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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission File Number 001-00395
NCR CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 31-0387920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 South Patterson Blvd.
Dayton, Ohio 45479
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (937) 445-5000
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 X No __
Number of shares of common stock, $0.01 par value per share, outstanding as of
July 31, 2002 was 98,043,336.
TABLE OF CONTENTS
PART I. Financial Information
Description Page
----------- ----
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 2002 and 2001 3
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 2002 and December 31, 2001 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 26
PART II. Other Information
Description Page
----------- ----
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 29
2
Part I. Financial Information
Item 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
In millions, except per share amounts
Three Months Ended Six Months Ended
June 30 June 30
-------------------- -------------------
2002 2001 2002 2001
--------- ---------- --------- ---------
Product revenue $ 710 $ 774 $ 1,322 $ 1,464
Service revenue 670 725 1,305 1,411
--------- ---------- --------- ---------
Total revenue 1,380 1,499 2,627 2,875
--------- ---------- --------- ---------
Cost of products 448 495 848 937
Cost of services 531 541 1,028 1,065
Selling, general and administrative expenses 289 327 574 680
Research and development expenses 61 77 117 153
--------- ---------- --------- ---------
Total operating expenses 1,329 1,440 2,567 2,835
--------- ---------- --------- ---------
Income from operations 51 59 60 40
Interest expense 4 6 6 10
Other expense, net 11 - 12 3
--------- ---------- --------- ---------
Income before income taxes and cumulative effect of accounting
change 36 53 42 27
Income tax expense (benefit) 10 18 12 (129)
--------- ---------- --------- ---------
Income before cumulative effect of accounting change 26 35 30 156
Cumulative effect of accounting change, net of tax - - (348) (4)
--------- ---------- --------- ---------
Net income (loss) $ 26 $ 35 $ (318) $ 152
========= ========== ========= =========
Net income (loss) per common share
Basic before cumulative effect of accounting change $ 0.26 $ 0.36 $ 0.30 $ 1.62
Cumulative effect of accounting change - - (3.54) (0.04)
--------- ---------- --------- ---------
Basic $ 0.26 $ 0.36 $ (3.24) $ 1.58
========= ========== ========= =========
Diluted before cumulative effect of accounting change $ 0.25 $ 0.35 $ 0.29 $ 1.57
Cumulative effect of accounting change - - (3.45) (0.04)
--------- ---------- --------- ---------
Diluted $ 0.25 $ 0.35 $ (3.16) $ 1.53
========= ========== ========= =========
Weighted average common shares outstanding
Basic 98.4 96.7 98.2 96.2
Diluted 100.5 100.3 100.6 99.8
See Notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
In millions, except per share amounts
June 30 December 31
2002 2001
------------ ------------
Assets
Current assets
Cash, cash equivalents and short-term investments $ 569 $ 336
Accounts receivable, net 1,130 1,126
Inventories, net 296 280
Other current assets 213 221
------------ ------------
Total current assets 2,208 1,963
Reworkable service parts and rental equipment, net 226 224
Property, plant and equipment, net 612 629
Goodwill 100 450
Other assets 1,720 1,589
------------ ------------
Total assets $ 4,866 $ 4,855
============ ============
Liabilities and stockholders' equity
Current liabilities
Short-term borrowings $ 12 $ 138
Accounts payable 385 362
Payroll and benefits liabilities 228 217
Customer deposits and deferred service revenue 378 319
Other current liabilities 512 482
------------ ------------
Total current liabilities 1,515 1,518
Long-term debt (Note 4) 306 10
Pension and indemnity liabilities 365 319
Postretirement and postemployment benefits liabilities 332 359
Other liabilities 600 600
Minority interests 22 22
------------ ------------
Total liabilities 3,140 2,828
============ ============
Commitments and contingencies (Note 6)
Stockholders' equity
Preferred stock: par value $0.01 per share, 100.0
shares authorized, no shares issued and
outstanding at June 30, 2002 and December 31,
2001, respectively - -
Common stock: par value $0.01 per share, 500.0
shares authorized, 98.0 and 97.4 shares issued
and outstanding at June 30, 2002 and December 31,
2001, respectively 1 1
Paid-in capital 1,242 1,235
Retained earnings 543 861
Accumulated other comprehensive loss (60) (70)
------------ ------------
Total stockholders' equity 1,726 2,027
------------ ------------
Total liabilities and stockholders' equity $ 4,866 $ 4,855
============ ============
See Notes to Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
In millions
Six Months Ended
June 30
2002 2001
---------- ----------
Operating activities
Net (loss) income $ (318) $ 152
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 162 210
Deferred income taxes (7) 10
Income tax adjustment - (138)
Goodwill impairment 348 -
Other adjustments (gain) loss, net 20 (3)
Changes in assets and liabilities:
Receivables (16) 295
Inventories (16) (20)
Current payables 29 (204)
Customer deposits and deferred service revenue 59 28
Employee severance and pension (77) (131)
Other assets and liabilities (44) (125)
---------- ----------
Net cash provided by operating activities 140 74
---------- ----------
Investing activities
Short-term investments, net 1 (17)
Net expenditures and proceeds for service parts (52) (62)
Expenditures for property, plant and equipment (44) (89)
Proceeds from sales of property, plant and equipment 11 8
Other investing activities, net (20) (21)
---------- ----------
Net cash used in investing activities (104) (181)
---------- ----------
Financing activities
Purchases of company common stock (25) (34)
Short-term borrowings, net (126) 34
Long-term borrowings, net 296 1
Other financing activities, net 42 71
---------- ----------
Net cash provided by financing activities 187 72
---------- ----------
Effect of exchange rate changes on cash and cash equivalents 11 (12)
---------- ----------
Increase (decrease) in cash and cash equivalents 234 (47)
Cash and cash equivalents at beginning of period 335 347
---------- ----------
Cash and cash equivalents at end of period $ 569 $ 300
========== ==========
See Notes to Condensed Consolidated Financial Statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
by NCR Corporation (NCR or the Company) without audit pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and, in the opinion
of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the consolidated results of
operations, financial position, and cash flows for each period presented. The
consolidated results for interim periods are not necessarily indicative of
results to be expected for the full year. These financial statements should be
read in conjunction with NCR's 2001 Annual Report to Stockholders, Form 10-K for
the year ended December 31, 2001 and Form 10-Q for the quarter ended March 31,
2002.
Certain prior year amounts have been reclassified to conform to the 2002
presentation.
2. SUPPLEMENTAL FINANCIAL INFORMATION
Three Months Ended Six Months Ended
In millions June 30 June 30
------------------ ------------------
2002 2001 2002 2001
-------- -------- -------- --------
Comprehensive income (loss)
Net income (loss) $ 26 $ 35 $ (318) $ 152
Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on securities (1) 1 (3) 1
Unrealized (loss) gain on derivatives (49) 8 (50) 14
Currency translation adjustments 75 1 63 (8)
-------- -------- -------- --------
Total comprehensive income (loss) $ 51 $ 45 $ (308) $ 159
======== ======== ======== ========
June 30 December 31
2002 2001
--------- -----------
Cash, cash equivalents and short-term investments
Cash and cash equivalents $ 569 $ 335
Short-term investments - 1
--------- -----------
Total cash, cash equivalents and short-term investments $ 569 $ 336
========= ===========
Inventories
Work in process and raw materials $ 78 $ 82
Finished goods 218 198
--------- -----------
Total inventories, net $ 296 $ 280
========= ===========
Other assets
Prepaid Pension $ 1,216 $ 1,104
Other 504 485
--------- -----------
Total Other assets $ 1,720 $ 1,589
========= ===========
6
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
NCR adopted Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142), on January 1, 2002, and in accordance with
SFAS 142, NCR discontinued the amortization of goodwill assets upon adoption.
