discontinued operations in 2017 was lower than 2016 primarily due to decreased litigation payments associated with the Fox River andKalamazoo environmental matters as well as insurance settlements received in 2017.Financing activities and certain other investing activities are not included in our calculation of free cash flow. Our other investing activities primarilyinclude business acquisitions, divestitures and investments as well as proceeds from the sales of property, plant and equipment.Our financing activities primarily include proceeds from the issuance of preferred stock, employee stock plans, borrowings on term credit facilities and theissuance of unsecured notes, as well as payments made for share repurchases, repayments of term credit facilities and tax withholding on behalf of employees.During the years ended December 31, 2018, 2017, and 2016, we repurchased a total of $210 million, $350 million and $250 million, respectively, of ourcommon stock. During the years ended December 31, 2018, 2017 and 2016, proceeds from employee stock plans was $20 million, $15 million and $15million, respectively. During the years ended December 31, 2018, 2017 and 2016, payments made for tax withholding on behalf of employees totaled $36million, $31 million and $16 million, respectively.Long Term Borrowings As of December 31, 2018, our senior secured credit facility consisted of a term loan facility with an aggregate principal amountoutstanding of $759 million, and a revolving credit facility in an aggregate principal amount of $1.10 billion, of which $120 million was outstanding.Additionally, the revolving credit facility has up to $400 million available to certain foreign subsidiaries.37Table of ContentsLoans under the revolving credit facility are available in U.S. Dollars, Euros and Pound Sterling. The revolving credit facility also allows a portion of theavailability to be used for outstanding letters of credit, and as of December 31, 2018, there were no letters of credit outstanding. As of December 31, 2017, theoutstanding principal balance of the term loan facility was $810 million and no amounts were outstanding under the revolving credit facility.As of December 31, 2018 and 2017, we had outstanding $700 million in aggregate principal balance of 6.375% senior unsecured notes due 2023, $600million in aggregate principal balance of 5.00% senior unsecured notes due 2022, $500 million in aggregate principal balance of 4.625% senior unsecurednotes due 2021 and $400 million in aggregate principal balance of 5.875% senior unsecured notes due 2021.Our revolving trade receivables securitization facility provides the Company with up to $200 million in funding based on the availability of eligiblereceivables and other customary factors and conditions. As of December 31, 2018 and December 31, 2017, the Company had $100 million and zero,respectively, outstanding under the facility.See Note 6, "Debt Obligations" of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for further information on thesenior secured credit facility, the senior unsecured notes and the trade receivables securitization facility.Employee Benefit Plans We expect to make pension, postemployment and postretirement plan contributions of approximately $60 million in 2019. SeeNote 9, “Employee Benefit Plans” of the Notes to the Consolidated Financial Statements included in Item 8 of Part II of this Report for additional discussionon our pension, postemployment and postretirement plans.Transformation and Restructuring Initiatives Our previously announced transformation and restructuring initiatives continue to progress on track. InServices, our performance and profit improvement program continues to deliver revenue growth and margin expansion. In Hardware, we are continuing themove to a more variable cost structure by reducing the number of manufacturing plants and ramping up production with contract manufacturers.Additionally, we have announced a spend optimization program to drive cost savings through operational efficiencies to generate at least $100 million ofsavings in 2019. This initiative will create efficiencies in our corporate functions, reduce spend in the non-strategic areas and limit discretionary spending. In2019, for all initiatives, we expect to incur a pre-tax charge of $60 million and a cash impact of $70 million to $80 million.Series A Convertible Preferred Stock On December 4, 2015, NCR issued 820,000 shares of Series A Convertible Preferred Stock to certain entities affiliatedwith the Blackstone Group L.P. (collectively, Blackstone) for an aggregate purchase price of $820 million, or $1,000 per share, pursuant to an InvestmentAgreement between the Company and Blackstone, dated November 11, 2015. In connection with the issuance of the Series A Convertible Preferred Stock, theCompany incurred direct and incremental expenses of $26 million. These direct and incremental expenses reduced the Series A Convertible Preferred Stock,and will be accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date, March 16,2024. Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 5.5% per annum, payable quarterly in arrears andpayable in-kind for the first sixteen dividend payments, after which, beginning in the first quarter of 2020, dividends will be payable in cash or in-kind at theoption of the Company. During the year ended December 31, 2018 and 2017, the Company paid dividends-in-kind of $46 million and $45 millionrespectively, associated with the Series A Convertible Preferred Stock. As of December 31, 2018 and 2017, the Company had accrued dividends of $3 millionand $3 million, respectively. There were no cash dividends declared in the years ended December 31, 2018 and 2017.The Series A Convertible Preferred Stock is convertible at the option of the holders at any time into shares of common stock at a conversion price of $30.00per share and a conversion rate of 33.333 shares of common stock per share of Series A Convertible Preferred Stock. As of December 31, 2018 and 2017, themaximum number of common shares that could be required to be issued if converted was 29.0 million and 27.5 million shares, respectively, which wouldrepresent approximately 20% and 18% of our outstanding common stock as of December 31, 2018 and 2017 including the preferred shares on an as-converted basis.Under the Investment Agreement, Blackstone agreed not to sell or otherwise transfer its shares of Series A Convertible Preferred Stock (or any shares ofcommon stock issued upon conversion thereof) without the Company’s consent until June 4, 2017. In March 2017, we provided Blackstone with an earlyrelease from this lock-up, allowing Blackstone to sell approximately 49% of its shares of Series A Convertible Preferred Stock, and in return, Blackstoneagreed to amend the Investment Agreement to extend the lock-up on the remaining 51% of its shares of Series A Convertible Preferred Stock for six monthsuntil December 1, 2017.In connection with the early release of the lock-up, Blackstone offered for sale 342,000 shares of Series A Convertible Preferred Stock in an underwrittenpublic offering. In addition, Blackstone converted 90,000 shares of Series A Convertible Preferred Stock into shares of our common stock and we repurchasedthose shares of common stock for $48.47 per share. The underwritten offering and the stock repurchase were consummated on March 17, 2017.38Table of ContentsCash and Cash Equivalents Held by Foreign Subsidiaries Cash and cash equivalents held by the Company's foreign subsidiaries were $443 million and$442 million at December 31, 2018 and 2017, respectively. As a result of U.S. Tax Reform, including the repatriation tax, in general we will not be subject toadditional U.S. taxes if cash and cash equivalents and short-term investments held outside the U.S. are distributed to the U.S. in the form of dividends orotherwise. However, we may be subject to foreign withholding taxes, which could be significant.Summary As of December 31, 2018, our cash and cash equivalents totaled $464 million and our total debt was $3.18 billion. Our borrowing capacity underour senior secured credit facility was $980 million and under our trade receivables securitization facility was $100 million at December 31, 2018. Our abilityto generate positive cash flows from operations is dependent on general economic conditions, and the competitive environment in our industry, and issubject to the business and other risk factors described in Item 1A of Part I of this Report. If we are unable to generate sufficient cash flows from operations, orotherwise comply with the terms of our credit facilities, we may be required to seek additional financing alternatives.We believe that we have sufficient liquidity based on our current cash position, cash flows from operations and existing financing to meet our expectedpension, postemployment and postretirement plan contributions, remediation payments related to the Fox River environmental matter, debt servicingobligations, payments related to transformation initiatives, and our operating requirements for the next twelve months.Contractual Obligations In the normal course of business, we enter into various contractual obligations that impact, or could impact, the liquidity of ouroperations. The following table and discussion outlines our material obligations as of December 31, 2018 on an undiscounted basis, with projected cashpayments in the years shown:In millionsTotal Amounts20192020-20212022-20232024 &ThereafterAll OtherDebt obligations$3,183$85$1,795$1,300$3$—Interest on debt obligations5631632751232—Estimated environmental liability payments21201———Lease obligations778128176114360—Purchase obligations1,0421,042————Uncertain tax positions91————91Total obligations$5,678$1,438$2,247$1,537$365$91As of December 31, 2018, we had short and long-term debt totaling $3.17 billion, which includes debt issuance costs as a direct reduction from the carryingamount of debt.For purposes of this table, we used interest rates as of December 31, 2018 to estimate the future interest on debt obligations outstanding as of December 31,2018 and have assumed no voluntary prepayments of existing debt. See Note 6, "Debt Obligations" of the Notes to Consolidated Financial Statementsincluded in Item 8 of Part II of this Report for additional disclosure related to our debt obligations and the related interest rate terms. The estimated environmental liability payments included in the table of contractual obligations shown above are related to the Fox River environmentalmatter. The amounts shown are our expected payments, net of the payment obligations of co-obligors; the amounts do not include an estimate for paymentsto be received from insurers or indemnification parties. Additionally, the amounts above do not include an estimate for payments related to the Kalamazooenvironmental matter. For additional information, refer to Note 10, "Commitments and Contingencies" included in Item 8 of Part II of this Report.Our lease obligations are primarily for future rental amounts for our world headquarters in Atlanta, Georgia as well as for certain sales and manufacturingfacilities in various domestic and international locations and leases related to equipment and vehicles.Purchase obligations represent committed purchase orders and other contractual commitments for goods or services. The purchase obligation amounts weredetermined through information in our procurement systems and payment schedules for significant contracts. Included in the amounts are committedpayments in relation to the long-term service agreement with Accenture under which NCR’s transaction processing activities and functions are performed.We have a $91 million liability related to our uncertain tax positions. Due to the nature of the underlying liabilities and the extended time often needed toresolve income tax uncertainties, we cannot make reliable estimates of the amount or timing of cash payments39Table of Contentsthat may be required to settle these liabilities. For additional information, refer to Note 7, "Income Taxes" of the Notes to Consolidated Financial Statementsincluded in Item 8 of Part II of this Report.Our U.S. and international employee benefit plans, which are described in Note 9, “Employee Benefit Plans” of the Notes to Consolidated FinancialStatements included in Item 8 of Part II of this Report, could require significant future cash payments. We expect mandatory contributions to our U.S. pensionplan could be required beginning in 2021 based on current funding requirements and assuming the Company does not complete any actions, including, butnot limited to, a pre-fund or de-risking action. The funded status of NCR’s U.S. pension plan is an underfunded position of $494 million as of December 31,2018 compared to an underfunded position of $506 million as of December 31, 2017. Our international retirement plans were in an underfunded status of$139 million as of December 31, 2018, as compared to an underfunded status of $187 million as of December 31, 2017. The decrease in our underfundedposition is primarily attributable to an increase in discount rates as well as a favorable impact from a mortality update in the United Kingdom. Contributionsto international pension plans are expected to be approximately $28 million in 2019.We also have product warranties that may affect future cash flows. These items are not included in the table of obligations shown above, but are described indetail in Note 10, "Commitments and Contingencies" of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report.Our senior secured credit facility and the indentures for our senior unsecured notes include affirmative and negative covenants that restrict or limit our abilityto, among other things, incur indebtedness; create liens on assets; engage in certain fundamental corporate changes or changes to our business activities;make investments; sell or otherwise dispose of assets; engage in sale-leaseback or hedging transactions; pay dividends or make similar distributions; repayother indebtedness; engage in certain affiliate transactions; or enter into agreements that restrict our ability to create liens, pay dividends or make loanrepayments. Our senior secured credit facility also includes financial covenants that require us to maintain:•a consolidated leverage ratio on the last day of any fiscal quarter, not to exceed (i) in the case of any fiscal quarter ending on or prior toDecember 31, 2017, (a) the sum of 4.25 and an amount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to(b) 1.00, (ii) in the case of any fiscal quarter ending after December 31, 2017 and on or prior to December 31, 2019, (a) the sum of 4.00 and anamount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00, and (iii) in the case of any fiscal quarterending after December 31, 2019, the sum of (a) 3.75 and an amount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pensionliabilities to (b) 1.00; and•an interest coverage ratio on the last day of any fiscal quarter greater than or equal to 3.50 to 1.00.At December 31, 2018, the maximum consolidated leverage ratio under the senior secured credit facility was 4.10 to 1.00.Off-Balance Sheet Arrangements We have no significant contractual obligations not fully recorded on our Consolidated Balance Sheets or fully disclosedin the notes to our consolidated financial statements. We have no material off-balance sheet arrangements as defined by SEC Regulation S-K Item 303 (a) (4)(ii).See Note 10, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additionalinformation on guarantees associated with our business activities.CRITICAL ACCOUNTING POLICIES AND ESTIMATESOur consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of these financial statements, we arerequired to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosure ofcontingent liabilities. These assumptions, estimates and judgments are based on historical experience and are believed to be reasonable at the time. However,because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. Our criticalaccounting policies are those that require assumptions to be made about matters that are highly uncertain. Different estimates could have a material impact onour financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts beingreported under different conditions or circumstances. Our management continually reviews these assumptions, estimates and judgments to ensure that ourfinancial statements are presented fairly and are materially correct.In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require significant management judgmentin its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially differentresult. The significant accounting policies and estimates that we believe are the most critical to aid in fully understanding and evaluating our reportedfinancial results are discussed in the paragraphs below. Our senior management has reviewed these critical accounting policies and related disclosures withour independent registered public accounting firm and the40Table of ContentsAudit Committee of our Board of Directors. See Note 1, “Basis of Presentation and Significant Accounting Policies” of the Notes to Consolidated FinancialStatements in Item 8 of Part II of this Report, which contains additional information regarding our accounting policies and other disclosures required byGAAP.Revenue Recognition NCR frequently enters contracts that include multiple performance obligations, including hardware, software, professional consultingservices, installation services and maintenance support services. The Company records revenue when, or as, performance obligations are satisfied bytransferring control of a promised good or service to the customer. The Company evaluates the transfer of control primarily from the customer’s perspectivewhere the customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The Company does notadjust the transaction price for taxes collected from customers, as those amounts are netted against amounts remitted to government authorities.If a contract has multiple performance obligations, the Company allocates the transaction price, at contract inception, to each performance obligation on arelative standalone selling price basis. The primary method used to estimate standalone selling price is the price that the Company charges for that good orservice when the Company sells it separately in similar circumstances to similar customers.We recognize two different types of revenue - product and service revenue. Our product revenue includes hardware and software which is generallyrecognized at a point in time, once all conditions for revenue recognition have been met. For hardware products, control is generally transferred when thecustomer has the ability to direct the use of and obtain substantially all of the remaining benefits of the products, which generally coincides with when thecustomer has assumed risk of loss of the goods sold. For software products, control is generally transferred when the customer takes possession of, or hascomplete access to, the software. In certain instances, customer acceptance is required prior to the passage of title and risk of loss of the delivered products. Insuch cases, revenue is not recognized until the customer acceptance is obtained. Delivery, acceptance, and transfer of title and risk of loss generally occur inthe same reporting period. NCR's customers may request that delivery and passage of title and risk of loss occur on a bill and hold basis.Our services revenue includes software as a service (SaaS), professional consulting, installation and maintenance support. SaaS primarily consists of fees toprovide our customers access to our platform and cloud-based applications. Revenue from SaaS contracts is recognized as variable consideration directlyallocated based on customer usage or on a ratable basis over the contract term beginning on the date that our service is made available to the customer.Professional consulting primarily consists of software implementation, integration, customization and optimization services. Revenue from professionalconsulting contracts that involve significant production, modification or customization of the software is recognized over time as the services are performed.Revenue from professional consulting contracts that does not involve significant production, modification or customization of the software is recognizedwhen the services are completed or customer acceptance of the service is received, if required. For installation and maintenance, control is transferred as theservices are provided or ratably over the service period, or, if applicable, after customer acceptance of the service. We apply the ‘as invoiced’ practicalexpedient, for performance obligations satisfied over time, if the amount we may invoice corresponds directly with the value to the customer of theCompany’s performance to date. This expedient permits us to recognize revenue in the amount we invoice the customer.The nature of our arrangements gives rise to several types of variable consideration including service level agreement credits, stock rotation rights, trade-incredits and volume-based rebates. At contract inception, we include this variable consideration in our transaction price when there is a basis to reasonablyestimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the expected value methodand a portfolio approach, based on historical experience, anticipated performance and our best judgment at the time. These estimates are reassessed at eachreporting date. Because of our confidence in estimating these amounts, they are included in the transaction price of our contracts and the associatedremaining performance obligations.If a contract includes software and services that involve significant production, modification or customization of the software, the services are not distinctfrom the software. For these contracts, both the software and professional services revenue is recognized over time using costs incurred to date relative to totalestimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which correspondswith, and thereby best depicts, the transfer of control to the customer. Estimated losses, if any, are recognized as soon as such losses become known.We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products, ratherthan as a separate performance obligation. Accordingly, we record amounts billed for shipping and handling costs as a component of net product sales, andclassify such costs as a component of cost of products.Allowance for Doubtful Accounts We evaluate the collectability of our accounts receivable based on a number of factors. We establish provisions fordoubtful accounts using percentages of our accounts receivable balance as an overall proxy to reflect historical average credit losses and also usemanagement judgment that may include elements that are uncertain, including specific provisions for known issues. The percentages are applied to agedaccounts receivable balances. Aged accounts are determined based on the number of days41Table of Contentsthe receivable is outstanding, measured from the date of the invoice, or from the date of revenue recognition. As the age of the receivable increases, theprovision percentage also increases. This policy is applied consistently among all of our operating segments.Based on the factors below, we periodically review customer account activity in order to assess the adequacy of the allowances provided for potential losses.Factors include economic conditions and judgments regarding collectability of account balances, each customer’s payment history and creditworthiness.The allowance for doubtful accounts was $31 million as of December 31, 2018, $37 million as of December 31, 2017, and $41 million as of December 31,2016. These allowances represent, as a percentage of gross receivables, 2.2% in 2018, 2.8% in 2017, and 3.1% in 2016.Given our experience, the reserves for potential losses are considered adequate, but if one or more of our larger customers were to default on its obligations,we could be exposed to potentially significant losses in excess of the provisions established. We continually evaluate our reserves for doubtful accounts andeconomic deterioration could lead to the need to increase our allowances.Inventory Valuation Inventories are stated at the lower of cost or net realizable value, using the average cost method. Each quarter, we reassess raw materials,work-in-process, parts and finished equipment inventory costs to identify purchase or usage variances from standards, and valuation adjustments are made.Additionally, to properly provide for potential exposure due to slow-moving, excess, obsolete or unusable inventory, inventory values are reduced based onforecasted usage, orders, technological obsolescence and inventory aging. These factors are impacted by market conditions, technology changes and changesin strategic direction, and require estimates and management judgment that may include elements that are uncertain. On a quarterly basis, we review thecurrent net realizable value of inventory and adjust for any inventory exposure due to age or excess of cost over net realizable value.We have inventory in more than 40 countries around the world. We purchase inventory from third party suppliers and manufacture inventory at our plants.This inventory is transferred to our distribution and sales organizations at cost plus a mark-up. This mark-up is referred to as inter-company profit. Eachquarter, we review our inventory levels and analyze our inter-company profit to determine the correct amount of inter-company profit to eliminate. Keyassumptions are made to estimate product gross margins, the product mix of existing inventory balances and current period shipments. Over time, we refinethese estimates as facts and circumstances change. If our estimates require refinement, our results could be impacted. The policies described are appliedconsistently across all of our operating segments.Warranty Reserves One of our key objectives is to provide superior quality products and services. To that end, we provide a standard manufacturer’swarranty typically extending up to 12 months, allowing our customers to seek repair of products under warranty at no additional cost. A correspondingestimated liability for potential warranty costs is recorded at the time of the sale. We sometimes offer extended warranties in the form of product maintenanceservices to our customers for purchase. We defer the fair value of this revenue and recognize revenue over the life of the extended warranty period. Refer toNote 10, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for further informationregarding our accounting for extended warranties.Future warranty obligation costs are based upon historical factors such as labor rates, average repair time, travel time, number of service calls per machine andcost of replacement parts. When a sale is consummated, the total customer revenue is recognized and the associated warranty liability is recorded based uponthe estimated cost to provide the service over the warranty period.Total warranty costs were $42 million in 2018, $43 million in 2017, and $42 million in 2016. Warranty costs as a percentage of total product revenue was1.8% in 2018, 1.7% in 2017, and 1.5% in 2016. Historically, the principal factor used to estimate our warranty costs has been service calls per machine.Significant changes in this factor could result in actual warranty costs differing from accrued estimates. Although no near-term changes in our estimatedwarranty reserves are currently anticipated, in the unlikely event of a significant increase in warranty claims by one or more of our larger customers, costs tofulfill warranty obligations would be higher than provisioned, thereby impacting results.Goodwill Goodwill is tested at the reporting unit level for impairment on an annual basis during the fourth quarter or more frequently if certain events occurindicating that the carrying value of goodwill may be impaired. A significant amount of judgment is involved in determining if an indicator of impairmenthas occurred. Such indicators may include a decline in expected cash flows, a significant adverse change in legal factors or in the business climate, a decisionto sell a business, unanticipated competition, or slower growth rates, among others.In the evaluation of goodwill for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing isnecessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying42Table of Contentsamount, including goodwill. Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entitydetermines that it is more likely than not that its fair value is less than its carrying amount. If under the quantitative assessment the fair value of a reportingunit is less than its carrying amount, then the amount of the impairment loss, if any, is determined based on the amount by which the carrying amountexceeds the fair value up to the total value of goodwill assigned to the reporting unit. Fair values of the reporting units are estimated using a weightedmethodology considering the output from both the income and market approaches. The income approach incorporates the use of a discounted cash flow(DCF) analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows,including revenue growth, operating income margin and discount rate. Several of these assumptions vary among reporting units. The cash flow forecasts aregenerally based on approved strategic operating plans. The market approach is performed using the Guideline Public Companies (GPC) method which isbased on earnings multiple data. We perform a reconciliation between our market capitalization and our estimate of the aggregate fair value of the reportingunits, including consideration of a control premium.Late in the quarter ended June 30, 2018, we determined there was an indication that the carrying value of the net assets assigned to the Hardware reportingunit may not be recoverable. This determination was based on the lowering of our full year forecast for 2018, driven by reduced revenue and gross marginrates expected for the third and fourth quarters of 2018, and the resulting impact on the current year and future cash flow projections of the Hardwarereporting unit. Given the undiscounted cash flows of the asset group, which we determined to be at the reporting unit level, were below the carrying value ofthe net assets, we recorded an impairment charge for the difference between the fair value and the carrying value of the long-lived assets. The fair value of thelong-lived assets was determined based on the nature of the asset through either third party appraisals, replacement cost or discounted cash flow analysis.As a result, in the three months ended June 30, 2018 the Company recorded impairment charges of $21 million related to property, plant and equipment heldand used in NCR's hardware reporting unit, $16 million related to purchased intangibles and $146 million for goodwill assigned to the Hardware reportingunit. These charges were recorded in the line item asset impairment charges in our Consolidated Statement of Operations for the twelve months endedDecember 31, 2018.We performed our annual impairment assessment of goodwill during the fourth quarter of 2018, which did not indicate an impairment existed for the Softwareor Services segments.Valuation of Long-lived Assets and Amortizable Other Intangible Assets We perform impairment tests for our long-lived assets if an event or circumstanceindicates that the carrying amount of our long-lived assets may not be recoverable. In response to changes in industry and market conditions, we may alsostrategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses. Such activities could result in impairment of ourlong-lived assets or other intangible assets. We also are subject to the possibility of impairment of long-lived assets arising in the ordinary course of business.We consider the likelihood of impairment if certain events occur indicating that the carrying value of the long-lived assets may be impaired and we mayrecognize impairment if the carrying amount of a long-lived asset or intangible asset is not recoverable from its undiscounted cash flows. Impairment ismeasured as the difference between the carrying amount and the fair value of the asset. We use both the income approach and market approach to estimate fairvalue. Our estimates of fair value are subject to a high degree of judgment since they include a long-term forecast of future operations. Accordingly, anyvalue ultimately derived from our long-lived assets may differ from our estimate of fair value.Pension, Postretirement and Postemployment Benefits We sponsor domestic and foreign defined benefit pension and postemployment plans as well asdomestic postretirement plans. As a result, we have significant pension, postretirement and postemployment benefit costs, which are developed from actuarialvaluations. Actuarial assumptions attempt to anticipate future events and are used in calculating the expense and liability relating to these plans. Thesefactors include assumptions we make about interest rates, expected investment return on plan assets, rate of increase in healthcare costs, total and involuntaryturnover rates, and rates of future compensation increases. In addition, our actuarial consultants advise us about subjective factors such as withdrawal ratesand mortality rates to use in our valuations. We generally review and update these assumptions on an annual basis at the beginning of each fiscal year. We arerequired to consider current market conditions, including changes in interest rates, in making these assumptions. The actuarial assumptions that we use maydiffer materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans ofparticipants. These differences may result in a significant impact to the amount of pension, postretirement or postemployment benefits expense we haverecorded or may record. Ongoing pension, postemployment and postretirement expense impacts all of our segments. Pension mark-to-market adjustments,settlements, curtailments and special termination benefits are excluded from our segment results as those items are not included in the evaluation of segmentperformance. See Note 13, "Segment Information and Concentrations," in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report fora reconciliation of our segment results to income from operations.The key assumptions used in developing our 2018 expense were discount rates of 3.2% for our U.S. pension plan and 3.1% for our postretirement plan, andan expected return on assets assumption of 3.1% for our U.S. pension plan in 2018. The U.S. plan represented43Table of Contents62% of the pension obligation and 100% of the postretirement medical plan obligation as of December 31, 2018. Holding all other assumptions constant, a0.25% change in the discount rate used for the U.S. plan would have increased or decreased 2018 ongoing pension expense by approximately $3 million andwould have had an immaterial impact on 2018 postretirement income. A 0.25% change in the expected rate of return on plan assets assumption for the U.S.pension plan would have increased or decreased 2018 ongoing pension expense by approximately $3 million. Our expected return on plan assets hashistorically been and will likely continue to be material to net income. For 2019, we intend to use discount rates of 3.8% and 3.7% in determining the 2019U.S. pension and postretirement expense, respectively. We intend to use an expected rate of return on assets assumption of 3.6% for the U.S. pension plan.Effective January 1, 2017, we changed the method used to estimate the service and interest components of net periodic benefit cost for our significantpension plans where yield curves are available. Previously, we estimated such cost components utilizing a single weighted-average discount rate derivedfrom the yield curve used to measure the pension benefit obligation. The new methodology utilizes a full yield curve approach by applying the specific spotrates along the yield curve used in the determination of the pension benefit obligation to their underlying projected cash flows and provides a more precisemeasurement of service and interest costs by improving the correlation between projected cash flows and their corresponding spot rates. This change does notaffect the measurement of our total benefit obligation and is applied prospectively as a change in estimate.We recognize additional changes in the fair value of plan assets and net actuarial gains or losses of our pension plans upon remeasurement, which occurs atleast annually in the fourth quarter of each year. The remaining components of pension expense, primarily net service cost, interest cost, and the expectedreturn on plan assets, are recorded on a quarterly basis as ongoing pension expense. While it is required that we review our actuarial assumptions each year atthe measurement date, we generally do not change them between measurement dates. We use a measurement date of December 31 for all of our plans.Changes in assumptions or asset values may have a significant effect on the annual measurement of expense or income in the fourth quarter.The most significant assumption used in developing our 2019 postemployment plan expense is the assumed rate of involuntary turnover of 4.3%. Theinvoluntary turnover rate is based on historical trends and projections of involuntary turnover in the future. A 0.25% change in the rate of involuntaryturnover would have increased or decreased 2018 expense by approximately $2 million. The sensitivity of the assumptions described above is specific toeach individual plan and not to our pension, postretirement and postemployment plans in the aggregate.Environmental and Legal Contingencies Each quarter, we review the status of each claim and legal proceeding and assess our potential financial exposure.If the potential loss from any claim or legal proceeding would be material and is considered probable and the amount can be reasonably estimated, we accruea liability for the estimated loss. To the extent that the amount of such a probable loss is estimable only by reference to a range of equally likely outcomes,and no amount within the range appears to be a better estimate than any other amount, we accrue the amount at the low end of the range. Because ofuncertainties related to these matters, the use of estimates, assumptions and judgments, and external factors beyond our control, accruals are based on the bestinformation available at the time. At environmental sites, or portions of environmental sites, where liability is determined to be probable but a remedy has notyet been determined, we accrue for the costs of investigations and studies for the affected areas but not for the costs of remediation. As additional informationbecomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in theestimates of the potential liabilities could have a material impact on our results of operations and financial position. When insurance carriers or third partieshave agreed to pay any amounts related to costs, and we believe that it is probable that we can collect such amounts, those amounts are reflected asreceivables in our Consolidated Balance Sheet.The most significant legal contingencies impacting our Company are the Fox River and Kalamazoo River matters, which are further described in detail inNote 10, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report. NCR has been identified asa potentially responsible party (PRP) at both sites.As described below and in Note 10, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report,while substantial progress has been made in the Fox River clean-up including a consent decree that establishes the general parameters of NCR’s liabilitytherefor (the consent decree remained subject to appeal as of December 31, 2018), and while significant litigation activities have taken place with respect tothe Kalamazoo River, the extent of our potential liabilities continues to be subject to significant uncertainties described below.Our net reserves for, respectively, the Fox River matter and the Kalamazoo matter, as of December 31, 2018 were approximately $17 million and $47 million,as further discussed in Note 10, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report. TheCompany regularly re-evaluates the assumptions used in determining the appropriate reserve for the Fox River and Kalamazoo matters as additionalinformation becomes available and, when warranted, makes appropriate adjustments.44Table of ContentsIncome Taxes We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis ofassets and liabilities. The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in the periods in which thedeferred tax assets or liabilities are anticipated to be settled or realized.We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of adeferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based onthe evaluation of positive and negative evidence. This evidence includes historical taxable income, projected future taxable income, the expected timing ofthe reversal of existing temporary differences and the implementation of tax planning strategies. Projected future taxable income is based on our expectedresults and assumptions as to the jurisdiction in which the income will be earned. The expected timing of the reversals of existing temporary differences isbased on current tax law and our tax methods of accounting. As a result of this determination, we had valuation allowances of $485 million as of December31, 2018 and $415 million as of December 31, 2017, related to certain deferred income tax assets, primarily tax loss carryforwards, in jurisdictions wherethere is uncertainty as to the ultimate realization of a benefit from those tax assets.If we are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or the time period within whichthe underlying temporary differences become taxable or deductible, or if the tax laws change unfavorably, then we could be required to increase ourvaluation allowance against our deferred tax assets, resulting in an increase in our effective tax rate.The Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform") was enacted in December 2017. The legislation significantly changed the U.S. tax law by, amongother things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a one-time tax on deemed repatriated earnings offoreign subsidiaries. The legislation reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. The SEC staff issued guidance toaddress the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (includingcomputations) in reasonable detail to complete the accounting for certain income tax effects of U.S. Tax Reform and allows the registrant to recordprovisional amounts during a measurement period not to extend beyond one year of the enactment date. The provisional impacts related to the one-timerepatriation tax and remeasurement of deferred tax balances were recorded in our consolidated financial statements for the year ended December 31, 2017. Werecorded additional impacts related to the remeasurement of deferred tax balances and the establishment of valuation allowances on foreign tax credits duringthe year ended December 31, 2018. As of December 31, 2018, we have completed our assessment of the impact of U.S. Tax Reform.The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained onexamination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statementsfrom such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement. Interest andpenalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interestand penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.The provision for income taxes may change period-to-period based on non-recurring events, such as the settlement of income tax audits and changes in taxlaws, as well as recurring factors including the geographic mix of income before taxes, state and local taxes and the effects of various global income taxstrategies. We maintain certain strategic management and operational activities in overseas subsidiaries and our foreign earnings are taxed at rates that aregenerally lower than in the United States. As of December 31, 2018, we did not provide for U.S. federal income taxes or foreign withholding taxes onapproximately $2.7 billion of undistributed earnings of our foreign subsidiaries as such earnings are expected to be reinvested indefinitely.Refer to Note 7, "Income Taxes" in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for disclosures related to foreign anddomestic pretax income, foreign and domestic income tax (benefit) expense and the effect foreign taxes have on our overall effective tax rate.Stock-based Compensation We measure compensation cost for stock awards at fair value and recognize compensation expense over the service period forwhich awards are expected to vest. We utilize the Black-Scholes option pricing model to estimate the fair value of options at the date of grant, which requiresthe input of highly subjective assumptions, including expected volatility and expected holding period. We estimate forfeitures for awards granted which arenot expected to vest. The estimation of stock awards that will ultimately vest requires judgment, and to the extent that actual results or updated estimatesdiffer from our current estimates, such amounts will be recorded as a cumulative adjustment in the period in which estimates are revised. We consider manyfactors when estimating expected forfeitures, including types of awards and historical experience. Actual results and future changes in estimates may differfrom our current estimates.45Table of ContentsWe have performance-based awards that vest only if specific performance conditions are satisfied, typically at the end of a multi-year performance period, andthe service requirement is fulfilled. The number of shares that will be earned can vary based on actual performance. No shares will vest if the objectives arenot met, and in the event the objectives are exceeded, additional shares will vest up to a maximum amount. The cost of these awards is expensed over theservice period based upon management’s estimates of achievement against the performance criteria. Because the actual number of shares to be awarded is notknown until the end of the performance period, the actual compensation expense related to these awards could differ from our current expectations.RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSA discussion of recently issued accounting pronouncements is described in Note 1, “Basis of Presentation and Significant Accounting Policies” of the Notesto Consolidated Financial Statements in Item 8 of Part II of this Report, and we incorporate by reference such discussion in this MD&A.Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket RiskWe are exposed to market risks primarily from changes in foreign currency exchange rates and interest rates. It is our policy to manage our foreign exchangeexposure and debt structure in order to manage capital costs, control financial risks and maintain financial flexibility over the long term. In managing marketrisks, we employ derivatives according to documented policies and procedures, including foreign currency contracts and interest rate swaps. We do not usederivatives for trading or speculative purposes.Foreign Exchange RiskSince a substantial portion of our operations and revenue occur outside the U.S., and in currencies other than the U.S. Dollar, our results can be significantlyimpacted by changes in foreign currency exchange rates. We have exposure to approximately 50 functional currencies and are exposed to foreign currencyexchange risk with respect to our sales, profits and assets and liabilities denominated in currencies other than the U.S. Dollar. Although we use financialinstruments to hedge certain foreign currency risks, we are not fully protected against foreign currency fluctuations and our reported results of operationscould be affected by changes in foreign currency exchange rates. To manage our exposures and mitigate the impact of currency fluctuations on the operationsof our foreign subsidiaries, we hedge our main transactional exposures through the use of foreign exchange forward and option contracts. These foreignexchange contracts are designated as highly effective cash flow hedges. This is primarily done through the hedging of foreign currency denominated inter-company inventory purchases by the marketing units. All of these transactions are forecasted. We also use derivatives not designated as hedging instrumentsconsisting primarily of forward contracts to hedge foreign currency denominated balance sheet exposures. For these derivatives we recognize gains and lossesin the same period as the remeasurement losses and gains of the related foreign currency-denominated exposures.We utilize non-exchange traded financial instruments, such as foreign exchange forward and option contracts, that we purchase exclusively from highly ratedfinancial institutions. We record these contracts on our balance sheet at fair market value based upon market price quotations from the financial institutions.We do not enter into non-exchange traded contracts that require the use of fair value estimation techniques, but if we did, they could have a material impacton our financial results.For purposes of analyzing potential risk, we use sensitivity analysis to quantify potential impacts that market rate changes may have on the fair values of ourhedge portfolio related to firmly committed or forecasted transactions. The sensitivity analysis represents the hypothetical changes in value of the hedgeposition and does not reflect the related gain or loss on the forecasted underlying transaction. A 10% appreciation or depreciation in the value of the U.S.Dollar against foreign currencies from the prevailing market rates would have resulted in a corresponding increase or decrease of $18 million as of December31, 2018 in the fair value of the hedge portfolio. The Company expects that any increase or decrease in the fair value of the portfolio would be substantiallyoffset by increases or decreases in the underlying exposures being hedged.The U.S. Dollar was slightly weaker in 2018 compared to 2017 based on comparable weighted averages for our functional currencies. This had no impact on2018 revenue versus 2017 revenue. This excludes the effects of our hedging activities and, therefore, does not reflect the actual impact of fluctuations inexchange rates on our operating income.Interest Rate Risk46Table of ContentsWe are subject to interest rate risk principally in relation to variable-rate debt. Approximately 69% of our borrowings were on a fixed rate basis as ofDecember 31, 2018. The increase in pre-tax interest expense for the year ended December 31, 2018 from a hypothetical 100 basis point increase in variableinterest rates would be approximately $10 million.Concentrations of Credit RiskWe are potentially subject to concentrations of credit risk on accounts receivable and financial instruments, such as hedging instruments and cash and cashequivalents. Credit risk includes the risk of nonperformance by counterparties. The maximum potential loss may exceed the amount recognized on thebalance sheet. Exposure to credit risk is managed through credit approvals, credit limits, selecting major international financial institutions as counterpartiesto hedging transactions and monitoring procedures. Our business often involves large transactions with customers for which we do not require collateral. Ifone or more of those customers were to default in its obligations under applicable contractual arrangements, we could be exposed to potentially significantlosses. Moreover, a prolonged downturn in the global economy could have an adverse impact on the ability of our customers to pay their obligations on atimely basis. We believe that the reserves for potential losses are adequate. As of December 31, 2018, we did not have any significant concentration of creditrisk related to financial instruments.47Table of ContentsIndex to Financial Statements and Supplemental Data PageReport of Independent Registered Public Accounting Firm49Consolidated Statements of Operations51Consolidated Statements of Comprehensive Income52Consolidated Balance Sheets53Consolidated Statements of Cash Flows54Consolidated Statements of Changes in Stockholders' Equity55Notes to Consolidated Financial Statements56Note 1. Basis of Presentation and Significant Accounting Policies56Note 2. Revenue Recognized Under Previous Guidance68Note 3. Business Combinations and Divestitures69Note 4. Goodwill and Purchased Intangible Assets71Note 5. Series A Preferred Stock72Note 6. Debt Obligations 74Note 7. Income Taxes77Note 8. Stock Compensation Plans81Note 9. Employee Benefit Plans83Note 10. Commitments and Contingencies93Note 11. Derivatives and Hedging Instruments98Note 12. Fair Value of Assets and Liabilities101Note 13. Segment Information102Note 14. Accumulated Other Comprehensive Income105Note 15. Restructuring Plan106Note 16. Supplemental Financial Information 107Note 17. Guarantor Financial Statements108Note 18. Quarterly Information (Unaudited)120 48Table of ContentsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATAReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of NCR CorporationOpinions on the Financial Statements and Internal Control over Financial ReportingWe have audited the accompanying consolidated balance sheets of NCR Corporation and its subsidiaries (the “Company”) as of December 31, 2018 and2017, and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the threeyears in the period ended December 31, 2018, including the related notes, and financial statement schedule listed in the index appearing under Item 15(a)(2)(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as ofDecember 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizationsof the Treadway Commission (COSO).In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO.Change in Accounting PrincipleAs discussed in Notes 1 and 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contractswith customers in 2018.Basis for OpinionsThe Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, andfor its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over FinancialReporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company'sinternal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting OversightBoard (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects.Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.As described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A, management has excluded JetPay Corporationfrom its assessment of internal control over financial reporting as of December 31, 2018 because it was acquired by the Company in a purchase businesscombination during 2018. We have also excluded JetPay Corporation from our audit of internal control over financial reporting. JetPay Corporation is awholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financialreporting represent 1% and 0.1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018.49Table of ContentsDefinition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPAtlanta, GeorgiaFebruary 28, 2019We have served as the Company’s auditor since 1993. 50Table of ContentsNCR CorporationConsolidated Statements of Operations For the years ended December 31, (in millions, except per share amounts)2018 2017 2016Product revenue$2,341 $2,579 $2,737Service revenue4,064 3,937 3,806Total revenue6,405 6,516 6,543Cost of products1,988 2,021 2,099Cost of services2,742 2,640 2,626Selling, general and administrative expenses1,005 923 904Research and development expenses252 241 225Asset impairment charges227 — —Restructuring-related charges— — 15Total operating expenses6,214 5,825 5,869Income from operations191 691 674Interest expense(168) (163) (170)Other income (expense), net16 (46) (125)Income (loss) from continuing operations before income taxes39 482 379Income tax expense73 242 92Income (loss) from continuing operations(34) 240 287Loss from discontinued operations, net of tax(52) (5) (13)Net income (loss)(86) 235 274Net income attributable to noncontrolling interests2 3 4Net income (loss) attributable to NCR$(88) $232 $270Amounts attributable to NCR common stockholders: Income (loss) from continuing operations$(36) $237 $283Series A convertible preferred stock dividends(49) (47) (49)Deemed dividend on modification of Series A convertible preferred stock— (4) —Deemed dividend on Series A convertible preferred stock related to redemption— (58) —Income (loss) from continuing operations attributable to NCR(85) 128 234Loss from discontinued operations, net of tax(52) (5) (13)Net income (loss) attributable to NCR common stockholders$(137) $123 $221Income (loss) per share attributable to NCR common stockholders: Income (loss) per common share from continuing operations Basic$(0.72) $1.05 $1.86Diluted$(0.72) $1.01 $1.80Net income (loss) per common share Basic$(1.16) $1.01 $1.76Diluted$(1.16) $0.97 $1.71Weighted average common shares outstanding Basic118.4 121.9 125.6Diluted (continuing operations)118.4 127.0 157.4Diluted (net income)118.4 127.0 129.2The accompanying notes are an integral part of the Consolidated Financial Statements.51Table of ContentsNCR CorporationConsolidated Statements of Comprehensive Income For the years ended December 31 (in millions)2018 2017 2016Net income (loss)$(86) $235 $274Other comprehensive income (loss): Currency translation adjustments Currency translation adjustments(53) 39 (57)Derivatives Unrealized gain (loss) on derivatives11 (16) 19 Gains on derivatives arising during the period(7) (1) (1) Less income tax benefit (expense)(1) 3 (4)Employee benefit plans Prior service benefit(4) — — Amortization of prior service cost(9) (11) (19) Net (loss) gain arising during the period12 (13) (1) Amortization of actuarial (loss) gain— (2) (2) Less income tax benefit (expense)1 5 5Other comprehensive income (loss)(50) 4 (60)Total comprehensive income (loss)(136) 239 214Less comprehensive income attributable to noncontrolling interests: Net income2 3 4 Currency translation adjustments(2) (2) (5)Amounts attributable to noncontrolling interests— 1 (1)Comprehensive income (loss) attributable to NCR common stockholders$(136) $238 $215The accompanying notes are an integral part of the Consolidated Financial Statements.52Table of ContentsNCR CorporationConsolidated Balance SheetsAs of December 31 (in millions except per share amounts)2018 2017Assets Current assets Cash and cash equivalents$464 $537Accounts receivable, net1,356 1,270Inventories806 780Other current assets397 243Total current assets3,023 2,830Property, plant and equipment, net359 341Goodwill2,692 2,741Intangibles, net595 578Prepaid pension cost140 118Deferred income taxes448 460Other assets504 586Total assets$7,761 $7,654Liabilities and stockholders’ equity Current liabilities Short-term borrowings$185 $52Accounts payable897 762Payroll and benefits liabilities238 219Deferred service revenue and customer deposits461 458Other current liabilities501 398Total current liabilities2,282 1,889Long-term debt2,980 2,939Pension and indemnity plan liabilities759 798Postretirement and postemployment benefits liabilities118 133Income tax accruals91 148Other liabilities259 200Total liabilities6,489 6,107Commitments and Contingencies (Note 10) Redeemable noncontrolling interest14 15Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.9 and 0.8 shares issuedand outstanding as of December 31, 2018 and 2017, respectively; redemption amount and liquidationpreference of $871 and $825 as of December 31, 2018 and 2017, respectively859 810Stockholders’ equity NCR stockholders’ equity Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding as ofDecember 31, 2018 and 2017, respectively— —Common stock: par value $0.01 per share, 500.0 shares authorized, 118.7 and 122.0 shares issued andoutstanding as of December 31, 2018 and 2017, respectively1 1Paid-in capital34 60Retained earnings606 857Accumulated other comprehensive loss(246) (199)Total NCR stockholders’ equity395 719Noncontrolling interests in subsidiaries4 3Total stockholders’ equity399 722Total liabilities and stockholders’ equity$7,761 $7,654The accompanying notes are an integral part of the Consolidated Financial Statements.53Table of ContentsNCR CorporationConsolidated Statements of Cash FlowsFor the years ended December 31 (in millions)2018 2017 2016Operating activities Net income (loss)$(86) $235 $274Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss from discontinued operations52 5 13Depreciation and amortization330 354 344Stock-based compensation expense72 77 61Deferred income taxes14 173 10Gain on sale of property, plant and equipment and other assets(2) (3) —Loss on divestiture— — 2Impairment of long-lived and other assets239 1 2Changes in assets and liabilities: Receivables(155) 29 (89)Inventories(70) (68) (86)Current payables and accrued expenses198 (78) 216Deferred service revenue and customer deposits(13) 10 88Employee benefit plans(60) (4) 33Other assets and liabilities53 21 28Net cash provided by operating activities572 752 896Investing activities Expenditures for property, plant and equipment(143) (128) (73)Proceeds from sales of property, plant and equipment3 6 —Additions to capitalized software(170) (166) (154)Business acquisitions, net(206) (8) —Proceeds from divestiture— 3 47Other investing activities, net(4) 3 (9)Net cash used in investing activities(520) (290) (189)Financing activities Short term borrowings, net(1) (4) (8)Payments on term credit facilities(51) (61) (97)Payments on revolving credit facilities(2,233) (1,940) (1,431)Borrowings on revolving credit facilities2,453 1,940 1,331Debt issuance costs— — (9)Repurchases of Company common stock(210) (350) (250)Tax withholding payments on behalf of employees(36) (31) (16)Proceeds from employee stock plans20 15 15Other financing activities— (3) (2)Net cash used in financing activities(58) (434) (467)Cash flows from discontinued operations Net cash used in discontinued operations operating activities(36) (8) (39)Effect of exchange rate changes on cash, cash equivalents and restricted cash(25) 16 (29)Increase (decrease) in cash, cash equivalents and restricted cash(67) 36 172Cash, cash equivalents and restricted cash at beginning of period543 507 335Cash, cash equivalents and restricted cash at end of period$476 $543 $507 in millions Reconciliation of cash, cash equivalents and restricted cash as shown in the Consolidated Statement ofCash Flows2018 2017 2016Cash and cash equivalents$464 $537 $498Restricted cash included in Other assets12 6 9Total cash, cash equivalents and restricted cash$476 $543 $507 Supplemental data Cash paid during the year for: Income taxes$106 $98 $66Interest$160 $159 $155The accompanying notes are an integral part of the Consolidated Financial Statements.54Table of ContentsNCR CorporationConsolidated Statements of Changes in Stockholders' Equity NCR Stockholders Common Stock Accumulated OtherComprehensive(Loss) Income Non-RedeemableNoncontrolling Interestsin Subsidiaries in millions Shares Amount Paid-inCapital RetainedEarnings TotalDecember 31, 2015 133 $1 $— $869 $(150) $6 $726Comprehensive income (loss): Net income (loss) — — — 270 — 2 272 Other comprehensive income (loss) — — — — (55) (2) (57)Total comprehensive income (loss) — — — 270 (55) — 215Employee stock purchase and stock compensationplans 2 — 59 — — — 59Dividend distribution to minority shareholder — — — — — (2) (2)Repurchase of Company common stock (10) — (27) (223) — — (250)Series A convertible preferred stock dividends — — — (49) — — (49)December 31, 2016 125 1 32 867 (205) 4 699Comprehensive income (loss): Net income (loss) — — — 232 — 3 235 Other comprehensive income (loss) — — — — 6 (2) 4Total comprehensive income (loss) — — — 232 6 1 239Cumulative effect of a change in accountingprinciple related to employee share-based payments — — — 39 — — 39Employee stock purchase and stock compensationplans 1 — 61 — — — 61Dividend distribution to minority shareholder — — — — — (2) (2)Repurchase of Company common stock (7) — (178) (172) — — (350)Series A convertible preferred stock dividends — — — (47) — — (47)Deemed dividend on modification of Series AConvertible Preferred Stock — — — (4) — — (4)Deemed dividend on redemption of Series AConvertible Preferred Stock — — 58 (58) — — —Redemption of Series A Convertible Preferred Stock 3 — 87 — — — 87December 31, 2017 122 1 60 857 (199) 3 722Comprehensive income (loss): Net income (loss) — — — (88) — 1 (87) Other comprehensive income (loss) — — — — (48) — (48)Total comprehensive income (loss) — — — (88) (48) 1 (135)Cumulative effects of adoption of new accountingstandards — — — 14 1 — 15Employee stock purchase and stock compensationplans 2 — 56 — — — 56Repurchase of Company common stock (6) — (82) (128) — — (210)Series A convertible preferred stock dividends — — — (49) — — (49)December 31, 2018 118 $1 $34 $606 $(246) $4 $399The accompanying notes are an integral part of the Consolidated Financial Statements.55Table of ContentsNCR CorporationNotes to Consolidated Financial Statements1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIESDescription of Business NCR is a leading software- and services-led enterprise provider in the financial, retail, hospitality and telecommunications andtechnology industries, with business in 180 countries. NCR offers a range of solutions that help businesses of all sizes compete in an ever-evolving landscapeof physical and digital consumers by providing software, advisory and consulting services, hardware, support and managed services that run businesses endto end. Our portfolio includes, but is not limited to, digital first offerings for banking, restaurants and retailers as well as payments, multi-vendor connecteddevice services, automated teller machines (ATMs), point of sale (POS) terminals and self-service technologies. We also resell third-party networkingproducts and provide related service offerings in the telecommunications and technology sectors. Our solutions create value for our customers by increasingproductivity and allowing them to address consumer demand for convenience, value and individual service across different commerce channels using adigital first approach.Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP)requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets andliabilities at the date of the financial statements, and revenue and expenses during the periods reported. Actual results could differ from those estimates.Subsequent Events The Company evaluated subsequent events through the date that our Consolidated Financial Statements were issued. Except as describedbelow, no matters were identified that required adjustment of the Consolidated Financial Statements or additional disclosure.On January 1, 2019, NCR began management on an industry basis, changing from the previous model of management on a solution basis. In accordance withU.S. GAAP, the Company expects to report its results for industry segments beginning in the first quarter of 2019. The new model is intended to driveimproved execution on our software- and services-led business model.Basis of Consolidation The consolidated financial statements include the accounts of NCR and its majority-owned subsidiaries. Long-term investments inaffiliated companies in which NCR owns between 20% and 50%, and therefore, exercises significant influence, but which it does not control, are accountedfor using the equity method. Investments in which NCR does not exercise significant influence (generally, when NCR has an investment of less than 20% andno significant influence, such as representation on the investee’s board of directors) are accounted for using the cost method. All significant inter-companytransactions and accounts have been eliminated. In addition, the Company is required to determine whether it is the primary beneficiary of economic incomeor losses that may be generated by variable interest entities in which the Company has such an interest. In circumstances where the Company determined it isthe primary beneficiary, consolidation of that entity would be required. For the periods presented, no variable interest entities have been consolidated.Reclassifications Certain prior-period amounts have been reclassified in the accompanying Consolidated Financial Statements and Notes thereto in order toconform to the current period presentation.Revenue Recognition The Company records revenue, net of sales tax, when the following five steps have been completed:•Identification of the contract(s) with a customer•Identification of the performance obligation(s) in the contract•Determination of the transaction price•Allocation of the transaction price to the performance obligations in the contract•Recognition of revenue when, or as, we satisfy performance obligationsThe Company records revenue when, or as, performance obligations are satisfied by transferring control of a promised good or service to the customer. TheCompany evaluates the transfer of control primarily from the customer’s perspective where the customer has the ability to direct the use of and obtainsubstantially all of the remaining benefits from that good or service.Our product revenue includes hardware and software which is generally recognized at a point in time, once all conditions for revenue recognition have beenmet. For hardware products, control is generally transferred when the customer has the ability to direct the use of and obtain substantially all of the remainingbenefits of the products, which generally coincides with when the customer has assumed risk of loss of the goods sold. For software products, control isgenerally transferred when the customer takes possession of, or has complete access to, the software. In certain instances, customer acceptance is requiredprior to the56Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)passage of title and risk of loss of the delivered products. In such cases, revenue is not recognized until the customer acceptance is obtained. Delivery,acceptance, and transfer of title and risk of loss generally occur in the same reporting period. NCR's customers may request that delivery and passage of titleand risk of loss occur on a bill and hold basis. As of December 31, 2018 and 2017, the revenue recognized from bill and hold transactions approximated 1%of total revenue.Our services revenue includes software as a service (SaaS), professional consulting, installation and maintenance support. SaaS primarily consists of fees toprovide our customers access to our platform and cloud-based applications. Revenue from SaaS contracts is recognized as variable consideration directlyallocated based on customer usage or on a ratable basis over the contract term beginning on the date that our service is made available to the customer.Professional consulting primarily consists of software implementation, integration, customization and optimization services. Revenue from professionalconsulting contracts that involve significant production, modification or customization of the software is recognized over time as the services are performed.Revenue from professional consulting contracts that does not involve significant production, modification or customization of the software is recognizedwhen the services are completed or customer acceptance of the service is received, if required. For installation and maintenance, control is transferred as theservices are provided or ratably over the service period, or, if applicable, after customer acceptance of the service. We apply the ‘as invoiced’ practicalexpedient, for performance obligations satisfied over time, if the amount we may invoice corresponds directly with the value to the customer of theCompany’s performance to date. This expedient permits us to recognize revenue in the amount we invoice the customer.NCR frequently enters contracts that include multiple performance obligations, including hardware, software, professional consulting services, installationservices and maintenance support services. For these arrangements, the Company allocates the transaction price, at contract inception, to each performanceobligation on a relative standalone selling price basis. The primary method used to estimate standalone selling price is the price that the Company chargesfor that good or service when the Company sells it separately in similar circumstances to similar customers.If a contract includes software and services that involve significant production, modification or customization of the software, the services are not distinctfrom the software. For these contracts, both the software and professional services revenue is recognized over time using costs incurred to date relative to totalestimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which correspondswith, and thereby best depicts, the transfer of control to the customer. Estimated losses, if any, are recognized as soon as such losses become known.The nature of our arrangements gives rise to several types of variable consideration including service level agreement credits, stock rotation rights, trade-incredits and volume-based rebates. At contract inception, we include this variable consideration in our transaction price when there is a basis to reasonablyestimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the expected value methodand a portfolio approach, based on historical experience, anticipated performance and our best judgment at the time. These estimates are reassessed at eachreporting date. Because of our confidence in estimating these amounts, they are included in the transaction price of our contracts and the associatedremaining performance obligations.As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, atcontract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or servicewill be one year or less. Payment terms with our customers are established based on industry and regional practices and generally do not exceed 30 days. Wedo not typically include extended payment terms in our contracts with customers.The Company also does not adjust the transaction price for taxes collected from customers, as those amounts are netted against amounts remitted togovernment authorities.We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products, ratherthan as a separate performance obligation. Accordingly, we record amounts billed for shipping and handling costs as a component of net product sales, andclassify such costs as a component of cost of products.In addition to the standard product warranty, the Company periodically offers extended warranties to its customers in the form of product maintenanceservices. For contracts that are not separately priced but include product maintenance, the Company defers revenue at an amount based on the selling price,using objective and reliable evidence, and recognizes the deferred revenue over the service term. For separately priced product maintenance contracts, NCRdefers the stated amount of the separately priced contract and recognizes the deferred revenue ratably over the service term.Remaining Performance Obligations Remaining performance obligations represent the transaction price of orders for which57Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)products have not been delivered or services have not been performed. As of December 31, 2018, the aggregate amount of the transaction price allocated toremaining performance obligations was approximately $3.2 billion. The Company expects to recognize revenue on approximately three-quarters of theremaining performance obligations over the next 12 months, with the remainder recognized thereafter. The majority of our professional services are expectedto be recognized over the next 12 months but this is contingent upon a number of factors, including customers’ needs and schedules.The Company has made two elections which affect the value of remaining performance obligations described above. We do not disclose remainingperformance obligations for SaaS contracts where variable consideration is directly allocated based on usage or when the original expected length is one yearor less.Warranty and Sales Returns Provisions for product warranties and sales returns and allowances are recorded in the period in which NCR becomes obligatedto honor the related right, which generally is the period in which the related product revenue is recognized. The Company accrues warranty reserves basedupon historical factors such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts. When a sale isconsummated, a warranty reserve is recorded based upon the estimated cost to provide the service over the warranty period. The Company accrues salesreturns and allowances using percentages of revenue to reflect the Company’s historical average of sales return claims.Research and Development Costs Research and development costs primarily include payroll and benefit-related costs, contractor fees, facilities costs,infrastructure costs, and administrative expenses directly related to research and development support and are expensed as incurred, except certain softwaredevelopment costs are capitalized after technological feasibility of the software is established.Advertising Advertising costs are recognized in selling, general and administrative expenses when incurred.Stock Compensation Stock-based compensation represents the costs related to share-based awards granted to employees and non-employee directors. TheCompany’s outstanding stock-based compensation awards are classified as equity. The Company measures stock-based compensation cost at the grant date,based on the estimated fair value of the award and recognizes the cost over the requisite service period. See Note 7, "Stock Compensation Plans" for furtherinformation on NCR’s stock-based compensation plans.Income Taxes Income tax expense is provided based on income before income taxes. Deferred income taxes reflect the impact of temporary differencesbetween assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These deferred taxes are determinedbased on the enacted tax rates expected to apply in the periods in which the deferred assets or liabilities are expected to be settled or realized. NCR recordsvaluation allowances related to its deferred income tax assets when it is more likely than not that some portion or all of the deferred income tax assets will notbe realized.The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained onexamination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statementsfrom such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being sustained upon examination byauthorities. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in theperiod that such interest and penalties would be applicable under relevant tax law and until such time that the related tax benefits are recognized.On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) that instituted fundamental changes to the taxation ofmultinational corporations. See Note 7, "Income Taxes" for additional information on the Company's assessment and related impacts.Earnings Per Share Basic earnings per share (EPS) is calculated by dividing net income, less any dividends, accretion or decretion, redemption or inducedconversion on our Series A Convertible Preferred Stock, by the weighted average number of shares outstanding during the reported period.In computing diluted EPS, we adjust the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends(declared or cumulative undeclared) applicable to the Series A Convertible Preferred Stock. Such add-back would also include any adjustments to equity inthe period to accrete the Series A Convertible Preferred Stock to its redemption price, or recorded upon a redemption or induced conversion. We adjust thedenominator used in the basic EPS computation, subject to anti-dilution requirements, to include the dilution from potential shares resulting from theissuance of the Series A Convertible Preferred Stock, restricted stock units, and stock options.58Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)The holders of Series A Convertible Preferred Stock and unvested restricted stock units do not have nonforfeitable rights to common stock dividends orcommon stock dividend equivalents. Accordingly, the Series A Convertible Preferred Stock and unvested restricted stock units do not qualify asparticipating securities. See Note 8, "Stock Compensation Plans" for share information on NCR’s stock compensation plans.The components of basic earnings (loss) per share are as follows:In millions, except per share amountsYear ended December 312018 2017 2016Income (loss) from continuing operations$(36) $237 $283Series A convertible preferred stock dividends(49) (47) (49)Deemed dividend on modification of Series A Convertible Preferred Stock— (4) —Deemed dividend on Series A Convertible Preferred Stock redemption— (58) —Net income (loss) from continuing operations attributable to NCR common stockholders(85) 128 234Loss from discontinued operations, net of tax(52) (5) (13)Net income (loss) attributable to NCR common stockholders$(137) $123 $221 Denominator Basic weighted average number of shares outstanding118.4 121.9 125.6 Basic earnings (loss) per share: From continuing operations$(0.72) $1.05 $1.86From discontinued operations(0.44) (0.04) (0.10)Total basic earnings (loss) per share$(1.16) $1.01 $1.7659Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)The components of diluted earnings (loss) per share are as follows:In millions, except per share amountsYear ended December 312018 2017 2016Income (loss) from continuing operations$(36) $237 $283Series A convertible preferred stock dividends(49) (47) —Deemed dividend on modification of Series A Convertible Preferred Stock— (4) —Deemed dividend on Series A Convertible Preferred Stock redemption— (58) —Net income (loss) from continuing operations attributable to NCR common stockholders(85) 128 283Loss from discontinued operations, net of tax(52) (5) (13)Series A convertible preferred stock dividends— — (49)Net income (loss) attributable to NCR common stockholders$(137) $123 $221 Basic weighted average number of shares outstanding118.4 121.9 125.6Dilutive effect of as-if Series A Convertible Preferred Stock— — 28.2Dilutive effect of employee stock options and restricted stock units— 5.1 3.6Denominator - from continuing operations118.4 127.0 157.4 Basic weighted average number of shares outstanding118.4 121.9 125.6Dilutive effect of employee stock options and restricted stock units— 5.1 3.6Denominator - total118.4 127.0 129.2 Diluted earnings (loss) per share: From continuing operations$(0.72) $1.01 $1.80From discontinued operations(0.44) (0.04) (0.10)Total diluted earnings (loss) per share$(1.16) $0.97 $1.71For 2018, diluted earnings (loss) per share from continuing operations and total diluted earnings (loss) per share, it is more dilutive to assume the Series AConvertible Preferred Stock is not converted to common stock and therefore weighted average outstanding shares of common stock are not adjusted by theas-if converted Series A Convertible Preferred Stock shown above because the effect would be anti-dilutive. If the as-if converted Series A ConvertiblePreferred Stock had been dilutive, approximately 28.3 million additional shares would have been included in the diluted weighted average number of sharesoutstanding for the year ended December 31, 2018. For 2018, there were 6.5 million weighted anti-dilutive restricted stock units outstanding.For 2017, diluted earnings (loss) per share from continuing operations and total diluted earnings (loss) per share, it is more dilutive to assume the Series AConvertible Preferred Stock is not converted to common stock and therefore weighted average outstanding shares of common stock are not adjusted by theas-if converted Series A Convertible Preferred Stock shown above because the effect would be anti-dilutive. If the as-if converted Series A ConvertiblePreferred Stock had been dilutive, approximately 27.4 million additional shares, considering the existing and redeemed shares, would have been included inthe diluted weighted average number of shares outstanding for the year ended December 31, 2017. For 2017, there were 0.8 million weighted anti-dilutiverestricted stock units outstanding.For 2016, diluted earnings (loss) per share from continuing operations, it is more dilutive to assume the Series A Convertible Preferred Stock is converted tocommon stock and therefore weighted average outstanding shares of common stock are adjusted by the as-if converted Series A Convertible Preferred Stock.For 2016, total diluted earnings (loss) per share, it is more dilutive to assume the Series A Convertible Preferred Stock is not converted to common stock andtherefore weighted average outstanding shares of common stock are not adjusted by the as-if converted Series A Convertible Preferred Stock shown abovebecause the effect would be anti-dilutive. Therefore, total diluted earnings (loss) per share less diluted earnings (loss) per share from continuing60Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)operations does not equal diluted earnings (loss) per share from discontinued operations. For 2016, there were 0.4 million weighted anti-dilutive restrictedstock units outstanding.Cash and Cash Equivalents All short-term, highly liquid investments having original maturities of three months or less, including time deposits, areconsidered to be cash equivalents.Accounts Receivable, net Accounts receivable, net includes amounts billed and currently due from customers as well as amounts unbilled which typicallyresult from sales under contracts where revenue recognized exceeds the amount billed to the customer and where the Company has an unconditional right toconsideration. The amounts due are stated at their net estimated realizable value. NCR establishes provisions for doubtful accounts using percentages ofaccounts receivable balances to reflect historical average credit losses and specific provisions for known issues, such as risks of default.Allowance for Doubtful Accounts NCR establishes provisions for doubtful accounts using percentages of accounts receivable balances to reflect historicalaverage credit losses and specific provisions for known issues.Inventories Inventories are stated at the lower of cost or net realizable value, using the average cost method. Cost includes materials, labor andmanufacturing overhead related to the purchase and production of inventories. Service parts are included in inventories and include reworkable and non-reworkable service parts. The Company regularly reviews inventory quantities on hand, future purchase commitments with suppliers and the estimated utilityof inventory. If the review indicates a reduction in utility below carrying value, inventory is reduced to a new cost basis. Excess and obsolete write-offs areestablished based on forecasted usage, orders, technological obsolescence and inventory aging.Contract Assets and Liabilities Contract assets include unbilled amounts where right to payment is not solely subject to the passage of time. Amounts maynot exceed their net realizable value. Contract liabilities consist of advance payments, billings in excess of revenue recognized and deferred revenue.Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. If the net position is acontract asset, the current portion is included in other current assets and the non-current portion is included in other assets in the Consolidated Balance Sheet.If the net position is a contract liability, the current portion is included in contract liabilities and the non-current portion is included in other liabilities in theConsolidated Balance Sheet.The following table presents the net contract asset and contract liability balances as of December 31, 2018 and January 1, 2018:In millionsLocation in the Consolidated Balance Sheet December 31, 2018 January 1, 2018Current portion of contract assetsOther current assets $22 $28Current portion of contract liabilitiesContract liabilities $461 $458Non-current portion of contract liabilitiesOther liabilities $85 $95During the twelve months ended December 31, 2018, the Company recognized $355 million in revenue that was included in contract liabilities as of January1, 2018.Deferred Commissions Our incremental costs of obtaining a contract, which consist of certain sales commissions, primarily for our SaaS revenue, are deferredand amortized on a straight-line basis over the period of expected benefit. We determined the period of expected benefit by taking into considerationcustomer contracts, the estimated life of the customer relationship, including renewals when the renewal commission is not commensurate with the initialcommission, the expected life of the underlying technology and other factors. We classify deferred commissions as current or non-current based on the timingof when we expect to recognize the expense. The current and non-current portions of deferred commissions are included in other current assets and otherassets, respectively, in the Consolidated Balance Sheet as of December 31, 2018. Amortization of deferred commissions is included in selling, general andadministrative expenses in the Consolidated Statements of Operations for the year ended December 31, 2018.Set-up Fees and Costs Fees for the design, configuration, implementation and installation related to the software applications that are provided as a serviceare recognized over the contract term, which is generally 5 years. The related costs incurred that are determined to be incremental and recoverable contract-specific costs are deferred and amortized over the period of benefit, which is generally 7 years.61Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Settlement Processing Assets and Obligations Funds settlement refers to the process of transferring funds for sales and credits between card issuers andmerchants. Depending on the type of transaction, either the credit card interchange system or the debit network is used to transfer the information and fundsbetween the sponsoring bank and card issuing bank to complete the link between merchants and card issuers. In certain of our processing arrangements,merchant funding primarily occurs after the sponsoring bank receives the funds from the card issuer through the card networks, creating a net settlementobligation on the Company’s Consolidated Balance Sheet. In a limited number of other arrangements, the sponsoring bank funds the merchants before itreceives the net settlement funds from the card networks, creating a net settlement asset on the Company’s Consolidated Balance Sheet. Additionally, certainof the Company’s sponsoring banks collect the gross revenue from the merchants, pay the interchange fees and assessments to the credit card associations,collect their fees for processing and pay the Company a net residual payment representing the Company’s fees for the services. In these instances, theCompany does not reflect the related settlement processing assets and obligations in its Consolidated Balance Sheet.Settlement processing assets consist primarily of our portion of settlement assets due from customers and receivables from merchants for the portion of thediscount fee related to reimbursement of the interchange expense, our receivable from the processing bank for transactions we have funded merchants inadvance of receipt of card association funding, merchant reserves held, sponsoring bank reserves and exception items, such as customer chargeback amountsreceivable from merchants. Settlement processing obligations consist primarily of merchant reserves, our liability to the processing bank for transactions forwhich we have received funding from the members but have not funded merchants and exception items. Settlement processing assets are recorded withinother current assets and settlement processing liabilities are recorded within other current liabilities in the Consolidated Balance Sheet. As of December 31,2018, settlement processing assets were $30 million and settlement processing liabilities were $28 million. Settlement receivables are generally collectedwithin four business days. Settlement obligations are generally paid within three business days, regardless of when the related settlement receivables arecollected.Capitalized Software Certain direct development costs associated with internal-use software are capitalized within other assets and amortized over theestimated useful lives of the resulting software. NCR typically amortizes capitalized internal-use software on a straight-line basis over four to seven yearsbeginning when the asset is substantially ready for use, as this is considered to approximate the usage pattern of the software. When it becomes probable thatinternal-use software being developed will not be completed or placed into service, the internal-use software is reported at the lower of the carrying amount orfair value.Costs incurred for the development of software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has beenestablished. These costs are included within other assets and are amortized on a sum-of-the-years' digits or straight-line basis over the estimated useful livesranging from three to five years, using the method that most closely approximates the sales pattern of the software. Amortization begins when the product isavailable for general release. Costs capitalized include direct labor and related overhead costs. Costs incurred prior to technological feasibility or aftergeneral release are expensed as incurred. NCR performs periodic reviews to ensure that unamortized program costs remain recoverable from future revenue. Iffuture revenue does not support the unamortized program costs, the amount by which the unamortized capitalized cost of a software product exceeds the netrealizable value is written off.The following table identifies the activity relating to total capitalized software:In millions2018 2017 2016Beginning balance as of January 1$366 $345 $311Capitalization170 166 154Amortization(160) (145) (118)Impairment(51) — (2)Ending balance as of December 31$325 $366 $345During the year ended December 31, 2018, we recorded the write-off of certain internal and external use software capitalization projects that are no longerconsidered strategic based on review by the new management team and as a result, the projects have been abandoned.Goodwill and Other Intangible Assets Goodwill represents the excess of purchase price over the fair value of the net tangible and identifiable intangibleassets of businesses acquired. Goodwill is tested at the reporting unit level for impairment on an annual basis during the fourth quarter or more frequently ifcertain events occur indicating that the carrying value of goodwill may be impaired. A significant amount of judgment is involved in determining if anindicator of impairment has occurred. Such indicators62Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)may include a decline in expected cash flows, a significant adverse change in legal factors or in the business climate, a decision to sell a business,unanticipated competition, or slower growth rates, among others. During the second quarter of 2018, we determined there was an indication that the carryingvalue of the net assets assigned to the Hardware reporting unit may not be recoverable and completed an impairment assessment of goodwill. As a result ofthe assessment, we recorded an impairment charge for the full value of the goodwill assigned to the Hardware reporting unit. Refer to Note 4, "Goodwill andPurchased Intangible Assets" for further discussion.In the evaluation of goodwill for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing isnecessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under thequalitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not thatits fair value is less than its carrying amount. If under the quantitative assessment the fair value of a reporting unit is less than its carrying amount, then theamount of the impairment loss, if any, is determined based on the amount by which the carrying amount exceeds the fair value up to the total value ofgoodwill assigned to the reporting unit. Fair values of the reporting units are estimated using a weighted methodology considering the output from both theincome and market approaches. The income approach incorporates the use of discounted cash flow (DCF) analysis. A number of significant assumptions andestimates are involved in the application of the DCF model to forecast operating cash flows, including revenue growth, operating income margin anddiscount rate. Several of these assumptions vary among reporting units. The cash flow forecasts are generally based on approved strategic operating plans.The market approach is performed using the Guideline Public Companies (GPC) method which is based on earnings multiple data. We perform areconciliation between our market capitalization and our estimate of the aggregate fair value of the reporting units, including consideration of a controlpremium. During the fourth quarter of each year presented, we performed our annual impairment assessment of goodwill which did not indicate that animpairment existed. Refer to Note 4, "Goodwill and Purchased Intangible Assets" for further discussion.Acquired intangible assets other than goodwill are amortized over their weighted average amortization period unless they are determined to be indefinite.Acquired intangible assets are carried at cost, less accumulated amortization. For intangible assets purchased in a business combination, the estimated fairvalues of the assets received are used to establish the carrying value. The fair value of acquired intangible assets is determined using common techniques, andthe Company employs assumptions developed using the perspective of a market participant.Property, Plant and Equipment Property, plant and equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation iscomputed over the estimated useful lives of the related assets primarily on a straight-line basis. Machinery and other equipment are depreciated over 3 to 20years and buildings over 25 to 45 years. Leasehold improvements are depreciated over the life of the lease or the asset, whichever is shorter. Assets classifiedas held for sale are not depreciated. Upon retirement or disposition of property, plant and equipment, the related cost and accumulated depreciation oramortization are removed from the Company’s accounts, and a gain or loss is recorded. Depreciation expense related to property, plant and equipment was$81 million, $86 million, and $90 million for the years ended December 31, 2018, 2017, and 2016, respectively.Valuation of Long-Lived Assets Long-lived assets such as property, plant and equipment and finite-lived intangible assets are reviewed for impairment whenevents or changes in circumstances indicate that the carrying amount of the assets may not be recoverable or in the period in which the held for sale criteriaare met. For assets held and used, this analysis consists of comparing the asset’s carrying value to the expected future cash flows to be generated from theasset on an undiscounted basis. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values aredetermined based on quoted market values, discounted cash flows, or external appraisals, as applicable. Long-lived assets are reviewed for impairment at theindividual asset or the asset group level for which the lowest level of independent cash flows can be identified. Refer to Note 4, "Goodwill and PurchasedIntangible Assets" for further discussion.Pension, Postretirement and Postemployment Benefits NCR has significant pension, postretirement and postemployment benefit costs, which aredeveloped from actuarial valuations. Actuarial assumptions are established to anticipate future events and are used in calculating the expense and liabilitiesrelating to these plans. These factors include assumptions the Company makes about interest rates, expected investment return on plan assets, rate of increasein healthcare costs, total and involuntary turnover rates, and rates of future compensation increases. In addition, NCR also uses subjective factors, such aswithdrawal rates and mortality rates to develop the Company’s valuations. NCR generally reviews and updates these assumptions on an annual basis. NCR isrequired to consider current market conditions, including changes in interest rates, in making these assumptions. The actuarial assumptions that NCR usesmay differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans ofparticipants. These differences may result in a significant impact to the amount of pension, postretirement or postemployment benefits expense, and therelated assets and liabilities, the Company has recorded or may record.63Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Environmental and Legal Contingencies In the normal course of business, NCR is subject to various proceedings, lawsuits, claims and other matters,including, for example, those that relate to the environment and health and safety, labor and employment, employee benefits, import/export compliance,intellectual property, data privacy and security, product liability, commercial disputes and regulatory compliance, among others. Additionally, NCR issubject to diverse and complex laws, regulations, and standards including those relating to corporate governance, public disclosure and reporting,environmental safety and the discharge of materials into the environment, product safety, import and export compliance, data privacy and security, antitrustand competition, government contracting, anti-corruption, and labor and human resources, which are rapidly changing and subject to many possible changesin the future. Compliance with these laws and regulations, including changes in accounting standards, taxation requirements, and federal securities lawsamong others, may create a substantial burden on, and substantially increase the costs to NCR or could have an impact on NCR’s future operating results.NCR believes that the amounts provided in its Consolidated Financial Statements are adequate in light of the probable and estimable liabilities. However,there can be no assurances that the actual amounts required to satisfy alleged liabilities from various lawsuits, claims, legal proceedings and other matters,including the Fox River and Kalamazoo River environmental matters discussed in Note 10, "Commitments and Contingencies" and to comply withapplicable laws and regulations, will not exceed the amounts reflected in NCR’s Consolidated Financial Statements or will not have a material adverse effecton the Company’s consolidated results of operations, financial condition or cash flows. Any costs that may be incurred in excess of those amounts providedas of December 31, 2018 cannot currently be reasonably determined or are not currently considered probable.Legal fees and expenses related to loss contingencies are typically expensed as incurred, except for certain costs associated with NCR’s environmentalremediation obligations. Costs and fees associated with litigating the extent and type of required remedial actions and the allocation of remediation costsamong potentially responsible parties are typically included in the measurement of the environmental remediation liabilities.Leases The Company accounts for material escalation clauses, free or reduced rents and landlord incentives contained in operating type leases on a straight-line basis over the lease term, including any reasonably assured lease renewals. For leasehold improvements that are funded by the landlord, the Companyrecords the incentive as deferred rent. The deferred rent is then amortized as reductions to lease expense over the lease term. For capital leases where NCR isthe lessee, we record an amortizable debt and a related fixed asset in the Consolidated Balance Sheet.Foreign Currency For many NCR international operations, the local currency is designated as the functional currency. Accordingly, assets and liabilities aretranslated into U.S. Dollars at year-end exchange rates, and revenue and expenses are translated at average exchange rates prevailing during the year.Currency translation adjustments from local functional currency countries resulting from fluctuations in exchange rates are recorded in other comprehensiveincome. Where the U.S. Dollar is the functional currency, remeasurement adjustments are recorded in other (expense), net.Derivative Instruments In the normal course of business, NCR enters into various financial instruments, including derivative financial instruments. TheCompany accounts for derivatives as either assets or liabilities in the Consolidated Balance Sheets at fair value and recognizes the resulting gains or losses asadjustments to earnings or other comprehensive income. For derivative instruments that are designated and qualify as hedging instruments, the Companyformally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertakingvarious hedge transactions. Hedging activities are transacted only with highly rated institutions, reducing exposure to credit risk in the event ofnonperformance. Additionally, the Company completes assessments related to the risk of counterparty nonperformance on a regular basis.The accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship,and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company hasdesignated the hedging instrument, based on the exposure being hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreignoperation. For derivative instruments designated as fair value hedges, the effective portion of the hedge is recorded as an offset to the change in the fair valueof the hedged item, and the ineffective portion of the hedge, if any, is recorded in the Consolidated Statement of Operations. For derivative instrumentsdesignated as cash flow hedges and determined to be highly effective, the gains or losses are deferred in other comprehensive income and recognized in thedetermination of income as adjustments of carrying amounts when the underlying hedged transaction is realized, canceled or otherwise terminated. Whenhedging certain foreign currency transactions of a long-term investment nature (net investments in foreign operations) gains and losses are recorded in thecurrency translation adjustment component of accumulated other comprehensive loss. Gains and losses on foreign exchange contracts that are not used tohedge currency transactions of a long-term investment nature, or that are not designated as cash flow or fair value hedges, are recognized in other (expense),net as exchange rates change.64Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Fair Value of Assets and Liabilities Fair value is defined as an exit price, representing an amount that would be received to sell an asset or the amount paidto transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurementdetermined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, theguidance prioritizes the inputs used to measure fair value into the following three-tier fair value hierarchy:•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities•Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets orliabilities in markets that are not active or inputs, other than quoted prices in active markets, that are observable either directly or indirectly•Level 3: Unobservable inputs for which there is little or no market dataAssets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair valuehierarchy classification on a quarterly basis. Changes to the observability of valuation inputs may result in a reclassification of levels for certain securitieswithin the fair value hierarchy.NCR measures its financial assets and financial liabilities at fair value based on one or more of the following three valuation techniques:•Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.•Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).•Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present valuetechniques, option pricing and excess earnings models).We regularly review our investments to determine whether a decline in fair value, if any, below the cost basis is other than temporary. If the decline in the fairvalue is determined to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in theConsolidated Statement of Operations. For qualifying investments in debt or equity securities, a temporary impairment charge would be recognized in othercomprehensive income (loss).Redeemable Noncontrolling Interests and Related Party Transactions In 2011, we sold a 49% voting equity interest in NCR Brasil - Indústria deEquipamentos para Automação S.A., a subsidiary of the Company (NCR Manaus) to Scopus Tecnologia Ltda. (Scopus). Under our investment agreementswith Scopus, Scopus may elect to sell its shares in NCR Manaus at the then-current fair value to a third party that is not a competitor of NCR. If Scopus isunable to locate a buyer, Scopus may require NCR to purchase its noncontrolling interest for its then-current fair value.We recognized $59 million, $79 million and $82 million in revenue related to Banco Bradesco SA (Bradesco), the parent of Scopus, for the years endedDecember 31, 2018, 2017 and 2016, respectively, and we had $15 million and $18 million in receivables outstanding from Bradesco as of December 31,2018 and 2017, respectively.Recent Accounting PronouncementsIssuedIn February 2016, the Financial Accounting Standards Board (FASB) issued a new leasing standard that supersedes prior guidance related to accounting forleases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on thebalance sheet and disclosing key information about leasing arrangements. The standard is effective for the first interim period within annual periodsbeginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted using the modified retrospective approach andNCR plans to apply the provisions of the new leasing standard at the effective date rather than at the beginning of the earliest period presented under thetransition method provided. The standard also includes options to elect a number of practical expedients. We plan to elect the package of practicalexpedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs, as well as the practicalexpedient to not reassess certain land easements. We do not plan to elect the practical expedient to use hindsight when determining the lease term. Thestandard also provides a practical expedient that permits lessees to make an accounting policy election by class of underlying asset to account for eachseparate lease component of a contract and its associated non-lease components as a single lease component. Where we are the lessee, we plan to make anaccounting policy election on65Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)and after the effective date to combine the lease and non-lease components as a single component for the majority of our classes of underlying assets. Wepurchased and are currently in the advanced stages of user acceptance testing of our new lease accounting software. The software is not yet fullyoperational. We are also in the process of making appropriate changes to our business processes, systems and controls to support the new standard, and we arecontinuing to evaluate the impact of the standard on our consolidated financial statements and related disclosures. At this time the Company cannot estimatethe quantitative impact of adopting the new standard, but it is expected to have a material effect to the total assets and total liabilities reported on theconsolidated balance sheet, and is not expected to have a material effect to the consolidated statement of operations or the consolidated statement of cashflows.In August 2018, the FASB issued an accounting standard update with new guidance on fair value measurement disclosure requirements which requires thedisclosure of additions to and transfers into and out of Level 3 of the fair value hierarchy. The update also requires disclosure about the uncertainty inmeasurement as of the reporting date. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December15, 2019 with early adoption permitted. The impact of adopting this guidance is not expected to have a material impact on our consolidated financialstatements.In August 2018, the FASB issued additional guidance for an accounting update that was issued in April 2015 related to accounting for implementation costsincurred in a cloud computing arrangement that is also a service contract. If a cloud computing arrangement also includes an internal-use software, anintangible asset is recognized and a liability is recognized for any payments related to the software license. However, if a cloud computing arrangement doesnot include a software license, the entity should account for the arrangement as a service contract and any fees associated with the service are expensed asincurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoptionpermitted. The impact of adopting this guidance is not expected to have a material impact on our consolidated financial statements.In October 2018, the FASB issued an accounting standards update for hedge accounting guidance that was issued in August 2017 which we adopted duringthe first quarter of this year. This guidance allows for the use of a broad Treasury repurchase agreement financing rate which is referred to as the SecuredOvernight Financing Rate (SOFR) to be used as an additional benchmark rate for hedge accounting purposes. This guidance is effective for entities that havealready adopted the amendments of the hedge accounting guidance referenced above for fiscal years beginning after December 15, 2018 on a prospectivebasis for qualifying new or re-designated hedging relationships entered into on or after the date of adoption. The adoption of this accounting standard updateis not expected to have a material effect on our consolidated financial statements.AdoptedIn May 2014, the FASB issued a new revenue recognition standard that superseded existing revenue recognition guidance. The core principle of theguidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. The standard was effective for the first interim period withinannual periods beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016, and can be adoptedeither retrospectively to each prior reporting period presented (“full retrospective method”) or as a cumulative effect adjustment as of the date of adoption (“modified retrospective method”). Effective January 1, 2018, we adopted the standard using the modified retrospective method applied to contracts thatwere not complete as of the date of adoption and recorded a cumulative adjustment to increase retained earnings by $2 million. Adoption of the new standardresulted in changes to our accounting policies for revenue recognition and deferred commissions. Refer to Note 2, "Revenue Recognized Under PreviousGuidance", for presentation of what revenue would have been in the current periods had the Company continued to recognize revenue under the previousaccounting guidance.In August 2016, the FASB issued an accounting standards update which provides guidance regarding the classification of certain cash receipts and cashpayments on the statement of cash flows, where specific guidance is provided for issues not previously addressed. This guidance is effective for annualreporting periods, including interim reporting within those periods, beginning after December 15, 2017, with early adoption permitted, and is required to beadopted using a retrospective approach. The adoption of this accounting standards update did not have a material effect on the Company's statement of cashflows.In October 2016, the FASB issued an accounting standards update which requires the recognition of the income tax consequences of an intra-entity transferof an asset, other than inventory, when the transfer occurs. This standard is effective for interim and annual periods beginning after December 15, 2017. Earlyadoption is permitted. Effective January 1, 2018, we adopted the standard using the modified retrospective method and recorded a cumulative adjustment toincrease retained earnings by $13 million.66Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In November 2016, the FASB issued an accounting standards update which clarifies how entities should present restricted cash and restricted cashequivalents in the statement of cash flows. The guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash andrestricted cash equivalents in the statement of cash flows. The accounting standards update is required to be adopted for annual periods beginning afterDecember 15, 2017, including interim periods within that annual period. The amendment is to be applied retrospectively with early adoption permitted. Theadoption of this accounting standards update did not have a material effect on the Company's statement of cash flows.In January 2017, the FASB issued an accounting standards update which clarifies the definition of a business which is used across several areas ofaccounting. The area expected to see the most change is the evaluation of whether a transaction should be accounted for as an acquisition (or disposal) ofassets, or as a business combination. The new guidance clarifies that to be a business there must also be at least one substantive process, and narrows thedefinition of outputs by more closely aligning it with how outputs are described in the new revenue recognition standard. The accounting standards update isrequired to be adopted for annual periods beginning after December 15, 2017, including interim periods within that annual period. The amendment is to beapplied prospectively with early adoption permitted. The adoption of this standard did not have a material effect on our financial condition, results ofoperations or disclosures, as the standard applies only to businesses acquired after the adoption date.In January 2017, the FASB issued an accounting standards update with new guidance intended to simplify the subsequent measurement of goodwill. Thestandards update eliminates the requirement for an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, anentity will perform its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recordingan impairment charge for the amount by which the carrying amount exceeds the fair value. The standards update is effective prospectively for annual andinterim goodwill impairment testing performed in fiscal years beginning after December 15, 2019, which we early adopted as of January 1, 2018. Refer toNote 4, "Goodwill and Purchased Intangible Assets" for further discussion.In March 2017, the FASB issued an accounting standards update with new guidance on an employer's presentation of defined benefit retirement costs in theincome statement. Employers will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employeecompensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. Employerswill present the other components of the net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal ofoperating income, if one is presented. These components will not be eligible for capitalization in assets. The guidance is effective for fiscal years beginningafter December 15, 2017, and interim periods therein, with early adoption permitted. The adoption of this accounting standards update did not have amaterial effect on the Company's net income, cash flows or financial condition.In May 2017, the FASB issued an accounting standards update which clarifies when to account for a change to the terms or conditions of a share-basedpayment award as a modification. This update requires modification only if the fair value, vesting conditions or the classification of the award changes as aresult of the change in terms or conditions. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods therein, withearly adoption permitted. The adoption of this accounting standards update did not have a material effect on the Company's net income, cash flows orfinancial condition.In August 2017, the FASB issued an accounting standards update which simplifies certain aspects of hedge accounting and improves disclosures of hedgingarrangements through the elimination of the requirement to separately measure and report hedge ineffectiveness. This update generally requires the entirechange in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item in order to align financial reporting ofhedge relationships with economic results. Entities must apply the amendments to cash flow and net investment hedge relationships that exist on the date ofadoption using a modified retrospective approach. The presentation and disclosure requirements must be applied prospectively. This guidance is effective forfiscal years beginning after December 15, 2018, and interim periods therein, with early adoption permitted. The adoption of this accounting standards updatedid not have a material effect on the Company's net income, cash flows or financial condition.In February 2018, the FASB issued an accounting standards update which permits entities to reclassify tax effects stranded in accumulated othercomprehensive income as a result of the enactment of the Tax Cuts and Jobs Act (U.S. Tax Reform) to retained earnings. Entities can elect to apply theguidance retrospectively or in the period of adoption. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periodstherein, with early adoption permitted. The adoption of this accounting standards update did not have a material effect on the Company's net income, cashflows or financial condition.In March 2018, the FASB issued an accounting standards update which allowed SEC registrants to record provisional amounts in earnings for the yearended December 31, 2017 due to the complexities involved in accounting for the enactment of U.S. Tax Reform. The standard was effective upon issuance.The Company recognized the estimated income tax effects of U.S. Tax Reform67Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)in its 2017 Consolidated Financial Statements in accordance with SEC Staff Accounting Bulletin No. 118 (SAB No. 118). Refer to Note 7, "IncomeTaxes", for further information regarding the assessment of the impact of U.S. Tax Reform in the years ended December 31, 2018 and 2017.In August 2018, the FASB issued an accounting standards update which require additional disclosures related to the weighted-average interest crediting ratesfor cash balance plans and an explanation for the reasons for significant gains and losses related to changes in the benefit obligation for the period. The newstandard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a retrospective basis with earlyadoption permitted. The adoption of this accounting standards update did not have a material effect on the Company's net income, cash flows or financialcondition.2. REVENUE RECOGNIZED UNDER PREVIOUS GUIDANCEAs noted in Note 1, “Basis of Presentation and Significant Accounting Policies” the Company adopted the new revenue recognition guidance effectiveJanuary 1, 2018, using the modified retrospective approach. As a result, we recognized the cumulative effect of initially applying the new revenue standard asan adjustment to the opening balance of retained earnings as of January 1, 2018. Adopting the new standard primarily impacted the deferral of incrementalcommission costs of obtaining SaaS contracts with customers. Other changes impact the timing of recognition for term-based software license sales andrenewals, and estimating variable consideration at contract inception. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. As such, thefollowing table presents the results under the previous guidance: For the year ended December 31, 2018In millions, except per share amountsUnder CurrentGuidance Adjustments Under PreviousGuidanceConsolidated Statement of Operations Product revenue$2,341 $(32) $2,309Cost of products1,988 (16) 1,972Selling, general and administrative expenses1,005 1 1,006Total operating expenses6,214 (15) 6,199Income (loss) from operations191 (17) 174Loss from continuing operations before income taxes39 (17) 22Income tax benefit73 (4) 69Loss from continuing operations(34) (13) (47)Net loss(86) (13) (99)Net loss attributable to NCR$(88) $(13) $(101)Loss per common share from continuing operations Basic$(0.72) $(0.11) $(0.83)Diluted$(0.72) $(0.11) $(0.83)Net loss per common share Basic$(1.16) $(0.11) $(1.27)Diluted$(1.16) $(0.11) $(1.27)68Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued) As of December 31, 2018In millionsUnder Current Guidance Adjustments Under PreviousGuidanceConsolidated Balance Sheet Assets Accounts receivable, net$1,356 $22 $1,378Other current assets397 (9) 388Total current assets3,023 13 3,036Deferred income taxes448 5 453Other assets504 (14) 490Total Assets$7,761 $4 $7,765 Liabilities Contract liabilities$461 $18 $479Other current liabilities501 3 504Total current liabilities2,282 21 2,303Total liabilities6,489 21 6,510Retained earnings606 (17) 589Total NCR stockholders’ equity395 (17) 378Total stockholders’ equity399 (17) 382Total liabilities and stockholders’ equity$7,761 $4 $7,7653. BUSINESS COMBINATIONS AND DIVESTITURESJetPay AcquisitionOn December 6, 2018, NCR completed its acquisition of JetPay Corporation ("JetPay"), for which it purchased (i) all outstanding shares of common stock at aprice of $5.05 per share, (ii) shares of Series A Preferred Stock at $5.05 per share, (iii) shares of Series A-1 Convertible Preferred Stock at a price of $600 pershare, (iv) shares of Series A-2 Convertible Preferred Stock of JetPay at a price of $600 per share, and (v) transaction costs paid on behalf of the seller for anaggregate purchase price of $193 million which was paid in cash. As a result of the acquisition, JetPay became a fully owned subsidiary of NCR.JetPay is a provider of end-to-end payment processing and human capital management solutions. The acquisition is consistent with NCR's continuedtransformation to a software- and services- driven business. JetPay complements and extends our existing capabilities by allowing us to monetize transactionsvia payments.Recording of Assets Acquired and Liabilities Assumed The fair value of consideration transferred to acquire JetPay was allocated to the identifiable assetsacquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition as set forth below. This allocation is open as ofDecember 31, 2018.The allocation of the purchase price for JetPay is as follows:In millionsFair ValueCash acquired$4Tangible assets acquired76Acquired intangible assets other than goodwill109Acquired goodwill96Deferred tax liabilities(16)Liabilities assumed(76)Total purchase consideration$19369Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Goodwill represents the future economic benefits arising from other assets acquired that could not be individually separately recognized. The goodwillarising from the acquisition consists of revenue synergies expected from combining the operations of NCR and JetPay. It is expected that none of thegoodwill recognized in connection with the acquisition will be deductible for tax purposes. The goodwill arising from the acquisition has been allocated toour Software segment. Refer to Note 4, "Goodwill and Purchased Intangible Assets" for the carrying amounts of goodwill by segment as of December 31,2018.The following table sets forth the components of the intangible assets acquired as of the acquisition date: Estimated Fair Value Weighted AverageAmortization Period (1) (In millions) (In years)Direct customer relationships$69 14Technology - Software39 9Tradenames1 1Total acquired intangible assets$109 (1) Determination of the weighted average period of the individual categories of intangible assets was based on the nature of applicable intangible assetand the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with definite lives is recognized over theperiod of time the assets are expected to contribute to future cash flows.In connection with the closing of the acquisition, the Company incurred approximately $4 million of transactions costs, which has been included withinselling, general and administrative expenses in the Consolidated Statements of Operations for the year ended December 31, 2018.Unaudited Pro forma Information The following unaudited pro forma information presents the consolidated results of NCR and JetPay for the years endedDecember 31, 2017 and 2018. The unaudited pro forma information is presented for illustrative purposes only. It is not necessarily indicative of the results ofoperations of future periods, or the results of operations that actually would have been realized had the entities been a single company during the periodspresented or the results that the combined company will experience after the acquisition. The unaudited pro forma information does not give effect to thepotential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associatedwith the acquisition. The unaudited pro forma information also does not include any integration costs or remaining future transaction costs that thecompanies may incur related to the acquisition as part of combining the operations of the companies.The unaudited pro forma consolidated results of operations, assuming the acquisition had occurred on January 1, 2017, are as follows:In millions 2018 2017Revenue $6,468 $6,592Net income attributable to NCR $(46) $217The unaudited pro forma results for the year ended December 31, 2018 include:•$4 million, net of tax, in additional amortization expense for acquired intangible assets;•$4 million, net of tax, in eliminated transaction costs as if those costs were incurred in the prior year period; and•$7 million, net of tax, in additional interest expense from the incremental borrowings under the Senior Secured Credit Facility.The unaudited pro forma results for the year ended December 31, 2017, include:•$5 million, net of tax, in additional amortization expense for acquired intangible assets;•$4 million, net of tax, in transaction costs; and•$7 million, net of tax, in additional interest expense from the incremental borrowings under the Senior Secured Credit Facility.70Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Other acquisitionsDuring the third quarter of 2018, we completed the acquisition of Zipscene LLC which aggregates and enriches data from hospitality customers to providemarketing insights back to our customers and will enable us to increase data monetization. During the fourth quarter of 2018, we completed its acquisition ofStopLift Checkout Vision Systems ("StopLift"). StopLift designs Artificial Intelligence technology which identifies fraudulent behavior at the point-of-saleand in self-checkout systems.4. GOODWILL AND PURCHASED INTANGIBLE ASSETSGoodwillThe carrying amounts of goodwill by segment are included in the tables below. Foreign currency fluctuations are included within other adjustments. January 1, 2018 December 31, 2018In millionsGoodwill AccumulatedImpairment Losses Total Additions Impairment Other Goodwill AccumulatedImpairment Losses TotalSoftware$1,944$(7)$1,937$107$—$(10)$2,041$(7)$2,034Services658—658———658—658Hardware162(16)146—(146)—162(162)—Total goodwill$2,764$(23)$2,741$107$(146)$(10)$2,861$(169)$2,692 January 1, 2017 December 31, 2017In millionsGoodwill AccumulatedImpairment Losses Total Additions Impairment Other Goodwill AccumulatedImpairment Losses TotalSoftware$1,930 $(7) $1,923 $— $— $14 $1,944 $(7) $1,937Services658 — 658 — — — 658 — 658Hardware162 (16) 146 — — — 162 (16) 146Total goodwill$2,750 $(23) $2,727 $— $— $14 $2,764 $(23) $2,741Late in the quarter ended June 30, 2018, we determined there was an indication that the carrying value of the net assets assigned to the Hardware reportingunit may not be recoverable. This determination was based on the lowering of our full year forecast for 2018, driven by reduced revenue and gross marginrates expected for the third and fourth quarters of 2018, and the resulting impact on the current year and future cash flow projections of the Hardwarereporting unit. Given the undiscounted cash flows of the asset group, which we determined to be at the reporting unit level, were below the carrying value of the net assets,we recorded an impairment charge for the difference between the fair value and the carrying value of the long-lived assets. The fair value of the long-livedassets was determined based on the nature of the asset through either third party appraisals, replacement cost or discounted cash flow analysis.As a result, in the three months ended June 30, 2018 the Company recorded impairment charges of $21 million related to property, plant and equipment heldand used in NCR's hardware reporting unit, $16 million related to purchased intangibles and $146 million for goodwill assigned to the Hardware reportingunit. These charges were recorded in the line item asset impairment charges in our Consolidated Statement of Operations for the year ended December 31,2018.As discussed in Note 1, “Basis of Presentation and Significant Accounting Policies,” NCR completed the annual goodwill impairment test during the fourthquarter of 2018, which did not indicate an impairment existed for the Software or Services segments.Purchased Intangible Assets71Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)NCR’s purchased intangible assets were specifically identified when acquired, and are deemed to have finite lives. These assets are reported in intangibles,net in the Consolidated Balance Sheets. The gross carrying amount and accumulated amortization for NCR’s identifiable intangible assets were as set forth inthe table below: AmortizationPeriod(in Years) December 31, 2018 December 31, 2017In millions Gross CarryingAmount AccumulatedAmortization Gross CarryingAmount AccumulatedAmortizationIdentifiable intangible assets Reseller & customer relationships1 - 20 $726 $(218) $659 $(170)Intellectual property2 - 8 443 (373) 410 (351)Customer contracts8 89 (87) 89 (81)Tradenames2 - 10 75 (60) 73 (51)Total identifiable intangible assets $1,333 $(738) $1,231 $(653)The aggregate amortization expense (actual and estimated) for identifiable intangible assets for the following periods is: For the year ended December31, 2018 For the years ended December 31 (estimated)In millions 2019 2020 2021 2022 2023Amortization expense $85 $88 $69 $60 $55 $535. SERIES A PREFERRED STOCKOn December 4, 2015, NCR issued 820,000 shares of Series A Convertible Preferred Stock to certain entities affiliated with the Blackstone Group L.P.(collectively, Blackstone) for an aggregate purchase price of $820 million, or $1,000 per share, pursuant to an Investment Agreement between the Companyand Blackstone, dated November 11, 2015. In connection with the issuance of the Series A Convertible Preferred Stock, the Company incurred direct andincremental expenses of $26 million, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. These direct andincremental expenses originally reduced the Series A Convertible Preferred Stock, and will be accreted through retained earnings as a deemed dividend fromthe date of issuance through the first possible known redemption date, March 16, 2024. During the twelve months ended December 31, 2018, 2017 and 2016,the Company paid dividends-in-kind of $46 million, $45 million, and $47 million, respectively, associated with the Series A Convertible Preferred Stock. Asof December 31, 2018 and 2017, the Company had accrued dividends of $3 million, respectively, associated with the Series A Convertible Preferred Stock.There were no cash dividends declared during the twelve months ended December 31, 2018 or 2017.Under the Investment Agreement, Blackstone agreed not to sell or otherwise transfer its shares of Series A Convertible Preferred Stock (or any shares ofcommon stock issued upon conversion thereof) without the Company’s consent until June 4, 2017. In March 2017, we provided Blackstone with an earlyrelease from this lock-up, allowing Blackstone to sell approximately 49% of its shares of Series A Convertible Preferred Stock, and in return, Blackstoneagreed to amend the Investment Agreement to extend the lock-up on the remaining 51% of its shares of Series A Convertible Preferred Stock for six monthsuntil December 1, 2017.In connection with the early release of the lock-up, Blackstone offered for sale 342,000 shares of Series A Convertible Preferred Stock in an underwrittenpublic offering. In addition, Blackstone converted 90,000 shares of Series A Convertible Preferred Stock into shares of our common stock and we repurchasedthose shares of common stock for $48.47 per share. The underwritten offering and the stock repurchase were consummated on March 17, 2017.The repurchase of the common shares immediately upon conversion is considered a redemption of the related preferred shares. As a result, the excess of thefair value of consideration transferred over the carrying value, of $58 million, was included as a deemed dividend in adjusting the income from commonstockholders in calculating earnings per share for the year ended December 31, 2017. Additionally, we determined that the changes to the lock-up periodwere considered a modification of the Series A Convertible Preferred Stock. The impact of the modification, calculated as the difference in the fair valueimmediately before and immediately after the changes, of $4 million, was included as a deemed dividend in adjusting the income from common stockholdersin calculating earnings per share for the year ended December 31, 2017. This adjustment was recorded as an increase to the Series A Convertible PreferredShares and will reduce the accretion of the direct and incremental expenses associated with the original offering as described above. Refer to Note 1, “Basis ofPresentation and Significant Accounting Policies” for additional discussion.72Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Dividend Rights The Series A Convertible Preferred Stock ranks senior to the shares of the Company’s common stock, with respect to dividend rights andrights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Series AConvertible Preferred Stock has a liquidation preference of $1,000 per share. Holders of Series A Convertible Preferred Stock are entitled to a cumulativedividend at the rate of 5.5% per annum, payable quarterly in arrears and payable in-kind for the first sixteen dividend payments, after which, beginning in thefirst quarter of 2020, dividends will be payable in cash or in-kind at the option of the Company. If the Company does not declare and pay a dividend, thedividend rate will increase to 8.0% per annum until all accrued but unpaid dividends have been paid in full. Dividends are paid in-kind, through the issuanceof additional shares of Series A Convertible Preferred Stock, for the first sixteen dividend payment dates, after which dividends will be payable in cash or in-kind at the option of the Company.Conversion Features The Series A Convertible Preferred Stock is convertible at the option of the holders at any time into shares of common stock at aconversion price of $30.00 per share and a conversion rate of 33.333 shares of common stock per share of Series A Convertible Preferred Stock. As ofDecember 31, 2018 and 2017, the maximum number of common shares that could be required to be issued upon conversion of the outstanding shares ofSeries A Convertible Preferred Stock was 29.0 million and 27.5 million shares, respectively. The conversion rate is subject to the following customary anti-dilution and other adjustments:•the issuance of common stock as a dividend or the subdivision, combination, or reclassification of common stock into a greater or lesser number ofshares of common stock;•the dividend, distribution or other issuance of rights, options or warrants to holders of Common Stock entitling them to subscribe for or purchaseshares of common stock at a price per share that is less than the volume-weighted average price per share of common stock;•the completion of a tender offer or exchange offer of shares of common stock at a premium to the volume-weighted average price per share ofcommon stock and certain other above-market purchases of common stock;•the issuance of a dividend or similar distribution in-kind, which can include shares of any class of capital stock, evidences of the Company'sindebtedness, assets or other property or securities, to holders of common stock;•a transaction in which a subsidiary of the Company ceases to be a subsidiary of the Company as a result of the distribution of the equity interests ofthe subsidiary to the holders of the Company’s common stock; and•the payment of a cash dividend to the holders of common stock.At any time after December 4, 2018, all outstanding shares of Series A Convertible Preferred Stock are convertible at the option of the Company if thevolume-weighted average price of the common stock exceeds $54.00 for at least 30 trading days in any period of 45 consecutive trading days. The $54.00may be adjusted pursuant to the anti-dilution provisions above.The Series A Convertible Preferred Stock, and the associated dividends for the first sixteen payments, did not generate a beneficial conversion feature (BCF)upon issuance as the fair value of the Company's common stock was greater than the conversion price. The Company will determine and, if required, measurea BCF based on the fair value of our stock price on the date dividends are declared subsequent to the sixteenth dividend. If a BCF is recognized, a reductionto retained earnings and the Series A Convertible Preferred Stock will be recorded, and then subsequently accreted through the first redemption date.Additionally, the Company determined that the nature of the Series A Convertible Preferred Stock was more akin to an equity instrument and that theeconomic characteristics and risks of the embedded conversion options were clearly and closely related to the Series A Convertible Preferred Stock. As such,the conversion options were not required to be bifurcated from the host under ASC 815, Derivatives and Hedging.Redemption Rights On any date during the three months commencing on and immediately following March 16, 2024 and the three months commencing onand immediately following every third anniversary of March 16, 2024, holders of Series A Convertible Preferred Stock have the right to require the Companyto repurchase all or any portion of the Series A Convertible Preferred Stock at 100% of the liquidation preference thereof plus all accrued but unpaiddividends. Upon certain change of control events involving the Company, holders of Series A Convertible Preferred Stock can require the Company torepurchase, subject to certain exceptions, all or any portion of the Series A Convertible Preferred Stock at the greater of (1) an amount in cash equal to 100%of the liquidation preference thereof plus all accrued but unpaid dividends and (2) the consideration the holders would have received if they had convertedtheir shares of Series A Convertible Preferred Stock into common stock immediately prior to the change of control event.The Company has the right, upon certain change of control events involving the Company, to redeem the Series A Convertible Preferred Stock at the greaterof (1) an amount in cash equal to the sum of the liquidation preference of the Series A Convertible Preferred Stock, all accrued but unpaid dividends and thepresent value, discounted at a rate of 10%, of any remaining scheduled dividends through the fifth anniversary of the first dividend payment date, assumingthe Company chose to pay such dividends in73Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)cash (the "make-whole provision") and (2) the consideration the holders would have received if they had converted their shares of Series A ConvertiblePreferred Stock into common stock immediately prior to the change of control event.Since the redemption of the Series A Convertible Preferred Stock is contingently or optionally redeemable and therefore not certain to occur, the Series AConvertible Preferred Stock is not required to be classified as a liability under ASC 480, Distinguishing Liabilities from Equity. As the Series A ConvertiblePreferred Stock is redeemable in certain circumstances at the option of the holder and is redeemable in certain circumstances upon the occurrence of an eventthat is not solely within our control, we have classified the Series A Convertible Preferred Stock in mezzanine equity on the Consolidated Balance Sheets.As noted above, the Company determined that the nature of the Series A Convertible Preferred Stock was more akin to an equity instrument. However, theCompany determined that the economic characteristics and risks of the embedded put options, call option and make-whole provision were not clearly andclosely related to the Series A Convertible Preferred Stock. Therefore, the Company assessed the put and call options further, and determined they did notmeet the definition of a derivative under ASC 815, Derivatives and Hedging. Under the same analysis, the Company determined the make-whole provisiondid meet the definition of a derivative, but that the value of the derivative was minimal due to the expectations surrounding the scenarios under which thecall option and make-whole provision would be exercised.Voting Rights Holders of Series A Convertible Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis. Holders ofSeries A Convertible Preferred Stock are entitled to a separate class vote with respect to certain designees for election to the Company's Board of Directors,amendments to the Company’s organizational documents that have an adverse effect on the Series A Convertible Preferred Stock and issuances by theCompany of securities that are senior to, or equal in priority with, the Series A Convertible Preferred Stock.Registration Rights Holders of Series A Convertible Preferred Stock have certain customary registration rights with respect to the Series A ConvertiblePreferred Stock and the shares of common stock into which they are converted, pursuant to the terms of a registration rights agreement.6. DEBT OBLIGATIONSThe following table summarizes the Company's short-term borrowings and long-term debt: December 31, 2018 December 31, 2017In millions, except percentagesAmountWeighted-AverageInterest Rate AmountWeighted-AverageInterest RateShort-Term Borrowings Current portion of Senior Secured Credit Facility (1)$844.51% $513.21%Trade Receivables Securitization Facility1003.37% — Other (2)14.92% 13.71% Total short-term borrowings$185 $52 Long-Term Debt Senior Secured Credit Facility: Term loan facility (1)$6754.51% $7593.21% Revolving credit facility (1)1204.49% — Senior Notes: 5.00% Senior Notes due 2022600 600 4.625% Senior Notes due 2021500 500 5.875% Senior Notes due 2021400 400 6.375% Senior Notes due 2023700 700 Deferred financing fees(18) (23) Other (2)30.59% 31.62% Total long-term debt$2,980 $2,939 (1) Interest rates are weighted average interest rates as of December 31, 2018 and 2017.74Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)(2) Interest rates are weighted average interest rates as of December 31, 2018 and 2017 primarily related to various international credit facilities and a notepayable in the U.S.Senior Secured Credit Facility On March 31, 2016, the Company amended and restated its senior secured credit facility with and among certain foreignsubsidiaries of NCR (the Foreign Borrowers), the lenders party thereto and JPMorgan Chase Bank, NA (JPMCB) as the administrative agent, and refinancedits term loan facility and revolving credit facility thereunder (the Senior Secured Credit Facility). As of December 31, 2018, the Senior Secured Credit Facilityconsisted of a term loan facility with an aggregate principal amount outstanding of $759 million and a revolving credit facility with an aggregate principalamount of $1.1 billion, of which $120 million was outstanding. The revolving credit facility also allows a portion of the availability to be used foroutstanding letters of credit, and as of December 31, 2018, there were no letters of credit outstanding.Up to $400 million of the revolving credit facility is available to the Foreign Borrowers. Term loans were made to the Company in U.S. Dollars, and loansunder the revolving credit facility are available in U.S. Dollars, Euros and Pound Sterling.The outstanding principal balance of the term loan facility is required to be repaid in equal quarterly installments of approximately $11 million beginningJune 30, 2016, $17 million beginning June 30, 2018, and $23 million beginning June 30, 2019, with the balance being due at maturity on March 31, 2021.Borrowings under the revolving portion of the credit facility are due March 31, 2021. Amounts outstanding under the Senior Secured Credit Facility bearinterest at LIBOR (or, in the case of amounts denominated in Euros, EURIBOR), or, at NCR’s option, in the case of amounts denominated in U.S. Dollars, at abase rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) JPMCB’s “prime rate” and (c) the one-month LIBOR rate plus 1.00% (the BaseRate), plus, in each case, a margin ranging from 1.25% to 2.25% for LIBOR-based loans that are either term loans or revolving loans and EURIBOR-basedrevolving loans and ranging from 0.25% to 1.25% for Base Rate-based loans that are either term loans or revolving loans, in each case, depending on theCompany’s consolidated leverage ratio. The terms of the Senior Secured Credit Facility also require certain other fees and payments to be made by theCompany, including a commitment fee on the undrawn portion of the revolving credit facility. The obligations of the Company and Foreign Borrowers under the Senior Secured Credit Facility are guaranteed by certain of the Company's wholly-owneddomestic subsidiaries. The Senior Secured Credit Facility and these guarantees are secured by a first priority lien and security interest in certain equityinterests owned by the Company and the guarantor subsidiaries in certain of their respective domestic and foreign subsidiaries, and a perfected first prioritylien and security interest in substantially all of the Company's U.S. assets and the assets of the guarantor subsidiaries, subject to certain exclusions. Thesesecurity interests would be released if the Company achieves an “investment grade” rating, and will remain released so long as the Company maintains thatrating.The Senior Secured Credit Facility includes affirmative and negative covenants that restrict or limit the ability of the Company and its subsidiaries to, amongother things, incur indebtedness; create liens on assets; engage in certain fundamental corporate changes or changes to the Company's business activities;make investments; sell or otherwise dispose of assets; engage in sale-leaseback or hedging transactions; repurchase stock, pay dividends or make similardistributions; repay other indebtedness; engage in certain affiliate transactions; or enter into agreements that restrict the Company's ability to create liens,pay dividends or make loan repayments. The Senior Secured Credit Facility also includes financial covenants that require the Company to maintain:•a consolidated leverage ratio on the last day of any fiscal quarter, not to exceed (i) in the case of any fiscal quarter ending after December 31, 2017and on or prior to December 31, 2019, (a) the sum of 4.00 and an amount (not to exceed 0.50) to reflect debt used to reduce NCR’s unfunded pensionliabilities to (b) 1.00, and (ii) in the case of any fiscal quarter ending after December 31, 2019, the sum of (a) 3.75 and an amount (not to exceed 0.50)to reflect debt used to reduce NCR’s unfunded pension liabilities to (b) 1.00; and•an interest coverage ratio on the last day of any fiscal quarter greater than or equal to 3.50 to 1.00.At December 31, 2018, the maximum consolidated leverage ratio under the Senior Secured Credit Facility was 4.10 to 1.00.The Senior Secured Credit Facility also includes provisions for events of default, which are customary for similar financings. Upon the occurrence of an eventof default, the lenders may, among other things, terminate the loan commitments, accelerate all loans and require cash collateral deposits in respect ofoutstanding letters of credit. If the Company is unable to pay or repay the amounts due, the lenders could, among other things, proceed against the collateralgranted to them to secure such indebtedness.The Company may request, at any time and from time to time, but the lenders are not obligated to fund, the establishment of one or more incremental termloans and/or revolving credit facilities (subject to the agreement of existing lenders or additional financial75Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)institutions to provide such term loans and/or revolving credit facilities) with commitments in an aggregate amount not to exceed the greater of (i) $150million, and (ii) such amount as would not (a) prior to the date that the Company obtains an investment grade rating cause the leverage ratio under the SeniorSecured Credit Facility, calculated on a pro forma basis including the incremental facility and assuming that it and the revolver are fully drawn, to exceed2.50 to 1.00, and (b) on and after the date that the Company obtains an "investment grade" rating cause the leverage ratio under the Senior Secured CreditFacility, calculated on a pro forma basis including the incremental facility and assuming that it and the revolver are fully drawn, to exceed a ratio that is 0.50less than the leverage ratio then applicable under the financial covenants of the Senior Secured Credit Facility, the proceeds of which can be used for workingcapital requirements and other general corporate purposes.Senior Unsecured Notes On September 17, 2012, the Company issued $600 million aggregate principal amount of 5.00% senior unsecured notes due in 2022(the 5.00% Notes). The 5.00% Notes were sold at 100% of the principal amount and will mature on July 15, 2022. On December 18, 2012, the Companyissued $500 million aggregate principal amount of 4.625% senior unsecured notes due in 2021 (the 4.625% Notes). The 4.625% Notes were sold at 100% ofthe principal amount and will mature on February 15, 2021. On December 19, 2013, the Company issued $400 million aggregate principal amountof 5.875% senior unsecured notes due in 2021 (the 5.875% Notes) and $700 million aggregate principal amount of 6.375% senior unsecured notes due in2023 (the 6.375% Notes). The 5.875% Notes were sold at 100% of the principal amount and will mature on December 15, 2021 and the 6.375% Notes weresold at 100% of the principal amount and will mature on December 15, 2023. The senior unsecured notes are guaranteed, fully and unconditionally, on anunsecured senior basis, by our 100% owned subsidiary, NCR International, Inc. Under the indentures for these notes, the Company has the option to redeemeach series of notes, in whole or in part, at various times for specified prices, plus accrued and unpaid interest. Under the indentures for these notes, theCompany has the option to redeem each series of notes, in whole or in part, at various times for specified prices, plus accrued and unpaid interest.The Company has the option to redeem the 5.00% Notes, in whole or in part, at any time on or after July 15, 2017, at a redemption price of 102.500%,101.667%, 100.833% and 100.000% during the 12-month periods commencing on July 15, 2017, 2018, 2019 and 2020 and thereafter, respectively, plusaccrued and unpaid interest to the redemption date.The Company has the option to redeem the 4.625% Notes, in whole or in part, at any time on or after February 15, 2017, at a redemption price of 102.313%,101.156% and 100% during the 12-month periods commencing on February 15, 2017, 2018 and 2019 and thereafter, respectively, plus accrued and unpaidinterest to the redemption date.The Company has the option to redeem the 5.875% Notes, in whole or in part, at any time on or after December 15, 2017, at a redemption priceof 102.938%, 101.469% and 100% during the 12-month periods commencing on December 15, 2017, 2018 and 2019 and thereafter, respectively, plusaccrued and unpaid interest to the redemption date.The Company has the option to redeem the 6.375% Notes, in whole or in part, at any time on or after December 15, 2018, at a redemption priceof 103.188%, 102.125%, 101.063% and 100% during the 12-month periods commencing on December 15, 2018, 2019, 2020 and 2021 and thereafter,respectively, plus accrued and unpaid interest to the redemption date. Prior to December 15, 2018, the Company may redeem the 6.375% Notes, in whole orin part, at a redemption price equal to 100% of the principal amount plus a make-whole premium and accrued and unpaid interest to the redemption date.The terms of the indentures for these notes limit the ability of the Company and certain of its subsidiaries to, among other things, incur additional debt orissue redeemable preferred stock; pay dividends or make certain other restricted payments or investments; incur liens; sell assets; incur restrictions on theability of the Company's subsidiaries to pay dividends to the Company; enter into affiliate transactions; engage in sale and leaseback transactions; andconsolidate, merge, sell or otherwise dispose of all or substantially all of the Company's or such subsidiaries' assets. These covenants are subject to significantexceptions and qualifications. For example, if these notes are assigned an "investment grade" rating by Moody's or S&P and no default has occurred or iscontinuing, certain covenants will be terminated.Trade Receivables Securitization Facility In November 2014, the Company established a revolving trade receivables securitization facility (the A/R Facility)with PNC Bank, National Association (PNC) as the administrative agent, and various lenders. In November 2016, the Company amended the A/R Facility toextend the maturity date to November 2018. In November 2018, the Company amended the A/R Facility to extend the maturity date to November 2020. Theamendment also included other modifications including the scope of receivables subject to the facility and related eligibility requirements, procedures forselecting and adopting a replacement benchmark rate in the event of certain discontinuations of LIBOR, and the fees and interest payable to the lenders partythereto. The A/R Facility provides for up to $200 million in funding based on the availability of eligible receivables and other customary factors andconditions, of which $100 million was outstanding as of December 31, 2018. 76Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Under the A/R Facility, NCR sells and/or contributes certain of its U.S. trade receivables to a wholly-owned, bankruptcy-remote subsidiary as they areoriginated, and advances by the lenders to that subsidiary are secured by those trade receivables. The assets of this financing subsidiary are restricted ascollateral for the payment of its obligations under the A/R Facility, and its assets and credit are not available to satisfy the debts and obligations owed to thecreditors of the Company. The Company includes the assets, liabilities and results of operations of this financing subsidiary in its consolidated financialstatements. The financing subsidiary owned $526 million and $491 million of outstanding accounts receivable as of December 31, 2018 and 2017,respectively, and these amounts are included in accounts receivable, net in the Company’s Consolidated Balance Sheets.The financing subsidiary will pay annual commitment and other customary fees to the lenders, and advances by a lender under the A/R Facility will accrueinterest (i) at a reserve-adjusted LIBOR rate or a base rate equal to the highest of (a) the applicable lender’s prime rate or (b) the federal funds rate plus 0.50%,if the lender is funding as a committed lender under the terms of the A/R Facility, or (ii) based on commercial paper interest rates if the lender is funding as acommercial paper conduit lender. Advances may be prepaid at any time without premium or penalty.The A/R Facility contains various customary affirmative and negative covenants and default and termination provisions which provide for the acceleration ofthe advances under the A/R Facility in circumstances including, but not limited to, failure to pay interest or principal when due, breach of representation,warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other materialindebtedness.Debt Maturities Maturities of debt outstanding, in principal amounts, at December 31, 2018 are summarized below: For the years ended December 31 In millions Total 2019 2020 2021 2022 2023 ThereafterDebt maturities $3,183 $85 $190 $1,605 $600 $700 $3Fair Value of Debt The Company utilized Level 2 inputs, as defined in the fair value hierarchy, to measure the fair value of the long-term debt, which, as ofDecember 31, 2018 and 2017 was $3.11 billion and $3.07 billion, respectively. Management's fair value estimates were based on quoted prices for recenttrades of NCR’s long-term debt, quoted prices for similar instruments, and inquiries with certain investment communities. 