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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-33458
TERADATA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-3236470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17095 Via Del Campo
San Diego, California 92127
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (866548-8348
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:Trading SymbolName of Each Exchange on which Registered:
Common Stock, $0.01 par valueTDCNew York Stock Exchange
Indicate 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 of 1934 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 filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of 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  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý  Accelerated filer ¨
Non-accelerated filer ¨  Smaller reporting company 
  Emerging growth company 
1


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No  ý
At October 31, 2022, the registrant had approximately 101.8 million shares of common stock outstanding.
2



TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
 
  
DescriptionPage
Item 1.Financial Statements
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
  
DescriptionPage
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
3

Part 1—FINANCIAL INFORMATION
A
Item 1.Financial Statements.
Teradata Corporation
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended
September 30,
Nine Months Ended September 30,
In millions, except per share amounts2022202120222021
Revenue
Subscription software licenses$59 $64 $217 $238 
Services and other272 288 845 862 
Total recurring331 352 1,062 1,100 
Perpetual software licenses, hardware and other14 18 48 58 
Consulting services72 90 233 284 
Total revenue417 460 1,343 1,442 
Cost of revenue
Subscription software licenses5 2 17 10 
Services and other87 93 276 262 
Total recurring92 95 293 272 
Perpetual software licenses, hardware and other10 12 34 34 
Consulting services56 78 198 244 
Total cost of revenue158 185 525 550 
Gross profit259 275 818 892 
Operating expenses
Selling, general and administrative expenses155 166 475 476 
Research and development expenses79 79 236 235 
Total operating expenses234 245 711 711 
Income from operations25 30 107 181 
Other expense, net
Interest expense(6)(6)(17)(20)
Interest income4 1 9 4 
Other expense(13)(6)(34)(15)
Total other expense, net(15)(11)(42)(31)
Income before income taxes10 19 65 150 
Income tax expense2 2 25 36 
Net income$8 $17 $40 $114 
Net income per common share
Basic$0.08 $0.16 $0.39 $1.05 
Diluted$0.08 $0.15 $0.38 $1.01 
Weighted average common shares outstanding
Basic102.7 108.9 103.7 108.9 
Diluted104.7 113.4 106.4 113.1 
See Notes to Condensed Consolidated Financial Statements (Unaudited).

4


Teradata Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended
September 30,
Nine Months Ended September 30,
In millions2022202120222021
Net income$8 $17 $40 $114 
Other comprehensive income (loss):
Foreign currency translation adjustments(23)(10)(48)(11)
Unrealized gain on cross-currency net investment hedge, before tax9  8  
Unrealized gain on cross-currency net investment hedge, tax portion(2) (2) 
Total currency translation adjustments(16)(10)(42)(11)
Derivatives:
Unrealized gain on derivatives, before tax21 3 26 10 
Unrealized gain on derivatives, tax portion(5)(1)(6)(3)
Unrealized gain on derivatives, net of tax16 2 20 7 
Defined benefit plans:
Defined benefit plan adjustment, before tax2 3 7 8 
Defined benefit plan adjustment, tax portion (1)(2)(2)
Defined benefit plan adjustment, net of tax2 2 5 6 
Other comprehensive income (loss)2 (6)(17)2 
Comprehensive income$10 $11 $23 $116 
See Notes to Condensed Consolidated Financial Statements (Unaudited).

5

Teradata Corporation
Condensed Consolidated Balance Sheets (Unaudited)
In millions, except per share amountsSeptember 30,
2022
December 31,
2021
Assets
Current assets
Cash and cash equivalents$506 $592 
Accounts receivable, net253 336 
Inventories13 26 
Other current assets83 152 
Total current assets855 1,106 
Property and equipment, net234 288 
Right of use assets - operating lease, net15 26 
Goodwill385 396 
Capitalized contract costs, net88 111 
Deferred income taxes192 202 
Other assets49 40 
Total assets$1,818 $2,169 
Liabilities and stockholders’ equity
Current liabilities
Current portion of long-term debt$ $88 
Current portion of finance lease liability66 77 
Current portion of operating lease liability8 12 
Accounts payable79 67 
Payroll and benefits liabilities110 148 
Deferred revenue462 552 
Other current liabilities78 89 
Total current liabilities803 1,033 
Long-term debt498 324 
Finance lease liability45 53 
Operating lease liability11 18 
Pension and other postemployment plan liabilities127 138 
Long-term deferred revenue14 27 
Deferred tax liabilities6 7 
Other liabilities79 109 
Total liabilities1,583 1,709 
Commitments and contingencies (Note 8)
Stockholders’ equity
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
  