Assuming goodwill amortization had been discontinued at January 1, 2001 the
comparable net income and earnings per share (basic and diluted) for the
prior-year periods would have been:
Three Months Ended Six Months Ended
In millions, except per share amounts June 30 June 30
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net income:
Reported net income $ 26 $ 35 $ (318) $ 152
Impact of goodwill amortization - 16 - 32
-------- -------- -------- --------
Adjusted net income $ 26 $ 51 $ (318) $ 184
======== ======== ======== ========
Basic earnings per share:
Reported basic earnings per share $ 0.26 $ 0.36 $ (3.24) $ 1.58
Impact of goodwill amortization - 0.17 - 0.33
-------- -------- -------- --------
Adjusted basic earnings per share $ 0.26 $ 0.53 $ (3.24) $ 1.91
======== ======== ======== ========
Fully diluted earnings per share:
Reported fully diluted earnings per share $ 0.25 $ 0.35 $ (3.16) $ 1.53
Impact of goodwill amortization - 0.16 - 0.32
-------- -------- -------- --------
Adjusted fully diluted earnings per share $ 0.25 $ 0.51 $ (3.16) $ 1.85
======== ======== ======== ========
Assuming goodwill amortization had been discontinued at January 1, 2001, 2000
and 1999 the comparable net income and earnings per share (basic and diluted)
for the prior-year periods would have been:
Full Year
December 31
---------------------------------
2001 2000 1999
-------- -------- --------
Net income:
Reported net income $ 217 $ 178 $ 337
Impact of goodwill amortization 66 32 22
-------- -------- --------
Adjusted net income $ 283 $ 210 $ 359
======== ======== ========
Basic earnings per share:
Reported basic earnings per share $ 2.25 $ 1.87 $ 3.45
Impact of goodwill amortization 0.68 0.34 0.23
-------- -------- --------
Adjusted basic earnings per share $ 2.93 $ 2.21 $ 3.68
======== ======== ========
Fully diluted earnings per share:
Reported fully diluted earnings per share $ 2.18 $ 1.82 $ 3.35
Impact of goodwill amortization 0.66 0.33 0.22
-------- -------- --------
Adjusted fully diluted earnings per share $ 2.84 $ 2.15 $ 3.57
======== ======== ========
7
The changes in the carrying amount of goodwill by operating segment for the six
months ended June 30, 2002, were as follows:
Beginning Balance Transitional Ending Balance
In millions January 1, 2002 Impairment June 30, 2002
----------------- -------------- ---------------
Goodwill
Data Warehousing $ 75 $ - $ 75
Financial Self Service 21 - 21
Retail Store Automation 28 (28) -
Systemedia 8 (8) -
Payment and Imaging 4 - 4
Other 314 (314) -
----------------- -------------- ---------------
Total Goodwill $ 450 $ (350) $ 100
================= ============== ===============
Amounts exclude $7 million of goodwill relating to equity investments which is included in Other assets.
For purposes of testing for transitional goodwill impairment, NCR identified
operating segments as its reporting units: (1) Data Warehousing, (2) Financial
Self Service, (3) Retail Store Automation, (4) Systemedia, (5) Payment and
Imaging, and (6) Other. The majority of goodwill is related to acquisitions
directly attributed to specific reporting units. Goodwill associated with the
customer services maintenance business and the Japan subsidiary (the result of
acquiring minority shares in 1998) was allocated based on the proportional
contribution of the customer services maintenance business and Japan to the
reporting unit results measured at the approximate point of acquisition. The
goodwill aligned to Other is primarily the result of the acquisition of 4Front
Technologies, Inc. (4Front) in 2000. 4Front provided a variety of services
including maintenance, help desk and network management, among others.
NCR used discounted cash flow models on a reporting unit basis to calculate the
fair value of each segment. The annual (2002) and strategic long-range plans
(2003-2004) were used as the basis for calculating the operating income for each
segment. As the plans were finalized prior to year-end 2001, assumptions were
modified based on updated information, management input, and industry and
economic trends that existed at January 1, 2002. Appropriate adjustments were
made to the projected net income to arrive at a cash flow for each reporting
unit.
Based on this analysis, NCR identified three reporting units for which a total
pre-tax impairment loss of $350 million was realized: Retail Store Automation
($28 million), Systemedia ($8 million) and Other ($314 million). The impairment
losses realized for Retail Store Automation and Systemedia were primarily
related to reduced customer spending resulting from the economic slowdown within
the U.S. economy. The impairment loss realized in Other is primarily due to
intense regional competition driving down operating margins for the network
management offerings and the global economic slowdown within the networking and
infrastructure services sector.
NCR recorded a non-cash, net-of-tax goodwill impairment charge of $348 million
as a cumulative effect of accounting change retroactive to January 1, 2002. This
charge is reflected in the Company's year-to-date Condensed Consolidated
Financial Statements.
8
Other Intangible Assets
Other intangible assets were specifically identified when acquired, and
primarily consist of patents. NCR has not reclassified any other intangibles to
goodwill, nor has it recognized any other intangible assets that were previously
included in goodwill. NCR's other intangible assets are deemed to have definite
lives and are being amortized over original periods ranging from 3 to 10 years.
The following table outlines the gross carrying amount and accumulated
amortization for NCR's other intangible assets.
June 30 , 2002
----------------------------------
Gross Carrying Accumulated
In millions Amount Amortization
---------------- ---------------
Other Intangible Assets
Patents $ 19 $ (12)
Other 4 (1)
---------------- ---------------
Total Other Intangible Assets $ 23 $ (13)
================ ===============
The aggregate amortization expense for the three-month and year-to-date periods
ended June 30, 2002 were $1 million and $2 million, respectively. The estimated
annual amortization expense for the years ending December 31, 2002, 2003, 2004,
2005 and 2006 is $4 million, $4 million, $3 million, $1 million and zero,
respectively.
4. LONG TERM DEBT
In June 2002, the Company issued $300 million of senior unsecured notes due in
2009. The notes were offered to institutional buyers in accordance with Rule
144A and outside the United States in accordance with Regulation S under the
Securities Act of 1933, as amended (Securities Act). The notes have not been
registered under the Securities Act and were not offered or sold in the United
States without appropriate registration pursuant to an applicable exemption from
the Securities Act registration requirements. The notes will accrue interest
from June 6, 2002, at the rate of 7.125% per annum, payable semi-annually in
arrears on each June 15 and December 15, beginning December 15, 2002, and
contain certain covenants typical of this type of debt instrument. The proceeds
from the issuance totaled $296 million, after discount and expenses, and were
used to repay short-term debt with the remainder available for general corporate
purposes.
5. STOCK REPURCHASE PROGRAM
During the first six months of 2002, NCR repurchased approximately 672,000
shares of its stock for approximately $25 million as part of the systematic
repurchase program authorized in December of 2000 to offset the dilutive effect
of the employee stock plans. During the first six months of 2001, NCR
repurchased approximately 450,000 shares of its stock for approximately $20
million as part of the systematic repurchase program offsetting the dilutive
effect of the employee stock plans.
Following the end of the second quarter of 2002, the Company repurchased
approximately 338,000 shares through August 9, 2002, as part of the systematic
repurchase program. These shares were repurchased on the open market at an
average price of $25.34 per share.
At times, the Company sells put options that entitle the holder of each option
to sell to the Company, by physical delivery, shares of common stock at a
specified price. In a single private placement on July 29, 2002, the Company
sold put options for 200,000 shares of common stock with a strike price of
$26.92. If the market price of the Company's stock is below the strike price of
$26.92 on the expiration date, then we are committed to purchase the shares at
the strike price. The total potential repurchase obligation for these put
options is $5.4 million. If exercised, these shares will be designated as part
of the systematic repurchase program to offset the dilutive effect of employee
stock plans approved by NCR's Board of Directors on December 8, 2000.
9
6.CONTINGENCIES
In the normal course of business, NCR is subject to various regulations,
proceedings, lawsuits, claims and other matters, including actions under laws
and regulations related to the environment and health and safety, among others.
NCR believes the amounts provided in its consolidated financial statements, as
prescribed by generally accepted accounting principles, are adequate in light of
the probable and estimable liabilities. However, there can be no assurances that
the actual amounts required to discharge alleged liabilities from various
lawsuits, claims, legal proceedings and other matters, including the Fox River
environmental matter discussed below, and to comply with applicable laws and
regulations, will not exceed the amounts reflected in NCR's consolidated
financial statements or will not have a material adverse effect on its
consolidated results of operations, financial condition or cash flows. Any costs
that may be incurred in excess of those amounts provided as of June 30, 2002
cannot currently be reasonably determined.
Environmental Matters
NCR's facilities and operations are subject to a wide range of environmental
protection laws, and NCR has investigatory and remedial activities underway at a
number of facilities that it currently owns or operates, or formerly owned or
operated, to comply, or to determine compliance, with such laws. Also, NCR has
been identified, either by a government agency or by a private party seeking
contribution to site cleanup 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 (FWPCA) and comparable state statutes, and
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA), as amended, and comparable state statutes.
Various federal agencies, Native American tribes and the State of Wisconsin
(Claimants) consider NCR to be a PRP under the FWPCA and CERCLA for alleged
natural resource damages (NRD) and remediation liability with respect to the Fox
River and Green Bay (Fox River site) due to, among other things, sediment
contamination allegedly resulting in part from NCR's former carbonless paper
manufacturing facility in Wisconsin. Claimants have also notified a number of
other paper manufacturing companies of their status as PRPs resulting from their
ongoing or former paper manufacturing operations in the Fox River Valley, and
Claimants have entered into a Memorandum of Agreement among themselves to
coordinate their actions, including the assertion of claims against the PRPs.
Additionally, the federal NRD Claimants have notified NCR and the other PRPs of
their intent to commence a NRD lawsuit, but have not as yet instituted
litigation. In addition, one of the Claimants, the U.S. Environmental Protection
Agency (USEPA), has formally proposed the Fox River site for inclusion on the
CERCLA National Priorities List, but no action has yet been taken on this
proposal. During the fourth quarter of 2000, the federal Claimants released a
proposed Restoration and Compensation Determination Plan (RCDP). The range of
damages in the proposed RCDP is from $176 million to $333 million.