7. INCOME TAXESOn December 22, 2017, the U.S. enacted comprehensive and complex tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (“U.S. TaxReform”). The legislation resulted in a permanent reduction in the corporate tax rate to 21% and a one-time mandatory tax on certain undistributed earningsof foreign subsidiaries (“repatriation tax”).U.S. Tax Reform also put in place several new tax laws that are generally effective prospectively from January 1, 2018, including but not limited to: a baseerosion and anti-abuse tax; elimination of U.S. federal taxes on substantially all dividends from foreign subsidiaries; a lower U.S. tax rate on certain revenuesfrom sources outside the U.S.; and, implementation of a new provision to tax certain global intangible low-taxed income (“GILTI”) of foreign subsidiaries.U.S. GAAP generally requires that the overall impact of tax legislation is recorded in the quarter of enactment. However, given the fundamental complexity ofU.S. Tax Reform, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) that allowed the Company to record provisional amounts for the impactsof the legislation at the time the law was enacted, with the requirement that the accounting be completed in a period not to exceed one year from the date ofenactment of the legislation with updates of the provisional amount into future periods. As of December 31, 2017, the Company had not completed theaccounting in its entirety for the tax effects of the legislation. The Company made a reasonable estimate of the impact of U.S. Tax Reform and recorded aprovisional tax expense of $130 million in the year ended December 31, 2017. This provisional tax expense included a $94 million tax expense to remeasurethe net U.S. deferred tax assets to the newly enacted 21% corporate income tax rate and a $36 million tax expense related to the repatriation tax.As of December 31, 2018, we have completed our assessment of the impact of U.S Tax Reform which resulted in an additional net income tax expense of $37million recorded during the year ended December 31, 2018. The expense primarily consists of $43 million benefit related to deferred tax asset rateremeasurement and an $80 million tax expense related to the write off of expected foreign tax credit offsets to unrecognized tax benefits and theestablishment of a valuation allowance on deferred tax assets related to foreign tax credits that are not more likely than not to be realized as a result of theU.S. Tax Reform. Additionally, we have elected to treat any taxes due on the GILTI inclusion as a current period expense.77Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)NCR did not provide for additional U.S. income tax or foreign withholding taxes, if any, on approximately $2.7 billion of undistributed earnings of itsforeign subsidiaries, given the intention continues to be that those earnings are reinvested indefinitely. The amount of unrecognized deferred tax liabilityassociated with these indefinitely reinvested earnings is approximately $176 million. The unrecognized deferred tax liability is made up of a combination ofU.S. and state income taxes and foreign withholding taxes.During the year ended December 31, 2018, the Company identified two out of period adjustments that net to $2 million of income tax benefit. The firstadjustment was due to an error in the calculation of deferred tax liabilities associated with software capitalization resulting in $13 million of income taxbenefit which should have been recorded during the year ended December 31, 2017 when deferred taxes were remeasured in connection with U.S. TaxReform. The second adjustment was to write-off income tax assets related to expired foreign tax credits resulting in $11 million of income tax expense whichshould have been recorded between 2010 through 2017. The Company determined the impact of these errors was not material to the annual or interimfinancial statements of previous periods and the effect of correcting these errors was not material to 2018 annual financial statements.For the years ended December 31, income (loss) from continuing operations before income taxes consisted of the following:In millions 2018 2017 2016Income (loss) before income taxes United States $(262) $149 $35Foreign 301 333 344Total income (loss) from continuing operations before income taxes $39 $482 $379For the years ended December 31, income tax expense (benefit) consisted of the following:In millions 2018 2017 2016Income tax expense (benefit) Current Federal $18 $14 $18State — 2 4Foreign 42 54 60Deferred Federal (2) 178 12State 1 (3) 1Foreign 14 (3) (3)Total income tax expense (benefit) $73 $242 $92The following table presents the principal components of the difference between the effective tax rate and the U.S. federal statutory income tax rate for theyears ended December 31:78Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In millions 2018 2017 2016Income tax (benefit) expense at the U.S. federal tax rate of 21% for 2018 and 35% for2017 and 2016, respectively $8 $169 $133Foreign income tax differential 22 (38) (26)State and local income taxes (net of federal effect) 2 (1) 3Other U.S. permanent book/tax differences — 1 1Meals and entertainment expense 2 2 1Cash surrender value received as income — — (1)Executive compensation 4 1 1Employee share-based payments 3 (3) 3Change in branch tax status (9) — —Goodwill impairment 30 — —Research and development tax credits (6) (4) (4)U.S. manufacturing deduction — (9) (7)U.S. valuation allowance (1) 16 — —U.S tax reform 37 130 —Change in liability for unrecognized tax benefits (1) (23) (2) (12)Prior period adjustments (11) — —Other, net (2) (4) —Total income tax expense (benefit) $73 $242 $92(1) Does not include the impact of items included in the U.S. Tax Reform categoryNCR's tax provisions include a provision for income taxes in certain tax jurisdictions where its subsidiaries are profitable, but reflect only a portion of the taxbenefits related to certain foreign subsidiaries' tax losses due to the uncertainty of the ultimate realization of future benefits from these losses. During 2018,the tax rate was impacted by $37 million of tax expense relating to U.S. Tax Reform. During 2017, the tax rate was impacted by a provisional charge of $130million relating to U.S. Tax Reform. During 2016, the tax rate was impacted by a less favorable mix of earnings, primarily driven by actuarial pension lossesin foreign jurisdictions with valuation allowance against deferred tax assets.We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of thedeferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based onthe evaluation of positive and negative evidence. This evidence includes historical taxable income/loss, projected future taxable income, the expectedtiming of the reversal of existing temporary differences and the implementation of tax planning strategies. Given current earnings and anticipated futureearnings at certain subsidiaries, the Company believes that there is a reasonable possibility sufficient positive evidence may become available that wouldallow the release of a valuation allowance within the next twelve months.79Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Deferred income tax assets and liabilities included in the Consolidated Balance Sheets as of December 31 were as follows:In millions 2018 2017Deferred income tax assets Employee pensions and other benefits $223 $230Other balance sheet reserves and allowances 141 185Tax loss and credit carryforwards 682 525Capitalized research and development 53 50Property, plant and equipment 11 6Other 38 27Total deferred income tax assets 1,148 1,023Valuation allowance (485) (415)Net deferred income tax assets 663 608Deferred income tax liabilities Intangibles 151 129Capitalized software 78 27Other 7 16Total deferred income tax liabilities 236 172Total net deferred income tax assets $427 $436NCR recorded valuation allowances related to certain deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits fromthose assets. The valuation allowances cover deferred tax assets, primarily tax loss carryforwards and foreign tax credits, in tax jurisdictions where there isuncertainty as to the ultimate realization of those tax losses and credits. If we are unable to generate sufficient future taxable income of the proper source inthe time period within which the temporary differences underlying our deferred tax assets become deductible, or before the expiration of our loss and creditcarryforwards, additional valuation allowances could be required.As of December 31, 2018, NCR had U.S. federal, U.S. state (tax effected), and foreign tax attribute carryforwards of approximately $1.6 billion. The netoperating loss carryforwards that are subject to expiration will expire in the years 2019 through 2037. This includes U.S. tax credit carryforwards of $301million. Approximately $10 million of the credit carryforwards will be refunded by 2022 due to U.S. Tax Reform, and $291 million of the creditcarryforwards expire in the years 2019 through 2038. As a result of stock ownership changes our U.S. tax attributes could be subject to limitations underSection 382 of the U.S. Internal Revenue Code of 1986, as amended, if further material stock ownership changes occur.The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the years ended December 31:In millions 2018 2017 2016Gross unrecognized tax benefits - January 1 $196 $183 $209Increases related to tax positions from prior years 9 3 3Decreases related to tax positions from prior years (50) (1) (34)Increases related to tax provisions taken during the current year 9 23 23Settlements with tax authorities (45) (4) (6)Lapses of statutes of limitation (9) (8) (12)Total gross unrecognized tax benefits - December 31 $110 $196 $183Of the total amount of gross unrecognized tax benefits as of December 31, 2018, $84 million would affect NCR’s effective tax rate if realized. The Company’sliability arising from uncertain tax positions is recorded in income tax accruals and other current liabilities in the Consolidated Balance Sheets.We recognized interest and penalties associated with uncertain tax positions as part of the provision for income taxes in our Consolidated Statements ofOperations of $9 million of benefit, $2 million of expense, and zero for the years ended December80Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)31, 2018, 2017, and 2016, respectively. The gross amount of interest and penalties accrued as of December 31, 2018 and 2017 was $33 million and $45million, respectively.In the U.S., NCR files consolidated federal and state income tax returns where statutes of limitations generally range from three to five years. The Companyresolved examinations for the tax years of 2011, 2012 and 2013 with the IRS in 2018, and U.S. federal tax years remain open from 2014 forward. Yearsbeginning on or after 2001 are still open to examination by certain foreign taxing authorities, including India, Egypt, and other major taxing jurisdictions.During 2019, the Company expects to resolve certain tax matters related to U.S. and foreign jurisdictions. As of December 31, 2018, we estimate that it isreasonably possible that unrecognized tax benefits may decrease by $5 million to $10 million in the next 12 months due to the resolution of these taxmatters.8. STOCK COMPENSATION PLANSThe Company recognizes all share-based payments as compensation expense in its financial statements based on their fair value.As of December 31, 2018, the Company’s stock-based compensation consisted of restricted stock units, employee stock purchase plan and stock options. TheCompany recorded stock-based compensation expense for the years ended December 31 as follows:In millions2018 2017 2016Restricted stock units$65 $73 $61Employee stock purchase plan4 4 —Stock options4 — —Stock-based compensation expense73 77 61Tax benefit(10) (22) (18)Total stock-based compensation (net of tax)$63 $55 $43Approximately 22 million shares remain authorized to be issued under the 2013 Stock Incentive Plan (SIP). Details of the Company's stock-basedcompensation plans are discussed below.Restricted Stock UnitsThe SIP provides for the grant of several different forms of stock-based compensation, including restricted stock units. Restricted stock units can haveservice-based and/or performance-based vesting with performance goals being established by the Compensation and Human Resource Committee of theCompany’s Board of Directors. Any grant of restricted stock units is generally subject to a vesting period of 12 months to 48 months, to the extent permittedby the SIP. Performance-based grants conditionally vest upon achievement of future performance goals based on performance criteria such as the Company’sachievement of specific return on capital and/or other financial metrics (as defined in the SIP) during the performance period. Performance-based grants mustbe earned, based on performance, before the actual number of shares to be awarded is known. The Compensation and Human Resource Committee considersthe likelihood of meeting the performance criteria based upon estimates and other relevant data, and certifies performance based on its analysis ofachievement against the performance criteria. A recipient of restricted stock units does not have the rights of a stockholder and is subject to restrictions ontransferability and risk of forfeiture. Other terms and conditions applicable to any award of restricted stock units will be determined by the Compensation andHuman Resource Committee and set forth in the agreement relating to that award.The following table reports restricted stock unit activity during the year ended December 31, 2018:Shares in thousands Number of Units Weighted Average Grant-Date FairValue per UnitUnvested shares as of January 1 7,158 $29.78Shares granted 3,440 $26.25Shares vested (2,980) $27.45Shares forfeited (1,652) $30.58Unvested shares as of December 31 5,966 $28.6981Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Stock-based compensation expense is recognized in the financial statements based upon fair value. The total fair value of units vested and distributed in theform of NCR common stock was $90 million in 2018, $87 million in 2017, and $42 million in 2016. As of December 31, 2018, there was $79 million ofunrecognized compensation cost related to unvested restricted stock unit grants. The unrecognized compensation cost is expected to be recognized over aremaining weighted-average period of 1.1 years. The weighted average grant date fair value for restricted stock unit awards granted in 2017 and 2016 was$46.95 and $20.45, respectively.The following table represents the composition of restricted stock unit grants in 2018:Shares in thousands Number of Units Weighted Average Grant-Date FairValueService-based units 2,168 $31.12Performance-based units 1,272 $17.97Total restricted stock units 3,440 $26.25At December 31, 2018, certain of the performance-based shares granted in 2018 were not probable of vesting.Stock OptionsThe SIP also provides for the grant of stock options to purchase shares of NCR common stock. The Compensation and Human Resource Committee hasdiscretion to determine the material terms and conditions of option awards under the SIP, provided that (i) the exercise price must be no less than the fairmarket value of NCR common stock (defined as the closing price) on the date of grant, (ii) the term must be no longer than ten years, and (iii) in no eventshall the normal vesting schedule provide for vesting in less than one year. Other terms and conditions of an award of stock options will be determined by theCompensation and Human Resource Committee as set forth in the agreement relating to that award. The Compensation and Human Resource Committee hasauthority to administer the SIP, except that the Committee on Directors and Governance of the Company’s Board of Directors will administer the SIP withrespect to non-employee members of the Board of Directors. New shares of the Company’s common stock are issued as a result of stock option exercises.Stock compensation expense is recognized in the financial statements based upon grant date fair value and is computed using the Black-Scholes option-pricing model. During the year ended December 31, 2018, the Company granted stock options and the weighted average fair value of option grants wasestimated based on the below weighted average assumptions, which was $9.80. The stock options were granted with a seven year contractual term that willvest over four years. For the years ended December 31, 2017 and 2016, the Company did not grant a significant amount of stock options. For the year endedDecember 31, 2018Dividend yield—Risk-free interest rate2.50%Expected volatility34.88%Expected holding period - years3.8 yearsExpected volatility is calculated as the historical volatility of the Company’s stock over a period equal to the expected term of the options, as managementbelieves this is the best representation of prospective trends. The Company uses historical data to estimate option exercise and employee terminations withinthe valuation model. The expected holding period represents the period of time that options are expected to be outstanding. The risk-free interest rate forperiods within the contractual life of the option is based on a blend of the three and five-year U.S. Treasury yield curve in effect at the time of grant.The following table summarizes the Company’s stock option activity for the year ended December 31, 2018:82Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Shares in thousands Shares Under Option Weighted AverageExercise Price perShare Weighted AverageRemainingContractual Term (inyears) Aggregate IntrinsicValue(in millions)Outstanding as of January 1 475 $16.70 Granted 2,869 $30.59 Exercised (277) $17.75 Forfeited or expired (461) $32.57 Outstanding as of December 31 2,606 $29.08 6.01 $1.56Fully vested and expected to vest as of December 31 2,402 $30.21 6.39 $—Exercisable as of December 31 204 $15.77 1.57 $1.56As of December 31, 2018, the total unrecognized compensation cost of $16 million related to unvested stock option grants is expected to be recognized overa weighted average period of approximately 1.7 years.The total intrinsic value of all options exercised was $4 million in 2018, $3 million in 2017, and $6 million in 2016. Cash received from option exercisesunder all share-based payment arrangements was $4 million in 2018, $2 million in 2017, and $8 million in 2016. The tax benefit realized from theseexercises was $1 million in 2018, $1 million in 2017, and $2 million in 2016.Employee Stock Purchase PlanThe Company's amended Employee Stock Purchase Plan ("ESPP") provides employees a 15% discount on stock purchases using a three-month look-backfeature where the discount is applied to the stock price that represents the lower of NCR’s closing stock price on either the first day or the last day of eachcalendar quarter. Participants can contribute between 1% and 10% of their compensation. The amended ESPP was approved by NCR stockholders in 2016and became effective January 1, 2017.Employees purchased approximately 0.7 million shares in 2018, 0.5 million shares in 2017, and 0.3 million shares in 2016, for approximately $17 million in2018, $15 million in 2017 and $7 million in 2016. A total of 4 million shares were originally authorized to be issued under the ESPP before its amendment.Under the amended ESPP, 10 million shares were newly authorized to be issued, plus any shares remaining unissued under the prior ESPP after the last 2016purchase date. Approximately 9.7 million authorized shares remain unissued under our amended ESPP as of December 31, 2018.9. EMPLOYEE BENEFIT PLANSPension, Postretirement and Postemployment Plans NCR sponsors defined benefit pension plans. NCR’s U.S. pension plan no longer offers additionalbenefits and is closed to new participants. Internationally, the defined benefit plans are based primarily upon compensation and years of service. Certaininternational plans also no longer offer additional benefits and are closed to new participants. NCR’s funding policy is to contribute annually no less than theminimum required by applicable laws and regulations. Assets of NCR’s defined benefit plans are primarily invested in corporate and government debtsecurities, common and commingled trusts, publicly traded common stocks, real estate investments, and cash or cash equivalents.NCR recognizes the funded status of each applicable plan on the Consolidated Balance Sheets. Each overfunded plan is recognized as an asset and eachunderfunded plan is recognized as a liability. For pension plans, changes in the fair value of plan assets and net actuarial gains or losses are recognized uponremeasurement, which is at least annually in the fourth quarter of each year. For postretirement and postemployment plans, changes to the funded status arerecognized as a component of other comprehensive loss in stockholders' equity.NCR sponsors a U.S. postretirement benefit plan that no longer offers benefits to U.S. participants who had not reached a certain age and years of service withNCR. The plan provides medical care benefits to retirees and their eligible dependents. Non-U.S. employees are typically covered under government-sponsored programs, and NCR generally does not provide postretirement benefits other than pensions to non-U.S. retirees. NCR generally funds thesebenefits on a pay-as-you-go basis.NCR offers various postemployment benefits to involuntarily terminated and certain inactive employees after employment but before retirement. Thesebenefits are paid in accordance with NCR’s established postemployment benefit practices and policies. Postemployment benefits include mainly severance aswell as continuation of healthcare benefits and life insurance coverage83Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)while on disability. NCR provides appropriate accruals for these postemployment benefits. These postemployment benefits are funded on a pay-as-you-gobasis.Pension Plans Reconciliation of the beginning and ending balances of the benefit obligations for NCR's pension plans are as follows: U.S. Pension Benefits International Pension Benefits Total Pension BenefitsIn millions 2018 2017 2018 2017 2018 2017Change in benefit obligation Benefit obligation as of January 1 $1,950 $2,185 $1,273 $1,172 $3,223 $3,357Net service cost — — 7 8 7 8Interest cost 61 71 20 20 81 91Amendment — — 4 — 4 —Actuarial (gain) loss (149) 121 (83) 43 (232) 164Benefits paid (99) (427) (86) (75) (185) (502)Plan participant contributions — — 1 1 1 1Currency translation adjustments — — (44) 104 (44) 104Benefit obligation as of December 31 $1,763 $1,950 $1,092 $1,273 $2,855 $3,223Accumulated benefit obligation as of December 31 $1,763 $1,950 $1,080 $1,262 $2,843 $3,212A reconciliation of the beginning and ending balances of the fair value of the plan assets of NCR's pension plans are as follows: U.S. Pension Benefits International Pension Benefits Total Pension BenefitsIn millions 2018 2017 2018 2017 2018 2017Change in plan assets Fair value of plan assets as of January 1 $1,444 $1,722 $1,086 $978 $2,530 $2,700Actual return on plan assets (76) 149 (34) 80 (110) 229Company contributions — — 24 25 24 25Benefits paid (99) (427) (86) (75) (185) (502)Currency translation adjustments — — (38) 77 (38) 77Plan participant contributions — — 1 1 1 1Fair value of plan assets as of December 31 $1,269 $1,444 $953 $1,086 $2,222 $2,53084Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)The following table presents the funded status and the reconciliation of the funded status to amounts recognized in the Consolidated Balance Sheets and inaccumulated other comprehensive loss as of December 31: U.S. Pension Benefits International Pension Benefits Total Pension BenefitsIn millions 2018 2017 2018 2017 2018 2017Funded Status $(494) $(506) $(139) $(187) $(633) $(693)Amounts recognized in the Consolidated Balance Sheets Noncurrent assets $— $— $140 $118 $140 $118Current liabilities — — (14) (13) (14) (13)Noncurrent liabilities (494) (506) (265) (292) (759) (798)Net amounts recognized $(494) $(506) $(139) $(187) $(633) $(693)Amounts recognized in accumulated other comprehensiveloss Prior service cost — — 21 18 21 18Total $— $— $21 $18 $21 $18For pension plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fairvalue of assets were $2,016 million, $2,012 million, and $1,271 million, respectively, as of December 31, 2018, and $2,229 million, $2,223 million and$1,446 million, respectively, as of December 31, 2017.The net periodic benefit (income) cost of the pension plans for the years ended December 31 was as follows:In millionsU.S. Pension Benefits International Pension Benefits Total Pension Benefits2018 2017 2016 2018 2017 2016 2018 2017 2016Net service cost$— $— $— $7 $8 $7 $7 $8 $7Interest cost61 71 90 20 20 28 81 91 118Expected return on plan assets(43) (57) (72) (32) (35) (36) (75) (92) (108)Amortization of prior service cost— — — 1 1 1 1 1 1Actuarial (gain) loss(29) 28 16 (16) — 69 (45) 28 85Net periodic benefit (income) cost$(11) $42 $34 $(20) $(6) $69 $(31) $36 $103Actuarial gains in 2018 were due to an increase in the discount rate as well as a favorable impact from a mortality update in the United Kingdom. Discountrates in 2017 remained consistent with 2016 and actuarial losses in 2017 were primarily due to a mortality update in the United States. Actuarial losses in2016 were due to a decrease in the discount rate from the prior year, offset by a higher than expected return on global pension assets.During 2017, the Company offered a voluntary lump sum payment option to certain former employees who were deferred vested participants of theCompany's U.S. pension plan who had not yet started monthly payments of their pension benefit. The voluntary lump sum payment offer, which resulted inapproximately $130 million being paid out of plan assets, was completed during the fourth quarter of 2017. Additionally, during 2017, the Company enteredinto a single premium group annuity contract to secure approximately $190 million of benefits for former employees or their related beneficiaries whosemonthly pension benefit amount under the Company’s U.S. pension plan was $500 or less. These actions were completed during the fourth quarter of 2017which resulted in an actuarial gain of $25 million and is reflected as a component of the actuarial loss as a result of the annual remeasurement completed inthe fourth quarter of 2017.Effective January 1, 2017, we changed the method used to estimate the service and interest components of net periodic benefit cost for our significantpension plans where yield curves are available. Previously, we estimated such cost components utilizing a single weighted-average discount rate derivedfrom the yield curve used to measure the pension benefit obligation. The new methodology utilizes a full yield curve approach by applying the specific spotrates along the yield curve used in the determination of the pension benefit obligation to their underlying projected cash flows and provides a more precisemeasurement of service and85Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)interest costs by improving the correlation between projected cash flows and their corresponding spot rates. This change does not affect the measurement ofour total benefit obligation and was applied prospectively as a change in estimate, beginning January 1, 2017.The weighted average rates and assumptions used to determine benefit obligations as of December 31 were as follows: U.S. Pension Benefits International Pension Benefits Total Pension Benefits 2018 2017 2018 2017 2018 2017Discount rate 4.2% 3.6% 2.1% 1.9% 3.4% 2.9%Rate of compensation increase N/A N/A 1.0% 0.9% 1.0% 0.9%The weighted average rates and assumptions used to determine net periodic benefit (income) cost for the years ended December 31 were as follows: U.S. Pension Benefits International Pension Benefits Total Pension Benefits 2018 2017 2016 2018 2017 2016 2018 2017 2016Discount rate - Service Cost N/A N/A N/A 1.4% 1.4% 2.6% 1.4% 1.4% 2.6%Discount rate - Interest Cost 3.2% 3.4% 4.3% 1.6% 1.6% 2.6% 2.6% 2.8% 3.7%Expected return on plan assets 3.1% 3.5% 4.3% 3.0% 3.5% 3.8% 3.1% 3.5% 4.1%Rate of compensation increase N/A N/A N/A 0.9% 0.9% 1.3% 0.9% 0.9% 1.3%The weighted-average cash balance interest crediting rate for the Company's cash balance defined benefit plans was 1.4% for the years ended December 31,2018 and 2017, respectively.The discount rate used to determine U.S. benefit obligations as of December 31, 2018 was derived by matching the plans’ expected future cash flows to thecorresponding yields from the Aon Hewitt AA Bond Universe Curve. This yield curve has been constructed to represent the available yields on high-quality,fixed-income investments across a broad range of future maturities. International discount rates were determined by examining interest rate levels and trendswithin each country, particularly yields on high-quality, long-term corporate bonds, relative to our future expected cash flows. During 2014, the Society ofActuaries published updated mortality tables and an improvement scale for U.S. plans, which both reflect improved longevity. Based on evaluation of thesenew tables, we updated our mortality assumptions for our U.S. pension benefits as of December 31, 2016. In 2017, we made a further update to utilize thewhite collar version of the 2014 tables due to a study of plan specific experience.NCR employs a building block approach as its primary approach in determining the long-term expected rate of return assumptions for plan assets. Historicalmarket returns are studied and long-term relationships between equities and fixed income are preserved consistent with the widely accepted capital marketprinciple that assets with higher volatilities generate higher returns over the long run. Current market factors, such as inflation and interest rates are evaluatedbefore long-term capital market assumptions are determined. The expected long-term portfolio return is established for each plan via a building blockapproach with proper rebalancing consideration. The result is then adjusted to reflect additional expected return from active management net of planexpenses. Historical plan returns, the expectations of other capital market participants, and peer data may be used to review and assess the results forreasonableness and appropriateness.Plan Assets The weighted average asset allocations as of December 31, 2018 and 2017 by asset category are as follows:86Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued) U.S. Pension Fund International Pension Fund Actual Allocation of PlanAssets as of December 31 Target AssetAllocation Actual Allocation of PlanAssets as of December 31 Target AssetAllocation 2018 2017 2018 2017 Equity securities —% —% 0 - 0% 20% 22% 12 - 27%Debt securities 98% 98% 95 - 100% 57% 58% 54 - 72%Real estate 1% 1% 0 - 2% 14% 12% 6 - 14%Other 1% 1% 0 - 3% 9% 8% 4 - 9%Total 100% 100% 100% 100% The fair value of plan assets as of December 31, 2018 and 2017 by asset category is as follows: U.S. InternationalIn millionsNotesFair Value asof December31, 2018Quoted Pricesin ActiveMarkets forIdenticalAssets (Level1)Significant OtherObservableInputs (Level 2)SignificantUnobservable Inputs(Level 3)Not Subjectto Leveling Fair Value as ofDecember 31,2018Quoted Pricesin ActiveMarkets forIdenticalAssets (Level1)SignificantOtherObservableInputs (Level 2)SignificantUnobservable Inputs(Level 3)Not Subjectto LevelingAssets Equity securities: Common stock1$—$—$—$—$— $44$44$—$—$—Fixed incomesecurities: Governmentsecurities2247—247—— —————Corporate debt3761—761—— 100—100——Other types ofinvestments: Money market funds413—2—11 8—8——Common andcommingled trusts -Equities4————— 150———150Common andcommingled trusts -Bonds4174———174 405———405Common andcommingled trusts -Short TermInvestments427———27 40———40Common andcommingled trusts -Balanced4————— 76———76Partnership/jointventure interests -Real estate54———4 —————Partnership/jointventure interests -Other54———4 —————Mutual funds43939——— —————Hedge Funds5————— —————Insurance products4————— 1—1——Real estate and other5————— 129——129—Total $1,269$39$1,010$—$220 $953$44$109$129$67187Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued) U.S. InternationalIn millionsNotesFair Valueas ofDecember31, 2017QuotedPrices inActiveMarkets forIdenticalAssets(Level 1)Significant OtherObservableInputs (Level 2)SignificantUnobservable Inputs(Level 3)Not Subjectto Leveling Fair Valueas ofDecember 31,2017Quoted Prices inActive Marketsfor IdenticalAssets (Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservable Inputs(Level 3)Not Subjectto LevelingAssets Equity securities: Common stock1$1$—$1$—$— $56$56$—$—$—Fixed income securities: Government securities2223—223—— 49—49——Corporate debt3895—895—— 141—1392—Other types ofinvestments: Money market funds424———24 15—10—5Common andcommingled trusts -Equities4————— 182———182Common andcommingled trusts -Bonds4207———207 421———421Common andcommingled trusts - ShortTerm Investments431———31 24———24Common andcommingled trusts -Balanced4————— 68———68Partnership/joint ventureinterests - Real estate55———5 —————Partnership/joint ventureinterests - Other55———5 —————Mutual funds45353——— —————Hedge Funds5————— —————Insurance products4————— 1—1——Real estate and other5————— 129——129—Total $1,444$53$1,119$—$272 $1,086$56$199$131$700Notes:1.Common stocks are valued based on quoted market prices at the closing price as reported on the active market on which the individual securities aretraded.2.Government securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted pricesare not available for identical or similar securities, the security is valued under a discounted cash flows approach that maximizes observable inputs, suchas current yields on similar instruments but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks.3.Corporate debt is valued primarily based on observable market quotations for similar bonds at the closing price reported on the active market on whichthe individual securities are traded. When such quoted prices are not available, the bonds are valued using a discounted cash flows approach usingcurrent yields on similar instruments of issuers with similar credit ratings.4.Common/collective trusts and registered investment companies (RICs) such as mutual funds are valued using a Net Asset Value (NAV) provided by themanager of each fund. The NAV is based on the underlying net assets owned by the fund, divided by the number of shares or units outstanding. The fairvalue of the underlying securities within the fund, which are generally traded on an active market, are valued at the closing price reported on the activemarket on which those individual securities are traded. For investments not traded on an active market, or for which a quoted price is not publiclyavailable, a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches, areemployed by the fund manager or independent third party to value investments.88Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)5.Partnership/joint ventures and hedge funds are valued based on the fair value of the underlying securities within the fund, which include investmentsboth traded on an active market and not traded on an active market. For those investments that are traded on an active market, the values are based on theclosing price reported on the active market on which those individual securities are traded and in the case of hedge funds they are valued using a NetAsset Value (NAV) provided by the manager of each fund. For investments not traded on an active market, or for which a quoted price is not publiclyavailable, a variety of unobservable valuation methodologies, including discounted cash flow, market multiples and cost valuation approaches, areemployed by the fund manager to value investments.The following table presents the reconciliation of the beginning and ending balances of those plan assets classified within Level 3 of the valuation hierarchy.When the determination is made to classify the plan assets within Level 3, the determination is based upon the significance of the unobservable inputs to theoverall fair value measurement.In millionsInternational Pension PlansBalance, December 31, 2016$124Realized and unrealized gains and losses, net7Purchases, sales and settlements, net—Transfers, net—Balance, December 31, 2017$131Realized and unrealized gains and losses, net—Purchases, sales and settlements, net—Transfers, net(2)Balance, December 31, 2018$129Investment Strategy NCR has historically employed a total return investment approach, whereby a mix of fixed-income, equities and real estate investmentsare used to maximize the long-term return of plan assets subject to a prudent level of risk. The risk tolerance is established for each plan through a carefulconsideration of plan liabilities, plan funded status and corporate financial condition. To reduce volatility in the value of assets held by the U.S. pensionplan, we have rebalanced the asset allocation to a portfolio of 98% of fixed income assets as of December 31, 2018. Similar investment strategy changes areunder consideration or being implemented in a number of NCR’s international plans.The investment portfolios contain primarily fixed-income investments, which are diversified across U.S. and non-U.S. issuers, type of fixed-income security(i.e., government bonds, corporate bonds, mortgage-backed securities) and credit quality. The investment portfolios also contain a blend of equityinvestments, which are diversified across U.S. and non-U.S. stocks, small and large capitalization stocks, and growth and value stocks, primarily of non-U.S.issuers. Where applicable, real estate investments are made through real estate securities, partnership interests or direct investment and are diversified byproperty type and location. Other assets, such as cash or private equity are used judiciously to improve portfolio diversification and enhance risk-adjustedportfolio returns. Derivatives may be used to adjust market exposures in an efficient and timely manner. Due to the timing of security purchases and sales,cash held by fund managers is classified in the same asset category as the related investment. Rebalancing algorithms are applied to keep the asset mix of theplans from deviating excessively from their targets. Investment risk is measured and monitored on an ongoing basis through regular performance reporting,investment manager reviews, actuarial liability measurements and periodic investment strategy reviews.89Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Postretirement Plans Reconciliation of the beginning and ending balances of the benefit obligation for NCR's U.S. postretirement plan is as follows: Postretirement BenefitsIn millions 2018 2017Change in benefit obligation Benefit obligation as of January 1 $21 $25Interest cost — 1Actuarial gain (3) (3)Plan participant contributions 1 —Benefits paid (1) (2)Benefit obligation as of December 31 $18 $21The following table presents the funded status and the reconciliation of the funded status to amounts recognized in the Consolidated Balance Sheets and inaccumulated other comprehensive loss as of December 31: Postretirement BenefitsIn millions 2018 2017Benefit obligation $(18) $(21)Amounts recognized in the Consolidated Balance Sheets Current liabilities $(2) $(2)Noncurrent liabilities (16) (19)Net amounts recognized $(18) $(21)Amounts recognized in accumulated other comprehensive loss Net actuarial loss $7 $11Prior service benefit (8) (13)Total $(1) $(2)The net periodic benefit income of the postretirement plan for the years ended December 31 was:In millions Postretirement Benefits 2018 2017 2016Interest cost $— $1 $1Amortization of: Prior service benefit (5) (6) (14) Actuarial loss 1 2 2Net periodic benefit income $(4) $(3) $(11)The assumptions utilized in accounting for postretirement benefit obligations as of December 31 and for postretirement benefit income for the years endedDecember 31 were: Postretirement Benefit Obligations Postretirement Benefit Costs 2018 2017 2016 2018 2017 2016Discount rate 3.7% 3.1% 3.2% 3.1% 3.2% 3.3%90Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Assumed healthcare cost trend rates as of December 31 were: 2018 2017 Pre-65 Coverage Post-65 Coverage Pre-65 Coverage Post-65 CoverageHealthcare cost trend rate assumed for next year 7.1% 6.1% 6.6% 5.9%Rate to which the cost trend rate is assumed to decline (the ultimate trendrate) 5.0% 5.0% 5.0% 5.0%Year that the rate reaches the ultimate rate 2027 2027 2025 2025In addition, a one percentage point change in assumed healthcare cost trend rates would have had an immaterial impact on the postretirement benefit incomeand obligation.Postemployment Benefits Reconciliation of the beginning and ending balances of the benefit obligation for NCR's postemployment plan was: Postemployment BenefitsIn millions 2018 2017Change in benefit obligation Benefit obligation as of January 1 $142 $127Service cost 43 34Interest cost 3 2Benefits paid (40) (34)Foreign currency exchange (6) 9Actuarial (gain) loss (3) 4Benefit obligation as of December 31 $139 $142The following table presents the funded status and the reconciliation of the unfunded status to amounts recognized in the Consolidated Balance Sheets andin accumulated other comprehensive loss at December 31: Postemployment BenefitsIn millions 2018 2017Benefit obligation $(139) $(142)Amounts recognized in the Consolidated Balance Sheets Current liabilities $(37) $(28)Noncurrent liabilities (102) (114)Net amounts recognized $(139) $(142)Amounts recognized in accumulated other comprehensive loss Net actuarial gain $(28) $(20)Prior service benefit (6) (11)Total $(34) $(31)91Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)The net periodic benefit cost of the postemployment plan for the years ended December 31 was:In millionsPostemployment Benefits2018 2017 2016Service cost$43 $34 $16Interest cost3 2 3Amortization of: Prior service benefit(5) (6) (6) Actuarial gain(1) (6) (7)Net benefit cost$40 $24 $6Restructuring severance cost— — 4Net periodic benefit cost$40 $24 $10The weighted average assumptions utilized in accounting for postemployment benefit obligations as of December 31 and for postemployment benefit costsfor the years ended December 31 were: Postemployment Benefit Obligations Postemployment Benefit Costs 2018 2017 2018 2017 2016Discount rate 2.4% 2.3% 2.3% 2.0% 2.2%Salary increase rate 1.9% 1.9% 1.9% 1.8% 2.1%Involuntary turnover rate 4.3% 4.8% 4.8% 4.8% 4.8%Cash Flows Related to Employee Benefit PlansCash Contributions NCR does not plan to contribute to the U.S. qualified pension plan in 2019, and plans to contribute approximately $28 million to theinternational pension plans in 2019. The Company also plans to make contributions of approximately $2 million to the U.S. postretirement plan andapproximately $30 million to the postemployment plan in 2019.Estimated Future Benefit Payments NCR expects to make the following benefit payments reflecting past and future service from its pension, postretirementand postemployment plans:In millions U.S. Pension Benefits International PensionBenefits Total Pension Benefits Postretirement Benefits Postemployment BenefitsYear 2019 $105 $50 $155 $2 $302020 $107 $50 $157 $2 $202021 $110 $49 $159 $2 $192022 $112 $50 $162 $1 $172023 $114 $48 $162 $1 $162024-2028 $581 $255 $836 $4 $66Savings Plans U.S. employees and many international employees participate in defined contribution savings plans. These plans generally provide either aspecified percent of pay or a matching contribution on participating employees’ voluntary elections. NCR’s matching contributions typically are subject to amaximum percentage or level of compensation. Employee contributions can be made pre-tax, after-tax or a combination thereof. The expense under the U.S.plan was approximately $27 million in 2018, $26 million in 2017, and $24 million in 2016. The expense under international and subsidiary savings planswas $24 million in 2018, $24 million in 2017, and $26 million in 2016.Amounts to be Recognized The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefitcost (income) during 2019 are as follows:92Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In millions U.S.Pension Benefits International PensionBenefits TotalPension Benefits Postretirement Benefits Postemployment BenefitsPrior service cost (benefit) $— $1 $1 $(5) $(2)Actuarial loss (gain) $— $— $— $1 $(2)10. COMMITMENTS AND CONTINGENCIESIn the normal course of business, NCR is subject to various proceedings, lawsuits, claims and other matters, including, for example, those that relate to theenvironment and health and safety, labor and employment, employee benefits, import/export compliance, intellectual property, data privacy and security,product liability, commercial disputes and regulatory compliance, among others. Additionally, NCR is subject to diverse and complex laws and regulations,including those relating to corporate governance, public disclosure and reporting, environmental safety and the discharge of materials into the environment,product safety, import and export compliance, data privacy and security, antitrust and competition, government contracting, anti-corruption, and labor andhuman resources, which are rapidly changing and subject to many possible changes in the future. Compliance with these laws and regulations, includingchanges in accounting standards, taxation requirements, and federal securities laws among others, may create a substantial burden on, and substantiallyincrease costs to NCR or could have an impact on NCR's future operating results. The Company has reflected all liabilities when a loss is considered probableand reasonably estimable in the Consolidated Financial Statements. We do not believe there is a reasonable possibility that losses exceeding amountsalready recognized have been incurred, but there can be no assurances that the amounts required to satisfy alleged liabilities from such matters will notimpact future operating results. Other than as stated below, the Company does not currently expect to incur material capital expenditures related to suchmatters. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various lawsuits, claims, legal proceedingsand other matters, including, but not limited to the Fox River and Kalamazoo River environmental matters and other matters discussed below, and to complywith applicable laws and regulations, will not exceed the amounts reflected in NCR’s Consolidated Financial Statements or will not have a material adverseeffect on its consolidated results of operations, capital expenditures, competitive position, financial condition or cash flows.In June 2014, one of the Company’s Brazilian subsidiaries, NCR Manaus, was notified of a Brazilian federal tax assessment of R168 million, orapproximately $43 million as of December 31, 2018, including penalties and interest regarding certain federal indirect taxes for 2010 through 2012. Theassessment alleges improper importation of certain components into Brazil's free trade zone that would nullify related indirect tax incentives. We have notrecorded an accrual for the assessment, as the Company believes it has a valid position regarding indirect taxes in Brazil and, as such, has filed an appeal in2014. In December 2017, the Company prevailed in this appeal regarding substantially all of the disputed amounts. However, the Brazilian federal taxauthority has further appealed this dispute to the next procedural level, so the dispute is ongoing. In further proceedings on this matter, an intermediatetribunal decided in NCR's favor in August 2018; a written opinion had not been issued as of December 31, 2018, but is expected soon. The Brazilian taxauthorities will have the ability to appeal the decision. The Company estimated the aggregate risk related to this matter to be between zero and $64 millionas of December 31, 2018. Although the Company has not recorded an accrual, it is possible that the Company could be required to pay taxes, penalties andinterest related to this matter, which could be material to the Company's Consolidated Financial Statements.Environmental Matters NCR's facilities and operations are subject to a wide range of environmental protection laws, and NCR has investigatory andremedial activities underway at a number of facilities that it currently owns or operates, or formerly owned or operated, to comply, or to determinecompliance, with such laws. Also, NCR has been identified, either by a government agency or by a private party seeking contribution to site clean-up costs,as a potentially responsible party (PRP) at a number of sites pursuant to various state and federal laws, including the Federal Water Pollution Control Act, theComprehensive Environmental Response, Compensation and Liability Act (CERCLA) and comparable state statutes. Other than the Fox River matter and theKalamazoo River matter discussed below, we currently do not anticipate material expenses and liabilities from these environmental matters.Fox River NCR is one of eight entities that were formally notified by governmental and other entities, such as local Native American tribes, that they arePRPs for environmental claims (under CERCLA and other statutes) arising out of the presence of polychlorinated biphenyls (PCBs) in sediments in the lowerFox River and in the Bay of Green Bay in Wisconsin. The other Fox River PRPs that received notices include Appleton Papers Inc. (API; now known asAppvion, Inc.), P.H. Glatfelter Company ("Glatfelter"), Georgia-Pacific Consumer Products LP (GP, successor to Fort James Operating Company), and others.NCR was identified as a PRP because of alleged PCB discharges from two carbonless copy paper manufacturing facilities it previously owned, which werelocated along the Fox River. NCR sold its facilities in 1978 to API. The parties have also contended that NCR is responsible for PCB discharges93Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)from paper mills owned by other companies because NCR carbonless copy paper "broke" was allegedly purchased by those other mills as a raw material.The United States Environmental Protection Agency (USEPA) and Wisconsin Department of Natural Resources (together, the Governments) developed clean-up plans for the upper and lower parts of the Fox River and for portions of the Bay of Green Bay. On November 13, 2007, the Governments issued a unilateraladministrative order (the 2007 Order) under CERCLA to the eight original PRPs, requiring them to perform remedial work under the Governments’ clean-upplan for the lower parts of the river (operable units 2 through 5). In April 2009, NCR and API formed a limited liability company (the LLC), which enteredinto an agreement with an environmental remediation contractor to perform the work at the Fox River site. In-water dredging and remediation under theclean-up plan commenced shortly thereafter.NCR and API, along with B.A.T Industries p.l.c. (BAT), share among themselves a portion of the cost of the Fox River clean-up and natural resource damages(NRD) based upon a 1998 agreement (the Cost Sharing Agreement), a 2005 arbitration award (subsequently confirmed as a judgment), and a September 30,2014 Funding Agreement (the Funding Agreement). The Cost Sharing Agreement and the arbitration resolved disputes that arose out of the Company's 1978sale of its Fox River facilities to API. The Cost Sharing Agreement and arbitration award resulted in a 45% share for NCR of the first $75 million of such costs(a threshold that was reached in 2008), and a 40% share for amounts in excess of $75 million. The Funding Agreement arose out of a 2012 to 2014 arbitrationdispute between NCR and API, and provides for regular, ongoing funding of NCR incurred Fox River remediation costs via contributions, made to a newlimited liability corporation created by the Funding Agreement, by BAT, API and, for 2014, API's indemnitor, Windward Prospects. The Funding Agreementcreates an obligation on BAT and API to fund 50% of NCR’s Fox River remediation costs from October 1, 2014 forward (API’s Fox River-related obligationsunder the Funding Agreement were fully satisfied in 2016); the Funding Agreement also provides NCR contractual avenues for payment of, via direct andthird-party sources, (1) the difference between BAT’s and API’s 60% obligation under the Cost Sharing Agreement and arbitration award on the one hand andtheir ongoing (since September 2014) 50% payments under the Funding Agreement on the other, as well as (2) the difference between the amount NCRreceived under the Funding Agreement and the amount owed to it under the Cost Sharing Agreement and arbitration award for the period from April 2012through September 2014. For the years ended December 31, 2018 and 2017, the receivable under the Funding Agreement was approximately $45 million and$38 million, respectively, and was included in other assets in the Consolidated Balance Sheet. The Company anticipates that it will collect sums related tothe receivable in 2019 or later, likely after the remediation efforts related to the Fox River matter, described below, are complete. This receivable is not takeninto account in calculating the Company’s Fox River net reserve.The Company's litigations relating to contribution and enforcement claims concerning the Fox River have largely been concluded. A proposed consentdecree settlement (the CD settlement) with respect to the contribution action (a case originally filed by NCR and API) and the government enforcementaction (a case originally filed by the federal and state governments against several PRPs, including the Company) was successfully negotiated by NCR andthe federal and state governments and was approved on August 22, 2017 by the federal district court in Wisconsin that had been presiding over those cases. Afinal order of dismissal as to the Company in the contribution and government enforcement actions was subsequently entered; one party, Glatfelter, hasappealed the approval of the CD settlement. On January 3, 2019, the United States lodged a proposed consent decree with the Wisconsin court, reflecting asettlement reached by the United States, Wisconsin and Glatfelter with respect to Glatfelter’s Fox River liability under the government enforcement action; acomponent of that settlement is withdrawal of Glatfelter’s appeal opposing the Company’s CD settlement. Glatfelter requested a stay of that appeal, and theappellate court granted the stay and suspended appellate proceedings on January 15, 2019, pending action by the Wisconsin court on the proposed consentdecree.The CD settlement, if approved on appeal or if, as discussed above, the appeal is withdrawn, is expected to resolve the remaining Fox River-relatedcontribution and enforcement claims against the Company. The key components of the approved CD settlement include (1) the Company’s commitment tocomplete the remediation of the Fox River, which is now expected to be completed in 2019 or 2020; (2) the Company’s conditional agreement to waive itscontribution claims against the two remaining defendants in the case, GP and Glatfelter; (3) the Company’s agreement not to appeal the trial court’s decisionon divisibility of harm; (4) the Governments’ agreement to include in the settlement so-called “contribution protection” in the Company’s favor as to GP’sand Glatfelter’s contribution claims against the Company, the effect of which will be to extinguish those claims; (5) the Governments’ agreement not topursue the Company for the Governments’ past oversight costs; and (6) the Governments’ agreement to exercise prosecutorial discretion in pursuing otherparties for future oversight costs and long-term monitoring and maintenance, with the Company retaining so-called “backstop” liability in the event that theother parties fail to pay future oversight costs or to perform long-term monitoring and maintenance. Additionally, although certain state law claims by GP andGlatfelter against the Company may not be affected directly by the CD settlement, the CD settlement provides that the Company’s contribution claimsagainst those two parties will revive if those parties attempt to assert any claims against the Company relating to the Fox River, including any state lawclaims.94Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In the quarter ending September 30, 2017, the remediation general contractor commenced an arbitration against the LLC, in a dispute over contractinterpretation. That dispute is scheduled for a hearing in mid-2019. The amounts claimed by the contractor range from approximately $35 million toapproximately $45 million; the Company disputes the claims and is contesting them vigorously. To the extent, if any, that the contractor’s claims aresuccessful, the Company’s indemnitors and co-obligors, described below, would be expected to bear responsibility for the majority of any award, with theCompany’s share approximately one-fourth of such award.With respect to the Company’s prior dispute with API, which was generally superseded by the Funding Agreement, the Company received timely paymentsas they came due under the Funding Agreement. Although API filed for bankruptcy protection in October 2017, it had made all of the payments to theCompany in connection with the Fox River that are required of it by the Funding Agreement.NCR's eventual remediation liability, followed by long-term monitoring expected to be performed by others, will depend on a number of factors. Inestablishing the reserve, NCR attempts to estimate a range of reasonably possible outcomes for each of these factors, although each range is itself uncertain.NCR uses its best estimate within the range, if that is possible. Where there is a range of equally possible outcomes, and there is no amount within that rangethat is considered to be a better estimate than any other amount, NCR uses the low end of the range. The significant factors include: (1) the total remainingclean-up costs (in-river remediation is expected to be completed in 2019, depending on the outcome of certain requests made by the governments concerningadditional dredging, the expected cost impact of which is expected to be neutral or non-material to the Company), including long-term monitoring followingcompletion of the clean-up, and what parties are assigned to discharge the post-clean-up tasks (as noted, the Company no longer expects to bear long-termmonitoring costs); (2) total NRD for the site and the share that NCR will bear (which is now resolved as to the Company); (3) the share of clean-up costs thatNCR will bear (which is resolved under the CD settlement); (4) NCR's transaction and litigation costs to defend itself in this matter (with remaining litigationexpected to be limited to the Glatfelter appeal, which as noted is now expected to be dismissed, and the claim brought by the general contractor, bothreferenced above); and (5) the share of NCR's payments that BAT will bear (which is governed by the Cost Sharing Agreement and the Funding Agreement,BAT has made all of the payments requested of it, and as discussed above; API is in bankruptcy and is not presumed likely to bear further shares of NCR'spayments). With respect to NRD, in connection with a certain settlement entered into by other PRPs in 2015, the Government withdrew the NRD claims it hadprosecuted on behalf of NRD trustees, including those NRD claims asserted against the Company.Calculation of the Company's Fox River reserve is subject to several complexities, and it is possible there could be additional changes to some elements ofthe reserve over upcoming periods, although the Company is unable to predict or estimate such changes at this time. There can be no assurance that theclean-up and related expenditures and liabilities will not have a material effect on NCR's capital expenditures, earnings, financial condition, cash flows, orcompetitive position. As of December 31, 2018 and 2017, the gross reserve for the Fox River matter was approximately $21 million and $36 million,respectively. As of December 31, 2018 and 2017, the net reserve for the Fox River matter was approximately $17 million and $35 million, respectively. Thechange in the net reserve is primarily due to ongoing payments for clean-up activities. NCR contributes to the LLC to fund remediation activities andgenerally, by contract, has funded certain amounts of remediation expenses in advance. As of December 31, 2018 and 2017, approximately zero remainedfrom this funding. NCR's reserve for the Fox River matter is reduced as the LLC makes payments to the remediation contractor and other vendors with respectto remediation activities.Under a 1996 agreement, AT&T Corp. (AT&T) and Nokia (as the successor to Lucent Technologies and Alcatel-Lucent USA) are responsible severally (notjointly) for indemnifying NCR for certain portions of the amounts paid by NCR for the Fox River matter over a defined threshold and subject to certainoffsets. (The agreement governs certain aspects of AT&T's divestiture of NCR and of what was then known as Lucent Technologies.) Those companies havemade the payments requested of them by the Company on an ongoing basis.Kalamazoo River In November 2010, USEPA issued a "general notice letter" to NCR with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo RiverSuperfund Site (Kalamazoo River site) in Michigan. Three other companies - International Paper, Mead Corporation, and Consumers Energy - also receivedgeneral notice letters at or about the same time. USEPA asserts that the site is contaminated by various substances, primarily PCBs, as a result of discharges byvarious paper mills located along the river. USEPA does not claim that the Company made direct discharges into the Kalamazoo River, and NCR never hadfacilities at or near the Kalamazoo River site, but USEPA indicated that "NCR may be liable under Section 107 of CERCLA ... as an arranger, who by contractor agreement, arranged for the disposal, treatment and/or transportation of hazardous substances at the Site." USEPA stated that it "may issue special noticeletters to [NCR] and other PRPs for future RI/FS [remedial investigation / feasibility studies] and RD/RA [remedial design / remedial action] negotiations."95Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In connection with the Kalamazoo River site, in December 2010 the Company, along with two other defendants, was sued in federal court by three Georgia-Pacific (GP) affiliate corporations in a private-party contribution and cost recovery action for alleged pollution. The suit, pending in Michigan, asks that theCompany and other defendants pay a "fair portion" of these companies’ costs. Various removal and remedial actions remain to be decided upon andperformed at the Kalamazoo River site, the costs for which generally have not yet been determined; in 2017 Records of Decisions were issued for two parts ofthe river, and in 2018 such a decision was issued for another part of the river, but such decisions for the majority of the work are expected to be made onlyover the next several years. The suit alleges that the Company is liable to the GP entities as an "arranger" under CERCLA. The initial phase of the case wastried in a Michigan federal court in February 2013; on September 26, 2013 the court issued a decision that held NCR was liable as an “arranger” as of at leastMarch 1969. (PCB-containing carbonless copy paper was produced from approximately 1954 to April 1971, and the majority of contamination at theKalamazoo River site had occurred prior to 1969). NCR preserved its right to appeal the September 2013 decision.In the 2013 decision the Court did not determine NCR’s share of the overall liability. Relative shares of liability for the four companies were tried to the courtin a subsequent phase of the case in December 2015. In a ruling issued on March 29, 2018, the court addressed responsibility for the costs that GP hadincurred in the past, totaling to approximately $50 million (GP had sought approximately $105 million, but $55 million of those claims were removed by thecourt upon motions filed by the Company and other parties); NCR and GP were each assigned a 40% share of those costs, and the other two companies wereassigned 15% and 5% as their allocations. The court entered a judgment in the case on June 19, 2018, in which it indicated that it would not allocate futurecosts, but would enter a declaratory judgment that the four companies together had responsibility for future costs, in amounts and shares to be determined.Cross-proceedings have been commenced to obtain recoveries from the other parties pursuant to the judgment; those proceedings are stayed pending theappeal referenced below.NCR expects to have claims against BAT and API under the Funding Agreement discussed above for the Kalamazoo River remediation expenses. API filedfor bankruptcy protection in October 2017, and thus payment of its potential share under the Funding Agreement for so-called “future sites,” which wouldinclude the Kalamazoo River site, may be at risk, but as liability under the Cost Sharing Agreement and the Funding Agreement is joint and several, thebankruptcy is not anticipated to affect the Company’s ability to seek that amount from BAT. The Company will also have indemnity or reimbursementclaims against AT&T and Nokia under the arrangement discussed above in connection with the Fox River matter after expenses have met a contractualthreshold set out in the 1996 agreement referenced above in the Fox River discussion.In light of the 2018 decision, the Company increased its reserve for the Kalamazoo River matter to $47 million as of December 31, 2018 as compared to $1million as of December 31, 2017; that figure is reported on a basis that is net of expected contributions from the Company's co-obligors and, if and when theapplicable threshold is reached, its indemnitors. As many aspects of the costs of remediation will not be determined for several years (and thus the high end ofa range of possible costs for many areas of the site cannot be quantified at this time), the Company has made what it considers to be reasonable estimates ofthe low end of a range for such costs where remedies are identified, and/or of the costs of investigations and studies for areas of the river where remedies havenot yet been determined, and the reserve is informed by those estimates. The extent of NCR’s potential liability remains subject to many uncertainties,particularly inasmuch as remedy decisions and cost estimates will not be generated until times in the future and as most of the work to be performed will nottake place until the 2020s and 2030s. Under other assumptions or estimates for possible costs of remediation, which the Company does not at this pointconsider to be reasonably estimable or verifiable, it is possible that the reserve the Company has taken to discontinued operations reflected in this paragraphcould more than double the reflected reserve.In July 2018 the Company appealed to the United States Court of Appeals for the Sixth Circuit both the 2013 court decision, which it believes is in conflictwith a decision from the Fox River trial court as to Operable Unit 1 of that site and an affirmance of that decision from the Court of Appeals for the SeventhCircuit, and the 2018 court decision, on various legal grounds. The Company filed a bond to stay any execution of the judgment pending the appeal, and itsapplication for a stay was approved by the court.Environmental-Related Insurance Recoveries In connection with the Fox River and other environmental sites, through December 31, 2018, NCR hasreceived a combined gross total of approximately $202 million in settlements reached with various of its insurance carriers. Portions of many of thesesettlements agreed in the 2010 through 2013 timeframe are payable to a law firm that litigated the claims on the Company's behalf. Some of the settlementscover not only the Fox River but also other environmental sites; some are limited to either the Fox River or the Kalamazoo River site. Some of the settlementsare directed to defense costs and some are directed to indemnity; some settlements cover both defense costs and indemnity. The Company does not anticipatethat further material insurance recoveries specific to Kalamazoo River remediation costs will be available to it, owing to considerations under applicableMichigan law. Claims with respect to Kalamazoo River defense costs have now been settled, with the amounts of those settlements included in the sumreported above.96Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Environmental Remediation Estimates It is difficult to estimate the future financial impact of environmental laws, including potential liabilities. NCR recordsenvironmental provisions when it is probable that a liability has been incurred and the amount or range of the liability is reasonably estimable; in accordancewith accounting guidance, where liabilities are not expected to be quantifiable or estimable for a period of years, the estimated costs of investigating thoseliabilities are recorded as a component of the reserve for that particular site. Provisions for estimated losses from environmental restoration and remediationare, depending on the site, based generally on internal and third-party environmental studies, estimates as to the number and participation level of otherPRPs, the extent of contamination, estimated amounts for attorney and other fees, and the nature of required clean-up and restoration actions. Reserves areadjusted as further information develops or circumstances change. Management expects that the amounts reserved from time to time will be paid out over theperiod of investigation, negotiation, remediation and restoration for the applicable sites. The amounts provided for environmental matters in NCR'sConsolidated Financial Statements are the estimated gross undiscounted amounts of such liabilities, without deductions for indemnity insurance, third-partyindemnity claims or recoveries from other PRPs, except as qualified in the following sentences. In those cases where insurance carriers or third-partyindemnitors have agreed to pay any amounts and management believes that collectability of such amounts is probable, the amounts are recorded in theConsolidated Financial Statements. For the Fox River and Kalamazoo sites, as described above, assets relating to the AT&T and Nokia indemnities and to theBAT obligations are recorded as payment is supported by contractual agreements, public filings and/or payment history.Guarantees and Product Warranties In the ordinary course of business, NCR may issue performance guarantees on behalf of its subsidiaries to certain of itscustomers and other parties. Some of those guarantees may be backed by standby letters of credit, surety bonds, or similar instruments. In general, under theguarantees, NCR would be obligated to perform, or cause performance, over the term of the underlying contract in the event of an unexcused, uncured breachby its subsidiary, or some other specified triggering event, in each case as defined by the applicable guarantee. NCR believes the likelihood of having toperform under any such guarantee is remote. As of December 31, 2018 and 2017, NCR had no material obligations related to such guarantees, and thereforeits Consolidated Financial Statements do not have any associated liability balance.NCR provides its customers a standard manufacturer’s warranty and records, at the time of the sale, a corresponding estimated liability for potential warrantycosts. Estimated future obligations due to warranty claims are based upon historical factors, such as labor rates, average repair time, travel time, number ofservice calls per machine and cost of replacement parts. When a sale is consummated, the total customer revenue is recognized, provided that all revenuerecognition criteria are otherwise satisfied, and the associated warranty liability is recorded using pre-established warranty percentages for the respectiveproduct classes.From time to time, product design or quality corrections are accomplished through modification programs. When identified, associated costs of labor andparts for such programs are estimated and accrued as part of the warranty reserve.The Company recorded the activity related to the warranty reserve for the years ended December 31 as follows:In millions2018 2017 2016Warranty reserve liability Beginning balance as of January 1$26 $27 $24Accruals for warranties issued42 43 42Settlements (in cash or in kind)(42) (44) (39)Ending balance as of December 31$26 $26 $27In addition, NCR provides its customers with certain indemnification rights. In general, NCR agrees to indemnify the customer if a third party asserts patentor other infringement on the part of its customers for its use of the Company’s products subject to certain conditions that are generally standard within theCompany’s industries. On limited occasions the Company will undertake additional indemnification obligations for business reasons. From time to time,NCR also enters into agreements in connection with its acquisition and divestiture activities that include indemnification obligations by the Company. Thefair value of these indemnification obligations is not readily determinable due to the conditional nature of the Company’s potential obligations and thespecific facts and circumstances involved with each particular agreement. The Company has not recorded a liability in connection with theseindemnifications, and no current indemnification instance is material to the Company’s financial position. Historically, payments made by the Companyunder these types of agreements have not had a material effect on the Company’s consolidated financial condition, results of operations or cash flows.97Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Purchase Commitments The Company has purchase commitments for materials, supplies, services, and property, plant and equipment as part of the normalcourse of business. This includes a long-term service agreement with Accenture under which many of NCR's key transaction processing activities andfunctions are performed.Leases NCR conducts certain of its sales and manufacturing operations using leased facilities, and also operates certain equipment and vehicles under leases,the initial lease terms of which vary in length. Many of the leases contain renewal options and escalation clauses that are not material to the overall leaseportfolio. Our lease obligations also include amounts owed for our world headquarters in Atlanta, Georgia. Future minimum lease payments under non-cancelable operating leases as of December 31, 2018, for the following fiscal years are:In millions2019 2020 2021 2022 2023Minimum lease obligations$128 $96 $80 $64 $50Total rental expense for operating leases was $148 million in 2018, $144 million in 2017, and $132 million in 2016.11. DERIVATIVES AND HEDGING INSTRUMENTSNCR is exposed to risks associated with changes in foreign currency exchange rates and interest rates. NCR utilizes a variety of measures to monitor andmanage these risks, including the use of derivative financial instruments. NCR has exposure to approximately 50 functional currencies. Since a substantialportion of our operations and revenue occur outside the U.S., and in currencies other than the U.S. Dollar, our results can be significantly impacted, bothpositively and negatively, by changes in foreign currency exchange rates.Foreign Currency Exchange Risk The accounting guidance for derivatives and hedging requires companies to recognize all derivative instruments as eitherassets or liabilities at fair value in the Consolidated Balance Sheets. The Company designates foreign exchange contracts as cash flow hedges of forecastedtransactions when they are determined to be highly effective at inception.Our risk management strategy includes hedging, on behalf of certain subsidiaries, a portion of our forecasted, non-functional currency denominated cashflows for a period of up to 15 months. As a result, some of the impact of currency fluctuations on non-functional currency denominated transactions (andhence on subsidiary operating income, as stated in the functional currency), is mitigated in the near term. The amount we hedge and the duration of hedgecontracts may vary significantly. In the longer term (greater than 15 months), the subsidiaries are still subject to the effect of translating the functionalcurrency results to U.S. Dollars. To manage our exposures and mitigate the impact of currency fluctuations on the operations of our foreign subsidiaries, wehedge our main transactional exposures through the use of foreign exchange forward and option contracts. This is primarily done through the hedging offoreign currency denominated inter-company inventory purchases by NCR’s marketing units and the foreign currency denominated inputs to ourmanufacturing units. The related foreign exchange contracts are designated as highly effective cash flow hedges. The gains or losses on these hedges aredeferred in accumulated other comprehensive income (AOCI) and reclassified to income when the underlying hedged transaction is recorded in earnings. Asof December 31, 2018, the balance in AOCI related to foreign exchange derivative transactions was a gain of $2 million. The gains or losses from derivativecontracts related to inventory purchases are recorded in cost of products when the inventory is sold to an unrelated third party.We also utilize foreign exchange contracts to hedge our exposure of assets and liabilities denominated in non-functional currencies. We recognize the gainsand losses on these types of hedges in earnings as exchange rates change. We do not enter into hedges for speculative purposes.98Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)The following tables provide information on the location and amounts of derivative fair values in the Consolidated Balance Sheets: Fair Values of Derivative Instruments December 31, 2018In millionsBalance SheetLocation NotionalAmount FairValue Balance SheetLocation NotionalAmount FairValueDerivatives designated as hedginginstruments Foreign exchange contractsOther current assets $169 $4 Other current liabilities $— $—Total derivatives designated as hedginginstruments $4 $—Derivatives not designated as hedginginstruments Foreign exchange contractsOther current assets $219 $1 Other current liabilities $157 $1Total derivatives not designated ashedging instruments $1 $1Total derivatives $5 $1 Fair Values of Derivative Instruments December 31, 2017In millionsBalance SheetLocation NotionalAmount FairValue Balance SheetLocation NotionalAmount FairValueDerivatives designated as hedginginstruments Foreign exchange contractsOther current assets $104 $— Other current liabilities $142 $1Total derivatives designated as hedginginstruments $— $1Derivatives not designated as hedginginstruments Foreign exchange contractsOther current assets $101 $1 Other current liabilities $292 $1Total derivatives not designated ashedging instruments $1 $1Total derivatives $1 $299Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)The effects of derivative instruments on the Consolidated Statement of Operations for the years ended December 31 were as follows:In millionsAmount of Gain (Loss) Recognized inOther Comprehensive Income (OCI) onDerivative (Effective Portion) Amount of (Gain) Loss Reclassified fromAOCI into the Consolidated Statement ofOperations (Effective Portion)Derivatives in Cash Flow HedgingRelationshipsFor the yearendedDecember31, 2018For the yearendedDecember31, 2017For the yearendedDecember31, 2016Location of (Gain) Loss Reclassified fromAOCI into the Consolidated Statement ofOperations (Effective Portion)For the yearendedDecember31, 2018For the yearendedDecember31, 2017For the yearendedDecember31, 2016Interest rate swap$—$—$—Interest expense$—$—$2Foreign exchange contracts$11$(16)$19Cost of products$(7)$(1)$(3)In millions Amount of Gain (Loss) Recognized in theConsolidated Statement of OperationsDerivatives not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in theConsolidated Statement of Operations For the year endedDecember 31, 2018 For the year endedDecember 31, 2017 For the year endedDecember 31, 2016Foreign exchange contractsOther income (expense), net $(9) $(4) $(1)Refer to Note 12, “Fair Value of Assets and Liabilities” for further information on derivative assets and liabilities recorded at fair value on a recurring basis.Concentration of Credit RiskNCR is potentially subject to concentrations of credit risk on accounts receivable and financial instruments such as hedging instruments and cash and cashequivalents. Credit risk includes the risk of nonperformance by counterparties. The maximum potential loss may exceed the amount recognized on theConsolidated Balance Sheets. Exposure to credit risk is managed through credit approvals, credit limits, selecting major international financial institutions ascounterparties to hedging transactions and monitoring procedures. NCR’s business often involves large transactions with customers, and if one or more ofthose customers were to default on its obligations under applicable contractual arrangements, the Company could be exposed to potentially significantlosses. However, management believes that the reserves for potential losses are adequate. As of December 31, 2018 and 2017, NCR did not have any majorconcentration of credit risk related to financial instruments.100Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)12. FAIR VALUE OF ASSETS AND LIABILITIESAssets and Liabilities Measured at Fair Value on a Recurring BasisAssets and liabilities recorded at fair value on a recurring basis as of December 31, 2018 and 2017 are set forth as follows: December 31, 2018 December 31, 2017 Fair Value Measurements Using Fair Value Measurements UsingIn millionsDecember31, 2018Quoted Pricesin ActiveMarketsfor IdenticalAssets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs(Level 3) December31, 2017Quoted Pricesin ActiveMarketsfor IdenticalAssets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs(Level 3)Assets: Deposits held in moneymarket mutual funds (1)$8$8$—$— $90$90$—$—Foreign exchangecontracts (2)5—5— 1—1—Total$13$8$5$— $91$90$1$—Liabilities: Foreign exchangecontracts (3)1—1— 2—2—Total$1$—$1$— $2$—$2$—(1) Included in Cash and cash equivalents in the Consolidated Balance Sheet.(2) Included in Other current assets in the Consolidated Balance Sheet.(3) Included in Other current liabilities in the Consolidated Balance Sheet.Deposits Held in Money Market Mutual Funds A portion of the Company’s excess cash is held in money market mutual funds which generate interest incomebased on prevailing market rates. Money market mutual fund holdings are measured at fair value using quoted market prices and are classified within Level 1of the valuation hierarchy.Foreign Exchange Contracts As a result of our global operating activities, we are exposed to risks from changes in foreign currency exchange rates, whichmay adversely affect our financial condition. To manage our exposures and mitigate the impact of currency fluctuations on our financial results, we hedgeour primary transactional exposures through the use of foreign exchange forward and option contracts. The foreign exchange contracts are valued using themarket approach based on observable market transactions of forward rates and are classified within Level 2 of the valuation hierarchy.Assets Measured at Fair Value on a Non-recurring BasisCertain assets have been measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). NCR measures certain assets,including intangible assets and cost and equity method investments, at fair value on a non-recurring basis. These assets are recognized at fair value wheninitially valued and when deemed to be impaired. Additionally, NCR reviews the carrying values of investments when events and circumstances warrant andconsiders all available evidence in evaluating when declines in fair value are other-than-temporary declines. NCR carries equity investments in privately-held companies at cost or at fair value when NCR recognizes an other-than-temporary impairment charge. No material non-recurring fair value adjustmentswere recorded during the years ended December 31, 2018, 2017, and 2016.101Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)13. SEGMENT INFORMATION AND CONCENTRATIONSThe Company manages and reports the following three segments:•Software - Our software offerings include industry-based software platforms, applications and application suites for the financial services, retail,hospitality and small business industries. We also offer a portfolio of other industry-oriented software applications including cash managementsoftware, video banking software, fraud and loss prevention applications, check and document imaging, remote-deposit capture and customer-facingmobile and digital banking applications for the financial services industry; and secure electronic and mobile payment solutions, sector-specificpoint of sale software applications, and back-office inventory and store and restaurant management applications for the retail and hospitalityindustries. Additionally, we provide ongoing software support and maintenance services, as well as consulting and implementation services for oursoftware solutions.