Common stock: par value $0.01 per share, 500.0 shares authorized, 102.2 and 107.2 shares issued at September 30, 2022 and December 31, 2021, respectively
1 1 
Paid-in capital1,908 1,808 
Accumulated deficit(1,519)(1,211)
Accumulated other comprehensive loss(155)(138)
Total stockholders’ equity235 460 
Total liabilities and stockholders’ equity$1,818 $2,169 
See Notes to Condensed Consolidated Financial Statements (Unaudited).
6

Teradata Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
 Nine Months Ended September 30,
In millions20222021
Operating activities
Net income$40 $114 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization101113
Stock-based compensation expense90 79 
Deferred income taxes(7)10 
Changes in assets and liabilities:
Receivables83 41 
Inventories13 12 
Current payables and accrued expenses(22)45 
Deferred revenue(103)(45)
Other assets and liabilities95 (1)
Net cash provided by operating activities290 368 
Investing activities
Expenditures for property and equipment(6)(19)
Additions to capitalized software(1)(2)
Net cash used in investing activities(7)(21)
Financing activities
Repurchases of common stock(346)(176)
Proceeds from long-term borrowings500  
Repayments of long-term borrowings(413)(32)
Payments of finance leases(67)(68)
Other financing activities, net6 24 
Net cash used in financing activities(320)(252)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(49)(11)
(Decrease) increase in cash, cash equivalents and restricted cash
(86)84 
Cash, cash equivalents and restricted cash at beginning of period595 533 
Cash, cash equivalents and restricted cash at end of period$509 $617 
Supplemental cash flow disclosure:
Assets acquired under operating lease$3 $9 
Assets acquired under finance lease$47 $62 
Annual variable incentive payout settled in equity$ $17 
Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets:
September 30, 2022December 31, 2021
Cash and cash equivalents$506 $592 
Restricted cash3 3 
Total cash, cash equivalents and restricted cash$509 $595 

See Notes to Condensed Consolidated Financial Statements (Unaudited).
7

Teradata Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
Common StockPaid-inAccumulated Accumulated Other Comprehensive 
In millionsSharesAmountCapitalDeficitLossTotal
December 31, 2021107 $1 $1,808 $(1,211)$(138)$460 
Net income— — — 36 — 36 
Employee stock compensation, employee stock purchase programs and option exercises, net of tax3 — 34 — — 34 
Repurchase of common stock, not yet settled— — (50)— — (50)
Repurchases of common stock, retired(5)— — (250)— (250)
Pension and postemployment benefit plans, net of tax— — — — 2 2 
Unrealized gain on derivatives, net of tax— — — — 6 6 
Currency translation adjustment— — — — (1)(1)
March 31, 2022105 $1 $1,792 $(1,425)$(131)$237 
Net loss— — — (4)— (4)
Employee stock compensation, employee stock purchase programs and option exercises, net of tax— — 32 — — 32 
Repurchase of common stock, settled— — 50 — — 50 
Repurchases of common stock, retired(2)— — (67)— (67)
Pension and postemployment benefit plans, net of tax— — — — 1 1 
Unrealized loss on derivatives, net of tax— — — — (2)(2)
Currency translation adjustments— — — — (25)(25)
June 30, 2022103 $1 $1,874 $(1,496)$(157)$222 
Net income— — — 8 — 8 
Employee stock compensation, employee stock purchase programs and option exercises, net of tax— — 34 — — 34 
Repurchases of common stock, retired(1)— — (31)— (31)
Pension and postemployment benefit plans, net of tax— — — — 2 2 
Unrealized gain on derivatives, net of tax— — — — 16 16 
Currency translation adjustment— — — — (16)(16)
September 30, 2022102 $1 $1,908 $(1,519)$(155)$235 
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Common StockPaid-inAccumulatedAccumulated Other Comprehensive 
In millionsSharesAmountCapitalDeficitLossTotal
December 31, 2020108 $1 $1,656 $(1,114)$(143)$400 
Net income— — — 53 — 53 
Employee stock compensation, employee stock purchase programs and option exercises, net of tax4 — 52 — — 52 
Repurchases of common stock, retired(3)— — (85)— (85)
Pension and postemployment benefit plans, net of tax— — — — 2 2 
Unrealized gain on derivatives, net of tax— — — — 3 3 
Currency translation adjustment— — — — (8)(8)
March 31, 2021109 $1 $1,708 $(1,146)$(146)$417 
Net income— — — 44 — 44 
Employee stock compensation, employee stock purchase programs and option exercises, net of tax— 35 — — 35 
Repurchases of common stock, retired— — — (36)— (36)
Pension and postemployment benefit plans, net of tax— — — — 2 2 
Unrealized gain on derivatives, net of tax— — — — 2 2 
Currency translation adjustment— — — — 7 7 
June 30, 2021109 $1 $1,743 $(1,138)$(135)$471 
Net income— — — 17 — 17 
Employee stock compensation, employee stock purchase programs and option exercises, net of tax— — 33 — — 33 
Repurchases of common stock, retired(1)— — (58)— (58)
Pension and postemployment benefit plans, net of tax— — — — 2 2 
Unrealized gain on derivatives, net of tax— — — — 2 2 
Currency translation adjustment— — — — (10)(10)
September 30, 2021108 $1 $1,776 $(1,179)$(141)$457 