On October 2, 2001, the Wisconsin Department of Natural Resources (WDNR) and
USEPA Region 5 made available for public review a Proposed Remedial Action Plan
(PRAP) for the Fox River site, along with a revised draft remedial investigation
and feasibility study (RI/FS) and related documents. The PRAP segregates the Fox
River into four segments and includes a fifth segment for Green Bay, describes
the various remedial alternatives that were considered for the cleanup of each
segment and then selects a proposed alternative. The proposed alternative in the
PRAP is to dredge a total of approximately 7,250,500 cubic yards of sediment
from three segments of the Fox River site, dispose of the dredged sediment in
local landfills after treatment, and utilize monitored natural recovery for the
other Fox River segment and for the Green Bay segment, at a total estimated cost
of approximately $370 million, including a 20% contingency. (The range of
estimated costs for other Fox River alternatives considered and not selected was
between approximately $18 million and $1,096 million and the range of estimated
costs for other Green Bay alternatives considered and not selected was between
approximately $18 million and $2,454 million, all exclusive of contingencies;
the latter number consists mainly of the cost of dredging the Green Bay, an
action that has been characterized by WDNR as infeasible.)
NCR, in conjunction with the other PRPs, has developed a substantial body of
evidence that may demonstrate that eventual selection of alternatives involving
river-wide restoration/remediation, particularly massive dredging, would be
inappropriate and unnecessary. There is ongoing debate within the scientific,
regulatory, legal, public policy and legislative communities over how to
properly manage large areas of contaminated sediments, and NCR believes there is
a high degree of uncertainty about the appropriate scope of alternatives that
may ultimately be required by Claimants. NCR's ultimate share of
restoration/remediation and damages liability cannot be determined at this time,
except by reference to a range of potential outcomes, due to uncertainties with
respect to: the scope and cost of the potential alternatives; the outcome of
further federal and state NRD assessments; the amount of NCR's share of such
restoration/remediation expenses; the timing of any
10
restoration/remediation; the evolving nature of restoration/remediation
technologies and governmental policies; the contributions from other parties;
and the recoveries from insurance carriers and other indemnitors. NCR believes
the other currently named PRPs would be required and are presently able to pay
their respective shares toward restoration and remediation, and that there are
additional parties, some of which have substantial resources, that may also be
liable. Further, in 1978 NCR sold the business to which the claims apply, and
NCR and the buyer, Appleton Papers Inc. (API), have reached a settlement
agreement under which the parties are sharing both defense and liability costs.
Last year, NCR and API entered into an Interim Settlement with the Claimants,
which was approved by the federal court in Wisconsin. The key terms of the
Interim Settlement are as follows: (a) API/NCR will provide funds to the
Claimants totaling $10.375 million per year over a four-year period for
remediation or natural resource restoration activities at the Fox River
site; (b) the Claimants will not initiate an enforcement action (including
natural resource damage actions or administrative orders) against API or NCR
during the four-year period; and (c) before the term of the Interim Settlement
expires, the Claimants and API/NCR will engage in settlement discussions
regarding all claims against API/NCR at the Fox River site. The Interim
Settlement is being implemented in accordance with its terms.
Given the numerous uncertainties regarding the cost estimates for remediation
and restoration of the Fox River site and the factors bearing upon NCR's share
of those costs, NCR's potential liability falls within a range as to which no
amount in the range is a better estimate than any other, and even then it is not
possible to estimate the high end of the range. It is possible that NCR's
exposure for costs could be higher than the low end of the range, but an
estimate of those amounts cannot be made. Also, a portion of NCR's potential
liability at the site under CERCLA may be joint and several. If, in the future,
one or more of the other PRPs described above were to become insolvent or unable
to pay their respective shares, NCR could be responsible for a portion of such
shares.
Taking into account all facts and circumstances described above, NCR recorded a
$40 million environmental provision during the third quarter of 2001 based on
the PRAP and RCDP. This provision, together with the preexisting Fox River
accrual, represents NCR's estimate of the low end of the range of NCR's portion
of the potential Fox River liability, and is based upon the government's
estimated cost of the proposed remedy, the low end of the government's range of
natural resource damage costs, and the incremental direct costs of the
remediation, restoration and natural resource damage efforts for four years. NCR
estimated its share of those costs based upon an analysis of contrasting
estimates of NCR/API's share of PCB discharges, the location of the
NCR/API-related facilities on the Fox River, and NCR's assessment of the
strength of available information regarding equitable and other legal theories.
NCR accrued at the low end of the range of potential liability because a
specific point estimate of NCR's probable liability is not reasonably estimable.
It is difficult to estimate the future financial impact of environmental laws,
including potential liabilities. NCR records environmental provisions when it is
probable that a liability has been incurred and the amount or range of the
liability is reasonably estimable. Provisions for estimated losses from
environmental restoration and remediation are, depending on the site, based
primarily on internal and third-party environmental studies (except for the Fox
River site where the estimated costs are taken directly from the above-described
RCDP and PRAP), estimates as to the number and participation level of any other
PRPs, the extent of the contamination, and the nature of required remedial and
restoration actions. Accruals are adjusted as further information develops or
circumstances change. Management expects that the amounts accrued from time to
time will be paid out over the period of investigation, negotiation, remediation
and restoration for the applicable sites. The amounts provided for environmental
matters in NCR's consolidated financial statements are the estimated gross
undiscounted amounts of such liabilities (except for the Fox River site where
the PRAP estimates certain long-term costs at net present worth), without
deductions for insurance or third-party indemnity claims. Except for the sharing
arrangement described above with respect to the Fox River site, in those cases
where insurance carriers or third-party indemnitors have agreed to pay any
amounts and management believes that collectability of such amounts is probable,
the amounts would be reflected as receivables in the consolidated financial
statements.
7. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing net income by the weighted
average number of shares outstanding during the reported period. The calculation
of diluted earnings per share is similar to basic, except that the weighted
average number of shares outstanding include the additional dilution from
potential common stock such as stock options and restricted stock awards, when
appropriate.
11
In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," as disclosed in Note 3 of Notes to the
Condensed Consolidated Financial Statements, earnings per share was calculated
excluding the impact of amortization expense from net income for periods
reported in 2001, 2000 and 1999.
8.SEGMENT INFORMATION
NCR categorizes its operations into six reportable segments: Data Warehousing,
Financial Self Service, Retail Store Automation, Systemedia, Payment and
Imaging, and Other. Each of these segments includes hardware, software,
professional consulting, customer support and maintenance services, and third
party applications and technologies. Customer support services include staging
and implementation services, networking, multi-vendor integration services,
consulting services, solution-specific support services and outsourcing
solutions.
The following table presents data for revenue by operating segment for the three
and six month periods ended June 30:
Three Months Ended Six Months Ended
June 30 June 30
-------------------- ---------------------
Revenue 2002 2001 2002 2001
-------- --------- -------- ---------
Data Warehousing
Solution $ 255 $ 254 $ 490 $ 490
Customer Services Maintenance 54 46 109 92
-------- --------- -------- ---------
Total Data Warehousing 309 300 599 582
Financial Self Service
Solution 255 260 460 474
Customer Services Maintenance 128 128 252 250
-------- --------- -------- ---------
Total Financial Self Service 383 388 712 724
Retail Store Automation
Solution 174 222 300 400
Customer Services Maintenance 118 108 227 216
-------- --------- -------- ---------
Total Retail Store Automation 292 330 527 616
Systemedia 133 125 248 241
Payment and Imaging
Solution 35 46 76 89
Customer Services Maintenance 26 30 51 60
-------- --------- -------- ---------
Total Payment and Imaging 61 76 127 149
Other
Solution 78 132 159 258
Customer Services Maintenance 124 148 255 305
-------- --------- -------- ---------
Total Other 202 280 414 563
Total Revenue $ 1,380 $ 1,499 $ 2,627 $ 2,875
======== ========= ======== =========
12
The following table presents data for operating income by operating segment
(including customer services maintenance) for the three and six month periods
ended June 30:
Three Months Ended Six Months Ended
June 30 June 30
------------------- ------------------
Operating Income/(Loss) 2002 2001 2002 2001
-------- -------- ------- --------
Data Warehousing $ 32 $ (3) $ 55 $ (8)
Financial Self Service 35 62 52 98
Retail Store Automation (11) (1) (40) (13)
Systemedia 4 3 5 2
Payment and Imaging 11 11 23 23
Other (20) 5 (35) 13
-------- -------- ------- --------
Income from operations excluding goodwill 51 77 60 115
Goodwill amortization in income (loss) from
operations - (16) - (32)
-------- -------- ------- --------
Income from operations excluding special items 51 61 60 83
Special items/1/ - (2) - (43)
-------- -------- ------- --------
Income from operations $ 51 $ 59 $ 60 $ 40
======== ======== ======= ========
/1/Special items in 2001 operating income represent the provision for loans and
receivables with Credit Card Center ($39 million in Financial Self Service)
and integration charges related to an acquisition in Other ($4 million,
$2 million in the second quarter).
9. SUBSEQUENT EVENT
Pursuant to NCR's divestiture from AT&T Corp. (AT&T) in 1996, NCR is party to
mutual indemnification provisions that obligate NCR, AT&T and Lucent
Technologies, Inc. (Lucent) to partially indemnify each other for certain
liabilities exceeding a threshold amount. NCR's share over the threshold amount
for those liabilities is 3 percent. On August 9, 2002, Lucent notified NCR that
it had entered into an out-of-court settlement of multiple class action lawsuits
against Lucent and participants, and that Lucent intends to make a claim for
contribution against NCR in accordance with the divestiture agreement. These
lawsuits claimed damages for allegedly excessive charges in connection with
leased residential telephone business operated by AT&T from 1984 until 1996, and
thereafter by Lucent. Pursuant to the proposed settlement and the terms of the
divestiture agreement, NCR established a $9 million pre-tax reserve for its
estimated share of the proposed settlement-related costs. The actual cost of the
settlement to NCR may be different depending on the number of claims submitted
and accepted. The final terms of the settlement are subject to court approval.