•Services - Our global end-to-end services solutions include assessment and preparation, staging, installation, implementation, and maintenance andsupport for our solutions. We also provide systems management and complete managed services for our product offerings. In addition, we provideinstallation, maintenance and servicing for third party networking products and computer hardware from select manufacturers.•Hardware - Our hardware solutions include our suite of financial-oriented self-service ATM-related hardware, and our retail- and hospitality-oriented point of sale terminal, self-checkout kiosk and related hardware. We also offer other self-service kiosks, such as self-check in/out kiosks forairlines, and wayfinding solutions for buildings and campuses.These segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chiefoperating decision maker in assessing segment performance and in allocating the Company's resources. Management evaluates the performance of thesegments based on revenue and segment operating income. Assets are not allocated to segments, and thus are not included in the assessment of segmentperformance, and consequently, we do not disclose total assets by reportable segment.The accounting policies used to determine the results of the operating segments are the same as those utilized for the consolidated financial statements as awhole. Intersegment sales and transfers are not material.To maintain operating focus on business performance, non-operational items are excluded from the segment operating results utilized by our chief operatingdecision maker in evaluating segment performance and are separately delineated to reconcile back to total reported income from operations.The following table presents revenue and operating income by segment for the years ended December 31:102Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In millions 2018 2017 2016Revenue by segment Software License $308 $336 $341Software Maintenance 366 374 372Cloud 631 592 556Professional Services 607 598 572Software 1,912 1,900 1,841 Services 2,460 2,373 2,306 ATM 979 1,012 1,221SCO 346 407 351POS 708 806 674IPS — 18 150Hardware (1) 2,033 2,243 2,396Consolidated revenue 6,405 6,516 6,543Operating income by segment Software 492 563 573Services 321 282 198Hardware (1) (125) (5) 59Subtotal - segment operating income 688 840 830Other adjustments(2) 497 149 156Income from operations $191 $691 $674(1) On May 27, 2016, NCR completed the sale of substantially all of its IPS business to Atlas Holdings. The sale included all dedicated assets of the IPSdivision worldwide, other than in the MEA region. Accordingly, the revenue and operating income results exclude the results of the IPS operations,except for the IPS MEA operations, from May 27, 2016 through the end of the fourth quarter of 2016.(2) The following table presents the other adjustments for NCR for the years ended December 31:In millions 2018 2017 2016Transformation and restructuring costs $223 $29 $26Acquisition-related amortization of intangibles 85 115 123Acquisition-related costs 6 5 7Goodwill and long-lived asset impairment charges 183 — —Total other adjustments $497 $149 $156The following table presents revenue from products and services for NCR for the years ended December 31:In millions 2018 2017 2016Product revenue $2,341 $2,579 $2,737Professional services and installation services revenue 1,094 1,055 1,011Recurring revenue, including maintenance and cloud revenue 2,970 2,882 2,795Total revenue $6,405 $6,516 $6,543103Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Revenue is attributed to the geographic area/country to which the product is delivered or in which the service is provided. The following table presentsrevenue by geographic area for NCR for the years ended December 31:In millions 2018 % 2017 % 2016 %Revenue by Geographic Area United States $3,076 48% $3,224 50% $3,106 47%Americas (excluding United States) 631 10% 585 9% 637 10%Europe, Middle East and Africa (EMEA) 1,751 27% 1,786 27% 1,896 29%Asia Pacific (APJ) 947 15% 921 14% 904 14%Consolidated revenue $6,405 100% $6,516 100% $6,543 100%The following table presents property, plant and equipment by geographic area as of December 31:In millions 2018 2017Property, plant and equipment, net United States $247 $204Americas (excluding United States) 13 19Europe, Middle East and Africa (EMEA) 57 75Asia Pacific (APJ) 42 43Consolidated property, plant and equipment, net $359 $341Concentrations No single customer accounts for more than 10% of NCR’s consolidated revenue. As of December 31, 2018, NCR is not aware of anysignificant concentration of business transacted with a particular customer that could, if suddenly eliminated, have a material adverse effect on NCR’soperations. NCR also lacks a concentration of available sources of labor, services, licenses or other rights that could, if suddenly eliminated, have a materialadverse effect on its operations.A number of NCR’s products, systems and solutions rely primarily on specific suppliers for microprocessors and other component products, manufacturedassemblies, operating systems, commercial software and other central components. NCR also utilizes contract manufacturers in order to completemanufacturing activities. There can be no assurances that any sudden impact to the availability or cost of these technologies or services would not have amaterial adverse effect on NCR’s operations. 104Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)14. ACCUMULATED OTHER COMPREHENSIVE INCOMEChanges in Accumulated Other Comprehensive Income (AOCI) by ComponentThe changes in AOCI for the years ended December 31 are as follows:In millionsCurrency TranslationAdjustments Changes in EmployeeBenefit Plans Changes in Fair Valueof Effective Cash FlowHedges TotalBalance at December 31, 2015$(172) $23 $(1) $(150)Other comprehensive (loss) income before reclassifications(52) (1) 16 (37)Amounts reclassified from AOCI— (16) (2) (18)Net current period other comprehensive (loss) income(52) (17) 14 (55)Balance at December 31, 2016$(224) $6 $13 $(205)Other comprehensive (loss) income before reclassifications41 (13) (13) 15Amounts reclassified from AOCI— (8) (1) (9)Net current period other comprehensive (loss) income41 (21) (14) 6Balance at December 31, 2017$(183) $(15) $(1) $(199)Impact of adoption of new accounting standard (1)— 1 — 1Other comprehensive (loss) income before reclassifications(51) 6 11 (34)Amounts reclassified from AOCI— (6) (8) (14)Net current period other comprehensive (loss) income(51) — 3 (48)Balance at December 31, 2018$(234) $(14) $2 $(246)(1) Refer to Note 1, “Basis of Presentation and Significant Accounting Policies” for further discussion of the adoption of accounting standard updates.Reclassifications Out of AOCIThe reclassifications out of AOCI for the years ended December 31 are as follows: For the year ended December 31, 2018 Employee Benefit Plans In millionsActuarial LossesRecognized Amortization of PriorService Benefit Effective Cash FlowHedges TotalAffected line in Consolidated Statement of Operations: Cost of products$— $— $(7) $(7) Cost of services— (5) — (5) Selling, general and administrative expenses— (3) — (3) Research and development expenses— (1) — (1) Total before tax$— $(9) $(7) $(16) Tax expense 2 Total reclassifications, net of tax $(14)105Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)For the year ended December 31, 2017Employee Benefit Plans In millionsActuarial LossesRecognized Amortization of PriorService Benefit Effective Cash FlowHedgesTotalAffected line in Consolidated Statement of Operations: Cost of products$— $— $(1) $(1)Cost of services(1) (6) —(7)Selling, general and administrative expenses— (4) —(4)Research and development expenses(1) (1) —(2)Total before tax$(2) $(11) $(1)$(14)Tax expense 5Total reclassifications, net of tax $(9) For the year ended December 31, 2016 Employee Benefit Plans In millionsActuarial LossesRecognized Amortization of PriorService Benefit Effective Cash FlowHedges TotalAffected line in Consolidated Statement of Operations: Cost of products$— $— $(3) $(3) Cost of services(1) (10) — (11) Selling, general and administrative expenses— (6) — (6) Research and development expenses(1) (3) — (4) Interest expense— — 2 2 Total before tax$(2) $(19) $(1) $(22) Tax expense 4 Total reclassifications, net of tax $(18)15. RESTRUCTURING PLANIn the second quarter of 2018, we announced a hardware transformation initiative to streamline our manufacturing operations that will help us reduce ourexposure to variable hardware demand as well as increase global utilization rates and optimize our supply chain network. As a part of this initiative, we planto reduce the number of manufacturing plants and move the manufacturing operations at those plants to other existing NCR facilities and current third partysuppliers.As a result of the restructuring plan, the Company recorded a total charge of $50 million in the year ended December 31, 2018. The Company expects that itmay incur additional charges during 2019 related to this restructuring program. Such additional charges will be expensed as incurred. The restructuringprogram is scheduled to be completed by the end of 2019.Severance and other employee related costs The Company recorded $2 million of employee related costs in accordance with ASC 712, Employers’Accounting for Postemployment Benefits, when the severance liability was determined to be probable and reasonably estimable. The Company also recorded$5 million of employee related costs in accordance with ASC 420, Exit or Disposal Cost Obligations. Of the severance and other employee related costs, $5million was included in cost of products and $2 million was included in selling, general and administrative expenses in the Consolidated Statement ofOperations. The Company made $2 million of severance-related payments under ASC 712 in the year ended December 31, 2018. The Company made $3million in severance-related payments under ASC 420 in the year ended December 31, 2018.106Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Inventory related charges The Company recorded $37 million in the year ended December 31, 2018 of inventory related charges for rationalizing its productportfolio and writing down inventory to be sold to third party suppliers to the lower cost or net realizable value. Inventory related charges are recorded withincost of products in the Consolidated Statement of Operations.Other exit costs The Company recorded $6 million in the year ended December 31, 2018 for costs primarily related to moving inventory and fixed assets fromthe plant locations that will be closed. Of these costs, $3 million were included in cost of products and selling, general and administrative expenses,respectively, in the year ended December 31, 2018 in the Consolidated Statement of Operations.The results by segment, as disclosed in Note 13, “Segment Information and Concentrations”, exclude the impact of these costs, which is consistent with themanner by which management assesses the performance and evaluates the results of each segment. The following table summarizes the costs recorded inaccordance with ASC 420, Exit or Disposal Cost Obligations, and ASC 712, Employers’ Accounting for Postemployment Benefits, and the remainingliabilities as of December 31, 2018, which are included in the Consolidated Balance Sheet in other current liabilities.In millions2018Employee Severance and Other Exit Costs Beginning balance as of January 1$—Cost recognized during the period13Change in estimated payments—Utilization(11)Currency translation adjustments—Ending balance as of December 31$216. SUPPLEMENTAL FINANCIAL INFORMATIONThe components of other income (expense), net are summarized as follows for the years ended December 31:In millions 2018 2017 2016Other income (expense), net Interest income $5 $3 $4Foreign currency fluctuations and foreign exchange contracts (26) (26) (40)Employee benefit plans 45 (15) (75)Bank-related fees (8) (8) (8)Divestiture and liquidation losses — — (6)Total other income (expense), net $16 $(46) $(125)The components of accounts receivable are summarized as follows:In millionsDecember 31, 2018 December 31, 2017Accounts receivable Trade$1,364 $1,270Other23 37Accounts receivable, gross1,387 1,307Less: allowance for doubtful accounts(31) (37)Total accounts receivable, net$1,356 $1,270The components of inventory are summarized as follows:107Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In millionsDecember 31, 2018 December 31, 2017Inventories Work in process and raw materials$237 $185Finished goods214 190Service parts355 405Total inventories$806 $780The components of property, plant and equipment are summarized as follows:In millionsDecember 31, 2018 December 31, 2017Property, plant and equipment Land and improvements$6 $7Buildings and improvements273 278Machinery and other equipment650 633Property, plant and equipment, gross929 918Less: accumulated depreciation(570) (577)Total property, plant and equipment, net$359 $34117. GUARANTOR FINANCIAL STATEMENTSThe Company's 5.00% Notes, 4.625% Notes, 5.875% Notes and 6.375% Notes are guaranteed by the Company's subsidiary, NCR International, Inc.(Guarantor Subsidiary), which is 100% owned by the Company and has guaranteed fully and unconditionally the obligations to pay principal and interest forthese senior unsecured notes. The guarantees are subject to release under certain circumstances as described below:•the designation of the Guarantor Subsidiary as an unrestricted subsidiary under the indenture governing the notes;•the release of the Guarantor Subsidiary from its guarantee under the Senior Secured Credit Facility;•the release or discharge of the indebtedness that required the guarantee of the notes by the Guarantor Subsidiary;•the permitted sale or other disposition of the Guarantor Subsidiary to a third party; and•the Company's exercise of its legal defeasance option of its covenant defeasance option under the indenture governing the notes.Refer to Note 6, "Debt Obligations" for additional information.In connection with the previously completed exchange offers for the 5.00% Notes, 4.625% Notes, 5.875% Notes and 6.375% Notes, the Company is requiredto comply with Rule 3-10 of SEC Regulation S-X (Rule 3-10), and has therefore included the accompanying Consolidating Financial Statements inaccordance with Rule 3-10(f) of SEC Regulation S-X.The following supplemental information sets forth, on a consolidating basis, the statements of operations and comprehensive income (loss), the balancesheets and the statements of cash flows for the parent issuer of these senior unsecured notes, for the Guarantor Subsidiary and for the Company and all of itsconsolidated subsidiaries. 108Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Consolidating Statements of Operations and Comprehensive Income (Loss)For the year ended December 31, 2018 (in millions)Parent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedProduct revenue$1,091 $36 $1,440 $(226) $2,341Service revenue2,117 33 1,914 — 4,064Total revenue3,208 69 3,354 (226) 6,405Cost of products1,000 32 1,182 (226) 1,988Cost of services1,443 13 1,286 — 2,742Selling, general and administrative expenses577 2 426 — 1,005Research and development expenses102 — 150 — 252Asset impairment charges210 — 17 — 227Total operating expenses3,332 47 3,061 (226) 6,214Income (loss) from operations(124) 22 293 — 191Interest expense(161) — (15) 8 (168)Other income (expense), net7 6 11 (8) 16Income (loss) from continuing operations beforeincome taxes(278) 28 289 — 39Income tax expense (benefit)(56) 72 57 — 73Income (loss) from continuing operations beforeearnings in subsidiaries(222) (44) 232 — (34)Equity in earnings of consolidated subsidiaries184 237 — (421) —Income (loss) from continuing operations(38) 193 232 (421) (34)Income (loss) from discontinued operations, net of tax(50) — (2) — (52)Net income (loss)$(88) $193 $230 $(421) $(86)Net income (loss) attributable to noncontrollinginterests— — 2 — 2Net income (loss) attributable to NCR$(88) $193 $228 $(421) $(88)Total comprehensive income (loss)(136) 118 174 (292) (136)Less comprehensive income (loss) attributable tononcontrolling interests— — — — —Comprehensive income (loss) attributable to NCRcommon stockholders$(136) $118 $174 $(292) $(136)109Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Consolidating Statements of Operations and Comprehensive Income (Loss)For the year ended December 31, 2017 (in millions)Parent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedProduct revenue$1,329 $91 $1,454 $(295) $2,579Service revenue2,051 29 1,857 — 3,937Total revenue3,380 120 3,311 (295) 6,516Cost of products1,042 37 1,237 (295) 2,021Cost of services1,360 10 1,270 — 2,640Selling, general and administrative expenses490 3 430 — 923Research and development expenses184 — 57 — 241Restructuring-related charges— — — — —Total operating expenses3,076 50 2,994 (295) 5,825Income (loss) from operations304 70 317 — 691Interest expense(159) — (9) 5 (163)Other income (expense), net(74) 1 32 (5) (46)Income (loss) from continuing operations beforeincome taxes71 71 340 — 482Income tax expense (benefit)113 107 22 — 242Income (loss) from continuing operations beforeearnings in subsidiaries(42) (36) 318 — 240Equity in earnings of consolidated subsidiaries279 291 — (570) —Income (loss) from continuing operations237 255 318 (570) 240Income (loss) from discontinued operations, net of tax(5) — — — (5)Net income (loss)$232 $255 $318 $(570) $235Net income (loss) attributable to noncontrollinginterests— — 3 — 3Net income (loss) attributable to NCR$232 $255 $315 $(570) $232Total comprehensive income (loss)238 269 317 (585) 239Less comprehensive income (loss) attributable tononcontrolling interests— — 1 — 1Comprehensive income (loss) attributable to NCRcommon stockholders$238 $269 $316 $(585) $238110Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Consolidating Statements of Operations and Comprehensive Income (Loss)For the year ended December 31, 2016 (in millions)Parent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedProduct revenue$1,293 $111 $1,768 $(435) $2,737Service revenue1,962 36 1,808 — 3,806Total revenue3,255 147 3,576 (435) 6,543Cost of products1,028 50 1,456 (435) 2,099Cost of services1,359 12 1,255 — 2,626Selling, general and administrative expenses526 4 374 — 904Research and development expenses160 — 65 — 225Restructuring-related charges3 — 12 — 15Total operating expenses3,076 66 3,162 (435) 5,869Income (loss) from operations179 81 414 — 674Interest expense(165) — (10) 5 (170)Other income (expense), net(42) (23) (55) (5) (125)Income (loss) from continuing operations beforeincome taxes(28) 58 349 — 379Income tax expense (benefit)(20) 21 91 — 92Income (loss) from continuing operations beforeearnings in subsidiaries(8) 37 258 — 287Equity in earnings of consolidated subsidiaries291 304 — (595) —Income (loss) from continuing operations283 341 258 (595) 287Income (loss) from discontinued operations, net of tax(13) — — — (13)Net income (loss)$270 $341 $258 $(595) $274Net income (loss) attributable to noncontrollinginterests— — 4 — 4Net income (loss) attributable to NCR$270 $341 $254 $(595) $270Total comprehensive income (loss)215 277 195 (473) 214Less comprehensive income (loss) attributable tononcontrolling interests— — (1) — (1)Comprehensive income (loss) attributable to NCRcommon stockholders$215 $277 $196 $(473) $215111Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Consolidating Balance SheetDecember 31, 2018 (in millions)Parent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedAssets Current assets Cash and cash equivalents$6 $8 $450 $— $464Accounts receivable, net37 10 1,309 — 1,356Inventories288 4 514 — 806Due from affiliates708 2,092 457 (3,257) —Other current assets137 47 255 (42) 397Total current assets1,176 2,161 2,985 (3,299) 3,023Property, plant and equipment, net245 1 113 — 359Goodwill2,168 — 524 — 2,692Intangibles, net536 — 59 — 595Prepaid pension cost— — 140 — 140Deferred income taxes317 — 149 (18) 448Investments in subsidiaries3,244 2,854 — (6,098) —Due from affiliates16 1 35 (52) —Other assets453 4 47 — 504Total assets$8,155 $5,021 $4,052 $(9,467) $7,761 Liabilities and stockholders’ equity Current liabilities Short-term borrowings$85 $— $100 $— $185Accounts payable397 2 498 — 897Payroll and benefits liabilities141 — 97 — 238Deferred service revenue and customer deposits221 5 235 — 461Due to affiliates2,177 143 937 (3,257) —Other current liabilities201 6 336 (42) 501Total current liabilities3,222 156 2,203 (3,299) 2,282Long-term debt2,978 — 2 — 2,980Pension and indemnity plan liabilities502 — 257 — 759Postretirement and postemployment benefits liabilities18 3 97 — 118Income tax accruals19 5 67 — 91Due to affiliates— 36 16 (52) —Other liabilities162 24 91 (18) 259Total liabilities6,901 224 2,733 (3,369) 6,489Redeemable noncontrolling interest— — 14 — 14Series A convertible preferred stock859 — — — 859Stockholders’ equity Total NCR stockholders’ equity395 4,797 1,301 (6,098) 395Noncontrolling interests in subsidiaries— — 4 — 4Total stockholders’ equity395 4,797 1,305 (6,098) 399Total liabilities and stockholders’ equity$8,155 $5,021 $4,052 $(9,467) $7,761112Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Consolidating Balance SheetDecember 31, 2017 (in millions)Parent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedAssets Current assets Cash and cash equivalents$97 $11 $429 $— $537Accounts receivable, net62 12 1,196 — 1,270Inventories311 7 462 — 780Due from affiliates646 1,801 283 (2,730) —Other current assets78 39 162 (36) 243Total current assets1,194 1,870 2,532 (2,766) 2,830Property, plant and equipment, net207 — 134 — 341Goodwill2,228 — 513 — 2,741Intangibles, net503 — 75 — 578Prepaid pension cost— — 118 — 118Deferred income taxes334 — 157 (31) 460Investments in subsidiaries3,008 2,942 — (5,950) —Due from affiliates31 1 39 (71) —Other assets472 63 51 — 586Total assets$7,977 $4,876 $3,619 $(8,818) $7,654 Liabilities and stockholders’ equity Current liabilities Short-term borrowings$52 $— $— $— $52Accounts payable382 — 380 — 762Payroll and benefits liabilities124 — 95 — 219Deferred service revenue and customer deposits216 6 236 — 458Due to affiliates1,884 130 716 (2,730) —Other current liabilities204 5 225 (36) 398Total current liabilities2,862 141 1,652 (2,766) 1,889Long-term debt2,937 — 2 — 2,939Pension and indemnity plan liabilities515 — 283 — 798Postretirement and postemployment benefits liabilities20 3 110 — 133Income tax accruals20 5 123 — 148Due to affiliates— 39 32 (71) —Other liabilities94 36 101 (31) 200Total liabilities6,448 224 2,303 (2,868) 6,107Redeemable noncontrolling interest— — 15 — 15Series A Convertible Preferred Stock810 — — — 810Stockholders’ equity Total NCR stockholders’ equity719 4,652 1,298 (5,950) 719Noncontrolling interests in subsidiaries— — 3 — 3Total stockholders’ equity719 4,652 1,301 (5,950) 722Total liabilities and stockholders’ equity$7,977 $4,876 $3,619 $(8,818) $7,654113Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Consolidating Statement of Cash FlowsFor the year ended December 31, 2018 (in millions)Parent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedNet cash provided by (used in) operating activities$353 $(138) $375 $(18) $572Investing activities Expenditures for property, plant and equipment(109) — (34) — (143)Additions to capitalized software(144) — (26) — (170)Investments in equity affiliates(14) — — 14 —Proceeds from (payments of) intercompany notes228 135 — (363) —Acquisitions(206) — — — (206)Proceeds from the sale of PPE1 — 2 — 3Other investing activities, net(4) — — — (4)Net cash provided by (used in) investing activities(248) 135 (58) (349) (520)Financing activities Tax withholding payments on behalf of employees(36) — — — (36)Repurchases of Company common stock(210) — — — (210)Short term borrowings, net(1) — — — (1)Borrowings on term facility— — — — —Payments of term credit facilities(51) — — — (51)Proceeds from employee stock plans20 — — — 20Payments on revolving credit facilities(1,755) — (478) — (2,233)Borrowings on revolving credit facilities1,875 — 578 — 2,453Equity contribution— — 14 (14) —Dividends distribution to consolidated subsidiaries— — (18) 18 —Borrowings (repayments) of intercompany notes— — (363) 363 —Net cash provided by (used in) financing activities(158) — (267) 367 (58)Cash flows from discontinued operations Net cash used in discontinued operations operatingactivities(36) — — — (36)Effect of exchange rate changes on cash, cash equivalentsand restricted cash(1) — (24) — (25)Increase (decrease) in cash, cash equivalents and restrictedcash(90) (3) 26 — (67)Cash, cash equivalents and restricted cash at beginning ofperiod97 11 435 — 543Cash, cash equivalents and restricted cash at end of period$7 $8 $461 $— $476114Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In millionsDecember 31, 2018Reconciliation of cash, cash equivalents and restricted cash asshown in the Consolidated Statements of Cash FlowsParent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedCash and cash equivalents$6 $8 $450 $— $464Restricted cash included in Other assets1 — 11 — 12Total cash, cash equivalents and restricted cash$7 $8 $461 $— $476115Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Consolidating Statement of Cash FlowsFor the year ended December 31, 2017 (in millions)Parent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedNet cash provided by (used in) operating activities$459 $(180) $483 $(10) $752Investing activities Expenditures for property, plant and equipment(87) — (41) — (128)Additions to capitalized software(133) — (33) — (166)Proceeds from (payments of) intercompany notes230 180 2 (412) —Acquisitions(8) — — — (8)Proceeds from the sale of PPE— — 6 — 6Proceeds from divestitures3 — — — 3Investments in equity affiliates3 — — (3) —Other investing activities, net(1) — 4 — 3Net cash provided by (used in) investing activities7 180 (62) (415) (290)Financing activities Short term borrowings, net(5) — 1 — (4)Payments on term credit facilities(56) — (5) — (61)Payments on revolving credit facilities(1,700) — (240) — (1,940)Borrowings on revolving credit facilities1,700 — 240 — 1,940Tax withholding payments on behalf of employees(31) — — — (31)Proceeds from employee stock plans15 — — — 15Other financing activities(1) — (2) — (3)Dividend distribution to consolidated subsidiaries— — (10) 10 —Repurchases of Company common stock(350) — — — (350)Equity contribution— — (3) 3 —Borrowings (repayments) of intercompany notes— (2) (410) 412 —Net cash provided by (used in) financing activities(428) (2) (429) 425 (434)Cash flows from discontinued operations Net cash used in discontinued operations operatingactivities(8) — — — (8)Effect of exchange rate changes on cash, cash equivalentsand restricted cash— 1 15 — 16Increase (decrease) in cash, cash equivalents and restrictedcash30 (1) 7 — 36Cash, cash equivalents and restricted cash at beginning ofperiod67 12 428 — 507Cash, cash equivalents and restricted cash at end of period$97 $11 $435 $— $543116Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In millionsDecember 31, 2017Reconciliation of cash, cash equivalents and restricted cash asshown in the Consolidated Statements of Cash FlowsParent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedCash and cash equivalents$97 $11 $429 $— $537Restricted cash included in Other assets— — 6 — 6Total cash, cash equivalents and restricted cash$97 $11 $435 $— $543117Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)Consolidating Statement of Cash FlowsFor the year ended December 31, 2016 (in millions)Parent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedNet cash provided by (used in) operating activities336 (160) 723 (3) 896Investing activities Expenditures for property, plant and equipment(33) — (40) — (73)Additions to capitalized software(114) — (40) — (154)Proceeds from (payments of) intercompany notes365 115 — (480) —Proceeds from divestitures22 — 25 — 47Investments in equity affiliates(9) 50 — (41) —Other investing activities, net(9) — — — (9)Net cash provided by (used in) investing activities222 165 (55) (521) (189)Financing activities Short term borrowings, net(4) — (4) — (8)Payments on revolving credit facilities(89) — (8) — (97)Payments on revolving credit facilities(1,151) — (280) — (1,431)Borrowings on revolving credit facilities1,051 — 280 — 1,331Tax withholding payments on behalf of employees(16) — — — (16)Proceeds from employee stock plans15 — — — 15Debt issuance costs(9) — — — (9)Dividend distribution to consolidated subsidiaries— — (53) 53 —Other financing activities— — (2) — (2)Equity contribution— — 9 (9) —Borrowings (repayments) of intercompany notes(16) — (464) 480 —Tender offer share repurchase(250) — — — (250)Net cash provided by (used in) financing activities(469) — (522) 524 (467)Cash flows from discontinued operations Net cash used in discontinued operations operatingactivities(39) — — — (39)Effect of exchange rate changes on cash, cash equivalentsand restricted cash— (13) (16) — (29)Increase (decrease) in cash, cash equivalents and restrictedcash50 (8) 130 — 172Cash, cash equivalents and restricted cash at beginning ofperiod17 20 298 — 335Cash, cash equivalents and restricted cash at end ofperiod$67 $12 $428 $— $507118Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)In millionsDecember 31, 2016Reconciliation of cash, cash equivalents and restricted cash asshown in the Consolidated Statements of Cash FlowsParent Issuer GuarantorSubsidiary Non-GuarantorSubsidiaries Eliminations ConsolidatedCash and cash equivalents$67 $12 $419 $— $498Restricted cash included in Other assets— — 9 — 9Total cash, cash equivalents and restricted cash$67 $12 $428 $— $507119Table of ContentsNCR CorporationNotes to Consolidated Financial Statements-(Continued)18. QUARTERLY INFORMATION (UNAUDITED) In millions, except per share amounts First Second Third Fourth2018 Total revenue $1,517 $1,537 $1,550 $1,801Gross margin 420 403 410 442Income from operations 109 (106) 125 63Income from continuing operations (attributable to NCR) 55 (143) 85 (33)Income (loss) from discontinued operations, net of tax (35) (2) (1) (14)Net (loss) income attributable to NCR common stockholders 8 (157) 72 (60)Income (loss) per share attributable to NCR common stockholders: Income (loss) per common share from continuing operations Basic $0.36 $(1.31) $0.62 $(0.39)Diluted $0.35 $(1.31) $0.57 $(0.39)Net (loss) income per common share: Basic $0.07 $(1.33) $0.61 $(0.51)Diluted $0.06 $(1.33) $0.56 $(0.51) 2017 Total revenue $1,478 $1,593 $1,663 $1,782Gross margin 412 461 472 510Income from operations 115 175 199 202Income from continuing operations (attributable to NCR) 57 97 118 (35)(Loss) from discontinued operations, net of tax — 5 — (10)Net income attributable to NCR common stockholders (17) 90 106 (56)Income per share attributable to NCR common stockholders: Income per common share from continuing operations Basic $(0.14) $0.70 $0.87 $(0.38)Diluted $(0.14) $0.64 $0.77 $(0.38)Net income per common share: Basic $(0.14) $0.74 $0.87 $(0.46)Diluted $(0.14) $0.67 $0.77 $(0.46)Operating income for the quarter ended December 31, 2018 was impacted by actuarial gains related to the remeasurement of our pension plan assets andliabilities. The actuarial gains included in pension expense recognized in the quarter ended December 31, 2018 increased net income attributable to NCR by$44 million, basic earnings per share from continuing operations by $0.37, and diluted earnings per share from continuing operations by $0.37.Operating income for the quarter ended December 31, 2017 was impacted by actuarial losses related to the remeasurement of our pension plan assets andliabilities. The actuarial losses included in pension expense recognized in the quarter ended December 31, 2017 decreased net income attributable to NCR by$25 million, basic earnings per share from continuing operations by $0.21, and diluted earnings per share from continuing operations by $0.21.Net income per share in each quarter is computed using the weighted-average number of shares outstanding during that quarter while net income per share forthe full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters’ net income per sharewill not necessarily equal the full-year net income per share.120Table of ContentsItem 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.Item 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresNCR has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the ExchangeAct)) to ensure that information required to be disclosed by NCR in the reports that it files or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required to be disclosed by NCR in the reports that it files or submits under the Exchange Act isaccumulated and communicated to NCR’s management, including its Chief Executive and Chief Financial Officers, as appropriate to allow timely decisionsregarding required disclosure. Based on their evaluation as of the end of the period covered by this Report, conducted under their supervision and with theparticipation of management, the Company’s Chief Executive and Chief Financial Officers have concluded that NCR’s disclosure controls and proceduresare effective to meet such objectives and that NCR’s disclosure controls and procedures adequately alert them on a timely basis to material informationrelating to the Company (including its consolidated subsidiaries) required to be included in NCR’s Exchange Act filings.Changes in Internal Control over Financial ReportingThroughout 2018, in order to facilitate our adoption of the new revenue recognition accounting standard on January 1, 2018, we implemented internalcontrols to help ensure we properly evaluated our customer contracts, executed key system changes, and assessed the impact to our consolidated financialstatements. There have been no other changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting.Management’s Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that couldhave a material effect on the financial statements.Because of its inherent limitations due to, for example, the potential for human error or circumvention of controls, internal control over financial reportingmay not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.On December 6, 2018, the Company acquired JetPay Corporation (JetPay) in a business combination. The Company is currently integrating policies,processes, people, technology and operations for the combined company, and management has therefore excluded JetPay from its assessment of internalcontrol over financial reporting as of December 31, 2018. JetPay is a wholly-owned subsidiary whose excluded aggregate total assets and total revenuesrepresent approximately 1% and 0.1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018.The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making thisassessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework. Based on our assessment, we determined that, as of December 31, 2018, the Company’s internal control over financial reporting waseffective based on those criteria.121Table of ContentsPricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2018 as stated in their report which appears in Item 8 of this Report.Item 9B. OTHER INFORMATIONNone.PART IIIItem 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCEExcept as set forth in the following paragraphs of this Item 10, the information required by this Item 10 will be set forth under the headings “Election ofDirectors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Committees of the Board” in the Definitive Proxy Statement for our 2019Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 2018 year, and is incorporated herein by reference. Theinformation required by this Item 10 regarding our executive officers is set forth under the heading “Executive Officers of the Registrant” in Part I of thisForm 10-K and is incorporated herein by reference.We have not materially changed the procedures by which stockholders may recommend nominees to the Company’s Board of Directors.We have a Code of Conduct that sets the standard for ethics and compliance for all of our directors and employees, including our chief executive officer, ourchief financial officer and our chief accounting officer. Our Code of Conduct is available on the Corporate Governance page at our website athttp://www.ncr.com/company/corporate-governance/code-of-conduct under the heading “Code of Conduct.” We intend to disclose any amendments to orwaivers of the Code of Conduct with respect to any director as well as our principal executive officer, principal financial officer, and principal accountingofficer, on the Corporate Governance page of our website promptly following the date of such amendment or waiver.Item 11.EXECUTIVE COMPENSATIONThe information required by this Item 11 will be set forth under the headings “Executive Compensation - Compensation Discussion & Analysis,”“Compensation and Human Resource Committee,” and “Board Compensation and Human Resource Committee Report on Executive Compensation” in theDefinitive Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 2018 year, andis incorporated herein by reference.Item 12.SECURITY OWNERSHIPS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by this Item 12 will be set forth under the headings “NCR Stock Ownership” and “Equity Compensation Plan Information” in theDefinitive Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 2018 year, andis incorporated herein by reference.Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe information required by this Item 13 will be set forth under the headings “Related Person Transactions” and “Corporate Governance” in the DefinitiveProxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 2018 year, and isincorporated herein by reference.Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this Item 14 will be set forth under the heading “Fees Paid to Independent Registered Public Accounting Firm” in the DefinitiveProxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal 2018 year, and isincorporated herein by reference.122Table of ContentsPART IVItem 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULE(a)(1) Financial Statements: The following is an index of the consolidated financial statements of the Company and the Report of Independent RegisteredPublic Accounting Firm filed as part of this Form 10-K: Page of Form10-KReport of Independent Registered Public Accounting Firm49Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 201651Consolidated Statements of Comprehensive Income Operations for the years ended December 31, 2018, 2017, and 201652Consolidated Balance Sheets at December 31, 2018 and 201753Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 201654Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2018, 2017, and 201655Notes to Consolidated Financial Statements56(2) Financial Statement Schedule: Financial Statement Schedule II—Valuation and Qualifying Accounts is included in this Form 10-K on page 130. Allother schedules are not required under the related instructions or are not applicable.(3) Exhibits: See Index of Exhibits below for a listing of all exhibits to this Form 10-K. The management contracts and compensatory plans or arrangementsrequired to be filed as an exhibit to this Form 10-K are identified in the Index of Exhibits by an asterisk (*).(b) The following is an index of all exhibits to this Form 10-K. Exhibits identified in parentheses in the index below, on file with the SEC, are incorporatedherein by reference as exhibits hereto.2.1 Separation and Distribution Agreement, dated as of August 27, 2007, between NCR Corporation and Teradata Corporation (Exhibit 10.1 tothe Current Report on Form 8-K of Teradata Corporation dated September 6, 2007). 2.2 Agreement and Plan of Merger, dated as of October 19, 2018, among JetPay Corporation, NCR Corporation and Orwell AcquisitionCorporation (Exhibit 2.1 to the Current Report on Form 8-K of NCR Corporation dated October 22, 2018). 3.1 Articles of Amendment and Restatement of NCR Corporation (Exhibit 3.1 to the NCR Corporation Quarterly Report on Form 10-Q for thequarter ended June 30, 2016). 3.2 Bylaws of NCR Corporation, as amended and restated on February 20, 2018 (Exhibit 3.2 to the Current Report on Form 8-K of NCRCorporation dated February 23, 2018). 4.1 Common Stock Certificate of NCR Corporation (Exhibit 4.1 to the NCR Corporation Annual Report on Form 10-K for the year endedDecember 31, 1999). 4.2 Indenture, dated September 17, 2012, among NCR Corporation, as issuer, NCR International Inc. and Radiant Systems Inc. as subsidiaryguarantors and U.S. Bank National Association, as trustee (Exhibit 4.01 to the Current Report on Form 8-K of NCR Corporation datedSeptember 17, 2012). 4.3 Indenture, dated December 18, 2012, among NCR Corporation, as issuer, NCR International Inc. and Radiant Systems Inc. as subsidiaryguarantors and U.S. Bank National Association, as trustee (Exhibit 4.01 to the Current Report on Form 8-K of NCR Corporation datedDecember 18, 2012). 123Table of Contents4.4 Indenture, dated December 19, 2013, between NCR Escrow Corp. and U.S. Bank National Association relating to the $400 millionaggregate principal amount of 5.875% senior notes due 2021 (the “5.875% Notes”) (Exhibit 4.1 to the Current Report on Form 8-K of NCRCorporation dated December 19, 2013 (the “December 19, 2013 Form 8-K”)). 