See Notes to Condensed Consolidated Financial Statements (Unaudited).
9

Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
These statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the results of operations, financial position and cash flows of Teradata Corporation ("Teradata" or the "Company") for the interim periods presented herein. The year-end 2021 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates. 
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Teradata’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Annual Report"). The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
2. New Accounting Pronouncements
Reference Rate Reform. In March 2020, the Financial Accounting Standards Board ("FASB") issued new guidance to provide relief to companies that will be impacted by the expected change in benchmark interest rates, as participating banks will no longer be required to submit London Interbank Offered Rate ("LIBOR") quotes by the U.K. Financial Conduct Authority. The new guidance allows companies to, provided the only change to existing contracts are a change to an approved benchmark interest rate, account for modifications as a continuance of the existing contract without additional analysis. For new and existing contracts, companies may elect to apply the amendments as of March 12, 2020 through December 31, 2022. The Company has evaluated this new guidance and concluded it will not have a material impact on our consolidated financial statements or related disclosures.




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3. Revenue from Contracts with Customers
Disaggregation of Revenue from Contracts with Customers
The following table presents a disaggregation of revenue:
Three Months Ended September 30,Nine Months Ended September 30,
in millions2022202120222021
Americas
Recurring $207 $210 $668 $661 
Perpetual software licenses, hardware and other5 5 20 16 
Consulting services30 34 93 109 
Total Americas242 249 781 786 
EMEA
Recurring77 90 241 277 
Perpetual software licenses, hardware and other6 10 20 30 
Consulting services22 33 76 101 
Total EMEA105 133 337 408 
APJ
Recurring47 52 153 162 
Perpetual software licenses, hardware and other3 3 8 12 
Consulting services20 23 64 74 
Total APJ70 78 225 248 
Total Revenue$417 $460 $1,343 $1,442 