NCR has not been advised of any other claims from AT&T or Lucent that are likely
to invoke the indemnification provision in the divestiture agreement.
13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
We are organized into two operating businesses - Teradata(R) Division and the
Retail and Financial Group. The Teradata Division is comprised of our Data
Warehousing segment. Our Retail and Financial Group includes the following five
segments: Financial Self Service, Retail Store Automation, Systemedia, Payment
and Imaging solutions and Other. The Other segment, accumulates individual and
dissimilar businesses, such as exited businesses, networking hardware and
services, and managed services, which are not attributable to the formally
identified reportable segments. Our key solutions are Data Warehousing,
Financial Self Service and Retail Store Automation. Each segment is comprised of
hardware, software, professional consulting services and customer support and
maintenance services.
Trends Impacting Results
During the second quarter of 2002, we continued to gain market share as
companies around the world make strategic investments in our leading edge data
warehousing technology. As a result, Teradata Data Warehousing made a
significant contribution to our operating results, delivering solid revenue
performance and strong operating income growth. This performance was
accomplished in spite of the extremely difficult capital spending environment.
This environment is particularly impacting our Retail Store Automation and
customer service businesses. Challenges related to competition in all regions
and economic conditions in Europe have impacted the Financial Self Service
business and we believe such challenges will continue for the remainder of the
year. Within Financial Self Service and Retail Store Automation (including
customer service maintenance), we continue to expect sequential revenue and
operating margin improvements through the balance of the year.
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
- -----------------------------------------------------------------------------
For comparability to the 2002 results, the three months ended June 30, 2001
exclude the effects of special items and goodwill amortization from the gross
margin, operating expenses and operating income amounts presented and discussed
below. Special items impacting operating income for the second quarter of 2001
were $2 million of acquisition-related integration charges. Goodwill
amortization expense included in operating income in the second quarter of 2001
was $16 million.
In millions 2002 2001
- --------------------------------------------------------------------------------
Consolidated revenue $ 1,380 $ 1,499
Consolidated gross margin/1/ 401 465
Consolidated operating expenses:
Selling, general and administrative expenses 289 311
Research and development expenses 61 77
- --------------------------------------------------------------------------------
Consolidated income from operations excluding
goodwill amortization and special items 51 77
Goodwill amortization - (16)
- --------------------------------------------------------------------------------
Consolidated income from operations excluding special
items 51 61
Special items/1/ - (2)
- --------------------------------------------------------------------------------
Consolidated income from operations $ 51 $ 59
================================================================================
/1/ Special items excluded from consolidated gross margin represent $2 million
of acquisition integration charges.
Revenue: Revenue for the three months ended June 30, 2002 was $1,380 million, a
decrease of 8% from the second of 2001. When adjusted for the impact of changes
in foreign currency exchange rates, revenue decreased 9%.
By key solution (including customer service maintenance), Data Warehousing
experienced revenue growth of 3%, while Financial Self Service and Retail Store
Automation revenues declined by 1% and 12%, respectively. The improvement in
14
Data Warehousing was primarily driven by growth in customer service maintenance
revenue attributed to the larger installed customer base. Data Warehousing
continued to add customers in the insurance, financial, retail,
telecommunications and government sectors and had an increasing number of new
installations at more moderately sized companies. We expect to see revenue
growth as we add new customers as well as increase customer service revenues
resulting from a larger installed customer base. The revenue decline in
Financial Self Service was due primarily to the continued constraints on capital
spending in the Americas and Europe/Middle East/Africa (EMEA) regions, partially
offset by double-digit growth in the Asia-Pacific region, excluding Japan.
Retail Store Automation experienced significant revenue declines as the retail
industry continues to delay purchases of capital equipment. This decline was
partially offset by growth in customer services maintenance revenue driven by
several initiatives designed to improve the capture rate of new opportunities
and yield higher customer retention rates.
Revenue in the second quarter of 2002 as compared with the second quarter of
2001 decreased in the Americas region, EMEA region, and Japan by 9%, 13%, and
11%, respectively. These decreases were partially offset by a 15% increase in
the Asia-Pacific region, excluding Japan. When adjusted for the impact of
changes in foreign currency exchange rates, revenue decreased 17% in the EMEA
region and 9% in Japan, and increased 12% in the Asia-Pacific region, excluding
Japan. The revenue decline in the Americas region was primarily driven by
delayed capital spending relating to the difficult economic environment. The
revenue decline in the EMEA region was impacted by economic weakness and fewer
customer upgrades and purchases of self service equipment in the current year
versus the higher volume of upgrades and purchases in the prior year relating to
the Euro conversion. In addition, the slowing economy in the networking and
infrastructure services sector impacted the EMEA region. The decline in Japan
was primarily driven by the continued economic weakness. The increase in the
Asia-Pacific region, excluding Japan, was primarily driven by penetration in
emerging markets, specifically India and China, in our Financial Self Service
and Data Warehousing solutions. The Americas region comprised 50% of our total
revenue in the second quarter of 2002, EMEA region comprised 29%, Asia-Pacific
region, excluding Japan, comprised 11%, and Japan comprised 10%.
Gross Margin and Operating Expenses: Gross margin as a percentage of revenue
(excluding the special items described above) decreased 1.9 percentage points to
29.1% in the second quarter of 2002 from 31.0% in the second quarter of 2001.
Product gross margin increased 0.9 percentage points to 36.9% in the second
quarter of 2002 primarily due to a higher mix of product sales in Data
Warehousing, partially offset by the overall decrease in sales volume in
Financial Self Service and Retail Store Automation. Additionally, Financial Self
Service and Retail Store Automation experienced margin erosion due to
competitive pricing pressure. Services gross margin decreased 5.0 percentage
points to 20.7% in the second quarter of 2002 primarily due to lower than
expected revenues affecting our ability to leverage our semi-fixed cost
infrastructure, lower margins related to competitive pricing pressure, lower
volume and margins from our exited businesses, and a higher mix of lower margin
Retail Store Automation customer service maintenance revenue.
Total expenses in the second quarter of 2002 were $350 million compared to $388
million (excluding the special items and goodwill amortization described above)
for the second quarter of 2001. Selling, general and administrative expenses
decreased $22 million in the second quarter of 2002 from the second quarter of
2001. The decrease versus prior year is primarily the result of our continued
efforts to improve our cost infrastructure and curtail our discretionary
spending. Research and development expenses decreased $16 million to $61 million
in the second quarter of 2002 compared to the second quarter of 2001. As a
percentage of revenue, research and development expenses were 4.4% in the second
quarter of 2002 compared to 5.1% in the second quarter of 2001. The decrease in
research and development expenses is primarily due to a movement toward
utilization of industry standard components, the consolidation of research and
development facilities and the leveraging of our research and development
infrastructure.
Each quarter, we review the various estimates and judgments impacting our
consolidated financial statements. As part of this review in the second quarter
of 2002, we examined the current levels of inventory valuation and determined
that our inventory valuation in aggregate was appropriate. In this analysis, we
also examined inventory valuation by segment, and determined that some estimates
related to intercompany profit elimination within the segment results required
adjustment. As a result of this review, we revised inventory valuation within
our Data Warehousing segment which had the effect of increasing operating income
by approximately $6 million. An adjustment was also made for the Financial Self
Service segment related to inventory valuation in our Beijing factory. This
adjustment reduced Financial Self Service operating income by approximately $4
million.
15
During the second quarter of 2002, we identified certain accounting errors that
were not material to our operating results and were isolated to a wholly-owned
international subsidiary that is part of the customer service maintenance
business. We determined that the management of the subsidiary acted in an
unauthorized manner inconsistent with our accounting policies and had not fully
recognized expenses for several quarters. The unrecognized expenses did not
materially impact the operating results of any previous quarters. An adjustment
of approximately $10 million was recorded in the second quarter of 2002 to
properly account for these previously unrecognized expenses. The adjustment
impacted our total Cost of Services on the Condensed Consolidated Statement of
Operations and the following segments that utilize the services of this
subsidiary: Retail Store Automation, Financial Self Service, Payment and
Imaging, and Other. We have thoroughly investigated this matter and have taken
immediate action to remedy the situation. The person responsible for this
understatement is no longer with the company. We have tightened controls within
our finance and accounting procedures and we are continuing to take further
actions, as appropriate.
During the second quarter of 2002, we realized a $19 million benefit from
pension income versus a $33 million benefit in the second quarter of 2001.
Pension income declined $14 million in the second quarter of 2002 compared to
the second quarter of 2001 due to the impact of the investment performance of
our pension fund portfolio in the difficult market environment during 2000 and
2001.