4.4.1 First Supplemental Indenture relating to the 5.875% Notes, dated January 10, 2014, among NCR Corporation, NCR International, Inc. andU.S. Bank National Association, as trustee (Exhibit 4.1 to the Current Report of NCR Corporation dated January 10, 2014 (the “January 10,2014 Form 8-K”)). 4.5 Indenture, dated December 19, 2013, between NCR Escrow Corp. and U.S. Bank National Association relating to the $700 millionaggregate principal amount of 6.375% senior notes due 2023 (the “6.375% Notes”) (Exhibit 4.2 to the December 19, 2013 Form 8-K). 4.5.1 First Supplemental Indenture relating to the 6.375% Notes, dated January 10, 2014, among NCR Corporation, NCR International, Inc. andU.S. Bank National Association, as trustee (Exhibit 4.2 to the January 10, 2014 Form 8-K). 10.1 Separation and Distribution Agreement, dated as of February 1, 1996, and amended and restated as of March 29, 1996, by and among NCRCorporation, AT&T Corp. and Lucent Technologies Inc. (Exhibit 10.1 to Amendment No. 3 to the Lucent Technologies Inc. RegistrationStatement on Form S-1 (No. 333-00703) (the “Lucent Registration Statement Amendment No. 3”)). 10.2 Employee Benefits Agreement, dated as of November 20, 1996, by and between AT&T Corp. and NCR Corporation (Exhibit 10.2 to theNCR Corporation Annual Report on Form 10-K for the year ended December 31, 1996 (the “1996 Annual Report”)). 10.3 Patent License Agreement, effective as of March 29, 1996, by and among AT&T Corp., NCR Corporation, and Lucent Technologies Inc.(Exhibit 10.7 to Amendment No. 4 to the Lucent Technologies Inc. Registration Statement on Form S-1 (No. 333-0073) (the “LucentRegistration Statement Amendment No. 4”)). 10.4 Amended and Restated Technology License Agreement, effective as of March 29, 1996, by and among AT&T Corp., NCR Corporation,and Lucent Technologies Inc. (Exhibit 10.8 to the Lucent Registration Statement Amendment No. 4). 10.5 Tax Sharing Agreement, dated as of February 1, 1996, and amended and restated as of March 29, 1996, by and among AT&T Corp., NCRCorporation, and Lucent Technologies Inc. (Exhibit 10.6 to the Lucent Registration Statement Amendment No. 3). 10.6 Tax Sharing Agreement, dated as of September 21, 2007, between NCR Corporation and Teradata Corporation (Exhibit 10.1 to the CurrentReport on Form 8-K of NCR Corporation dated September 21, 2007). 10.7 NCR Management Stock Plan (Exhibit 10.8 to the 1996 Annual Report). * 10.7.1 First Amendment to the NCR Management Stock Plan dated April 30, 2003 (Exhibit 10.4 to the NCR Corporation Quarterly Report onForm 10-Q for the quarter ended March 31, 2003). * 10.7.2 Amendment to NCR Management Stock Plan effective as of December 31, 2008 (Exhibit 10.17.2 to the NCR Corporation Annual Reporton Form 10-K for the year ended December 31, 2008 (the “2008 Annual Report”)). * 10.7.3 Form of Stock Option Agreement under the NCR Management Stock Plan (Exhibit 10.6.3 to the NCR Corporation Annual Report on Form10-K for the year ended December 31, 2005 (the “2005 Annual Report”)). * 10.7.4 Form of Restricted Stock Agreement under the NCR Management Stock Plan (Exhibit 10.6.4 to the 2005 Annual Report). * 124Table of Contents10.8 NCR Corporation 2011 Amended and Restated Stock Incentive Plan (formerly the NCR 2006 Stock Incentive Plan, as amended andrestated effective as of December 31, 2008) (the “2011 Stock Incentive Plan”) (Exhibit 10.1 to the Current Report on Form 8-K of NCRCorporation dated April 27, 2011). * 10.8.1 Form of 2009 Stock Option Agreement under the NCR Corporation 2011 Stock Incentive Plan (Exhibit 10.5 to the Current Report on Form8-K of NCR Corporation dated December 12, 2008). * 10.8.2 Form of 2010 Stock Option Agreement under the 2011 Stock Incentive Plan (Exhibit 10.2 to the NCR Corporation Quarterly Report onForm 10-Q for the quarter ended March 31, 2010 (the "First Quarter 2010 Quarterly Report")). * 10.8.3 Form of 2011 Stock Option Agreement under the 2011 Stock Incentive Plan (Exhibit 10.1 to the NCR Corporation Quarterly Report onForm 10-Q for the quarter ended March 31, 2011). * 10.9 Amended and Restated NCR Management Incentive Plan (Exhibit 10.2 to the Current Report on Form 8-K of NCR Corporation dated April27, 2011). * 10.10 NCR Director Compensation Program effective April 21, 2009 (the “2009 NCR Director Compensation Program”)(Exhibit 10.7 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (the “First Quarter 2009 Form10-Q”)). * 10.10.1 2009 Director Option Grant Statement under the 2009 NCR Director Compensation Program (Exhibit 10.8 to the First Quarter 2009 Form10-Q). * 10.10.2 2009 Director Restricted Stock Unit Grant Statement under the 2009 NCR Director Compensation Program (Exhibit 10.9 to the FirstQuarter 2009 Form 10-Q). * 10.11 Amended and Restated NCR Change in Control Severance Plan effective December 31, 2008 (Exhibit 10.24.2 to the 2008 Annual Report).* 10.11.1 First Amendment to the Amended and Restated NCR Change in Control Severance Plan (Exhibit 10.6 to the NCR Corporation QuarterlyReport on Form 10-Q for the quarter ended September 30, 2011). * 10.11.2 Second Amendment to the Amended and Restated NCR Change in Control Severance Plan (Exhibit 10.11.2 to the 2017 Annual Report). * 10.12 Employment Agreement with William Nuti, dated July 29, 2005 (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporationdated July 27, 2005). * 10.12.1 Letter Agreement, dated July 26, 2006, with William Nuti (Exhibit 10.4 to the Current Report on Form 8-K of NCR Corporation dated July25, 2006). * 10.12.2 Second Amendment, effective as of December 12, 2008, to Letter Agreement with William Nuti dated July 29, 2005, as amended July 26,2006 (Exhibit 10.30.2 to the 2008 Annual Report). * 10.12.3 Letter Agreement, dated March 11, 2015, between NCR Corporation and William Nuti (Exhibit 10.5 to the NCR Corporation QuarterlyReport on Form 10-Q for the quarter ended March 31, 2015 (the “First Quarter 2015 Quarterly Report”)). * 10.13 NCR Director Compensation Program Effective April 27, 2010 (Exhibit 10.1 to the NCR Corporation Quarterly Report on Form 10-Q forthe quarter ended June 30, 2010 (the “Second Quarter 2010 Quarterly Report”)). * 10.13.1 Form of 2010 Director Option Grant Statement (Exhibit 10.2 to the Second Quarter 2010 Quarterly Report). * 10.13.2 Form of 2010 Director Restricted Stock Unit Grant Statement (Exhibit 10.3 to the Second Quarter 2010 Quarterly Report). * 125Table of Contents10.14 Letter Agreement with Robert Fishman dated March 17, 2010 (Exhibit 10.7 to the First Quarter 2010 Quarterly Report). * 10.15 NCR Corporation 2011 Economic Profit Plan (Exhibit 10.3 to the Current Report on Form 8-K of NCR Corporation dated April 27, 2011).* 10.15.1 First Amendment to NCR Corporation 2011 Economic Profit Plan (Exhibit 10.29.1 to the NCR Corporation Annual Report on Form 10-Kfor the year ended December 31, 2011). * 10.15.2 Second Amendment to NCR Corporation 2011 Economic Profit Plan, dated January 25, 2012 (Exhibit 10.1 to the First Quarter 2012Quarterly Report). 10.15.3 Third Amendment to NCR Corporation 2011 Economic Profit Plan (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporationdated October 1, 2013). * 10.15.4 Fourth Amendment to NCR Corporation 2011 Economic Profit Plan (Exhibit 10.18.4 to the NCR Corporation Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Annual Report”)). * 10.15.5 Amended and Restated NCR Corporation Economic Profit Plan (Exhibit 10.2 to the NCR Corporation Quarterly Report on Form 10-Q forthe quarter ended June 30, 2015 (the “Second Quarter 2015 Quarterly Report)). * 10.16 Equity Subscription Agreement, dated July 26, 2011, among NCR Corporation, Scopus Industrial S.A., Scopus Tecnologia Ltda. and NCRBrasil - Indústria de Equipamentos Para Automação Ltda., including Schedule I - The form of Shareholders' Agreement (Exhibit 10.1 to theCurrent Report on Form 8-K of NCR Corporation dated July 26, 2011). 10.17 NCR Corporation 2013 Stock Incentive Plan (the “2013 Stock Incentive Plan”) (Appendix A to the NCR Corporation Proxy Statement onSchedule 14A for the NCR Corporation 2013 Annual Meeting of Stockholders). * 10.17.1 Form of 2015 Performance Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.1 to the FirstQuarter 2015 Quarterly Report). * 10.17.2 Form of 2015 Time Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.2 to the First Quarter2015 Quarterly Report). * 10.17.3 Form of 2015 Single-Metric Performance-Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.3to the First Quarter 2015 Quarterly Report). * 10.17.4 Form of 2016 Time Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.1 to the QuarterlyReport on Form 10-Q of NCR Corporation for the quarter ended March 31, 2016 (the “First Quarter 2016 Quarterly Report”)). * 10.17.5 Form of 2016 Performance Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.2 to the FirstQuarter 2016 Quarterly Report). * 10.17.6 Form of 2016 Single-Metric Performance Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan (Exhibit 10.3to the First Quarter 2016 Quarterly Report). * 10.17.7 Form of Vision 2020 Award (for Awardees Other than the Chief Executive Officer): 2016 Price-Contingent Restricted Stock UnitAgreement - $35 Price Target - under the 2013 Stock Incentive Plan (Exhibit 10.5 to the First Quarter 2016 Quarterly Report). * 10.17.8 Form of Vision 2020 Award (for Awardees Other than the Chief Executive Officer): 2016 Price-Contingent Restricted Stock UnitAgreement - $40 Price Target - under the 2013 Stock Incentive Plan (Exhibit 10.6 to the First Quarter 2016 Quarterly Report). * 10.18 Agreement between NCR and the Trustees of the NCR Pension Plan (UK), dated November 14, 2013 (Exhibit 10.1 to the Current Report onForm 8-K of NCR Corporation dated November 14, 2013).126Table of Contents 10.19 Receivables Financing Agreement, dated as of November 21, 2014, by and among NCR Receivables LLC, as borrower, NCR Corporation,as servicer, PNC Bank, National Association, as administrative agent, and PNC Bank, National Association, The Bank of Tokyo-MitsubishiUFJ, Ltd., New York Branch, Victory Receivables Corporation and the other lender parties from time to time party thereto (Exhibit 10.1 tothe Current Report on Form 8-K of NCR Corporation dated November 21, 2014 (the “November 21, 2014 Form 8-K”)). 10.19.1 First Amendment to Receivables Financing Agreement, dated as of November 21, 2016, by and among NCR Receivables LLC, as borrower,NCR Corporation, as servicer, PNC Bank, National Association, as administrative agent, and PNC Bank, National Association, The Bank ofTokyo-Mitsubishi UFJ, Ltd., New York Branch, Victory Receivables Corporation and the other lender parties from time to time partythereto (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated November 23, 2016). 10.19.2 Second Amendment to the Receivables Financing Agreement, dated as of September 29, 2017, by and among NCR Receivables LLC, asborrower, NCR Corporation, as servicer, PNC Bank, National Association, as administrative agent, and PNC Bank, National Association,The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, and Victory Receivables Corporation, as lenders. 10.19.3 Third Amendment to Receivables Financing Agreement, dated as of November 15, 2018, by and among NCR Receivables LLC, asborrower, NCR Corporation, as servicer, PNC Bank, National Association, as administrative agent, and PNC Bank, National Association,MUFG Bank, Ltd. (f/k/a The Bank of Tokyo Mitsubishi UFJ, Ltd., New York Branch) and Victory Receivables Corporation, as lenders(Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated November 20, 2018). 10.20 Purchase and Sale Agreement, dated as of November 21, 2014, among NCR Receivables LLC, as buyer, and NCR Corporation and theother originator parties from time to time party thereto (Exhibit 10.2 to the November 21, 2014 Form 8-K). 10.21 Amended and Restated NCR Executive Severance Plan (Exhibit 10.1 to the Second Quarter 2015 Quarterly Report). * 10.21.1 First Amendment to the Amended and Restated NCR Executive Severance Plan (Exhibit 10.21.1 to the 2017 Annual Report). * 10.22 Employment Letter of Frederick Marquardt dated April 4, 2014 (as amended May 1, 2014). (Exhibit 10.40 to the 2014 Annual Report). * 10.23 Employment Contract, dated June 23, 2014, between NCR GmbH and Michael Bayer (Exhibit 10.41 to the 2014 Annual Report). * 10.23.1 Letter regarding additional terms of employment of Michael Bayer, dated June 23, 2014 (Exhibit 10.41.1 to the 2014 Annual Report). * 10.23.2 Employment Transfer Letter (revised) of Michael Bayer, dated July 30, 2015 (Exhibit 10.4 to the Second Quarter 2015 Quarterly Report). * 10.24 NCR Director Compensation Program effective April 23, 2013, as amended effective February 24, 2014 (the “2013 NCR DirectorCompensation Program”) (Exhibit 10.42 to the 2014 Annual Report). * 10.24.1 2014 Director Restricted Stock Unit Grant Statement under the 2013 NCR Director Compensation Program (Exhibit 10.42.1 to the 2014Annual Report). * 10.24.2 2015 Director Restricted Stock Unit Grant Statement under the 2013 NCR Director Compensation Program (Exhibit 10.3 to the SecondQuarter 2015 Quarterly Report). * 10.24.3 2016 Director Restricted Stock Unit Grant Statement under the 2013 NCR Director Compensation Program (Exhibit 10.2 to the QuarterlyReport on Form 10-Q of NCR Corporation for the quarter ended June 30, 2016 (the “Second Quarter 2016 Quarterly Report”)). * 127Table of Contents10.25 Investment Agreement dated as of November 11, 2015, by and between NCR Corporation and the affiliates of Blackstone Capital PartnersVI, L.P. and Blackstone Tactical Opportunities L.L.C. named therein (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporationdated November 11, 2015). 10.26 Registration Rights Agreement, dated as of December 4, 2015, by and between NCR Corporation and the affiliates of Blackstone CapitalPartners VI, L.P. and Blackstone Tactical Opportunities L.L.C. named therein (Exhibit 10.1 to the December 2, 2015 Form 8-K). 10.27 NCR Employee Stock Purchase Plan, as amended and restated effective January 1, 2017 (Appendix A to the NCR Corporation ProxyStatement on Schedule 14A for the NCR Corporation 2016 Annual Meeting of Stockholders). * 10.28 Credit Agreement, dated as of August 22, 2011, as amended and restated as of July 25, 2013, as further amended and restated as of March31, 2016, by and among NCR Corporation, the Foreign Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A.,as Administrative Agent (Exhibit 10.1 to the Current Report on Form 8-K of NCR Corporation dated April 4, 2016 (the “April 4, 2016 Form8-K”)). 10.28.1 Amended and Restated Guarantee and Collateral Agreement, dated as of August 22, 2011, as amended and restated as of January 6, 2014,as further amended and restated as of March 31, 2016, by and among NCR Corporation, the Foreign Borrowers party thereto, thesubsidiaries of NCR Corporation identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent (Exhibit 10.2 to the April 4,2016 Form 8-K). 10.28.2 Annex A to Credit Agreement dated as of August 22, 2011, as amended and restated as of July 25, 2013, as further amended and restated asof March 31, 2016, among NCR Corporation, the Foreign Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank,N.A. (Exhibit 10.1 to the Second Quarter 2016 Quarterly Report). 10.29 Employment Contract, dated September 15, 2016, between NCR Corporation and Mark D. Benjamin (Exhibit 10.1 to the Quarterly Reporton Form 10-Q of NCR Corporation for the quarter ended September 30, 2016). * 10.30 Underwriting Agreement, dated March 13, 2017, among NCR Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P.Morgan Securities LLC and the selling stockholders party thereto (Exhibit 1.1 to the Current Report on Form 8-K of NCR Corporationdated March 10, 2017). 10.31 Second Amended and Restated NCR Management Incentive Plan (Appendix A to the NCR Corporation Proxy Statement on Schedule 14Afor the NCR Corporation 2017 Annual Meeting of Stockholders (the “2017 Proxy Statement”). * 10.32 Stock Repurchase Agreement, dated as of March 10, 2017, by and between NCR Corporation, Blackstone BCP VI SBS ESC Holdco L.P.,Blackstone NCR Holdco L.P., BTO NCR Holdings - ESC L.P., and BTO NCR Holdings L.P. (Exhibit 10.1 to the Quarterly Report on Form10-Q of NCR Corporation for the quarter ended March 31, 2017 (the “First Quarter 2017 Quarterly Report”)). 10.33 Waiver and Amendment of Investment Agreement, dated as of March 13 2017, by and between NCR Corporation, Blackstone BCP VI SBSESC Holdco L.P., Blackstone NCR Holdco L.P., BTO NCR Holdings - ESC L.P. and BTG NCR Holdings L.P. (Exhibit 10.2 to the FirstQuarter 2017 Quarterly Report). 10.34 NCR Corporation 2017 Stock Incentive Plan (the “2017 Stock Incentive Plan”) (Appendix B to the 2017 Proxy Statement). * 10.34.1 Form of 2017 Performance-Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan and 2017 Stock IncentivePlan (Exhibit 10.3 to the First Quarter 2017 Quarterly Report). * 10.34.2 Form of 2017 Performance-Vesting Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan and 2017 Stock IncentivePlan (Exhibit 10.4 to the First Quarter 2017 Quarterly Report). * 10.34.3 Form of 2017 Time-Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan and 2017 Stock Incentive Plan(Exhibit 10.5 to the First Quarter 2017 Quarterly Report). * 10.34.4 Form of 2017 Single-Metric Performance-Based Restricted Stock Unit Award Agreement under the 2013 Stock Incentive Plan and 2017Stock Incentive Plan (Exhibit 10.6 to the First Quarter 2017 Quarterly Report). * 128Table of Contents10.34.5 Form of 2017 Director Restricted Stock Unit Grant Statement under the 2013 Stock Incentive Plan and 2017 Stock Incentive Plan (Exhibit10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended June 30, 2017 (the “Second Quarter 2017 QuarterlyReport”)). * 10.34.6 Form of 2017 Stock Option Award Agreement under the 2013 Stock Incentive Plan and 2017 Stock Incentive Plan (Exhibit 10.2 to theSecond Quarter 2017 Quarterly Report). * 10.34.7 Form of 2018 Director Restricted Stock Unit Grant Statement under the 2017 Stock Incentive Plan (Exhibit 10.3 to the Quarterly Report onForm 10-Q of NCR Corporation for the quarter ended June 30, 2018 (the "Second Quarter 2018 Quarterly Report")). * 10.34.8 Form of 2018 Stock Option Award Agreement under the NCR Corporation 2017 Stock Incentive Plan (the "2017 Stock Incentive Plan")(Exhibit 10.1 to the Quarterly Report on Form 10-Q of NCR Corporation for the quarter ended March 31, 2018). * 10.34.9 Form of 2018 Time-Based Restricted Stock Unit Award Agreement under the 2017 Stock Incentive Plan (Exhibit 10.2 to the QuarterlyReport on Form 10-Q of NCR Corporation for the quarter ended March 31, 2018). * 10.34.10 Form of 2018 Performance-Vesting Restricted Stock Unit Award Agreement under the 2017 Stock Incentive Plan (Exhibit 10.3 to theQuarterly Report on Form 10-Q of NCR Corporation for the quarter ended March 31, 2018). * 10.34.11 Form of 2018 Performance-Based Restricted Stock Unit Award Agreement under the 2017 Stock Incentive Plan (Exhibit 10.4 to theQuarterly Report on Form 10-Q of NCR Corporation for the quarter ended March 31, 2018). * 10.35 NCR Director Compensation Program effective May 1, 2017 (Exhibit 10.1 to the Second Quarter 2017 Quarterly Report). * 10.36 Master Manufacturing Agreement, dated April 23, 2018, by and between Jabil Inc. and NCR Corporation. (Exhibit 10.1 to the SecondQuarter 2018 Quarterly Report). 10.37 Master Hardware Supply Agreement, dated June 28, 2018, between Universal Global Scientific Industrial Co., Ltd. and NCR Corporation.(Exhibit 10.2 to the Second Quarter 2018 Quarterly Report). 10.38 Employment Agreement, dated April 27, 2018, between Michael Hayford and NCR Corporation. (Exhibit 10.4 to the Second Quarter 2018Quarterly Report). * 10.39 Employment Agreement, dated April 27, 2018, between Frank Martire and NCR Corporation. (Exhibit 10.5 to the Second Quarter 2018Quarterly Report). * 10.40 Letter Agreement, dated April 30, 2018 between William R. Nuti and NCR Corporation. (Exhibit 10.6 to the Second Quarter 2018Quarterly Report). * 10.41 Letter Agreement, dated May 2, 2018, between Paul E. Langenbahn and NCR Corporation. (Exhibit 10.7 to the Second Quarter 2018Quarterly Report). * 10.42 Letter Agreement, dated March 19, 2018, between Mark D. Benjamin and NCR Corporation. (Exhibit 10.8 to the Second Quarter 2018Quarterly Report). * 10.43 Employment Agreement, dated July 18, 2018, between Owen Sullivan and NCR Corporation. (Exhibit 10.1 to the Quarterly Report onForm 10-Q of NCR Corporation for the quarter ended September 30, 2018 (the "Third Quarter 2018 Quarterly Report")). * 10.44 Amendment, effective as of July 26, 2018, to Employment Agreement, dated May 2, 2018, between Paul Langenbahn and NCRCorporation. (Exhibit 10.2 to the Third Quarter 2018 Quarterly Report). * 10.45 Employment Agreement, dated August 27, 2018, between Andre J. Fernandez and NCR Corporation. (Exhibit 10.3 to the Third Quarter2018 Quarterly Report). * 21 Subsidiaries of NCR Corporation. 23.1 Consent of Independent Registered Public Accounting Firm. 129Table of Contents31.1 Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934. 31.2 Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934. 32 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Tax Opinion of Wachtell, Lipton, Rosen & Katz in connection with the Spin off of Teradata, dated August 27, 2007 (Exhibit 99.2 to theCurrent Report on Form 8-K of NCR Corporation dated September 30, 2007). 101 Financials in XBRL Format.* Management contracts or compensatory plans/arrangements130Table of ContentsItem 16.FORM 10-K SUMMARYNone.NCR CorporationSCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS(In millions)Column A Column B Column C Column D Column E Additions Description Balance atBeginning ofPeriod Charged toCosts &Expenses Charged toOther Accounts Deductions Balance at Endof PeriodYear Ended December 31, 2018 Allowance for doubtful accounts $37 $14 $— $20 $31Deferred tax asset valuation allowance $415 $100 $— $30 $485 Year Ended December 31, 2017 Allowance for doubtful accounts $41 $10 $— $14 $37Deferred tax asset valuation allowance $445 $— $— $30 $415 Year Ended December 31, 2016 Allowance for doubtful accounts $47 $9 $— $15 $41Deferred tax asset valuation allowance $346 $— $99 $— $445131Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. NCR CORPORATION Date:February 28, 2019By: /s/ Andre J. Fernandez Andre J. FernandezExecutive Vice President and Chief Financial OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the date indicated. SignatureTitle /s/ Frank R. MartireExecutive Chairman Frank R. Martire /s/ Michael D. HayfordPresident and Chief Executive Officer, and Director Michael D. Hayford /s/ Andre J. FernandezExecutive Vice President and Chief Financial Officer Andre J. Fernandez(Principal Financial and Accounting Officer) /s/ Gregory R. BlankDirector Gregory R. Blank /s/ Chinh E. ChuDirector Chinh E. Chu /s/ Richard L. ClemmerDirector Richard L. Clemmer /s/ Robert P. DeRodesDirector Robert P. DeRodes /s/ Deborah A. FarringtonDirector Deborah A. Farrington /s/ Kurt P. KuehnDirector Kurt P. Kuehn /s/ Linda Fayne LevinsonDirector Linda Fayne Levinson /s/ Matthew ThompsonDirector Matthew Thompson Date:February 28, 2019 132EXECUTION VERSIONSECOND AMENDMENT TO THE RECEIVABLES FINANCING AGREEMENTThis SECOND AMENDMENT TO THE RECEIVABLES FINANCING AGREEMENT (this “Amendment”), dated as ofSeptember 29, 2017, is entered into by and among the following parties:(i) NCR RECEIVABLES, LLC, a Delaware limited liability company, as Borrower(together with its successors and assigns, the “Borrower”);(ii) NCR CORPORATION, a Maryland corporation (the “Servicer”), as initialServicer;(iii) THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH, as a Committed Lender and as a GroupAgent;(iv) VICTORY RECEIVABLES CORPORATION, as a Conduit Lender; and(v) PNC BANK, NATIONAL ASSOCIATION, as a Committed Lender, as a Group Agent and as the Administrative Agent(in such capacity, the “Administrative Agent”).Capitalized terms used but not otherwise defined herein (including such terms used above) have the respective meaningsassigned thereto in the Receivables Financing Agreement described below.BACKGROUND1. The parties hereto have entered into a Receivables Financing Agreement, dated as of November 21, 2014 (as amended,amended and restated, supplemented or otherwise modified through the date hereof, the “Receivables Financing Agreement”).2. The parties hereto desire to amend the Receivables Financing Agreement as set forth herein.NOW, THEREFORE, with the intention of being legally bound hereby, and in consideration of the mutual undertakingsexpressed herein, each party to this Amendment hereby agrees as follows:SECTION 1. Amendments to the Receivables Financing Agreement. The ReceivablesFinancing Agreement is hereby amended as follows:(a) The following new defined term is added to Section 1.01 of theReceivables Financing Agreement in appropriate alphabetical order:“Excluded Digital Insight Receivable” means any Receivable (as defined without giving effect to the proviso inthe definition thereof) originated by NCRthat is identified in the Servicer’s accounting system with ORG code “201100037, FIN RF DIG INSIGHT SALES”.(b) The definition of “Receivable” set forth in Section 1.01 of the ReceivablesFinancing Agreement is restated in its entirety as follows:“Receivable” means any right to payment of a monetary obligation owed to any Originator or the Borrower (asassignee of an Originator), whether constituting an account, chattel paper, payment intangible, instrument or generalintangible, in each instance arising in connection with the sale of goods, for services rendered or the license ofsoftware, and includes, without limitation, the obligation to pay any finance charges, fees and other charges withrespect thereto; provided, however, that “Receivable” does not include any Excluded Digital Insight Receivable. Anysuch right to payment arising from any one transaction, including, without limitation, any such right to paymentrepresented by an individual invoice or agreement, shall constitute a Receivable separate from a Receivable consistingof any such right to payment arising from any other transaction.SECTION 2. Representations and Warranties of the Borrower and Servicer. The Borrower and the Servicer hereby representand warrant to each of the parties hereto as of the date hereof as follows:(a) Representations and Warranties. The representations and warranties made by it in Section 6.01 or Section 6.02, asapplicable, of the Receivables Financing Agreement are true and correct on and as of the date hereof unless suchrepresentations and warranties by their terms refer to an earlier date, in which case they shall be true and correct on and as ofsuch earlier date.(b) Power and Authority; Due Authorization. It (i) has all necessary power and authority to (A) execute and deliverthis Amendment, the Receivables Financing Agreement and the other Transaction Documents to which it is a party and (B)perform its obligations under this Amendment, the Receivables Financing Agreement and the other Transaction Documents towhich it is a party and (ii) the execution, delivery and performance of, and the consummation of the transactions provided forin, this Amendment, the Receivables Financing Agreement and the other Transaction Documents to which it is a party havebeen duly authorized by it by all necessary limited liability company action or corporate action, as applicable.(c) Binding Obligations. This Amendment, the Receivables Financing Agreement and each of the other TransactionDocuments to which it is a party constitutes its legal, valid and binding obligations, enforceable against it in accordance withtheir respective terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization,moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) as such enforceability may belimited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or atlaw.(d) No Termination Event. No Termination Event or Unmatured Termination Event has occurred and is continuing,and no Termination Event or Unmatured Termination Event would result from this Amendment.SECTION 3. Effect of Amendment; Ratification. All provisions of the Receivables Financing Agreement and the otherTransaction Documents, as expressly amended and modified by this Amendment, shall remain in full force and effect. After thisAmendment becomes effective, all references in the Receivables Financing Agreement (or in any other Transaction Document) to“this Receivables Financing Agreement”, “this Agreement”, “hereof”, “herein” or words of similar effect referring to the ReceivablesFinancing Agreement shall be deemed to be references to the Receivables Financing Agreement as amended by this Amendment.This Amendment shall not be deemed, either expressly or impliedly, to waive, amend or supplement any provision of the ReceivablesFinancing Agreement other than as set forth herein. The Receivables Financing Agreement, as amended by this Amendment, ishereby ratified and confirmed in all respects.SECTION 4. Conditions to Effectiveness. This Amendment shall become effective as of the date hereof upon theAdministrative Agent’s receipt of counterparts to this Amendment executed by each of the parties hereto.SECTION 5. Severability. Any provisions of this Amendment which are prohibited or unenforceable in any jurisdiction shall,as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remainingprovisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable suchprovision in any other jurisdiction.SECTION 6. Transaction Document. This Amendment shall be a TransactionDocument for purposes of the Receivables Financing Agreement.SECTION 7. Counterparts. This Amendment may be executed in any number of counterparts and by different parties onseparate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shallconstitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimileor e-mail transmission shall be effective as delivery of a manually executed counterpart hereof.SECTION 8. GOVERNING LAW AND JURISDICTION.(a) THIS AMENDMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BEGOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK(INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEWYORK, BUT WITHOUT REGARD TO ANY OTHER CONFLICTS OF LAW PROVISIONS THEREOF, EXCEPT TO THEEXTENT THAT THE PERFECTION, THE EFFECT OF PERFECTION OR PRIORITY OF THE INTERESTS OFADMINISTRATIVE AGENT OR ANY LENDER IN THE COLLATERAL IS GOVERNED BY THE LAWS OF AJURISDICTION OTHER THAN THE STATE OF NEW YORK).(b) EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO (I) WITH RESPECT TO THE BORROWERAND THE SERVICER, THE EXCLUSIVE JURISDICTION, AND (II) WITH RESPECT TO EACH OF THE OTHERPARTIES HERETO, THE NON-EXCLUSIVE JURISDICTION, IN EACH CASE, OF ANY NEW YORK STATE ORFEDERAL COURT SITTING IN NEW YORK CITY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUTOF OR RELATING TO THIS AMENDMENT, AND EACH PARTY HERETOHEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING (I) IFBROUGHT BY THE BORROWER, THE SERVICER OR ANY AFFILIATE THEREOF, SHALL BE HEARD ANDDETERMINED, AND (II) IF BROUGHT BY ANY OTHER PARTY TO THIS AMENDMENT, MAY BE HEARD ANDDETERMINED, IN EACH CASE, IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW,IN SUCH FEDERAL COURT. NOTHING IN THIS SECTION 8 SHALL AFFECT THE RIGHT OF THEADMINISTRATIVE AGENT OR ANY OTHER CREDIT PARTY TO BRING ANY ACTION OR PROCEEDING AGAINSTTHE BORROWER OR THE SERVICER OR ANY OF THEIR RESPECTIVE PROPERTY IN THE COURTS OF OTHERJURISDICTIONS. EACH OF THE BORROWER AND THE SERVICER HEREBY IRREVOCABLY WAIVES, TO THEFULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THEMAINTENANCE OF SUCH ACTION OR PROCEEDING. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENTIN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHERJURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.SECTION 9. Section Headings. The various headings of this Amendment are included for convenience only and shall notaffect the meaning or interpretation of this Amendment, the Receivables Financing Agreement or any provision hereof or thereof.[Signature pages follow.]IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.NCR RECEIVABLES LLC, as the BorrowerBy: /s/ Richard P. McKenzie 29/9/17Name: Richard P. McKenzieTitle: Vice President NCR ReceivablesNCR CORPORATION,as the ServicerBy: /s/ John Boudreau 29/9/17Name: John BoudreauTitle: Treasurer NCR CorporationS-1Second Amendment toReceivables Financing Agreement (N C R)PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent By: /s/ Eric BrunoName: Eric BrunoTitle: Senior Vice PresidentPNC BANK, NATIONAL ASSOCIATION, as a Group AgentBy: /s/ Eric BrunoName: Eric BrunoTitle: Senior Vice PresidentPNC BANK, NATIONAL ASSOCIATION, as a Committed LenderBy: /s/ Eric BrunoName: Eric BrunoTitle: Senior Vice PresidentS-2Second Amendment toReceivables Financing Agreement (NCR)THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH,as a Committed LenderBy: /s/ Christopher Pohl _Name: Christopher PohlTitle: Managing DirectorTHE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH,as a Group AgentBy: /s/ Christopher Pohl _Name: Christopher PohlTitle: Managing DirectorVICTORY RECEIVABLES CORPORATION, as a Conduit LenderBy: /s/ David V. DeAngelis _Name: David V. DeAngelisTitle: Vice PresidentS-3Second Amendment toReceivables Financing Agreement (NCR)As of the date first set forth above, NCR Corporation, in its capacity as Originator under the Purchase and Sale Agreement, and NCRReceivables LLC, in its capacity as Buyer under the Purchase and Sale Agreement, hereby acknowledge this Amendment and agree to be bound bythe terms of this Amendment to the extent such terms amend the provisions of the Purchase and Sale Agreement. In furtherance of the foregoing,Originator agrees it shall not sell and/or contribute, and Buyer agrees it shall not purchase and/or receive, any Excluded Digital Insight Receivablespursuant to the Purchase and Sale Agreement.NCR CORPORATION, as OriginatorBy: /s/ John Boudreau 29/9/17Name: John BoudreauTitle: Treasurer NCR CorporationNCR RECEIVABLES LLC, as Buyer By: /s/ Richard P. McKenzie 29/9/17Name: Richard P. McKenzieTitle: Vice President NCR ReceivablesS-4Second Amendment toReceivables Financing Agreement (N C R)EXHIBIT 21SUBSIDIARIES OF NCR CORPORATIONas of February 22, 2018 Organized under the Laws ofData Pathing Holding LLCDelawareJetPay CorporationDelawareNCR EasyPoint LLCDelawareNCR European and South American Holdings LLCDelawareNCR Government Systems LLCDelawareNCR Indonesia LLCDelawareNCR International, Inc.DelawareNCR Italia Holdings LLCDelawareNCR Latin American Holdings LLCDelawareNCR Middle East Holdings, LLCDelawareNCR Poland LLCDelawareNCR Solutions (Middle East) LLCDelawareNCR Receivables LLCDelawareNorth American Research CorporationDelawareQuantor Holding LLCDelawareNCR Foreign Investco, LLCDelawareNCR Foreign Investco 1, LLCDelawareStopLift, Inc.DelawareJetPay Payment Services, FL, LLCFloridaRadiant Payment Services, LLCGeorgiaThe National Cash Register CompanyMarylandJetPay HR & Payroll Services, Inc.PennsylvaniaJetPay Payment Services, PA, LLCPennsylvaniaJetPay Tax Filing Services, Inc.PennsylvaniaJetPay Payment Services, TX, LLCTexasTCR Business Systems, Inc.TexasTexas Digital Systems, Inc.TexasNCR Argentina S.R.L.ArgentinaNCR Australia Pty, Ltd.AustraliaQuest Retail Technology Pty LtdAustraliaRadiant Systems Asia-Pacific Pty Ltd.AustraliaRetalix Australia PTY Ltd.AustraliaRADS Australia Holdings Pty LtdAustraliaNCR Oesterreich Ges.m.b.H.AustriaOrderman GmbHAustriaRadiant Systems GmbHAustriaNCR (Bahrain) W.L.L.BahrainNCR Hospitality Bahrain SPCBahrainNCR Belgium & Co. SNCBelgiumGlobal Assurance LimitedBermudaNCR (Bermuda) Holdings LimitedBermudaNCR Bermuda (2006) LimitedBermudaNCR Services LimitedBermudaNCR Treasury Finance LimitedBermudaNCR Treasury Financing LimitedBermudaNCR d.o.o. Banja LukaBosniaNCR Brasil – Industria de Equipamentos para Automacao S.A.BrazilNCR Brasil LtdaBrazilWyse Sistemas de Informatica LtdaBrazilNCR Canada Corp.CanadaNCR Chile Industrial y Comercial LimitadaChileNCR Comercial E Inversiones LimitadaChileNCR (Beijing) Financial Equipment System Co., Ltd.ChinaNCR (Guangzhou) Technology Co., Ltd.ChinaNCR (Shanghai) Technology Services Ltd.ChinaRetalix Technology (Beijing) Co. Ltd.ChinaNCR Columbia LtdaColumbiaPapeles y Suministros del Cuaca S.A. (Joint Venture)ColumbiaNCR (Cyprus) LimitedCyprusNCR (Middle East) LimitedCyprusNCR (North Africa) LimitedCyprusNCR Ceska Republika spol. S.r.o.Czech RepublicNCR Danmark A/SDenmarkNCR Dominicana SRLDominican RepublicNCR Finland OYFinland4Front Technologies SA FranceFranceNCR France, SNCFranceNCR Antilles S.A.R.L.French W.I.NCR GmbHGermanyNCR Ghana LimitedGhanaNCR (Hellas) S.A.GreeceNCR (Hong Kong) LimitedHong KongNCR Magyarorszag Kft.HungaryNCR Corporation India Private LimitedIndiaDigital Insight India Products Private LimitedIndiaStopLift Infotech Private LimitedIndiaPT. NCR IndonesiaIndonesiaNCR Global Holdings LimitedIrelandNCR Global Solutions LimitedIrelandNCR Israel Ltd.IrelandNCR Global Ltd.IsraelMoon Holdings S.P.V Ltd.IsraelTamar Industries M.R. Electronic Ltd.IsraelNCR Italia S.r.l.IsraelNCR Japan, Ltd.ItalyNCR (Kenya) LimitedJapanNCR Korea Co Ltd.KenyaNCR International SNCKoreaNCR International 2 SNCLuxembourgRADS International SARLLuxembourgOrderman S.Á.R.L.LuxembourgNCR (Macau) LimitedLuxembourgNCR Payments and Services Malaysia Sdn BhdMacauNCR (Malaysia) Sdn BhdMalaysiaRadiant Systems Retail Solutions Sdn BhdMalaysiaTricubes NCR JV Sdn BhdMalaysiaNCR de Mexico S. de R.L. de C.V.MalaysiaNCR Solutions de Mexico S. de R.L. de C.V.MexicoGlobal Acquisition C.V.MexicoKeynesplein Holding C.V.NetherlandsNCR Dutch Holdings B.VNetherlandsNCR Dutch Holdings C.V.NetherlandsNCR Nederland B.V.NetherlandsNCR (NZ) CorporationNew ZealandNCR (Nigeria) PLCNigeriaNCR Norge ASNorwayNCR Corporation de Centroamerica S.A.PanamaNCR del Peru S.A.PeruNCR Cebu Development Center, Inc.PhilippinesNCR Corporation (Philippines)PhilippinesNCR Polska Sp.z.o.o.PolandNCR Iberia Unipessoal, LdaPortugalNCR Qatar LLCQatarNCR A/ORussiaNCR d.o.o. BeogradSerbiaNCR Asia Pacific Pte LimitedSingaporeNCR Singapore Pte LtdSingaporeRadiant Systems Retail Solutions Pte Ltd.SingaporeNCR International (South Africa) (Pty) Ltd.South AfricaNCR Espana, S.L.SpainOrderman Iberica S.L.SpainIber Aloha S.L.SpainNational Registrierkassen AGSwitzerlandNCR (Switzerland) GmbHSwitzerlandNCR Systems Taiwan Ltd.TaiwanNCR (Thailand) LimitedThailandRadiant Systems Co. Ltd.ThailandNCR Bilisim Sistemleri, LSTurkeyNCR Ukraine LimitedUkraineNCR Financial Solutions Group LimitedUnited KingdomNCR LimitedUnited KingdomNCR UK Group LimitedUnited KingdomRadiant Systems UK (II) LimitedUnited KingdomRadiant Systems LimitedUnited KingdomN. Timms & Co (Private) LtdZimbabweNCR Zimbabwe (Private) LtdZimbabweCONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-210457) and S-8 (Nos. 333-18797, 333-139553,333-215248 and 333-217574) of NCR Corporation of our report dated February 28, 2019 relating to the financial statements and financial statementschedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPAtlanta, GeorgiaFebruary 28, 2019Exhibit 31.1CERTIFICATIONI, Michael D. Hayford, certify that:1. I have reviewed this Annual Report on Form 10-K of NCR Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date:February 28, 2019 /s/ Michael D. Hayford Michael D. Hayford President and Chief Executive OfficerExhibit 31.2CERTIFICATIONI, Andre J. Fernandez, certify that:1. I have reviewed this Annual Report on Form 10-K of NCR Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date:February 28, 2019 /s/ Andre J. Fernandez Andre J. Fernandez Executive Vice President and Chief Financial OfficerExhibit 32CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of NCR Corporation, a Maryland corporation (the “Company”) for the period ending December 31,2018 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company doeshereby certify, pursuant to 18 U.S.C. § 1350 (section 906 of the Sarbanes-Oxley Act of 2002), that:(1)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.The foregoing certification (i) is given to such officers’ knowledge, based upon such officers’ investigation as such officers reasonably deemappropriate; and (ii) is being furnished solely pursuant to 18 U.S.C. § 1350 (section 906 of the Sarbanes-Oxley Act of 2002) and is not being filed as part ofthe Report or as a separate disclosure document.Dated:February 28, 2019 /s/ Michael D. Hayford Michael D. Hayford President and Chief Executive OfficerDated:February 28, 2019 /s/ Andre J. Fernandez Andre J. Fernandez Executive Vice President and Chief Financial OfficerA signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signaturesthat appear in typed form within the electronic version of this written statement required by Section 906, has been provided to NCR Corporation and will beretained by NCR Corporation and furnished to the United States Securities and Exchange Commission or its staff upon request.

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