Rental revenue, which is included in recurring revenue in the above table, was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
in millions2022202120222021
Rental revenue* $45 $36 $140 $123 
*Rental revenue includes hardware maintenance.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, contract assets, and customer advances and deposits (deferred revenue or contract liabilities) on the condensed consolidated balance sheet. Accounts receivable include amounts due from customers that are unconditional. Contract assets relate to the Company’s rights to consideration for goods delivered or services completed and recognized as revenue but billing and the right to receive payment is conditional upon the completion of other performance obligations. Contract assets are included in other current assets on the balance sheet and are transferred to accounts receivable when the rights become unconditional. Deferred revenue consists of advance payments and billings in excess of revenue recognized. Deferred revenue is classified as either current or noncurrent based on the timing of when the Company expects to recognize revenue. These assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period.
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The following table provides information about receivables, contract assets and deferred revenue from contracts with customers:
As of
in millionsSeptember 30, 2022December 31, 2021
Accounts receivable, net$253 $336 
Contract assets$9 $10 
Current deferred revenue$462 $552 
Long-term deferred revenue$14 $27 
Revenue recognized during the nine months ended September 30, 2022 from amounts included in deferred revenue at the beginning of the period was $427 million.
Transaction Price Allocated to Unsatisfied Obligations
The following table includes estimated revenue expected to be recognized in the future related to the Company's unsatisfied (or partially satisfied) obligations at September 30, 2022:
in millionsTotal at September 30, 2022Year 1Year 2 and Thereafter
Remaining unsatisfied obligations$2,066 $1,332 $734 
The amounts above represent the price of firm orders for which work has not been performed or goods have not been delivered and exclude unexercised contract options outside the stated contractual term that do not represent material rights to the customer. Although the Company believes that the contract value in the above table is firm, approximately $1,112 million of the amount is under contracts that are subject to customer-only general cancellation for convenience terms that the Company is contractually obligated to perform unless the customer notifies us of cancellation. The Company expects to recognize revenue of approximately $429 million in the next year from contracts that are non-cancelable. The Company believes the inclusion of this information is important to understanding the obligations that the Company is contractually required to perform and provides useful information regarding remaining obligations related to these executed contracts.
4. Contract Costs
The Company capitalizes sales commissions and other contract costs that are incremental direct costs of obtaining customer contracts if the expected amortization period of the asset is greater than one year. These costs are recorded in capitalized contract costs, net on the Company’s balance sheet. The capitalized amounts are calculated based on the annual recurring revenue and contract value for individual multi-term contracts. The judgments made in determining the amount of costs incurred include whether the commissions are in fact incremental and would not have occurred absent the customer contract. Costs to obtain a contract are amortized as selling, general and administrative expenses on a straight-line basis over the expected period of benefit, which is typically around four years. These costs are periodically reviewed for impairment. The following table identifies the activity relating to capitalized contract costs:
in millionsDecember 31, 2021CapitalizedAmortizationSeptember 30, 2022
Capitalized contract costs$111 $23 $(46)$88 
in millionsDecember 31, 2020CapitalizedAmortizationSeptember 30, 2021
Capitalized contract costs$98 $35 $(34)$99 

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5. Supplemental Financial Information
 As of
In millionsSeptember 30,
2022
December 31,
2021
Inventories
Finished goods$9 $17 
Service parts4 9 
Total inventories$13 $26 
Deferred revenue
Deferred revenue, current$462 $552 
Long-term deferred revenue14 27 
Total deferred revenue$476 $579 
 Three Months Ended September 30,Nine Months Ended September 30,
In millions2022202120222021
Other expense
Foreign currency losses$9 $3 $24 $5 
Other4 3 10 10 
Total Other expense$13 $6 $34 $15 
6. Income Taxes
Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period. The Company expects that a majority of its foreign earnings will be repatriated back to the United States ("U.S."). As a result, the effective tax rates in the periods presented are largely based upon the forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business.

The effective tax rate is as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
In millions2022202120222021
Effective tax rate20.0 %10.5 %38.5 %24.0 %