Income Before Income Taxes and Cumulative Effect of Accounting Change: Operating
income was $51 million in the second quarter of 2002 compared to $77 million
(excluding the special items and goodwill amortization described above) in the
second quarter of 2001.
Interest and other expense, net, was $15 million in the second quarter of 2002.
As a result of the Lucent indemnification claim described in Note 9 of Notes to
the Condensed Consolidated Financial Statements, we established a $9 million
pre-tax reserve, increasing net interest and other expense. Reported interest
and other expense, net, was $6 million in the second quarter of 2001. Excluding
$3 million of goodwill amortization relating to equity investments, interest and
other expense, net, was $3 million in the second quarter of 2001.
Income before income taxes was $36 million in the second quarter of 2002. The
reported income before income taxes for the second quarter of 2001 was $53
million. Excluding the $2 million of special items (acquisition-related
integration charges) and $19 million of goodwill amortization expense ($16
million in operating expense and $3 million in other expense relating to equity
investments), income before income taxes was $74 million in the second quarter
of 2001.
Provision for Income Taxes: Income tax provisions for interim periods are based
on estimated annual income tax rates calculated without the effect of special
items and goodwill amortization. At an estimated effective tax rate of 30% for
2002, the second quarter income tax provision was $10 million compared to a $21
million provision in the second quarter of 2001. Including the effect of the
special items and goodwill amortization, the income tax provision in the second
quarter of 2001 was $18 million. The tax benefit of special items
(acquisition-related integration charges) and goodwill amortization in the
second quarter of 2001 was $3 million.
16
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
- -------------------------------------------------------------------------
For comparability to the 2002 results, the six months ended June 30, 2001
exclude the effects of special items and goodwill amortization from the gross
margin, operating expenses and operating income amounts presented and discussed
below. Special items impacting operating income for the first six months of 2001
included a $39 million provision for loans and receivables related to Credit
Card Center (CCC) and $4 million of acquisition-related integration charges.
Goodwill amortization expense included in operating income in the first six
months of 2001 was $32 million.
In millions 2002 2001
- --------------------------------------------------------------------------------
Consolidated revenue $ 2,627 $ 2,875
Consolidated gross margin /1/ 751 876
Consolidated operating expenses:
Selling, general and administrative expenses /2/ 574 608
Research and development expenses 117 153
- --------------------------------------------------------------------------------
Consolidated income from operations excluding goodwill 60 115
Goodwill amortization - (32)
- --------------------------------------------------------------------------------
Consolidated income from operations excluding special items 60 83
Special items /1, 2/ - (43)
- --------------------------------------------------------------------------------
Consolidated income from operations $ 60 $ 40
================================================================================
/1/ Special items excluded from consolidated gross margin represent $3 million
of acquisition integration charges.
/2/ Special items excluded from selling, general and administrative expenses
represent a $39 million provision for loans and receivables related to
Credit Card Center and $1 million of acquisition integration charges.
Revenue: Revenue for the six months ended June 30, 2002 was $2,627 million, a
decrease of 9% from the first six months of 2001. When adjusted for the impact
of changes in foreign currency exchange rates, revenue decreased 8%.
By key solution, revenue (including customer service maintenance revenue) in the
first six months of 2002 reflects increased sales in Data Warehousing of 3%,
offset by revenue declines in Financial Self Service of 2% and Retail Store
Automation of 14%. Revenue growth in Data Warehousing was primarily driven by
the increase in customer service maintenance revenue. Data Warehousing continued
to add customers in the insurance, financial, retail, telecommunications and
government sectors and had an increasing number of new installations at more
moderately sized companies. We expect to see revenue growth as we add new
customers, as well as increase customer service revenues resulting from a larger
installed customer base. The revenue decline in Financial Self Service was due
primarily to the continued constraints on capital spending in the Americas and
EMEA regions, partially offset by double-digit growth in the Asia-Pacific
region, excluding Japan. Retail Store Automation experienced significant revenue
declines as the retail industry continues to delay purchases of capital
equipment. This decline was partially offset by growth in customer services
maintenance revenue driven by several initiatives designed to improve the
capture rate of new opportunities and yield higher customer retention rates.
Revenue in the first six months of 2002 compared with the first six months of
2001 decreased 12% in the Americas region, 8% in the EMEA region, and 8% in
Japan, and the Asia-Pacific region, excluding Japan increased by 4%. When
adjusted for the impact of changes in foreign currency exchange rates, revenue
decreased 11% in the Americas region, 8% in the EMEA region, 3% in Japan, and
increased 4% in the Asia-Pacific region, excluding Japan. The revenue decline in
the Americas region was primarily driven by delayed capital spending relating to
the difficult economic environment. The revenue decline in the EMEA region was
impacted by economic weakness and fewer customer upgrades and purchases of self
service equipment in the current year versus the higher volume of upgrades and
purchases in the prior year relating to the Euro conversion. In addition, the
slowing economy in the networking and infrastructure services sector impacted
the EMEA region. The decline in Japan was primarily driven by the continued
economic weakness. The increase in the Asia-Pacific region, excluding Japan, was
primarily driven by penetration in emerging markets, specifically India and
China, in our Financial Self Service and Data Warehousing solutions. The
Americas region comprised 50% of our total revenue in the first six months of
2002, EMEA region comprised 30%, Asia-Pacific region, excluding Japan, comprised
11%, and Japan comprised 9%.
17
Gross Margin and Operating Expenses: Gross margin as a percentage of revenue
(excluding special items and goodwill amortization described above) decreased
1.9 percentage points to 28.6% in the first six months of 2002 from 30.5% in the
same period of 2001. Product gross margin decreased 0.1 percentage points to
35.9% in the first six months of 2002. This decline is primarily driven by an
overall decrease in sales volume in Financial Self Service and Retail Store
Automation. Additionally, Financial Self Service and Retail Store Automation
experienced margin erosion due to competitive pricing pressures. These decreases
were partially offset by a higher mix of product sales in Data Warehousing.
Services gross margin decreased 3.5 percentage points to 21.2% in the first six
months of 2002, primarily due to lower than expected revenues affecting our
ability to leverage our semi-fixed cost infrastructure, lower volume and margins
from our exited businesses, and lower margins due to competitive pricing
pressure.
Total expenses in the first six months of 2002 were $691 million compared to
$761 million (excluding the special items and goodwill amortization described
above) in the same period of 2001. Selling, general and administrative expenses
decreased $34 million in the first six months of 2002 from the same period of
2001. The decrease versus prior year is primarily the result of our continued
efforts to improve our cost infrastructure and curtail our discretionary
spending. Research and development expenses decreased $36 million to $117
million in the first six months of 2002 compared to the first six months of
2001. As a percentage of revenue, research and development expenses were 4.5% in
the first six months of 2002 compared to 5.3% in the same period of 2001. The
decrease in research and development expenses is primarily due to a movement
toward utilization of industry standard components, the consolidation of
research and development facilities and the leveraging of our research and
development infrastructure.
During the first six months of 2002, we realized a $38 million benefit from
pension income versus a $66 million benefit in the first six months of 2001.
Pension income declined $28 million in the first six months of 2002 compared to
the first six months of 2001 due to the impact of the investment performance of
our pension fund portfolio in the difficult market environment during 2000 and
2001.
Income Before Income Taxes and Cumulative Effect of Accounting Change: Operating
income was $60 million in the first six months of 2002 compared to $115 million
(excluding the special items and goodwill amortization described above) in the
first six months of 2001.
Interest and other expense, net, was $18 million in the first six months of
2002. Reported interest and other expense, net, was $13 million in the first six
months of 2001. Excluding a $1 million charge for interest receivables related
to Credit Card Center (CCC) and goodwill amortization of $5 million relating to
equity investments, interest and other expense, net, was $7 million for the
first six months of 2001.
Income before income taxes was $42 million in the first six months of 2002. The
reported income before income taxes for the first six months of 2001 was $27
million. Excluding special items of $44 million ($39 million provision for loans
and receivables related to CCC, $4 million for integration charges related to
acquisitions and $1 million charge for interest receivables related to CCC) and
$37 million of goodwill amortization expense ($32 million in operating expense
and $5 million in other expense), income before income taxes was $108 million in
the first six months of 2001.
Provision for Income Taxes: Income tax provisions for interim periods are based
on estimated annual income tax rates calculated without the effect of special
items and goodwill amortization. At an estimated effective tax rate of 30% for
2002, the first six months income tax provision was $12 million compared to a
$28 million income tax provision in the first six months of 2001. Including the
effect of the special items and goodwill amortization, the income tax benefit in
the first six months of 2001 was $129 million. The tax benefit of special items
and goodwill amortization in the first six months of 2001 was $157 million ($138
million benefit realized from the favorable resolution of international income
tax issues, $14 million benefit resulting from acquisition-related integration
and CCC-related charges, and $5 million benefit relating to goodwill
amortization).
18
Cumulative effect of accounting change: The cumulative effect of accounting
change in the first six months of 2002 was a non-cash, net of tax goodwill
impairment charge of $348 million that was retroactive to January 1, 2002. The
cumulative effect of accounting change in the first six months of 2001 of $4
million relates to the adoption of Statement of Financial Accounting Standard
No. 133 "Accounting for Derivative Instruments and Hedging Activities."
