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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 per New York Stock Exchange
share
Securities to be registered pursuant to Section 12(g) of the Act: None
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 28, 2002 was approximately $4.1 billion. At February
28, 2002, there were 98,013,651 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II: Portions of the registrant's Annual Report to Stockholders
for the year ended December 31, 2001.
Part III: Portions of the registrant's Proxy Statement, dated March
13, 2002, issued in connection with the annual meeting of
stockholders.
TABLE OF CONTENTS
Item Description Page
- ---- ----------- ----
PART I
1. Business.................................................................................. 1
2. Properties................................................................................ 4
3. Legal Proceedings......................................................................... 4
4. Submission of Matters to a Vote of Security Holders....................................... 4
4.(a) Executive Officers of the Registrant...................................................... 4
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters................. 6
6. Selected Financial Data................................................................... 6
7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 6
7.(a) Quantitative and Qualitative Disclosures about Market Risk................................ 17
8. Financial Statements and Supplementary Data............................................... 18
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 18
PART III
10. Directors and Executive Officers of the Registrant........................................ 19
11. Executive Compensation.................................................................... 19
12. Security Ownership of Certain Beneficial Owners and Management............................ 19
13. Certain Relationships and Related Transactions............................................ 19
PART IV
14. Financial Statement Schedules, Reports on Form 8-K and Exhibits........................... 20
This Report contains trademarks, service marks, and registered marks of the
Company and its subsidiaries, and other companies, as indicated.
PART I
Item 1. BUSINESS
General
NCR Corporation and its subsidiaries (NCR or the Company) provide solutions
worldwide that are designed specifically to enable businesses to build, expand
and enhance their relationships with their customers by facilitating
transactions and transforming data from transactions into useful business
information.
Through the Company's presence at customer interaction points, such as
point-of-sale workstations, automated-teller machines (ATMs) and web-enabled
kiosks, NCR's Retail Store Automation and Financial Self Service solutions
enable companies to capture and process transaction-based information. NCR's
Data Warehousing solutions transform transaction-based information into
knowledge, permitting businesses to respond with programs designed to improve
customer acquisition, retention and profitability. The Company offers specific
solutions for the retail and financial industries and also provides solutions
for industries including telecommunications, transportation, insurance,
utilities and electronic commerce, as well as consumer goods manufacturers and
government entities. These solutions are built on a foundation of
long-established industry knowledge and consulting expertise, a range of
hardware technology, value-adding software, global customer support services and
a complete line of consumable media products.
NCR was originally incorporated in 1884 and was a publicly traded company on the
New York Stock Exchange prior to its merger with a wholly-owned subsidiary of
AT&T Corp. (AT&T) on September 19, 1991. Effective December 31, 1996, AT&T
distributed to its stockholders all of its interest in NCR (the Distribution) on
the basis of one share of NCR common stock for each 16 shares of AT&T common
stock. The Distribution resulted in approximately 101.4 million shares of NCR
common stock outstanding as of December 31, 1996. NCR common stock is listed on
the New York Stock Exchange and trades under the symbol "NCR".
Revenue by similar classes of products and services is reported on page 40 of
NCR's 2001 Annual Report to Stockholders as part of Note 10, "Segment
Information and Concentrations," and is incorporated herein by reference.
Geographic information is reported on page 41 of NCR's 2001 Annual Report to
Stockholders as part of Note 10, "Segment Information and Concentrations," and
is incorporated herein by reference.
NCR operates in one industry, the information technology industry, and
categorizes its operations into six reportable segments: Data Warehousing
solutions, Financial Self Service solutions, Retail Store Automation solutions,
Systemedia, Payment and Imaging solutions, and Other, each of which is described
below. Each solution generally combines hardware, software, professional
consulting services, customer support services, and third party applications and
technologies.
Data Warehousing Solutions
Products, Services and Solutions
Data Warehousing solutions combine hardware (e.g., servers and disk storage
systems), software (e.g., Teradata(R) database and data mining software, and
customer relationship management applications), professional consulting
services, customer support services and products from leading technology firms.
NCR's Data Warehousing solutions help businesses synthesize and leverage
detailed data about customers, suppliers and partners into opportunities to
develop and strengthen their relationships with those parties.
Target Markets and Distribution Channels
The major industry markets served by NCR's Data Warehousing solutions include
the retail, financial, telecommunications, transportation, insurance, utilities
and electronic commerce industries, as well as consumer goods manufacturers and
government entities.
Data Warehousing solutions are delivered through a combination of direct and
indirect channels. In recent years, over 90% of NCR's revenues from the Data
Warehousing segment have been generated by the Company's direct sales force. The
remaining revenues have historically been generated from the indirect channel
and through alliances with value-added resellers, distributors and original
equipment manufacturers.
Competition
NCR faces competition in the industries served by the Data Warehousing solutions
in all geographic areas where it operates. NCR believes that key competitive
factors in these markets are vendor experience, the breadth and depth of
customer base, customer referrals, database sophistication, support and
professional service capabilities, quality of the solutions or products, total
cost of ownership and industry knowledge of the vendor and platform scalability.
In addition, the movement toward common industry standards (such as Intel
processors and UNIX(R) and Microsoft operating systems) has accelerated product
development, but has also made differentiation more difficult. Hardware and
operating system commoditization has extended beyond PCs into the server
business. In the markets in which the Data Warehousing solutions compete,
customers require applications, database software, system software, hardware,
professional services systems integration skills and ongoing solution support.
Many competitors offer one or two of these components, but NCR believes it is
one of few companies that can provide
1
complete, open solutions that include all of these customer requirements. NCR's
competitors include companies such as International Business Machines (IBM) and
Oracle Corporation.
Financial Self Service Solutions
Products, Services and Solutions
Providing an extensive line of ATMs, and related software and services, NCR's
Financial Self Service solutions are designed to quickly and reliably process
high volumes of consumer transactions. Incorporating advanced features such as
web enablement, automated check cashing and deposit, bill payment and the sale
of non-cash items, Financial Self Service solutions enable businesses to reduce
costs, generate new revenue streams and build customer loyalty.
Target Markets and Distribution Channels
NCR's Self Service solutions primarily serve the financial services industry
with particular focus on retail banking which includes traditional providers of
consumer banking and financial services. Self Service solutions also serve the
retail markets through convenience banking products designed to complement their
core businesses. Self Service solutions' customers are located throughout the
world in both established and emerging markets.
NCR has historically distributed most of its Self Service products and services
through NCR's direct sales channel, although certain revenues are derived
through sales by distributors. Approximately 75% of the traditional Self Service
product and service sales were sold by the direct sales force; the remainder was
sold through indirect channels.
Competition
NCR faces competition in the financial services industry in all geographic areas
where it operates. The primary areas of competition can vary, but typically
include: quality of the solutions or products, total cost of ownership, industry
knowledge of the vendor, the vendor's ability to provide and support a total
end-to-end solution, the vendor's ability to integrate new and existing systems,
the fit of the vendor's strategic vision with the customer's strategic
direction, and the quality of the vendor's support and consulting services.
NCR's primary competitors are Diebold, Inc. and Wincor Nixdorf Gmbh & Co.
(Wincor Nixdorf), but other competitors exist and vary by product and service
offering, as well as geographic area.
Retail Store Automation Solutions
Products, Services and Solutions
Combining NCR's retail industry expertise, software and hardware technologies,
and implementation, consulting and maintenance services, Retail Store Automation
solutions deliver traditional retail solutions such as point-of-sale
workstations and scanners, as well as advanced solutions in the emerging areas
of self-checkout technologies, web-enabled kiosks and electronic shelf labels.
NCR's Retail Store Automation solutions are designed to improve selling
productivity and checkout processes, and increase service levels for retailers.
Target Markets and Distribution Channels
Primarily serving the retail industry, NCR delivers Store Automation solutions
for the general merchandise, food and drug, and hospitality segments. The
general merchandise segment includes department stores, specialty retailers,
mass merchandisers and catalog stores. The food and drug segment includes
supermarkets, hypermarkets, grocery, drug, wholesalers and convenience stores.
The hospitality segment includes lodging (hotel/motel), fast food/quick service
and other restaurants.
NCR's Store Automation solutions are offered through a combination of direct and
indirect channels. The majority (over 90% in recent years) of solutions are sold
by NCR's direct sales force, with the remainder sold through alliances with
value-added resellers, distributors and dealers. NCR provides supporting
services, including collateral sales materials, sales leads, porting facilities
and marketing programs to the sales channel.