For the three months ended September 30, 2022, the Company had no material discrete tax adjustments.
For the nine months ended September 30, 2022, the Company recorded $2 million of net discrete tax benefits, a majority of which related to the excess tax benefit derived from $6 million of stock-based compensation vesting, offset by $5 million of discrete tax expense associated with valuation allowances against the current tax receivable and deferred tax asset balance that are not expected to be realized as a result of the discontinuation of the Company’s business in Russia in the first quarter of 2022. As a result of these discrete items the Company recorded income tax expense of $25 million on a pre-tax income of $65 million for the nine months ended September 30, 2022, resulting in an effective income tax rate of 38.5%.
For the three months ended September 30, 2021, the Company recorded a total of $4 million of net discrete tax benefits, of which $5 million of tax benefit was related to true-up adjustments to reconcile the Company’s 2020 U.S. tax return that was completed in the third quarter of 2021 to the preliminary estimate that was booked in its tax provision for the year ended December 31, 2020. In addition, the Company recognized $1 million of incremental tax benefit related to stock-based compensation vesting. These tax benefits were partially offset by $2 million of
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discrete tax expense related to adjustments to the Company’s accrual for unrecognized tax benefits in accordance with FIN 48. As a result of these discrete items the Company recorded income tax expense of $2 million on a pre-tax income of $19 million for the three months ended September 30, 2021, resulting in an effective income tax rate of 10.5%.
For the nine months ended September 30, 2021, the Company recorded $7 million of net discrete tax benefits, of which $5 million of tax benefit was related to the true-up adjustments to reconcile the Company’s 2020 U.S. tax return as completed in the third quarter of 2021 versus the preliminary estimate as booked in its tax provision for the year ended December 31, 2020. In addition, the Company recognized $4 million of incremental tax benefit related to stock-based compensation vesting and $1 million incremental tax benefit from true-ups to its forecasted marginal annual rate for 2021 based on revised full-year forecasted earnings. These tax benefits were partially offset by $3 million of discrete tax expense related to adjustments to the Company’s accrual for unrecognized tax benefits in accordance with FIN 48. The Company recorded income tax expense of $36 million on a pre-tax net income of $150 million for the nine months ended September 30, 2021, resulting in an effective income tax rate of 24.0%.
The Company estimates its annual effective tax rate for 2022 to be approximately 41.0%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction and the impact of discrete tax items to be recognized in 2022. Under U.S. tax law, U.S. shareholders are subject to a tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The Company has elected to provide for the tax expense related to GILTI in the year in which the tax is incurred. Effective on January 1, 2022, the U.S. tax law changed and now requires R&D expenses to be capitalized and amortized for tax purposes under Internal Revenue Code Section 174; as a result of this law change, the Company is currently forecasting approximately $7 million of tax expense related to GILTI in our marginal effective tax rate for 2022. Should Congress enact proposed legislation to defer the implementation of R&D capitalization rules retroactively by the end of the year, the Company’s GILTI tax and overall effective tax rate for 2022 would be significantly reduced.
7. Derivative Instruments and Hedging Activities
As a portion of Teradata’s operations is conducted outside the U.S. and in currencies other than the U.S. dollar, the Company is exposed to potential gains and losses from changes in foreign currency exchange rates. In an attempt to mitigate the impact of currency fluctuations, the Company uses foreign exchange forward contracts to hedge transactional exposures resulting predominantly from foreign currency denominated inter-company receivables and payables. The forward contracts are designated as fair value hedges of specified foreign currency denominated inter-company receivables and payables and generally mature in three months or less. The fair values of foreign exchange contracts are based on market spot and forward exchange rates and represent estimates of possible value that may not be realized in the future. Across its portfolio of contracts, Teradata has both long and short positions relative to the U.S. dollar. As a result, Teradata’s net exposure is less than the total contract notional amount of the Company’s foreign exchange forward contracts.
Gains and losses from foreign exchange forward contracts are fully recognized each period and reported along with the offsetting gain or loss of the related hedged item, either in cost of revenues, operating expenses or in other income (expense), depending on the nature of the related hedged item.
During June 2022, Teradata entered into a cross-currency swap designated as a net investment hedge, to hedge the Euro currency exposure of its net investment in certain foreign subsidiaries. This agreement is a contract to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. Changes in the fair value of this swap are recorded in Accumulated Other Comprehensive Loss in the same manner as foreign currency translation adjustments. In assessing the effectiveness of this hedge, the Company used a method based on changes in spot rates to measure the impact of the foreign currency exchange rate fluctuations on both its foreign subsidiary net investment and the related swap.
The cross-currency swap contract has an expiration date of June 29, 2026. At maturity of the cross-currency swap contract, the Company will deliver the notional amount of €143 million and will receive $150 million from the counterparty. The Company will receive monthly interest payments from the counterparty based on a fixed interest rate until maturity of the agreements.
In June 2022, Teradata refinanced its long-term debt and its associated interest rate swap ("Prior Interest Rate Swap"), which were due to mature in June 2023. As a result, Teradata terminated its five-year London Interbank Offered Rate ("Libor") interest rate swap that had a $500 million initial notional amount to hedge the floating
14

interest rate of its Libor term loan. On June 28, 2022, Teradata executed a five-year Secured Overnight Financing Rate ("SOFR") interest rate swap, to fix the interest rate on approximately 90% of the principal balance of the $500 million term loan, with an initial notional amount of $450 million. The Company uses interest rate swaps to manage interest rate risks on future interest payments caused by interest rate changes on its variable rate term loan. The notional amount of the hedge steps down according to the amortization schedule of the term loan. The notional amount of the hedge was $450 million as of September 30, 2022.
The Company performed an initial effectiveness assessment on the interest rate swap and the net investment hedge foreign currency swap, and the hedges were determined to be effective. The hedges are being evaluated qualitatively on a quarterly basis for effectiveness. Changes in fair value are recorded in Accumulated Other Comprehensive Loss and periodic settlements of the swap will be recorded in interest expense along with the interest on amounts outstanding under the term loan.

