Exhibit 13
REPORT OF MANAGEMENT
We are responsible for the preparation, integrity and objectivity of our
consolidated financial statements and other financial information presented
in our Annual Report. The accompanying consolidated financial statements
were prepared in accordance with accounting principles generally accepted
in the United States of America and include certain amounts based on
currently available information and our judgment of current conditions and
circumstances.
We maintain an internal control structure designed to provide reasonable
assurance, at reasonable cost, that our assets are safeguarded, and that
transactions are properly authorized, executed, recorded and reported. This
structure is supported by the selection and training of qualified
personnel, by the proper delegation of authority and division of
responsibility, and through dissemination of written policies and
procedures. An ongoing program of internal audits and operational reviews
assists us in monitoring the effectiveness of these controls, policies and
procedures. The accounting systems and related other controls are modified
and improved in response to changes in business conditions and operations,
and recommendations made by our independent accountants and internal
auditors.
PricewaterhouseCoopers LLP, independent accountants, are engaged to perform
audits of our consolidated financial statements. These audits are performed
in accordance with auditing standards generally accepted in the United
States of America, which include the consideration of our internal control
structure.
The Audit and Finance Committee of the Board of Directors, consisting
entirely of independent directors who are not employees of NCR, monitors
our accounting, reporting and internal control structure. Our independent
accountants, internal auditors and management have complete and free access
to the Audit and Finance Committee, which periodically meets directly with
each group to ensure that their respective duties are being properly
discharged.
/s/ Lars Nyberg /s/ Earl Shanks
Lars Nyberg Earl Shanks
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of NCR Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of NCR Corporation and its subsidiaries at December 31,
2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of NCR
Corporation's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted
in the United States of America, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
As addressed in Note 1 of the Notes to Consolidated Financial Statements,
on January 1, 2001, NCR Corporation adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities," 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," the
effect of which is reflected as a cumulative effect of change in accounting
for the year ended December 31, 2001.
PricewaterhouseCoopers LLP
Dayton Ohio
January 19, 2002
Report of Management and Report of Independent Accountants NCR 2001 19
CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31 2001 2000 1999
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In millions, except per share amounts
Revenue
Product revenue $ 3,048 $ 3,178 $ 3,290
Service revenue 2,869 2,781 2,906
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Total revenue 5,917 5,959 6,196
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Operating expenses
Cost of products 1,947 2,000 2,099
Cost of services 2,176 2,092 2,207
Selling, general and administrative expenses 1,315 1,329 1,471
Research and development expenses 293 333 341
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Total operating expenses 5,731 5,754 6,118
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Income from operations 186 205 78
Interest expense 18 13 12
Other expense (income), net 44 (83) (169)
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Income before income taxes and cumulative effect of accounting change 124 275 235
Income tax (benefit) expense (97) 97 (102)
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Income before cumulative effect of accounting change 221 178 337
Cumulative effect of accounting change, net of tax (4) - -
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Net income $ 217 $ 178 $ 337
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Net income per common share
Basic before cumulative effect of accounting change $ 2.29 $ 1.87 $ 3.45
Cumulative effect of accounting change (0.04) - -
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Basic $ 2.25 $ 1.87 $ 3.45
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Diluted before cumulative effect of accounting change $ 2.22 $ 1.82 $ 3.35
Cumulative effect of accounting change (0.04) - -
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Diluted $ 2.18 $ 1.82 $ 3.35
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Weighted average common shares outstanding
Basic 96.7 95.1 97.6
Diluted 99.6 98.0 100.6
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The accompanying notes are an integral part of the consolidated financial
statements.