Competition
NCR faces competition in the retail industry in all geographic areas where it
operates. The Company believes that key competitive factors can vary by
geographic area but typically include quality of the solutions or products,
total cost of ownership, industry knowledge of the vendor, and knowledge,
experience and quality of the vendor's consulting and support services. NCR's
competitors vary by market segment, product, service offering and geographic
area, and include IBM and Wincor Nixdorf among others.
Systemedia
Products
Systemedia develops, produces and markets a complete line of business
consumables to complement the Company's solutions. These products include paper
rolls for ATMs and point-of-sale workstations, labels, paper products, and
imaging supplies for ink jet, laser, impact and thermal-transfer printers.
Systemedia products are designed to reduce paper-related failures and enable
businesses to improve transaction accuracy while reducing overall costs.
Target Markets and Distribution Channels
The major industry segments targeted by Systemedia include general merchandise,
food and drug, hospitality, financial services and consumer goods manufacturing.
Systemedia has a direct sales force in 28 countries focused on providing
solutions to major accounts. In addition, Systemedia products are sold through
office product resellers, value-added resellers, telemarketing and the Internet
(via NCR's TeleWeb initiative).
2
Competition
Competition in the consumable and media solutions business is significant and
varies by geographic area and product group. The primary areas of competitive
differentiation are typically quality, logistics and supply chain management
expertise, and total cost of ownership. While price is always a factor,
Systemedia focuses on total cost of ownership for all of its products. Total
cost of ownership takes into account not only the per unit cost of the media,
but also service, usage and support costs over the life of the system.
Payment and Imaging Solutions
Products, Services and Solutions
Consisting of hardware, software, professional consulting services and customer
support services, NCR's comprehensive Payment and Imaging solutions enable check
and item-based transactions to be digitally captured, processed and retained
within a flexible, scalable environment. Payment and Imaging solutions utilize
advanced image recognition and workflow technologies to automate item
processing, helping financial industry businesses increase efficiency and reduce
operating costs.
Target Markets and Distribution Channels
NCR's Payment and Imaging solutions primarily serve the financial services
industry with particular focus on retail banking, insurance and credit card
operations. Efficiently processing high volumes of remittances, Payment and
Imaging solutions also serve markets outside of the financial services
industries, such as utility companies. Payment and Imaging solutions customers
are located throughout the world.
NCR has historically distributed most of its Payment and Imaging products and
services through NCR's direct sales channel, although certain revenues are
derived through sales by distributors. Approximately 75% of the traditional
Payment and Imaging product sales were sold by the direct sales force; the
remainder was sold through indirect channels.
Competition
NCR faces competition in the financial services industry in all geographic areas
where it operates. The primary areas of competition can vary, but typically
include: quality of the solutions or products, total cost of ownership, industry
knowledge of the vendor, the vendor's ability to provide and support a total
end-to-end solution, the vendor's ability to integrate new and existing systems,
the fit of the vendor's strategic vision with the customer's strategic
direction, and the quality of the vendor's support and consulting services.
NCR's competitors vary by product, service offering and geographic area, and
include IBM and Unisys Corporation among others.
Other
Other accumulates individually insignificant and dissimilar businesses, such as
exited businesses, networking hardware and services, and managed services, which
are not attributable to the reportable segments identified above.
Research and Development
Information regarding research and development activities is included in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of this report under the caption "Operating Expenses."
Seasonality
Information regarding seasonality is included in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," of
this report under the caption "Operating Result Fluctuations."
Backlog
NCR believes that backlog is not a meaningful indicator of future business
prospects due to the shortening of product delivery schedules and the
significant portion of revenue related to its customer support services
business, for which order information is not recorded.
Sources and Availability of Raw Materials
Information regarding sources and availability of raw materials is included in
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," of this report under the caption "Reliance on Third Parties."
Patents and Trademarks
NCR owns approximately 1,500 patents in the United States and slightly more in
foreign countries. The foreign patents are generally counterparts of NCR's
United States patents. Many of the patents owned by NCR are licensed to others
and NCR is licensed to use certain patents owned by others. While NCR's
portfolio of patents and patent applications in aggregate is of significant
value to NCR, the Company does not believe that any particular individual patent
is itself of material importance to NCR's business as a whole.
NCR has registered certain trademarks and service marks in the United States and
in a number of foreign countries. NCR considers the mark "NCR" and many of its
other trademarks and service marks to be valuable assets.
3
Employees
At February 28, 2002, NCR had approximately 30,445 employees and contractors.
Environmental Matters
Information regarding environmental matters is reported on pages 38 - 39 of
NCR's 2001 Annual Report to Stockholders as part of Note 9, "Commitments and
Contingencies," and is incorporated herein by reference.
Item 2. PROPERTIES
As of February 28, 2002, NCR operated approximately 584 facilities consisting of
approximately 13.0 million square feet throughout the world. On a square footage
basis, approximately 61% are owned and 39% are leased. Within the total facility
portfolio, NCR operates approximately 28 research and development and
manufacturing facilities totaling approximately 3.5 million square feet, 89% of
which is owned. The remaining 9.5 million square feet within the facility
portfolio includes office, repair, warehouse, and other miscellaneous sites, and
is 50% owned. NCR maintains facilities in 70 countries.
NCR's business units are headquartered in Dayton, Ohio (Financial Solutions
Division, Teradata Division and Systemedia Division) and Atlanta, Georgia
(Retail Solutions Division).
NCR believes its plants and facilities are suitable and adequate, and have
sufficient productive capacity to meet its current needs.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4. (a) EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of NCR (as of February 28, 2002) are as follows:
Name Age Position and Offices Held
- ---- --- -------------------------
Lars Nyberg 50 Chairman of the Board, Chief Executive Officer,
and President
Mark V. Hurd 45 President, NCR Corporation, and Chief Operating Officer,
Teradata Division
Howard Lance 46 President, NCR Corporation, and Chief Operating Officer, Retail
and Financial Group
Earl C. Shanks 45 Senior Vice President and Chief Financial Officer
Wilbert J. M. Buiter 43 Senior Vice President, Human Resources
Gerald A. Gagliardi 54 Senior Vice President, Worldwide Customer Services Division
Jonathan S. Hoak 52 Senior Vice President and General Counsel
Mark Quinlan 49 Vice President, Systemedia Division
Mohsen Sohi 42 Senior Vice President, Retail Solutions Division
Keith Taylor 51 Senior Vice President, Financial Solutions Division
NCR's Executive Committee
Lars Nyberg. Mr. Nyberg has been Chairman, Chief Executive Officer, and
President of NCR since June 1, 1995. Before joining NCR, from 1993 to 1995, Mr.
Nyberg was Chairman and Chief Executive Officer of the Communications Division
for Philips Electronics NV ("Philips"), an electronics and electrical products
company. He also served as a member of the Philips Group Management Committee
during that time. Mr. Nyberg is a director of Sandvik AB based in Sweden and
Snap-on Incorporated. He became a director of NCR in 1995.
4
Mark V. Hurd. Mr. Hurd is currently President, NCR Corporation, and Chief
Operating Officer of NCR's Teradata Division, a position he has held since July
2001. Prior to being named to this position, he was Executive Vice President and
Chief Operating Officer of NCR's Teradata Division, beginning in July 2000. From
November 1998 to June 2000, he was Senior Vice President, Teradata Solutions
Group, formerly known as the National Accounts Solutions Group. From 1995 to
November 1998, Mr. Hurd was Vice President, Worldwide Marketing and Americas
Sales.
Howard Lance. Howard Lance is currently President, NCR Corporation, and Chief
Operating Officer of NCR's Retail and Financial Group, a position he has held
since July 2001. Prior to joining NCR, from November 2000 to June 2001, he was
Executive Vice President of Emerson Electric Co.'s electronics and
telecommunications segment. From 1999 to November 2000, Mr. Lance was Group Vice
President of Emerson. From 1997 to 1999, he was Vice President and Chief
Executive Officer of Astec plc, a subsidiary of Emerson based in Hong Kong. From
1996 to 1997, Mr. Lance was Group Vice President of Copeland Refrigeration, a
division of Emerson.
Earl C. Shanks. Earl Shanks was appointed Senior Vice President and Chief
Financial Officer of NCR on September 10, 2001. Prior to assuming that position,
he was Vice President of Corporate Finance from December 1998 to September 2001.
From September 1997 to December 1998, Mr. Shanks was Vice President and
Corporate Controller, and from 1996 to September 1997 he was NCR's Treasurer.
Before joining NCR in 1996, Mr. Shanks was Vice President and Treasurer at Fruit
of the Loom, Inc.