The following table identifies the contract notional amount of the Company’s derivative financial instruments:
As of
In millionsSeptember 30,
2022
December 31,
2021
Contract notional amount of foreign exchange forward contracts$42 $110 
Net contract notional amount of foreign exchange forward contracts$18 $41 
Contract notional amount of foreign currency exchange (net investment hedge)$150 $ 
Contract notional amount of interest rate swap $450 $413 
All derivatives are recognized in the condensed consolidated balance sheets at their fair value. The notional amounts represent agreed-upon amounts on which calculations of dollars to be exchanged are based and are an indication of the extent of Teradata’s involvement in such instruments. These notional amounts do not represent amounts exchanged by the parties and, therefore, are not a measure of the instruments. Refer to Note 9 for disclosures related to the fair value of all derivative assets and liabilities.
The Company does not hold or issue derivative financial instruments for trading purposes, nor does it hold or issue leveraged derivative instruments. By using derivative financial instruments to hedge exposures to changes in foreign exchange and interest rates, the Company exposes itself to credit risk. The Company manages exposure to counterparty credit risk by entering into derivative financial instruments with highly rated institutions that can be expected to fully perform under the terms of the applicable contracts.
8. Commitments and Contingencies
Legal Proceedings. In the ordinary course of business, the Company is subject to proceedings, lawsuits, governmental investigations, claims and other matters, including those that relate to the environment, health and safety, employee benefits, export compliance, intellectual property, tax matters and other regulatory compliance and general matters. It is not currently a party to any litigation, nor is it aware of any pending or threatened litigation against it that the Company believes would materially affect its business, operating results, financial condition or cash flows, other than the following.
On June 19, 2018, the Company and certain of its subsidiaries filed a lawsuit (the "TD-SAP 1" suit) in the U.S. District Court for the Northern District of California against SAP SE, SAP America, Inc., and SAP Labs, LLC (collectively, "SAP"). In the TD-SAP 1 lawsuit, the Company alleged, among other things, that SAP misappropriated certain of the Company’s trade secrets within the Company’s enterprise data analytics and warehousing products and used such trade secrets to help develop, improve, introduce, and sell one or more competing products. The Company further alleged that SAP employed anticompetitive practices using its substantial market position in the enterprise resource planning applications market to pressure the Company’s customers and prospective customers to use one or more of SAP's competing products and reduce or eliminate customers' and prospective customers' use of the Company's offerings. The Company sought an injunction barring SAP’s alleged conduct, monetary damages, and other available legal and equitable relief. In July 2019, SAP filed patent infringement counterclaims against the Company based on five of SAP’s U.S. patents. On August 31, 2020, the Company filed a second lawsuit against SAP (the "TD-SAP 2" suit) in the U.S. District Court for the Northern
15