Financial Condition, Liquidity, and Capital Resources
Our cash, cash equivalents, and short-term investments totaled $569 million at
June 30, 2002 compared to $336 million at December 31, 2001.
Operating Activities: We generated cash flow from operations of $140 million in
the first six months of 2002 compared to $74 million generated in the first six
months of 2001. The $140 million generated from operations in the first six
months of 2002 was primarily driven by operating profitability and positive net
working capital, partially offset by employee severance and pension. The $74
million generated in the first six months of 2001 was primarily driven by
operating profitability, partially offset by negative net working capital and
employee severance and pension. The year over year improvement was primarily
driven by improvements in net working capital and employee severance and
pension. Employee severance and pension was a $77 million use of cash in the
first six months of 2002 compared to a $131 million use of cash in the first six
months of 2001.
Investing Activities: Net cash flows used in investing activities was $104
million in the first six months of 2002 and $181 million in the same period of
2001. The $104 million use of cash in the first six months of 2002 was primarily
driven by expenditures for capital and service parts. The $181 million used in
the first six months of 2001 was primarily driven by expenditures for capital
and service parts and purchases of short-term investments. The improvement
versus the prior-year period was primarily due to lower capital and service
parts expenditures during the first six months of 2002 compared to the first six
months of 2001. Capital expenditures were $44 million for the first six months
of 2002 and $89 million for the comparable period in 2001. Net expenditures for
service parts were $52 million during the first six months of 2002 and $62
million for the comparable period in 2001. These improvements were achieved as a
result of the continued focus on reducing capital spending.
Financing Activities: Net cash provided by financing activities was $187 million
during the first six months of 2002 compared to $72 million in the same period
of 2001. This change was primarily driven by the net proceeds received from our
private issuance of long-term debt, offset in part by the repurchase of Company
common stock and repayment of short- term debt. The proceeds from the issuance
of long-term debt in June 2002 were $296 million after discount and expenses. In
the first six months of 2002, $25 million of cash was used for the purchase of
Company common stock pursuant to the systematic stock repurchase program
compared to a $34 million use for stock repurchases in the same period in 2001.
During the first six months of 2002, cash was utilized to repay short-term
borrowings of $126 million, compared to a $34 million source of cash from
borrowing in the prior-year period. In the first six months of 2002, other
financing activities provided $42 million of cash compared to a $71 million
source of cash for the comparable period in 2001. Other financing activities
primarily relate to share activity under our stock option and employee stock
purchase plans.
In October 2001, we entered into a $200 million 364-day unsecured revolving
credit facility with a one year term-out option and a $400 million five-year
unsecured revolving credit facility, both with a syndicate of financial
institutions. The credit facilities contain certain representations and
warranties; conditions; affirmative, negative and financial covenants; and
events of default customary for such facilities. Interest rates charged on
borrowings outstanding under the credit facilities are based on prevailing
market rates. No amounts were outstanding under the facilities at June 30, 2002
or December 31, 2001.
In June 2002, the Company issued $300 million of senior unsecured notes due in
2009. The notes were sold privately pursuant to Rule 144A and Regulation S of
the Securities Act. The net proceeds from the notes were used to repay a portion
of our short-term debt with the remainder available for general corporate
purposes. The notes bear interest at an annual rate of 7.125%, payable
semi-annually in arrears on each June 15 and December 15, beginning December 15,
2002, and contain certain convenants typical of this type of debt instrument.
We believe that our current focus on improving free cash flow and a continued
focus on balance sheet management has increased our ability to generate cash.
During the first six months of 2002, we generated a $122 million free cash flow
improvement over the comparable period in 2001, which was primarily driven by
improved working capital and reduced
19
capital spending. Our cash flows from operations, the credit facilities
(existing or future arrangements), the 7.125% senior notes, and other short- and
long-term debt financings, will be sufficient to satisfy our future working
capital, research and development, capital expenditures and other financing
requirements for the foreseeable future. Our ability to generate positive cash
flows from operations is dependent on general economic conditions, competitive
pressures, and other business and risk factors described below in Management's
Discussion and Analysis of Financial Condition and Results of Operations. If we
are unable to generate sufficient cash flows from operations, or otherwise
comply with the terms of our credit facilities and the 7.125% senior notes, we
may be required to refinance all or a portion of our existing debt or seek
additional financing alternatives.
Contractual and Other Commercial Commitments: There has been no significant
change in our contractual and other commercial commitments as described in our
2001 Annual Report to Stockholders and Form 10-K for the year ended December 31,
2001.
Factors That May Affect Future Results
This quarterly report and other documents that we file with the SEC, as well as
other oral or written statements we may make from time to time, contain
information based on management's beliefs and include forward-looking statements
(within the meaning of the Private Securities Litigation Reform Act of 1995)
that involve a number of known and unknown risks, uncertainties and assumptions.
These forward-looking statements are not guarantees of future performance, and
there are a number of factors including, but not limited to, those listed below,
which could cause actual outcomes and results to differ materially from the
results contemplated by such forward-looking statements. 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.
Competition
- -----------
Our ability to compete effectively within the technology industry is critical to
our future success.
We operate in the intensely competitive information technology industry. This
industry is characterized by rapidly changing technology, evolving industry
standards, frequent new product introductions, price and cost reductions, and
increasingly greater commoditization of products making differentiation
difficult. Our competitors include other large, successful companies in the
technology industry such as: International Business Machines Corporation (IBM),
Oracle Corporation, Unisys Corporation, Diebold, Inc. and Wincor Nixdorf GmbH &
Co., some of which have widespread penetration of their platforms and service
offerings. In addition, we compete with companies in specific markets such as,
self-check out, electronic shelf labels, entry-level ATMs and consumable media
products.
We offer a broad suite of consulting and support services across our Data
Warehousing, Financial Self Service, and Retail Store Automation segments. We
compete with companies such as IBM, Unisys Corporation, Getronics and Diebold,
Inc. in consulting and support services, and we partner with companies such as
Cisco Systems, Sun Microsystems, and Nortel Networks to deliver IT
infrastructure services solutions who also offer consulting and support
services.
Our ability to maintain and gain market share, including our efforts to
penetrate developing and emerging markets, is dependent in part on how rapidly
we react to competitive product and pricing pressures from our competition. Our
future competitive performance depends on a number of factors, including our
ability to: rapidly and continually design, develop and market, or otherwise
maintain and introduce solutions and related products and services for our
customers that are competitive in the marketplace; react on a timely basis to
shifts in market demands, such as a possible shift toward industry standard
"open" platforms for data warehousing solutions; reduce costs without creating
operating inefficiencies; maintain competitive operating margins; improve
product and service delivery quality; and market and sell all of our diverse
solutions effectively. In addition, our business and operating performance could
be impacted by external competitive pressures, such as increasing price erosion,
particularly in the industries targeted by our more mature solution offerings
such as Retail Store Automation and Financial Self Service Solutions. Our
customers finance many of our product sales through third party financing
companies. In case of customer default, these financing companies may be forced
to sell this equipment at discounted prices impacting our ability to sell new
solutions. The impact of these competitive product and pricing pressures could
include lower customer satisfaction, decreased demand for our solutions and loss
of market share, and reduction of operating profits.
20
Introduction of New Solutions
The solutions we sell are very complex, and we need to rapidly and successfully
develop and introduce new solutions.
We operate in a very competitive, rapidly changing environment, and our future
business and operating results depend in part on our ability to develop and
introduce new solutions that our customers choose to buy. This includes our
efforts to rapidly develop and introduce next generation software applications
and to acquire and maintain strong relationships with our key software
suppliers, especially for our data warehousing business. The development process
for our complex solutions, including our software application development
programs, requires high levels of innovation from both our developers and our
suppliers of the components embedded in our solutions. In addition, the
development process can be lengthy and costly.
It requires us to commit a significant amount of resources to bring our business
solutions to market. If we are unable to anticipate our customers' needs and
technological trends accurately, or are otherwise unable to complete development
efficiently, we would be unable to introduce new solutions into the market on a
timely basis, if at all, and our business and operating results would be
impacted. Likewise, we sometimes make commitments to customers regarding new
technologies, and our results could be impacted if we are unable to deliver such
technologies as planned. In addition, if we are unable to successfully market
and sell both existing and newly developed solutions, such as our electronic
shelf labels, self-checkout technologies, and full-function ATMs and outsourcing
solutions, our business and operating results would be impacted.
Our solutions, which contain both hardware and software products, may contain
known as well as undetected errors which may be found after the products'
introduction and shipment. While we attempt to remedy errors that we believe
would be considered critical by our customers prior to shipment, we may not be
able to detect or remedy all such errors, and this could result in lost
revenues, delays in customer acceptance and incremental costs, which would all
impact our business and operating results.
Reliance on Third Parties
- -------------------------
Third party suppliers provide important elements to our solutions.
We rely on many suppliers for necessary parts and components to complete our
solutions. In most cases, there are a number of vendors producing the parts and
components that we utilize. However, there are some components that are
purchased from single sources due to price, quality, technology or other
reasons. For example, we depend on chips and microprocessors from Intel
Corporation and operating systems from UNIX(R) and Microsoft Windows NT(R).