NCR's Other Executive Officers
Wilbert Buiter. Wilbert Buiter has been Senior Vice President, Human Resources,
of NCR since August 1, 1998. Prior to joining NCR, Mr. Buiter spent 15 years
with Philips Electronics in a variety of operations, staff and managerial human
resources assignments. From July 1997 to July 1998, he served as Senior Vice
President, Human Resources, for Philips Consumer Communications, a joint venture
between Philips and Lucent Technologies Inc. From 1995 to July 1997, Mr. Buiter
was Senior Executive Officer of Philips' Consumer Communications division.
Gerald A. Gagliardi. Gerald Gagliardi joined NCR as Senior Vice President,
Worldwide Customer Services Division on January 19, 2001. From June 2000 to
January 2001, he served as a consultant to E. M. Warburg Pincus & Company, LLC,
where he was engaged in acquisitions in the services industry. From October 1999
to June 2000, he also served as President and Chief Executive Officer of Inacom
Corp. In June 2000, Inacom Corp. filed for bankruptcy protection under Chapter
11 of the United States Bankruptcy Code. Prior to that, he spent 28 years at the
Unisys Corporation where he held progressively senior management positions in
the company's services division, including Executive Vice President and
President of Global Customer Services from 1995 to 1999.
Jonathan S. Hoak. Jonathan Hoak became Senior Vice President and General Counsel
for NCR in December 1993. Prior to joining NCR, he was general attorney for AT&T
Corp.'s Federal Systems Division from 1990 to 1993, and, prior to that, was a
partner at the Sidley & Austin law firm.
Mark Quinlan. Mark Quinlan became Vice President and General Manager of NCR's
Systemedia Division on September 19, 2001, a position he held on an acting basis
since May 2001. Prior to assuming this position, from 1999 to 2001, he was Vice
President, Americas Sales for the Systemedia Division, and from 1996 to 1999, he
was Vice President, Global Marketing, Systemedia Division.
Mohsen Sohi. Mohsen Sohi joined NCR as Senior Vice President, Retail Solutions
Division, in January 2001 after more than 14 years at AlliedSignal, Inc. and its
post-merger successor, Honeywell International Inc. He most recently served as
President, Honeywell Electronic Materials, from July 2000 to January 2001. From
August 1999 to July 2000, Mr. Sohi was President, Commercial Vehicle Systems, at
AlliedSignal. Prior to that, from 1997 to August 1999, he was Vice President and
General Manager, Turbocharging Systems, and from 1995 to 1997, was Director of
Product Development and Technical Excellence, at AlliedSignal.
Keith Taylor. Mr. Taylor has been Senior Vice President, Financial Solutions
Division, since May 2001. Prior to that, he was Vice President, Systemedia, from
August 1999 to May 2001. From 1998 to August 1999, Mr. Taylor was Vice
President, Worldwide Customer Services, Asia/Pacific region. From 1997 to 1998,
he was Director of Logistics for NCR's Worldwide Customer Services,
Europe/Middle East/Africa region. From 1996 to 1997, Mr. Taylor was Director,
Customer Services, Northern Europe area, and from 1994 to July 1996, was Chief
Financial Officer for NCR's Worldwide Customer Services Group.
5
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
NCR common stock is listed on the New York Stock Exchange and trades under the
symbol "NCR." There were approximately 213,000 registered holders of record of
NCR common stock as of February 28, 2002. The following table presents the high
and low per share sales prices for NCR common stock for each quarter of 2001 and
2000.
2001 2000
---- ----
High Low High Low
1st Quarter $49.70 $37.50 1st Quarter $47.00 $32.94
2nd Quarter $50.00 $35.27 2nd Quarter $44.63 $34.75
3rd Quarter $48.65 $28.93 3rd Quarter $41.31 $32.38
4th Quarter $39.50 $28.59 4th Quarter $53.69 $37.69
NCR does not anticipate the payment of cash dividends on NCR common stock in the
foreseeable future. The declaration of dividends will be subject to the
discretion of the Board of Directors of NCR. Payment of dividends on NCR common
stock will also be subject to such limitations as may be imposed by NCR's credit
facilities from time to time.
Item 6. NCR CORPORATION SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 2001, which
appears on page 43 of NCR's 2001 Annual Report to Stockholders, is incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
As the Relationship Technology(TM) company, we provide the technology and
services that help businesses interact, connect and relate with their customers.
Through our presence at customer interaction points, such as point-of-sale
workstations, automated-teller machines (ATMs) and web-enabled kiosks, our
Retail Store Automation and Financial Self Service solutions enable companies to
capture and process transaction-based information. Our powerful Data Warehousing
solutions transform transaction-based information into knowledge, permitting
businesses to respond with programs designed to improve customer acquisition,
retention and profitability.
We offer specific solutions for the retail and financial industries and also
provide solutions for industries including telecommunications, transportation,
insurance, utilities and electronic commerce, as well as consumer goods
manufacturers and government entities. Our solutions are built on a foundation
of long-established industry knowledge and consulting expertise, a range of
hardware technology, value-adding software, global customer support services,
and a complete line of consumable and media products.
We deliver our solutions to customers on a global basis, and categorize our
results in four regions: the Americas, Europe/Middle East/Africa (EMEA), Japan
and Asia/Pacific excluding Japan (Asia/Pacific).
Revenue and Operating Margin by Solution
Our key solutions are categorized as Data Warehousing, Financial Self Service
and Retail Store Automation. In addition, Systemedia and our Payment and Imaging
solutions are reportable segments. A sixth category, Other, accumulates
individually insignificant and dissimilar businesses, such as exited businesses,
networking hardware and services, and managed services, which are not
attributable to the formally identified reportable segments. Each segment is
comprised of hardware, software, professional consulting services and customer
support services.
6
For the years ended December 31, the effects of the provision for loans and
receivables with Credit Card Center (CCC), acquisition-related integration and
in-process research and development charges, and restructuring and other related
charges have been excluded from the gross margin, operating expense and
operating income amounts presented and discussed below (see Notes 1, 2 and 8 of
Notes to Consolidated Financial Statements).
In millions 2001 2000 1999
---------- ---------- ----------
Consolidated revenue $ 5,917 $ 5,959 $ 6,196
Consolidated gross margin excluding special items/1/ 1,800 1,905 1,898
Consolidated operating expenses excluding special items:
Selling, general and administrative expenses/2/ 1,273 1,327 1,354
Research and development expenses/3/ 293 308 341
---------- ---------- ----------
Consolidated income from operations excluding special items 234 270 203
Special items (as discussed in the footnotes below) (48) (65) (125)
---------- ---------- ----------
Total consolidated income from operations $ 186 $ 205 $ 78
========== ========== ==========
/1/ In 2001 and 2000, consolidated gross margin excludes the impact of $6
million and $1 million, respectively, for integration charges related to
acquisitions (see Note 2 of Notes to Consolidated Financial Statements).
Also excluded from gross margin are $37 million and $8 million for
restructuring and other related charges in 2000 and 1999, respectively (see
Note 1 of Notes to Consolidated Financial Statements).
/2/ In 2001, selling, general and administrative expenses exclude the impact of
a $39 million provision for loans and receivables with CCC (see Note 8 of
Notes to Consolidated Financial Statements). In 2001 and 2000, selling,
general and administrative expenses exclude integration costs related to
acquisitions of $3 million and $1 million, respectively (see Note 2 of
Notes to Consolidated Financial Statements). Also excluded from selling,
general and administrative expenses are $1 million and $117 million for
restructuring and other related charges in 2000 and 1999, respectively (see
Note 1 of Notes to Consolidated Financial Statements).
/3/ In 2000, research and development expenses exclude the impact of $25 million
for in-process research and development charges related to acquisitions (see
Note 2 of Notes to Consolidated Financial Statements).
Total revenue decreased 1% in 2001 versus the prior year, but increased 2% on a
constant currency basis. Revenues reflect declines from exited businesses and
the impact of the slowing United States (U.S.) economy on capital spending,
offset by the strength of our Financial Self Service solutions in the EMEA and
Asia/Pacific regions. Total revenue declines in 2001 of 4% in the Americas
region and 12% in Japan were partially offset by growth in the EMEA and
Asia/Pacific regions of 6% and 9%, respectively. On a constant currency basis,
2001 revenues increased 9% in the EMEA region and 16% in the Asia/Pacific
region, contrasted to a 1% decline in Japan. Operating income excluding special
items declined 13% in 2001 compared to 2000. The decrease is attributable to a
lower mix of higher margin product revenue versus service revenue and lower
customer services margin as a percentage of revenue, partially offset by our
efforts to reduce operating expenses.