District of California, in which the Company alleged infringement by SAP of four of the Company's U.S. patents. On February 16, 2021, SAP filed additional patent infringement counterclaims against the Company in response. On the same day, SAP also filed a lawsuit in Germany (the "TD-SAP 3" suit) for infringement of a single German patent. In November 2021, the district court dismissed the Company’s antitrust claims and most of its trade secret claims in the TD-SAP 1 suit. In December 2021, the Company appealed that decision to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. In the meantime, the Company and SAP have entered into a partial settlement agreement that has resulted in full dismissal of all claims and counterclaims in the TD-SAP 2 suit in California and the TD-SAP 3 suit in Germany as well as a stay of all claims and counterclaims remaining in the TD-SAP 1 suit pending resolution of the Company’s appeal. Currently, it is not possible to determine the likelihood of a loss or a reasonably estimated range of loss, if any, pertaining to any of SAP’s remaining patent counterclaims in the TD-SAP 1 lawsuit.
Other Contingencies. The Company provides its customers with certain indemnification rights. In general, the Company agrees to indemnify the customer if a third party asserts patent or other infringement on the part of the customer for its use of the Company’s offerings. The Company has indemnification obligations under its charter and bylaws to its officers and directors, and has entered into indemnification agreements with the officers and directors of its subsidiaries. From time to time, the Company also enters into agreements in connection with its acquisition and divestiture activities that include indemnification obligations by the Company. The fair value of these indemnification obligations is typically not readily determinable due to the conditional nature of the Company’s potential obligations and the specific facts and circumstances involved with each particular agreement. As such, the Company has generally not recorded a liability in connection with these indemnification arrangements. Historically, payments made by the Company under these types of agreements have not had a material effect on the Company’s consolidated financial condition, results of operations or cash flows.
Concentrations of Risk. The Company is potentially subject to concentrations of credit risk on accounts receivable and financial instruments such as hedging instruments, and cash and cash equivalents. Credit risk includes the risk of nonperformance by counterparties. The maximum potential loss may exceed the amount recognized on the balance sheet. Exposure to credit risk is managed through credit approvals, credit limits, selecting major international financial institutions (as counterparties to hedging transactions) and monitoring procedures. Teradata’s business often involves large transactions with customers, and if one or more of those customers were to default in its obligations under applicable contractual arrangements, the Company could be exposed to potentially significant losses. However, management believes that the reserves for potential losses were adequate at September 30, 2022 and December 31, 2021.
The Company is also potentially subject to concentrations of supplier risk. Our hardware components are assembled exclusively by Flex Ltd. ("Flex"). Flex procures a wide variety of components used in the manufacturing process on behalf of the Company. Although many of these components are available from multiple sources, Teradata utilizes preferred supplier relationships to provide more consistent and optimal quality, cost and delivery. Typically, these preferred suppliers maintain alternative processes and/or facilities to ensure continuity of supply. Given the Company’s strategy to outsource its manufacturing activities to Flex and to source certain components from single suppliers, a disruption in production at Flex or at a supplier could impact the timing of customer shipments and/or Teradata’s operating results. In addition, a significant change in the forecasts to any of these preferred suppliers could result in purchase obligations for components that may be in excess of demand.
9. Fair Value Measurements
Fair value measurements are established utilizing a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as significant other observable inputs, such as quoted prices in active markets for similar assets or liabilities, or quoted prices in less-active markets for identical assets; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company’s assets and liabilities measured at fair value on a recurring basis include money market funds, interest rate swaps, foreign currency swaps and foreign currency exchange contracts. A portion of the Company’s excess cash reserves are held in money market funds which generate interest income based on the prevailing market
16

rates. Money market funds are included in cash and cash equivalents in the Company’s balance sheet. Money market fund holdings are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy.
When deemed appropriate, the Company minimizes its exposure to changes in foreign currency exchange rates through the use of derivative financial instruments, specifically, foreign exchange forward contracts. Additionally, in June 2022, Teradata executed a five-year interest rate swap with a $450 million initial notional amount in order to hedge the variable interest rate on its term loan and a four-year cross-currency swap with initial notional amounts of €143 million/$150 million, as a net investment hedge to hedge the Euro currency exposure of our net investment in certain foreign subsidiaries. The fair value of these contracts and swaps are measured at the end of each interim reporting period using observable inputs other than quoted prices, specifically market spot and forward exchange rates. As such, these derivative instruments are classified within Level 2 of the valuation hierarchy. Fair value of unrealized gains for open contracts are recorded in other assets and the fair value of unrealized losses are recorded in other liabilities in the Company's balance sheet. The fair value of foreign exchange forward contract assets and liabilities at September 30, 2022 and December 31, 2021 was not material. Realized gains and losses from the Company’s fair value and net investment hedges net of corresponding gains or losses on the underlying exposures were immaterial for the three and nine months ended September 30, 2022 and 2021.
The Company’s other assets and liabilities measured at fair value on a recurring basis and subject to fair value disclosure requirements at September 30, 2022 and December 31, 2021 were as follows:
  Fair Value Measurements at Reporting Date Using
In millionsTotalQuoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets
Money market funds at September 30, 2022
$166 $166 $ $ 
Money market funds at December 31, 2021
$148 $148 $ $