20 NCR 2001 Consolidated Statements of Income
CONSOLIDATED BALANCE SHEETS
At December 31 2001 2000
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In millions, except per share amounts
Assets
Current assets
Cash, cash equivalents and short-term investments $ 336 $ 357
Accounts receivable, net 1,126 1,338
Inventories, net 280 288
Other current assets 221 251
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Total current assets 1,963 2,234
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Reworkable service parts and rental equipment, net 224 218
Property, plant and equipment, net 629 742
Other assets 2,039 1,912
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Total assets $ 4,855 $ 5,106
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Liabilities and stockholders' equity
Current liabilities
Short-term borrowings $ 138 $ 96
Accounts payable 362 521
Payroll and benefits liabilities 217 260
Customer deposits and deferred service revenue 319 344
Other current liabilities 482 615
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Total current liabilities 1,518 1,836
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Long-term debt 10 11
Pension and indemnity liabilities 319 332
Postretirement and postemployment benefits liabilities 359 466
Other liabilities 600 676
Minority interests 22 27
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Total liabilities 2,828 3,348
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Commitments and contingencies (Note 9)
Stockholders' equity
Preferred stock: par value $0.01 per share, 100.0 shares authorized,
no shares issued and outstanding at December 31, 2001 and 2000, respectively - -
Common stock: par value $0.01 per share, 500.0 shares authorized, 97.4 and 95.2
shares issued and outstanding at December 31, 2001 and 2000, respectively 1 1
Paid-in capital 1,235 1,156
Retained earnings 861 644
Accumulated other comprehensive loss (70) (43)
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Total stockholders' equity 2,027 1,758
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Total liabilities and stockholders' equity $ 4,855 $ 5,106
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The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Balance Sheets NCR 2001 21
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31 2001 2000 1999
----------------------------------------------------------------------------------------------------------------
In millions
Operating activities
Net income $ 217 $ 178 $ 337
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 423 361 358
Deferred income taxes 11 32 (187)
Income tax adjustment (138) - -
Other gain on assets, net (23) (8) (107)
Changes in assets and liabilities:
Receivables 212 (80) 358
Inventories 8 28 85
Current payables (146) 80 (41)
Customer deposits and deferred service revenue (25) (42) 13
Disbursements for employee severance and pension (263) (248) (148)
Other assets and liabilities (130) (130) (61)
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Net cash provided by operating activities 146 171 607
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Investing activities
Purchases of short-term investments (23) (26) (354)
Proceeds from sales and maturities of short-term investments 32 208 189
Net expenditures and proceeds for reworkable service parts (117) (108) (104)
Expenditures for property, plant and equipment (141) (216) (187)
Proceeds from sales of property, plant and equipment 40 173 240
Business acquisitions and investments (6) (319) (32)
Proceeds from sale of business 44 - -
Additions to capitalized software (67) (67) (78)
Other investing activities, net 5 (12) -
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Net cash used in investing activities (233) (367) (326)
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Financing activities
Purchases of Company common stock (60) (110) (269)
Short-term borrowings, additions 213 10 20
Short-term borrowings, repayments (171) (21) (33)
Long-term debt, additions 1 - 8
Long-term debt, repayments (2) (3) (1)
Proceeds from employee stock plans 101 122 83
Other financing activities, net 5 (5) (2)
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Net cash provided by (used in) financing activities 87 (7) (194)
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Effect of exchange rate changes on cash and cash equivalents (12) (21) (4)
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(Decrease) increase in cash and cash equivalents (12) (224) 83
Cash and cash equivalents at beginning of year 347 571 488
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Cash and cash equivalents at end of year $ 335 $ 347 $ 571
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Supplemental data
Cash (received) paid during the year for:
Income taxes $ (8) $ 68 $ 61
Interest 18 14 16
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The accompanying notes are an integral part of the consolidated financial
statements.
22 NCR 2001 Consolidated Statements of Cash Flows
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other
Common Stock Paid-in Retained Comprehensive
--------------------
Shares Amount Capital Earnings Income (Loss) Total
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In millions
December 31, 1998 99 $ 1 $ 1,295 $ 129 $ 22 $ 1,447
Employee stock purchase and stock compensation plans 3 - 80 - - 80
Proceeds from sale of put options - - 1 - - 1
Reclassification of put option obligation - - (13) - - (13)
Purchase of Company common stock (8) - (282) - - (282)
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Subtotal 94 1 1,081 129 22 1,233
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Net income - - - 337 - 337
Other comprehensive income (loss), net of tax:
Currency translation adjustments - - - - (13) (13)
Unrealized gains on securities:
Unrealized holding gains arising during the period - - - - 54 54
Less: reclassification adjustment for gains
included in net income - - - - (14) (14)
Additional minimum pension liability - - - - (1) (1)
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Comprehensive income - - - 337 26 363
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December 31, 1999 94 1 1,081 466 48 1,596
Employee stock purchase and stock compensation plans 3 - 117 - - 117
Purchase acquisitions 1 - 64 - - 64
Proceeds from sale of put options - - 5 - - 5
Expiration of put option obligation - - 13 - - 13
Purchase of Company common stock (3) - (124) - - (124)
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Subtotal 95 1 1,156 466 48 1,671
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Net income - - - 178 - 178
Other comprehensive income (loss), net of tax:
Currency translation adjustments - - - - (42) (42)
Unrealized (losses) gains on securities:
Unrealized holding (losses) arising during the period - - - - (35) (35)
Less: reclassification adjustment for gains
included in net income - - - - (3) (3)
Additional minimum pension liability - - - - (11) (11)
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Comprehensive income (loss) - - - 178 (91) 87
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December 31, 2000 95 1 1,156 644 (43) 1,758
Employee stock purchase and stock compensation plans 3 - 124 - - 124
Proceeds from sale of put options - - 1 - - 1
Purchase of Company common stock (1) - (46) - - (46)
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Subtotal 97 1 1,235 644 (43) 1,837
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Net income - - - 217 - 217
Other comprehensive income (loss), net of tax:
Currency translation adjustments - - - - (42) (42)
Unrealized losses on securities:
Unrealized holding (losses) arising during the period - - - - (3) (3)
Less: reclassification adjustment for losses
included in net income - - - - 5 5
Additional minimum pension liability - - - - 6 6
Unrealized gains on derivatives - - - - 7 7
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Comprehensive income (loss) - - - 217 (27) 190
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December 31, 2001 97 $ 1 $ 1,235 $ 861 $ (70) $ 2,027
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The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Changes in Stockholders' Equity NCR 2001 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
note 1 description of business and significant accounting policies
Description of Business
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.