In 2000, total revenue decreased 4% compared to 1999. On a constant currency
basis, total revenue decreased 1% in 2000 versus the prior-year period. The
decline in 2000 revenue primarily reflected the impact of exited businesses, but
was also impacted by the termination of services associated with equipment
retired as a result of Year 2000 replacement and economic slowing in the U.S.
retail industry. The decline in 2000 revenue was partially offset by growth in
our Data Warehousing solutions. By geographic region, revenues in 2000 decreased
from the prior year 2% in the Americas region, 6% in Japan and 13% in the EMEA
region, in contrast to a 24% increase in the Asia/Pacific region. The 33%
increase in income from operations in 2000 reflected continued improvement in
gross margin as a percentage of revenue, particularly in our Data Warehousing
solutions, and reductions in operating expenses.
Data Warehousing Solutions
- --------------------------
Data Warehousing solutions, built on our advanced Teradata data warehouse and
data mining software and complemented by customer relationship management
applications, help businesses synthesize large volumes of information about
customers, suppliers and partners, allowing more accurate business decisions.
Combining hardware, software, professional consulting services, customer support
services and products from leading technology firms, our Data Warehousing
solutions are designed to enable businesses, across a multitude of industries,
to quickly leverage detailed data into actionable opportunities.
The following table presents Data Warehousing solutions (including customer
services maintenance) revenue and total operating loss for the years ended
December 31 (excluding the impact of special items previously described):
In millions 2001 2000 1999
----------- ----------- -----------
Data Warehousing revenue $ 1,149 $ 1,134 $ 900
Data Warehousing operating loss (32) (34) (142)
7
Data Warehousing revenues increased 1% in 2001 compared to 2000 despite the
challenging economic environment. During 2001, the adverse impact of the economy
on capital spending resulted in a decline in product upgrade revenues offset by
growth in professional consulting services as customers sought to leverage more
from their existing data warehouses. In addition, customer services maintenance
revenue increased as a result of growth in our customer base. Data Warehousing
solutions experienced revenue growth in all regions except Japan. The operating
loss in 2001 versus 2000 decreased slightly due to a lower expense structure
offset partially by a lower mix of higher margin hardware and software products,
versus lower margin professional services. In 2000, revenue increased 26%
compared to 1999 due primarily to existing customer upgrades and new customer
sales growth. The decreased operating loss in 2000 from 1999 was the result of
higher volume and significant improvement in gross margin as a percentage of
revenue.
We expect revenue growth as the economy improves, which when combined with our
continued focus on operational efficiency and expense management, should
position Data Warehousing solutions to deliver operating profitability in 2002.
Financial Self Service Solutions
- --------------------------------
Providing a complete line of ATMs, and related software and services, Financial
Self Service solutions are designed to quickly and reliably process high volumes
of consumer transactions. Incorporating advanced features such as web
enablement, automated check cashing and deposit, bill payment and the sale of
non-cash items, Financial Self Service solutions enable businesses to reduce
costs, generate new revenue streams and build customer loyalty.
The following table presents Financial Self Service solutions (including
customer services maintenance) revenue and total operating income for the years
ended December 31 (excluding the impact of special items previously described):
In millions 2001 2000 1999
------------- ------------- -------------
Financial Self Service revenue $ 1,615 $ 1,511 $ 1,565
Financial Self Service operating income 249 201 224
Financial Self Service solutions revenues increased 7% in 2001 compared to 2000.
Revenue growth versus the prior year was driven by growth in the Asia/Pacific
region, particularly in the emerging markets of India and China, and growth in
Europe, aided by sales of euro conversion kits, partially offset by slight
declines in the Americas region. Revenue growth in 2001 was also attributable to
increased customer services maintenance revenues resulting from selling extended
services and realizing a higher capture rate for new installations. Operating
income in 2001 increased 24% versus the prior year due primarily to higher
volume and lower expenses. In 2000, revenues decreased 3% compared to 1999. The
decline was due to the impact of currency fluctuations, as well as a decrease in
customer services maintenance revenue driven by the retirement of equipment as a
result of Year 2000 replacement. The operating income decline in 2000 was due to
lower revenue and gross margin as a percentage of revenue.
By continuing to leverage our worldwide service and manufacturing presence, and
our focus on expense management, we are positioned to deliver efficient, timely
and lower-cost Financial Self Service solutions to our customers. Accordingly,
we expect to deliver consistent operating margins while maintaining or modestly
growing revenue in 2002.
Retail Store Automation Solutions
- ---------------------------------
Combining our retail industry expertise, software and hardware technologies, and
implementation, consulting and maintenance services, Retail Store Automation
solutions deliver traditional retail solutions such as point-of-sale
workstations and scanners, as well as advanced solutions in the emerging areas
of self-checkout technologies, web-enabled kiosks and electronic shelf labels.
Our Retail Store Automation solutions are designed to improve selling
productivity and checkout processes, and increase service levels for retailers.
The following table presents Retail Store Automation solutions (including
customer services maintenance) revenue and total operating income (loss) for the
years ended December 31 (excluding the impact of special items previously
described):
In millions 2001 2000 1999
---------- ---------- ----------
Retail Store Automation revenue $ 1,272 $ 1,359 $ 1,435
Retail Store Automation operating income (loss) 4 (17) 20
Retail Store Automation revenues decreased 6% in 2001 compared to 2000. The
overall revenue decline was primarily the result of decreased revenues in the
Americas region as U.S. economic conditions continued to impact the capital
spending of retailers on traditional Retail Store Automation solutions.
Partially offsetting this effect, we experienced significant growth in revenues
from our advanced self-checkout solution as retailers focused limited capital
spending on projects with attractive returns on investment. The improvement in
operating income in 2001 was primarily the result of expense reductions offset
partially by lower sales. In 2000, revenues decreased 5% compared to 1999 due
primarily to softness in the U.S. retail industry, and declines
8
in Japan and the EMEA region, offset partially by growth in the Asia/Pacific
region. The operating income decline in 2000 was primarily the result of lower
sales.
We expect the weak U.S. economy to have a continued impact on the results of our
Retail Store Automation solutions. Revenue declines in our traditional solutions
are expected to outpace growth in our advanced solutions. The continued shift in
revenue mix from traditional solutions to higher margin advanced solutions,
combined with ongoing expense management, will better position Retail Store
Automation solutions for improved profitability when the U.S. economy improves.
Systemedia
- ----------
Systemedia develops, produces and markets a complete line of business
consumables. These products include paper rolls for ATMs and point-of-sale
workstations, labels, paper products, and imaging supplies for ink jet, laser,
impact and thermal-transfer printers. Systemedia products are designed to reduce
paper-related failures and enable businesses to improve transaction accuracy
while reducing overall costs.
The following table presents Systemedia revenue and total operating income for
the years ended December 31 (excluding the impact of special items previously
described):
In millions 2001 2000 1999
---------- ---------- ----------
Systemedia revenue $ 503 $ 502 $ 506
Systemedia operating income 9 15 30
Systemedia revenues remained relatively flat in 2001 compared to 2000. On a
constant currency basis, Systemedia revenues increased 3%. Growth in the
Americas region was offset by declines in Japan, and the EMEA and Asia/Pacific
regions. Operating income declined in 2001 primarily due to continued
competitive pricing pressures impacting gross margin yield, offset partially by
lower operating expenses. In 2000, revenues decreased 1% compared to 1999 due
primarily to currency fluctuations and weakness in the U.S. retail industry.
Operating income declined in 2000 due to competitive pricing pressures impacting
gross margin yield and increasing paper prices.
Payment and Imaging Solutions
- -----------------------------
Consisting of hardware, software, and consulting and support services, our
comprehensive Payment and Imaging solutions enable check and item-based
transactions to be digitally captured, processed and retained within a flexible,
scalable environment. Payment and Imaging solutions utilize advanced image
recognition and workflow technologies to automate item processing, helping
financial industry businesses increase efficiency and reduce operating costs.
The following table presents Payment and Imaging solutions (including customer
services maintenance) revenue and total operating income for the years ended
December 31 (excluding the impact of special items previously described):
In millions 2001 2000 1999
---------- ---------- ----------
Payment and Imaging revenue $ 301 $ 304 $ 324
Payment and Imaging operating income 44 42 17
Payment and Imaging revenues declined 1% in 2001 compared to 2000. Revenues
declined in the Asia/Pacific and Americas regions, in contrast to revenue growth
in the EMEA region and Japan. The decline in the Americas region was primarily
due to the fourth-quarter sale of our item processing outsourcing business (see
Note 2 of Notes to Consolidated Financial Statements). The operating income
increase of 5% in 2001 was primarily driven by lower operating expenses. In
2000, revenues decreased 6% compared to 1999 due to our decision to focus
efforts in more profitable geographic areas. The operating income improvement in
2000 was driven by gross margin improvement and reductions in operating
expenses.