Certain parts and components used in the manufacture of our ATMs and the
delivery of some of our Retail Store Automation solutions are also supplied by
single sources. If we were unable to purchase the necessary parts and components
from a particular vendor and we had to find an alternative supplier for such
parts and components, our new and existing product shipments and solutions
deliveries 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. Many different
relationships are formed by these alliances such as outsourcing arrangements to
manufacture hardware and subcontract agreements with third parties to perform
services and provide products and software to our customers in connection with
our solutions. For example, we rely on third parties for cash replenishment
services for our ATM products. These alliances introduce risks that we cannot
control such as non-performance by third parties and difficulties with or delays
in integrating elements provided by third parties into our solutions.
Lack of information technology infrastructure, manual processes, and data
integrity issues of smaller suppliers can also create product time delays,
inventory and invoicing problems, staging delays, as well as other operating
issues. The failure of third parties to provide high quality products or
services that conform to the required specifications or contractual arrangements
could impair the delivery of our solutions on a timely basis, create exposure
for non-compliance with our contractual commitments to our customers and impact
our business and operating results.
Acquisitions and Alliances
- --------------------------
Our ability to successfully integrate acquisitions or effectively manage
alliance activities will help drive future growth.
As part of our overall solutions strategy, we intend to continue to make
investments in companies, products, services and technologies, either through
acquisitions, joint ventures or strategic alliances. Acquisitions and alliance
activities inherently involve risks. The risks we may encounter include those
associated with assimilating and integrating different business operations and
control procedures, corporate cultures, personnel, infrastructures and
technologies or products acquired or
21
licensed, retaining key employees and the potential for unknown liabilities
within the acquired or combined business. The investment or alliance may also
disrupt our ongoing business, or we may not be able to successfully incorporate
acquired products, services or technologies into our solutions and maintain
quality. Further, we may not achieve the projected synergies once we have
integrated the business into our operations.
It is our policy not to discuss or comment upon negotiations regarding such
business combinations or divestitures until a definitive agreement is signed or
circumstances indicate a high degree of probability that a material transaction
will be consummated, unless the law requires otherwise.
Operating Result Fluctuations
- -----------------------------
Our revenues and operating results could fluctuate for a number of reasons.
Future operating results could continue to be subject to fluctuations based on a
variety of factors, including:
Seasonality. Our sales are historically seasonal, with revenue higher in the
fourth quarter of each year. During the three quarters ending in March, June and
September, we have historically experienced less favorable results than in the
quarter ending in December. Such seasonality also causes our working capital
cash flow requirements to vary from quarter to quarter depending on the
variability in the volume, timing and mix of product sales. In addition, revenue
in the third month of each quarter is typically higher than in the first and
second months. These factors, among other things, make forecasting more
difficult and may adversely affect our ability to predict financial results
accurately.
Acquisitions and Alliances. As part of our solutions strategy, we intend to
continue to selectively acquire technologies, products and businesses as well as
form strategic alliances and joint ventures. As these activities take place and
we begin to include the financial results related to these investments, our
operating results will fluctuate.
Cost/Expense Reductions. We are actively working to manage our costs and
expenses to continue to improve operating profitability without jeopardizing the
quality of our products or the efficiencies of our operations. We are also
striving to become the leading, low-cost provider of certain Financial Self
Service and Retail Store Automation solutions. Our success in achieving targeted
cost and expense reductions depends on a number of factors, including our
ability to achieve infrastructure rationalizations, drive lower component costs,
improve supply chain efficiencies, implement Six Sigma(R) practices, improve
accounts receivable collections, and reduce inventory overhead, among other
things. If we do not successfully complete our cost reduction initiatives, our
results of operation or financial condition could be adversely affected.
Contractual Obligations of Consulting Services. We maintain a professional
services consulting workforce to fulfill contracts that we enter into with our
customers that may extend to multiple periods. Our profitability may be impacted
if we are not able to control costs and maintain utilization rates. Our
profitability is largely a function of performing to customer contractual
arrangements within the estimated costs to perform these obligations. If we
exceed these estimated costs, our profitability under these contracts may be
negatively impacted. In addition, if we are not able to maintain appropriate
utilization rates for our professionals, we may not be able to sustain our
profitability.
Multinational Operations
- ------------------------
Continuing to generate substantial revenues from our multinational operations
helps to balance our risks and meet our strategic goals.
Currently, approximately 57% of our revenues come from outside the United
States. We believe that our geographic diversity may help to mitigate some risks
associated with geographic concentrations of operations (e.g., adverse changes
in foreign currency exchange rates, deteriorating economic environment or
business disruptions due to economic or political uncertainties). However, our
ability to sell our solutions domestically in the United States and
internationally is subject to the following risks, among others: general
economic and political conditions in each country which could adversely affect
demand for our solutions in these markets; currency exchange rate fluctuations
which could result in lower demand for our products as well as generate currency
translation losses; changes to and compliance with a variety of local laws and
regulations which may increase our cost of doing business in these markets or
otherwise prevent us from effectively competing in these markets; 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, to meet commitments.
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Work Environment
- ----------------
Employees. Our employees are vital to our success. Our ability to attract and
retain highly skilled technical, sales, consulting and other key personnel is
critical, as these key employees are difficult to replace. If we are not able to
attract or retain highly qualified employees by offering competitive
compensation, secure work environments and leadership opportunities now and in
the future, our business and operating results could be impacted.
Internal Controls / Accounting Policies and Practices / Information Systems. Our
internal controls, accounting policies and practices, and internal information
systems enable us to capture and process transactions in a timely and accurate
manner in compliance with generally accepted accounting principles, laws and
regulations, taxation requirements and federal securities laws and regulations.
While we believe these controls, policies, practices, and systems are adequate
to ensure data integrity, unanticipated and unauthorized actions of employees
could lead to improprieties that could impact our financial condition or results
of operation.
It is necessary periodically to replace, upgrade or modify our internal
information systems. If we are unable to replace, upgrade, or modify such
systems in a timely and cost effective manner, especially in light of strains on
information technology resources, our ability to capture and process financial
transactions and therefore our financial condition or results of operation may
be impacted.
Intellectual Property
- ---------------------
As a technology company, our intellectual property portfolio is key to our
future success.
Our intellectual property portfolio is a key component of our ability to be a
leading technology and services solutions provider. To that end, we aggressively
protect and work to enhance our proprietary rights in our intellectual property
through patent, copyright, trademark and trade secret laws, and if our efforts
fail, our business could be impacted. In addition, many of our offerings rely on
technologies developed by others, and if we are not able to continue to obtain
licenses for such technologies, our business would be impacted. There has been a
recent increase in the issuance of software and business method patents and more
companies are aggressively enforcing their intellectual property rights. This
trend could impact NCR because from time to time we receive notices from third
parties regarding patent and other intellectual property claims. Whether such
claims are with or without merit, they may require significant resources to
defend and, if an infringement claim is successful, in the event we are unable
to license the infringed technology or to substitute similar non-infringing
technology, our business could be adversely affected.
Economic Pressures
- ------------------
Our business is affected by the global economies in which we operate.
The recent economic downturn and the subsequent decline in capital spending by
many industries, particularly retail and telecommunications, could impact our
ability to meet our commitments to customers, the ability of our suppliers to
meet their commitments to us, the timing of purchases (including upgrades to
existing data warehousing solutions and retail point of sale solutions) by our
current and potential customers, or the ability of our customers to fulfill
their obligations to us on a timely basis. The extent of this impact, if any, is
dependent on a number of factors, including the duration and intensity of the
downturn, its effect on the markets in general and other general economic and
business conditions.
Environmental
- -------------
Our historical and ongoing manufacturing activities subject us to environmental
exposures.
We have been identified as a potentially responsible party in connection with
the certain environmental matters, including the Fox River matter, as further
described in "Environmental Matters" under Note 6 of Notes to Condensed
Consolidated Financial Statements, and we incorporate such discussion in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations by reference and make it a part of this risk factor.
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Contingencies
- -------------
Like other technology companies, we face uncertainties with regard to
regulations, lawsuits and other related matters.
We are subject to proceedings, lawsuits, claims and other matters, including
those that relate to the environment, health and safety, employee benefits,
export compliance, intellectual property and other regulatory compliance and
general matters. Such matters are subject to the resolution of many
uncertainties; thus, outcomes are not predictable with assurance. While we
believe that amounts provided in our financial statements are currently adequate
in light of the probable and estimable liabilities, there can be no assurances
that the amounts required to discharge alleged liabilities from lawsuits, claims
and other legal proceedings and environmental matters, and to comply with
applicable environmental laws, will not impact future operating results.
Additionally, we are subject to diverse and complex laws and regulations,
including those relating to corporate governance, public disclosure and
reporting, which are rapidly changing and subject to many possible changes in
the future. Although we do not believe that recent regulatory and legal
initiatives will result in significant changes to our internal practices or our
operations, rapid changes in accounting standards, taxation requirements
(including tax rate changes, new tax laws, and revised tax interpretations), and
federal securities laws and regulations, among others, may create substantial
cost to our organization and could impact our future operating results.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 145
In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of
April 2002" (SFAS 145). SFAS 145, rescinds FASB Statement No. 4, Reporting Gains
and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB
Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. SFAS 145 also rescinds FASB Statement No. 44, Accounting for
Intangible Assets of Motor Carriers. SFAS 145 amends FASB Statement No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of SFAS
145 shall be applied in fiscal years beginning after May 15, 2002. We do not
expect this standard to have any material impact on our consolidated financial
position, results of operations or cash flows.
