NCR CORP | 2013 | FY | 3

2. PENSION BENEFIT PLAN ACCOUNTING METHODOLOGY CHANGES

Effective in the first quarter of 2013, we elected to change our accounting methodology for recognizing costs for all of our company-sponsored U.S. and international pension benefit plans. Previously, net actuarial gains or losses (except those differences not yet reflected in the market-related value) were only amortized to the extent that they exceeded 10% of the higher of the market-related value or the projected benefit obligation of each respective plan. Beginning in 2012, the losses associated with the U.S. qualified pension plan and our largest UK pension plan were amortized over the expected remaining lifetime of plan participants instead of the expected service period of active plan participants, because almost all of the participants were inactive. For our other U.S. and international plans, the gains or losses were amortized over the expected service period of the active plan participants. Further, the expected return on plan assets component of pension expense for our U.S. pension plan was previously determined using the expected rate of return and a calculated value of assets, referred to as the “market-related value.” Differences between the assumed and actual returns were reflected in market-related value on a straight-line basis over a 5-year period. Differences in excess of 10% of the market value were recognized immediately. Similar approaches were employed in determining expense for NCR's international plans.

Under our new pension accounting methods, we will recognize changes in the fair value of plan assets and net actuarial gains or losses upon remeasurement, which is at least annually in the fourth quarter of each year. These new accounting methods will result in changes in the fair value of plan assets and net actuarial gains and losses being recognized in expense faster than under our previous amortization method. The remaining components of pension expense, primarily net service cost, interest cost, and the expected return on plan assets, will be recorded on a quarterly basis as ongoing pension expense. While our previous policy of recognizing pension expense was acceptable, we believe that these new policies are preferable as they accelerate the recognition in our operating results of changes in the fair value of plan assets and actuarial gains and losses.

These changes have been reported through retrospective application of the new policies to all periods presented. We recorded a cumulative reduction of retained earnings as of December 31, 2010 (the most recent measurement date prior to the change) of $1,297 million related to these changes in accounting methodology. The impact of all adjustments made to the financial statements presented is summarized below (amounts in millions, except per share data):
In millions, except per share amounts
2013
 
2012
 
2011
 
Previous Accounting Method
 
As Reported
 
Previously Reported
 
Adjusted
 
Previously Reported
 
Adjusted
 
Consolidated Statements of Operations:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of products
$
2,164

 
$
2,152

 
$
2,177

 
$
2,144

 
$
2,011

 
$
2,022

 
Cost of services
2,403

 
2,231

 
2,208

 
1,941

 
2,098

 
2,318

 
Selling, general and administrative expenses
957

 
871

 
894

 
742

 
794

 
890

 
Research and development expenses
236

 
203

 
219

 
155

 
176

 
209

 
Total operating expenses
5,760

 
5,457

 
5,498

 
4,982

 
5,079

 
5,439

 
Income (loss) from operations
363

 
666

 
232

 
748

 
212

 
(148
)
 
Income (loss) from continuing operations before income taxes
251

 
554

 
182

 
698

 
196

 
(164
)
 
Income tax expense (benefit)
6

 
98

 
42

 
223

 
51

 
(66
)
 
Income (loss) from continuing operations
245

 
456

 
140

 
475

 
145

 
(98
)
 
Net income (loss)
236

 
447

 
146

 
481

 
52

 
(191
)
 
Net income (loss) attributable to NCR
$
232

 
$
443

 
$
146

 
$
481

 
$
53

 
$
(190
)
 
Amounts attributable to NCR common stockholders:

 

 

 

 

 

 
Income (loss) from continuing operations
241

 
452

 
140

 
475

 
146

 
(97
)
 
Income (loss) per share attributable to NCR common stockholders:

 

 

 

 

 

 
Income (loss) per common share from continuing operations

 

 

 

 

 

 
Basic
$
1.46

 
$
2.73

 
$
0.88

 
$
2.98

 
$
0.92

 
$
(0.61
)
 
Diluted
$
1.42

 
$
2.67

 
$
0.85

 
$
2.90

 
$
0.91

 
$
(0.61
)
 
Net income (loss) per common share

 

 

 

 

 

 
Basic
$
1.40

 
$
2.68

 
$
0.92

 
$
3.02

 
$
0.34

 
$
(1.20
)
 
Diluted
$
1.37

 
$
2.62

 
$
0.89

 
$
2.94

 
$
0.33

 
$
(1.20
)
 
Consolidated Statements of Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
236

 
$
447

 
$
146

 
$
481

 
$
52

 
$
(191
)
 
Employee benefit plans
 
 
 
 
 
 
 
 
 
 
 
 
Net gain (loss) arising during the year
219

 
82

 
91

 
—

 
(425
)
 
24

 
Amortization of actuarial loss
174

 
8

 
255

 
14

 
212

 
17

 
Less income tax (expense) benefit
(109
)
 
(17
)
 
(148
)
 
1

 
67

 
(20
)
 
Other comprehensive (loss) income
203

 
(8
)
 
241

 
(22
)
 
(155
)
 
21

 
Total comprehensive income (loss)
439

 
439

 
387

 
459

 
(103
)
 
(170
)
 
Comprehensive income (loss) attributable to NCR common stockholders
$
442

 
$
442

 
$
391

 
$
463

 
$
(104
)
 
$
(171
)
 
 
December 31, 2013
 
December 31, 2012
Consolidated Balance Sheets:
Previous Accounting Method
 
As Reported
 
Previously Reported
 
Adjusted
Retained earnings
2,312

 
1,372

 
2,134

 
929

Accumulated other comprehensive loss
(978
)
 
(38
)
 
(1,247
)
 
(37
)


Consolidated Statements of Cash Flows:
2013
 
2012
 
2011
Previous Accounting Method
 
As Reported
 
Previously Reported
 
Adjusted
 
Previously Reported
 
Adjusted
Net income (loss)
236

 
447

 
146

 
481

 
52

 
(191
)
Deferred income taxes
(89
)
 
3

 
(37
)
 
144

 
(13
)
 
(130
)
Pension and indemnity plans
(94
)
 
(397
)
 
(478
)
 
(994
)
 
92

 
452

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