Gross Margin
Gross margin as a percentage of revenue (excluding the impact of special items
previously described) decreased 1.6 percentage points in 2001 versus the prior
year. Product gross margin declined 1.0 percentage point and service gross
margin decreased 1.7 percentage points in 2001. Product gross margin declined
due primarily to a lower mix of Data Warehousing hardware revenues versus Retail
Store Automation and Financial Self Service hardware revenues. The decline in
service gross margin was primarily due to underutilization of our customer
services resource infrastructure resulting from the slower economy and its
effect on the retail and telecommunication industries. Gross margin as a
percentage of revenue increased 1.4 percentage points in 2000 compared to 1999.
The gross margin increase in 2000 consisted of a 0.8 percentage point increase
in product gross margin and a 1.9 percentage point increase in service gross
margin. The improvement in product gross margin in 2000 was primarily due to
increased sales within our higher-margin solutions, such as Data Warehousing,
and decreased sales of lower-margin products within our exited businesses.
Service gross margin in 2000 increased due to improved professional consulting
and transactional support services margins within our key solutions.
9
Operating Expenses
Selling, general and administrative expenses (excluding the impact of special
items previously described) decreased $54 million or 4% in 2001 compared to
2000. The decrease in 2001 was primarily due to cost infrastructure improvements
and curtailment of discretionary spending, offset partially by increases in
general and administrative expenses relating to incremental amortization of
goodwill from acquisitions. In 2000, selling, general and administrative
expenses declined $27 million or 2% versus 1999. The decrease in 2000 was
primarily due to lower selling expenses and employee reductions related to the
1999 restructuring plan, offset partially by increased goodwill amortization
related to acquisitions and marketing expenses. As a percentage of revenue,
selling, general and administrative expenses were 21.5%, 22.3% and 21.9% in
2001, 2000 and 1999, respectively.
Total goodwill amortization recorded in operating expenses was $67 million, $33
million and $20 million in 2001, 2000 and 1999, respectively. Excluding goodwill
amortization, selling, general and administrative expenses decreased $88 million
or 7% in 2001 versus 2000, and $40 million or 3% in 2000 versus 1999. In
accordance with Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangibles," NCR will no longer amortize goodwill beginning January
1, 2002 (see Note 1 of Notes to Consolidated Financial Statements).
Research and development expenses decreased $15 million or 5% in 2001 compared
to the prior year. The decline in 2001 related to the rationalization of our
spending and the elimination of duplicative expenses in our customer
relationship management software, which primarily resulted from the finalization
of integrating our 2000 acquisition of Ceres Integrated Solutions, LLC. Research
and development expenses decreased $33 million or 10% in 2000 versus 1999,
representing spending reductions in non-key or exited businesses. As a
percentage of revenue, research and development expenses were 5.0%, 5.2% and
5.5% in 2001, 2000 and 1999, respectively.
Income Before Income Tax
Operating income (excluding the impact of special items previously described)
was $234 million in 2001 versus operating income of $270 million and $203
million in 2000 and 1999, respectively. The 13% decline in operating income in
2001 reflected a lower mix of higher margin product revenue versus service
revenue and lower customer services margin as a percentage of revenue, partially
offset by our efforts to reduce operating expenses. The net benefit to operating
results from the combined pension, postretirement and postemployment benefit
plans and associated investments was $19 million less favorable in 2001 versus
2000. The net benefit from the combined pension, postretirement and
postemployment benefit plans and associated investments was $26 million more
favorable in 2000 versus 1999.
Interest expense was $18 million in 2001, $13 million in 2000 and $12 million in
1999. Other expense, net, was $44 million in 2001, and consisted primarily of a
$40 million charge related to an environmental matter, $7 million of goodwill
amortization expense, and $16 million of investment basis write-downs for losses
that were considered to be other than temporary. These expenses were partially
offset by $10 million of interest income and $20 million of other income
representing both a gain from the sale of our account and item processing
outsourcing businesses and a gain related to the demutualization of one of our
health insurance providers. Other income, net, was $83 million and $169 million
in 2000 and 1999, respectively. In 2000, other income, net, consisted primarily
of $48 million in gains from facility sales, $31 million of interest income and
$6 million in goodwill amortization expense. In 1999, other income, net,
included $118 million in gains from facility sales (of which $98 million
represented significant gains on the sale of two facilities), $26 million of
interest income and $3 million in goodwill amortization expense, among other
things.
Income Tax
Income tax benefit was $97 million in 2001 compared to income tax expense of $97
million in 2000 and income tax benefit of $102 million in 1999. The income tax
benefit in 2001 included a $138 million benefit due primarily to a favorable
resolution of international income tax issues. The 1999 income tax benefit was
the result of a $232 million reduction in our U.S. deferred tax valuation
allowance resulting from sustained profitability of our U.S. operations. Our
effective tax rate was approximately 33% for 2001 excluding the impact of the
provision for loans and receivables related to CCC, acquisition-related
integration costs, a charge related to an environmental matter, the cumulative
effect of adopting Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), and
the benefit from the favorable resolution of international income tax issues.
Our effective tax rate was approximately 33% and 38% for 2000 and 1999,
respectively, excluding restructuring and other related charges,
acquisition-related integration and in-process research and development charges,
the tax valuation release, and significant gains from dispositions of assets. We
expect our effective tax rate for 2002 to be approximately 30%.
Financial Condition, Liquidity and Capital Resources
Our cash, cash equivalents and short-term investments totaled $336 million at
December 31, 2001, compared to $357 million and $763 million at December 31,
2000 and 1999, respectively. The significant decrease in 2000 was primarily due
to business acquisitions and investments totaling $319 million.
10
We generated cash from operations of $146 million, $171 million and $607 million
in 2001, 2000 and 1999, respectively. The cash generated from operations in 2001
was driven primarily by operating results and improved asset management,
partially offset by disbursements for employee severance and pension. Receivable
balances decreased $212 million in 2001 compared to an $80 million increase in
2000 and a $358 million decrease in 1999. The decrease in receivables in 2001
versus the prior year was primarily attributable to lower fourth-quarter
revenues, incremental factoring of approximately $18 million and a continued
focus on collections. Inventory balances decreased $8 million, $28 million and
$85 million in 2001, 2000 and 1999, respectively. The cash generated from
operations in 2000 was driven primarily by operating results, partially offset
by disbursements for employee severance and pension. In 1999, the cash generated
from operations was primarily due to improved operating results and dramatic
asset management improvements, partially offset by disbursements for employee
severance and pension.
Net cash used in investing activities was $233 million, $367 million and $326
million in 2001, 2000 and 1999, respectively. The net use of cash in investing
activities in 2001 primarily represented net expenditures for property, plant
and equipment, and reworkable service parts. In 2001, we reduced net short-term
investments by $9 million compared to a reduction of $182 million in 2000 and an
increase of $165 million in 1999. In 2000, we reduced our short-term investment
position to fund acquisition activities. Capital expenditures excluding
expenditures for reworkable service parts were $141 million, $216 million and
$187 million for the years ended 2001, 2000 and 1999, respectively. Proceeds
from sales of property, plant and equipment are primarily driven by initiatives
to reduce our excess real estate.
In 2001, net cash generated from financing activities was $87 million compared
to uses of $7 million and $194 million in 2000 and 1999, respectively. In 2001,
the purchase of NCR common stock used $60 million versus $110 million in 2000
and $269 million in 1999. Short- and long-term debt provided $41 million in
aggregate in 2001 compared to a $14 million use in 2000 and a $6 million use in
1999.
In the normal course of business, we enter into various contractual and other
commercial commitments that impact or can impact the liquidity of our
operations. The following table outlines our commitments at December 31, 2001:
Total Less than 1-3 4-5 Over 5
In millions Amounts 1 Year Years Years Years
-----------------------------------------
Long-term debt $ 8 $ - $ 2 $ - $ 6
Capital lease obligations 2 - 1 - 1
Operating leases (non-cancelable) 334 59 92 55 128
Short-term borrowings 138 138 - - -
-----------------------------------------
Total Contractual $ 482 $ 197 $ 95 $ 55 $ 135
=========================================
Unused lines of credit/1/ $ 667 $ 266 $ 1 $ 400 $ -
Standby letters of credit and surety bonds 118 45 - 73 -
Corporate guarantees 55 7 6 - 42
Other commitments 4 - 4 - -
-----------------------------------------
Total Commerical $ 844 $ 318 $ 11 $ 473 $ 42
=========================================
/1/ Includes unused bank overdraft and other uncommitted funds of $56 million.