Statement of Financial Accounting Standards No. 146
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS
146). SFAS 146 replaces EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring)." This Statement requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. We will evaluate the impact of this standard on our
consolidated financial position, results of operations or cash flows prior to
the effective date of December 31, 2002.
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Key Accounting Policies
- -----------------------
We are updating our key accounting policies as described in our 2001 Annual
Report to Stockholders and Form 10-K for the year ended December 31, 2001 by
adding a description of our Customer Service Maintenance Annuity Methodology to
the Use of Estimates disclosure. In addition, we are also clarifying
descriptions to our Pension, Postemployment and Postretirement disclosure.
Customer Service Maintenance Annuity Methodology: Methods used to develop
business segment financial information can be complex, and involve significant
management estimates and judgments. The current method used to develop business
segment financial information includes assigning customer revenue to the
appropriate segment using specific identification. Cost of revenue is allocated
based on a plan standard margin by segment with the over/under absorption to the
plan standard margin allocated based primarily on revenue as compared to plan.
Plan standard margins are developed with the following assumptions: historic
hours by customer engineer by segment driving salaries and salary related costs,
parts costs based on a plan percent of revenue, outside services based on
historic costs by segment, with the remainder of the costs allocated on revenue
and other methods. This methodology applies to Retail Store Automation,
Financial Self Service, Payment and Imaging, and Other as these segments utilize
a combined workforce and share some common parts. Customer services maintenance
costs are more directly aligned to the Data Warehousing segment thus fewer
estimates are utilized for this segment. Systemedia is not impacted by these
allocation methods. Management will continue to refine our financial reporting
processes, including this allocation methodology to reflect business trends.
Pension, Postemployment and Postretirement. We estimate the expected return on
plan assets, discount rate, involuntary turnover rate, rate of compensation
increase and future health care costs, among other things, and rely on actuarial
estimates, to assess the future potential liability and funding requirements of
our pension, postemployment (severance, disability, medical) and postretirement
(medical, life insurance) plans. These estimates, if incorrect, could have a
significant impact on our consolidated financial position, results of operations
or cash flows.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
We are exposed to market risk, including changes in foreign currency exchange
rates and interest rates. We use a variety of measures to monitor and manage
these risks, including derivative financial instruments. Since 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 significantly impacted by changes
in foreign currency exchange rates. To manage our exposures to changes in
currency exchange rates, we enter into various derivative financial instruments
such as forward contracts and options. These instruments generally mature within
12 months. At inception, select derivative instruments are designated as
cash-flow hedges of inventory purchases and sales, and of certain financing
transactions that are firmly committed or forecasted. Gains and losses on
qualifying cash-flow hedge transactions are deferred and recognized in the
determination of income when the underlying transactions are realized, canceled
or otherwise terminated. When hedging certain foreign currency transactions of a
long-term investment nature, gains and losses are recorded in the currency
translation adjustment component of stockholders' equity. Gains and losses on
other foreign exchange contracts are recognized in other income or expense as
exchange rates change.
For purposes of potential risk analysis, we use sensitivity analysis to quantify
potential impacts that market rate changes may have on the fair values of our
hedge portfolio related to firmly committed or forecasted transactions. The
sensitivity analysis represents the hypothetical changes in value of the hedge
position and does not reflect the related gain or loss on the forecasted
underlying transaction. As of June 30, 2002 and 2001, a 10% appreciation in the
value of the U.S. dollar against foreign currencies from the prevailing market
rates would result in a $43 million increase or a $43 million increase in the
fair value of the hedge portfolio, respectively. Conversely, a 10% depreciation
of the U.S. dollar against foreign currencies from the prevailing market rates
would result in a $43 million decrease or an $8 million decrease in the fair
value of the hedge portfolio as of June 30, 2002 and 2001, respectively.
The interest rate risk associated with our borrowing and investing activities at
June 30, 2002 was not material in relation to our consolidated financial
position, results of operations or cash flows. Historically, we have not used
derivative financial instruments to alter the interest rate characteristics of
our investment holdings or debt instruments, but could do so in the future.
We utilize non-exchange traded financial instruments such as foreign exchange
forward contracts and options that we purchase exclusively from large financial
institutions. Additionally, we utilize put option contracts that are not
exchange traded as described in Note 5 of the Notes to Condensed Consolidated
Financial Statements. With respect to foreign exchange contracts, we record
these on our balance sheet at fair market value based upon market-price
quotations from the financial institutions. Accordingly, we do not enter into
non-exchange traded contracts that require the use of fair value estimation
techniques, and that would have a material impact on our financial results.
We are potentially subject to concentrations of credit risk on accounts
receivable and financial instruments such as hedging instruments, short-term
investments, 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. Our 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, we could be exposed to potentially
significant losses. Moreover, the recent downturn in the global economy could
have an adverse impact on the ability of our customers to pay their obligations
on a timely basis. However, we believe that the reserves for potential losses
are adequate. At June 30, 2002 and 2001, we did not have any major concentration
of credit risk related to financial instruments.
26
Part II. Other Information
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were three matters submitted to a vote of security holders during the
second quarter of 2002 in connection with NCR's Annual Meeting of Stockholders
on April 24, 2002. Item 4 of NCR's Report on Form 10-Q for the period ended
March 31, 2002, discusses such matters and we incorporate such discussion into
Item 4 of this report by reference and make it a part hereof.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Amendment and Restatement of NCR Corporation as
amended May 14, 1999 (incorporated by reference to Exhibit 3.1
from the NCR Corporation Form 10-Q for the period ended June 30,
1999) and Articles Supplementary of NCR Corporation (incorporated
by reference to Exhibit 3.1 from the NCR Corporation Annual
Report on Form 10-K for the year ended December 31, 1996 (the
"1996 NCR Annual Report")).
3.2 Bylaws of NCR Corporation, as amended and restated on July 24,
2002.
4.1 Common Stock Certificate of NCR Corporation (incorporated by
reference to Exhibit 4.1 from the NCR Corporation Annual Report
on Form 10-K for the year ended December 31, 1999).
4.2 Preferred Share Purchase Rights Plan of NCR Corporation, dated as
of December 31, 1996, by and between NCR Corporation and The
First National Bank of Boston (incorporated by reference to
Exhibit 4.2 from the 1996 NCR Annual Report).
4.3 NCR Corporation hereby agrees to furnish the Securities and
Exchange Commission, upon its request, a copy of any instrument
which defines the rights of holders of long-term debt of NCR
Corporation and all of its subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed, and
which does not exceed 10% of the total assets of NCR Corporation
and its subsidiaries on a consolidated basis.
4.4 Indenture, dated as of June 1, 2002, between NCR Corporation and
The Bank of New York.
4.5 Registration Rights Agreement, dated June 6, 2002, by and between
NCR Corporation and Salomon Smith Barney Inc., Banc One Capital
Markets, Inc., BNY Capital Markets, Inc., Fleet Securities, Inc.,
J.P. Morgan Securities Inc. and McDonald Investments Inc.,
relating to $300,000,000 principal amount of 7.125% Senior Notes
due 2009.
4.6(a-c) Terms of 7.125% Senior Notes due 2009, including the form of
notes.
10.1 Purchase Agreement, dated June 6, 2002, by and between NCR
Corporation and Salomon Smith Barney Inc., Banc One Capital
Markets, Inc., BNY Capital Markets, Inc., Fleet Securities, Inc.,
J.P. Morgan Securities Inc. and McDonald Investments Inc.,
relating to $ 300,000,000 principal amount of 7.125% Senior Notes
due 2009.
27
(b) Reports on Form 8-K
NCR filed a Current Report on Form 8-K dated April 23, 2002, which
reported under Item 5 of such form the Press Release addressing NCR's
results for the first quarter of 2002. NCR filed a Current Report on
Form 8-K dated April 29, 2002, which reported under Item 5 of such
form the purchase of 25,000 shares of NCR stock by Lars Nyberg,
Chairman and Chief Executive Officer of NCR Corporation. NCR filed a
Current Report on Form 8-K dated May 30, 2002, which reported under
Item 5 of such form the Press Release announcing NCR's intention to
raise $300 million through a Rule 144A offering of senior unsecured
notes due in 2009.
Teradata is either a registered trademark or trademark in the United States
and/or other countries. UNIX is either a registered trademark or trademark of
The Open Group in the United States and/or other countries. Windows NT is either
a registered trademark or trademark of Microsoft Corporation in the United
States and/or other countries. Six Sigma is either a registered trademark or
trademark of Motorola, Inc. in the United States and/or other countries.
28
SIGNATURES
Pursuant 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 its
behalf by the undersigned, thereunto duly authorized.
NCR CORPORATION
Date: August 13, 2002 By: /s/ Earl Shanks
----------------------------------
Earl Shanks, Senior Vice President
and Chief Financial Officer
29