In 1996, we entered into a $600 million five-year, unsecured revolving credit
facility with a syndicate of financial institutions which was scheduled to
mature in November 2001. In October 2001, we terminated the $600 million credit
facility and 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 December 31, 2001, 2000 or 1999.
We believe that cash flows from operations, the credit facilities (existing or
future arrangements) and other short- and long-term debt financings, if any,
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, we may be required to refinance all or a portion
of our existing debt or seek additional financing alternatives.
11
Factors That May Affect Future Results
This Annual Report on Form 10-K, NCR's 2001 Annual Report to Stockholders
(including the Chairman's letter), and other documents that we file with the
Securities and Exchange Commission (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. In addition, this intense competition increases pressure on gross
margins that could impact our business and operating results. 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 niche markets such as advanced retail solutions and
entry-level ATMs. If we are unable to compete successfully, the demand for our
solutions, including products and services would decrease. Any reduction in
demand could lead to fewer customer orders, a decrease in the prices of our
products and services, reduced revenues, reduced margins, operating
inefficiencies, reduced levels of profitability and loss of market share.
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; offer a wide range of
solutions from web-enabled kiosks to enterprise data warehouses; offer solutions
to customers that operate effectively within a computing environment which
includes the integration of hardware and software from multiple vendors; offer
products that are reliable and that ensure the security of data and information;
offer high quality, high availability network services; market and sell all of
our solutions effectively; and produce and deliver solutions at competitive
operating margins.
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
success depends on our ability to develop and introduce new solutions that our
customers choose to buy. If we are unable to develop new solutions, our business
and operating results would be impacted. This includes our efforts to rapidly
develop and introduce data warehousing software applications. 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. In
addition, if we are unable to successfully market and sell both existing and
newly developed solutions, such as our self-checkout technologies, electronic
shelf labels and full-function ATMs and outsourcing solutions, our 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 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.
12
We have, from time to time, formed alliances with third parties that have
complementary products, 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 to our customers in connection with our solutions. 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. 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 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,
corporate cultures, personnel, infrastructures and technologies or products
acquired or 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 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. 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, 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.
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 our international
operations. 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 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,
as evidenced by the recent economic slowing in the U.S. retail and global
telecommunications industries; 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
terrorist activity on the economy or markets in general, or on our ability, or
that of our suppliers, to meet commitments, or on the timing of purchases by our
customers.
13
Employees
- ---------
Hiring and retaining highly qualified employees helps us to achieve our business
objectives.
Our employees are vital to our success, and 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 in the future, our business and operating
results could 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. Moreover, 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.
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 Fox River matter as further described in "Environmental Matters" under Note
9 of Notes to 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.
Contingencies
- -------------
Like other technology companies, we face uncertainties with regard to
regulations, lawsuits and other related matters.
We are subject to regulations, proceedings, lawsuits, claims and other matters,
including those that relate to the environment, health and safety, and
intellectual property. 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.
Key Accounting Policies
Revenue Recognition
- -------------------
We are a solutions company that provides our customers with hardware, software,
professional consulting services and customer support services. Consistent with
other companies that provide similar solution offerings, revenue recognition is
often complex and subject to multiple accounting pronouncements including Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), Statement of Position No. 97-2, "Software Revenue Recognition" (SoP 97-2)
and related interpretations. We have described below our policy for revenue
recognition which we believe is consistent with accounting principles generally
accepted in the United States of America.
In general, we consider revenue realized, or realizable, and earned when
persuasive evidence of an arrangement exists, the products or services have been
provided to the customer, the sales price is fixed or determinable and
collectability is reasonably assured.
For our solutions, hardware and software revenue is recognized upon shipment,
delivery, installation or customer acceptance of the product, as defined in the
customer contract. Revenue is not recognized until the customer has use of the
products, including both the hardware and software components. Other than a few
small software businesses we operate, which generate approximately 1% of our
annual revenue, we do not sell our software products without the related
hardware as our software products are embedded in the hardware we sell. Our
typical solution requires no significant production, modification or
customization of the software or hardware that is essential to the functionality
of the products other than installation for our more complex solutions. For
these complex solutions, revenue is deferred until the installation is complete.
As a solutions provider, our sales arrangements often include services in
addition to hardware and software. These services could include hardware
maintenance, upgrade rights, customer support and professional consulting
services. For sales arrangements that include bundled hardware, software and
services, we account for any undelivered service offering as a separate element
of a multiple-element arrangement. These services are typically not essential to
the functionality of the hardware and software. Revenue amounts deferred for
services are determined based upon vendor-specific objective evidence of the
fair value
14
of the elements as prescribed in SoP 97-2. For these services, revenue is
typically recognized ratably over the period benefited or when the services are
complete. If the services are essential to the functionality of the hardware and
software, revenue from the hardware and software components is deferred until
the essential services are complete.
Use of Estimates
- ----------------
As a result of our complex business, global scope and size, we are required to
make significant estimates in preparing our financial statements. As described
in Note 1 of Notes to Consolidated Financial Statements, actual results could
differ from the amounts estimated and recorded in such statements. A description
of each of our more significant estimates follows:
Provisions for Doubtful Accounts. We establish provisions for doubtful accounts
using percentages of our accounts receivable balance as an overall proxy to
reflect historical average credit losses and specifically provision for known
issues. Given our experience, we believe that the reserves for potential losses
are adequate, but if one or more of our larger customers were to default in its
obligations under applicable contractual arrangements, we could be exposed to
potentially significant losses in excess of the provisions established.
Inventory Reserves. We maintain inventory at the lower of average cost or net
realizable value. Excess and obsolete reserves are established based on
forecasted usage, orders, technological obsolescence and inventory aging. If our
estimates related to forecasted usage are inaccurate, if orders are canceled or
if changes in technology impact demand for our products in an unforeseen manner,
we could be exposed to potentially significant losses in excess of the reserves
established.
Warranty Reserves. We accrue warranty reserves using percentages of revenue as
an overall proxy to reflect our historical average warranty claims. Given our
experience, we believe that the reserves for potential warranty claims are
adequate, but if one or more of our larger customers were to make unexpected
warranty claims, we could be exposed to potential losses in excess of the
provisions established.
Investments in Marketable Securities. We classify our marketable securities as
available-for-sale and account for them at fair value with net unrealized gains
or losses reported, net of tax, within stockholders' equity. If a decline in the
fair value of a marketable security is deemed by us to be other than temporary,
the cost basis of the investment is written down to estimated fair value, and
the amount of the write-down is included in the determination of income. If our
estimates of fair value are inaccurate, we could be exposed to potentially
significant losses up to the cost basis of the marketable equity securities.
Long-Lived Assets. Long-lived assets such as property, plant and equipment,
goodwill, software and investments are reviewed for impairment when events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. An impairment loss would be recognized when estimated future
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition are less than its carrying amount. If our estimates about
future undiscounted cash flows or useful lives were to change, we could be
exposed to potentially significant losses.
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 and postretirement plans. These estimates, if
incorrect, could have a significant impact on our consolidated financial
position, results of operations or cash flows.
Environmental and Legal Contingencies. We accrue legal and environmental
provisions when it is probable that a liability has been incurred and the amount
or range of the liability is reasonably estimable. If we are able to determine
that the amount of the liability is likely to fall into a range and no amount
within that range can be determined to be the better estimate, we accrue at the
minimum amount of the range. Our ultimate liability could be significantly
greater than the amounts currently reserved for in the consolidated financial
statements.
Income Taxes. We estimate our tax liabilities based on current tax laws in the
statutory jurisdictions in which we operate. Our estimates include judgments
about deferred tax assets and liabilities resulting from temporary differences
between assets and liabilities recognized for financial reporting purposes and
such amounts recognized for tax purposes, as well as judgments regarding the
realization of deferred tax assets. If our provisions for current or deferred
taxes are not adequate, if we are unable to realize certain deferred tax assets
or if the tax laws change unfavorably, we could experience potentially
significant losses in excess of the established provisions. Likewise, if our
provisions for current and deferred taxes are in excess of those eventually
needed, if we are able to realize additional deferred tax assets or if tax laws
change favorably, we could experience potentially significant gains (see Note 5
of Notes to Consolidated Financial Statements).
Basis of Consolidation
- ----------------------
The consolidated financial statements include the accounts of NCR and our
majority-owned subsidiaries. Long-term investments in affiliated companies in
which we own between 20% and 50%, and therefore exercise significant influence,
but which we do not control, are accounted for using the equity method.
Investments in which we do not exercise significant influence (generally, when
we have an investment of less than 20% and no representation on the company's
Board of Directors) are accounted for using the cost method. We eliminate all
significant intercompany transactions and accounts. We do not have any special
purpose entities whose financial results are not included in the consolidated
financial statements.
15
During the year, we did not participate in any material transactions with a
related party, including members of the Board of Directors, executive officers,
key employees or former employees.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 133 and No. 138
- ---------------------------------------------------------------
We adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), as amended by
Statement of Financial Accounting Standards No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133" (SFAS 138), on January 1, 2001. SFAS 133 and SFAS 138 require
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction, and if it is,
the type of hedge transaction. For fair value hedge transactions in which we are
hedging changes in the fair value of an asset, liability or firm commitment,
changes in the fair value of the derivative instrument will be offset in the
income statement by changes in the hedged item's fair value. For cash flow hedge
transactions in which we are hedging the variability of cash flows related to a
variable rate asset, liability or a forecasted transaction, changes in the fair
value of the derivative instrument will generally be reported in other
comprehensive income. The gains and losses on the derivative instrument that are
reported in other comprehensive income will be reclassified to earnings in the
periods in which earnings are impacted by the variability of the cash flows of
the underlying hedged item. To the extent that a qualifying hedge is terminated
or ceases to be effective as a hedge, any deferred gains and losses recorded in
other comprehensive income to that point continue to be deferred and are
included in the basis of the underlying transaction. To the extent anticipated
transactions are no longer likely to occur, the related hedges are closed with
gains or losses recognized in earnings in the current period.
On January 1, 2001, we recorded net-of-tax, cumulative-effect-type losses of $6
million and $4 million, in accumulated other comprehensive income and net
income, respectively, to recognize at fair value all derivative instruments that
were designated as hedging instruments.
Statement of Financial Accounting Standards No. 141
- ---------------------------------------------------
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141).
SFAS 141, which supersedes Accounting Principles Board Opinion No. 16, "Business
Combinations" and Statement of Financial Accounting Standards No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises," requires
that all business combinations entered into after the effective date of July 1,
2001, be accounted for by the purchase method. It further defines criteria for
recognition of intangible assets apart from goodwill and disclosure requirements
for business combinations. 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. 142
- ---------------------------------------------------
In July 2001, the FASB issued SFAS 142. SFAS 142, which supersedes Accounting
Principles Board Opinion No. 17, "Intangible Assets", defines new accounting
treatment for goodwill and other intangible assets. This standard eliminates the
amortization of goodwill and other intangible assets that have indefinite lives.
It establishes a requirement that goodwill and other intangible assets with
indefinite lives be tested at least annually for impairment, provides specific
guidance on such testing, and requires disclosures of information about goodwill
and other intangible assets in the years subsequent to their acquisition. SFAS
142 is effective for fiscal years beginning after December 15, 2001; however,
consistent with the requirements of the standard, goodwill and other intangible
assets acquired after June 30, 2001 will be immediately subject to the new
provisions. In 2002, we expect to recognize annual amortization expense savings
of approximately $70 million, of which less than $5 million would have been
recognized in other expense. We are currently evaluating the goodwill asset
under the SFAS 142 transitional impairment test and has not yet determined
whether there will be an impairment loss. Any transitional impairment loss will
be recognized as a change in accounting principle.
Statement of Financial Accounting Standards No. 143
- ---------------------------------------------------
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143, which
amends Statement of Financial Accounting Standards No. 19, "Financial Accounting
and Reporting by Oil and Gas Producing Companies", establishes accounting
standards for the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. The objective of SFAS 143 is to
provide guidance for legal obligations associated with the retirement of
tangible long-lived assets. The retirement obligations included within the scope
of this project are those that an entity cannot avoid as a result of either
acquisition, construction or normal operation of a long-lived asset. This
statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. We do not expect this standard to have any
material impact on our consolidated financial position, results of operations or
cash flows.
16
Statement of Financial Accounting Standards No. 144
- ---------------------------------------------------
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS 121) and amends Accounting Principles Board Opinion No.
30, "Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business." This statement develops one accounting model (based on
the model in SFAS 121) for long-lived assets that are disposed of, expands the
scope of discontinued operations and modifies the accounting for discontinued
operations. This statement is effective for fiscal years beginning after
December 15, 2001. We do not expect this standard to have any material impact on
our consolidated financial position, results of operations or cash flows.
Item 7.(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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. Due to the adoption of SFAS 133 on January 1, 2001, the
2000 sensitivity data has been restated to conform to the 2001 presentation. As
of December 31, 2001 and 2000, a 10% appreciation in the value of the U.S.
dollar against foreign currencies from the prevailing market rates would result
in a $41 million increase or a $25 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 $9
million decrease or an $8 million decrease in the fair value of the hedge
portfolio as of December 31, 2001 and 2000, respectively.
The interest rate risk associated with our borrowing and investing activities at
December 31, 2001 was not material in relation to our consolidated financial
position, results of operations or cash flows. We generally do not use
derivative financial instruments to alter the interest rate characteristics of
our investment holdings or debt instruments.
The only financial instruments that we utilize that are not exchange traded are
foreign exchange forward contracts and options that we purchase exclusively from
large financial institutions. We record these contracts 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 U.S. 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 December 31, 2001 and 2000, we did not have any major concentration
of credit risk related to financial instruments.
17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of NCR, the notes to such financial
statements, the report of PricewaterhouseCoopers LLP dated January 19, 2002 and
the selected financial data appearing on pages 19-43 of NCR's 2001 Annual Report
to Stockholders, are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISLCOSURE
None.
18
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Most of the information required by this Item with respect to directors of NCR
is included on pages 5-7 of NCR's Proxy Statement, dated March 13, 2002, and is
incorporated herein by reference. In addition, the following information is
provided with respect to Dr. Mitsch, one of NCR's directors who has chosen to
retire and not stand for reelection at the Company's 2002 Annual Meeting of
Stockholders:
Ronald A. Mitsch, 67, was the Vice Chairman and Executive Vice President of
Minnesota Mining and Manufacturing Company ("3M"), a global, diversified
manufacturing company, from 1995 until November 1998. Dr. Mitsch was also 3M's
Executive Vice President, Industrial and Consumer Markets and Corporate
Services, from 1991 until November 1998. Dr. Mitsch was a director of 3M until
May 1999. He currently serves as a director of Lubrizol Corporation, Material
Sciences Corporation, WTC Industries, Inc., Dandy Golf Corporation, GaMra
Composites, Inc., and Interactive Sports Provider Network. He became a director
of NCR on January 1, 1997.
Information regarding executive officers is furnished in a separate disclosure
in Part I of this report because the Company did not furnish such information in
its definitive proxy statement prepared in accordance with Schedule 14A.
Information regarding Section 16(a) beneficial ownership reporting compliance of
the Company's executive officers and directors is included in the material
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" on page 9 of
NCR's Proxy Statement, dated March 13, 2002, and is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION
The information regarding the Company's compensation of its named executive
officers is included in the material captioned "Executive Compensation" on pages
16-19 of NCR's Proxy Statement, dated March 13, 2002, and is incorporated herein
by reference. The information regarding the Company's compensation of its
directors is included in the material captioned "Compensation of Directors" on
pages 8-9 of NCR's Proxy Statement, dated March 13, 2002, and is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is included in the material captioned "Stock Ownership" on pages 4-5
of NCR's Proxy Statement, dated March 13, 2002, and is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
19
PART IV
Item 14. FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K AND EXHIBITS
Pages In
Annual Report
to Stockholders*
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Accountants............................................... 19
Consolidated Statements of Income for the Years Ended
December 31, 2001, 2000 and 1999............................................... 20
Consolidated Balance Sheets at December 31, 2001 and 2000....................... 21
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999............................................... 22
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 2001, 2000 and 1999......................................... 23
Notes to Consolidated Financial Statements...................................... 24-42
Selected Financial Data for the Years Ended
Decmber 31, 2001, 2000, 1999, 1998 and 1997.................................... 43
(2) Financial Statement Schedule:
Report of Independent Accountants on Financial
Statement Schedule
For each of the three years in the period ended December 31, 2001:
Schedule II - Valuation and Qualifying Accounts
* Incorporated by reference from the indicated pages of NCR's 2001 Annual
Report to Stockholders. All other schedules are omitted because they are not
applicable or the required information is found in the consolidated financial
statements or notes thereto.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed in 2001.
(c) Exhibits:
Exhibits identified in parentheses below, on file with the SEC, are incorporated
herein by reference as exhibits hereto.
Exhibit No. Description
- ---------- -----------
3.1 Articles of Amendment and Restatement of NCR Corporation, as
amended May 14, 1999 (Exhibit 3.1 to the NCR Corporation Form
10-Q for the period ended June 30, 1999) and Articles of
Amendment and Restatement and Articles Supplementary of NCR
Corporation (Exhibit 3.1 to 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 June
25, 2001 (Exhibit 3.2 to the NCR Corporation Quarterly Report
on Form 10-Q for the period ended June 30, 2001).
4.1 Common Stock Certificate of NCR Corporation (Exhibit 4.1 to
the NCR Corporation Annual Report on Form 10-K for the year
ended December 31, 1999 (the "1999 NCR Annual Report")).
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 (Exhibit 4.2 to 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.
10.1 Separation and Distribution Agreement, dated as of February
1, 1996 and amended and restated as of March 29, 1996
(Exhibit 10.1 to the Lucent Technologies Inc. Registration
Statement on Form S-1 (No. 333-00703) (the "Lucent
Registration Statement")).
20
10.2 Employee Benefits Agreement, dated as of November 20, 1996, by and
between AT&T Corp. and NCR Corporation (Exhibit 10.2 to the 1996
NCR Annual Report).
10.3 Patent License Agreement, effective as of March 29, 1996, by and
among AT&T Corp., NCR Corporation, and Lucent Technologies Inc.
(Exhibit 10.7 to the Lucent Registration Statement).
10.4 Amended and Restated Technology License Agreement, effective as of
March 29, 1996, by and among AT&T Corp., NCR Corporation, and
Lucent Technologies Inc. (Exhibit 10.8 to the Lucent Registration
Statement).
10.5 Tax Sharing Agreement, dated as of February 1, 1996, and amended
and restated as of March 29, 1996, by and among AT&T Corp., NCR
Corporation, and Lucent Technologies Inc.(Exhibit 10.6 to the
Lucent Registration Statement).
10.6 NCR Management Stock Plan (Exhibit 10.8 to the 1996 NCR Annual
Report).
10.7 NCR WorldShares Plan (Exhibit 10.9 to the 1996 NCR Annual Report).
10.8.1 The Retirement Plan for Officers of NCR (Exhibit 10.11 to the NCR
Corporation Registration Statement on Form 10 (No. 001-00395),
dated November 25, 1996 (the "NCR Registration Statement")).
10.8.2 Second Amendment to the Retirement Plan for Officers of NCR
Corporation effective January 1, 2001 (Exhibit 10.1 to the NCR
Corporation Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001).
10.9 NCR Change-in-Control Severance Plan for Executive Officers
(Exhibit 10.16 to the 1996 NCR Annual Report).
10.10 Change-in-Control Agreement by and between NCR and Lars Nyberg
(Exhibit 10.2 to the NCR Corporation Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997).
10.11 NCR Director Compensation Program (Exhibit 10.18 to the 1996 NCR
Annual Report).
10.11.1 First Amendment to the NCR Director Compensation Program (Exhibit
10.14.1 to the 1999 NCR Annual Report).
10.11.2 Second Amendment to the NCR Director Compensation Program (Exhibit
10.14.2 to the 1999 NCR Annual Report).
10.12 NCR Management Incentive Program (Exhibit 10.19 to the 1996 Annual
Report).
10.13 NCR Supplemental Pension Plan for AT&T Transfers, restated
effective January 1, 1997 (Exhibit 10.1 to the NCR Corporation
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998).
10.14 NCR Mid-Career Hire Supplemental Pension Plan, restated effective
January 1, 1997 Exhibit 10.2 to the NCR Corporation Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998).
10.15 NCR Nonqualified Excess Plan, restated effective January 1,
1996 (Exhibit 10.3 to the NCR Corporation Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998).
10.16.1 Agreement and Plan of Merger by and among NCR Corporation, NCR
Merger Sub Inc. and 4Front Technologies, Inc. dated August 2, 2000
(Annex A from the 4Front Technologies, Inc. Notice of Annual
Meeting of Stockholders and Proxy Statement dated September 25,
2000).
10.16.2 Amendment to Agreement and Plan of Merger by and among NCR
Corporation, NCR Merger Sub Parent, Inc., NCR Merger Sub Inc., and
4Front Technologies, Inc. dated October 6, 2000 (Exhibit 10.1(b) to
the NCR Corporation Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000).
10.16.3 Second Amendment to Agreement and Plan of Merger by NCR Corporation
and NCR Merger Sub Parent, Inc. dated May 1, 2001 (Exhibit 10.1(c)
to the NCR Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001).
10.17 Employment Agreement with Lars Nyberg (Exhibit 10.22 to the 1999
NCR Annual Report).
10.18 Amended Letter Agreement with Lars Nyberg dated January 23, 2002.
10.19 Letter Agreement dated June 20, 2000 (Exhibit 10.1 to the NCR
Corporation Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000).
21
10.20 Letter Agreement dated October 18, 2000 (Exhibit 10.26 to the NCR
Corporation Annual Report on Form 10-K for the year ended December
31, 2000).
10.21 Letter Agreement dated January 15, 2001 (Exhibit 10.27 to the NCR
Corporation Annual Report on Form 10-K for the year ended December
31, 2000).
10.22 Letter agreement dated June 18, 2001 (Exhibit 10.2 to the NCR
Corporation Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001).
10.23 Letter agreement effective August 20, 2001 (Exhibit 10.2 to the NCR
Corporation Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001).
13 Pages 19-43 of NCR's 2001 Annual Report to Stockholders.
21 Subsidiaries of NCR Corporation.
23.1 Consent of independent accountants.
22
NCR will furnish, without charge, to a security holder upon written request a
copy of the 2001 Annual Report to Stockholders and the 2002 Proxy Statement,
portions of which are incorporated herein by reference. NCR will furnish any
other exhibit at cost. Document requests are available by calling or writing to:
NCR - Investor Relations
1700 S. Patterson Boulevard
Dayton, OH 45479
Phone: 937-445-5905
investor.relations@ncr.com
http://www.ncr.com/investors/invest_rel.htm
23
NCR Corporation
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Charged to Balance
Beginning Costs & Other at End
Description of Period Expenses Accounts Deductions of Period
----------- --------- -------- -------- ---------- ---------
Year Ended December 31, 2001
Allowance for doubtful accounts $ 24 $ 67 $ - $ 37 $ 54
Deferred tax asset valuation allowance 304 - - 23 281
Inventory valuation reserves 53 25 - 28 50
Year Ended December 31, 2000
Allowance for doubtful accounts $ 31 $ 17 $ - $ 24 $ 24
Deferred tax asset valuation allowance 285 - 19 - 304
Inventory valuation reserves 67 27 - 41 53
Reserves related to business restructuring 73 - (37) 36 -
Year Ended December 31, 1999
Allowance for doubtful accounts $ 47 $ 7 $ - $ 23 $ 31
Deferred tax asset valuation allowance 498 59 - 272 285
Inventory valuation reserves 93 21 - 47 67
Reserves related to business restructuring - 83 - 10 73
24
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of NCR Corporation:
Our audits of the consolidated financial statements referred to in our report
dated January 19, 2002, appearing in the 2001 Annual Report to Stockholders of
NCR Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Dayton, Ohio
January 19, 2002
25
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: March 13, 2002 By:
/s/ Lars Nyberg
-------------------------------------
Lars Nyberg, Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title
- --------- -----
/s/ Lars Nyberg
- ------------------------------
Lars Nyberg Chairman of the Board, Chief Executive
Officer and President
/s/ Earl Shanks
- ------------------------------
Earl Shanks Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
/s/ David R. Holmes
- ------------------------------
David R. Holmes Director
/s/ Linda Fayne Levinson
- ------------------------------
Linda Fayne Levinson Director
/s/ James R. Long
- ------------------------------
James R. Long Director
/s/ Ronald A. Mitsch
- ------------------------------
Ronald A. Mitsch Director
/s/ C.K. Prahalad
- ------------------------------
C.K. Prahalad Director
/s/ James O. Robbins
- ------------------------------
James O. Robbins Director
/s/ William S. Stavropoulos
- ------------------------------
William S. Stavropoulos Director
Date: March 13, 2002
26