NCR 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 business consumables.
Business Restructuring
During the fourth quarter of 1999, NCR established a restructuring plan
aligned around three key solutions: Data Warehousing, Financial Self
Service and Retail Store Automation. In connection with the restructuring
plan, NCR recorded a pre-tax charge of $125 million in 1999 ($8 million in
cost of revenue and $117 million in selling, general and administrative
expenses), and incurred approximately $38 million of period costs during
2000 ($37 million in cost of revenue and $1 million in selling, general and
administrative expenses). Cash payments under the plan totaled $36 million
and $10 million in 2000 and 1999, respectively. The restructuring plan was
substantially complete at December 31, 2000.
Basis of Consolidation
The consolidated financial statements include the accounts of NCR and its
majority-owned subsidiaries. Long-term investments in affiliated companies
in which NCR owns between 20% and 50%, and therefore exercises significant
influence, but which it does not control, are accounted for using the
equity method. Investments in which NCR does not exercise significant
influence (generally, when NCR has an investment of less than 20% and no
representation on the company's Board of Directors) are accounted for using
the cost method. All significant intercompany transactions and accounts
have been eliminated. The Company does not have any special purpose
entities whose financial results are not included in the consolidated
financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates
and judgments that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the period reported.
Actual results could differ from those estimates.
Foreign Currency
For many NCR international operations, the local currency is designated as
the functional currency. Accordingly, assets and liabilities are translated
into U.S. dollars at year-end exchange rates, and revenues and expenses are
translated at average exchange rates prevailing during the year. Currency
translation adjustments resulting from fluctuations in exchange rates are
recorded in other comprehensive income.
In the normal course of business, NCR enters into various financial
instruments, including derivative financial instruments. NCR uses foreign
exchange forward contracts and options to reduce the Company's exposure to
changes in currency exchange rates, primarily as it relates to inventory
purchases by marketing units and inventory sales by manufacturing units.
Derivatives used as a part of NCR's risk management strategy, which are
designated at inception as cash-flow hedges, are measured for effectiveness
both at inception and on an ongoing basis. For foreign exchange contracts
designated as cash-flow hedges, the gains or losses are deferred in other
comprehensive income and recognized in the determination of income as
adjustments of carrying amounts when the underlying hedged transaction is
realized, canceled or otherwise terminated. For the year ended December 31,
2001, NCR reclassified net gains of $1 million to other income as a result
of discontinuance of cash-flow hedges. The net gain related to the
ineffectiveness of all
24 NCR 2001 Notes to Consolidated Financial Statements
cash-flow hedges was not material during 2001. At December 31, 2001, before-tax
deferred net gains recorded in other comprehensive income related to cash-flow
hedges were $10 million, and are expected to be reclassified to earnings during
the next twelve months.
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 foreign exchange
contracts that are not used to hedge currency transactions of a long-term
investment nature, or that are not designated as cash-flow hedges, are
recognized in other income or expense as exchange rates change. The impact of
these hedging activities were not material to the Company's consolidated
financial position, results of operations or cash flows.
Settlement payments are primarily based on net gains and losses related to
foreign exchange derivatives and are included in cash flows from operating
activities in the consolidated statements of cash flows.
Revenue Recognition
NCR's revenue recognition policy is consistent with the requirements of 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 other applicable revenue recognition guidance and interpretations. In
general, the Company records revenue when it is realized, or realizable, and
earned. The Company considers these requirements met 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 the Company's 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 NCR operates,
which generate approximately 1% of the Company's annual revenue, NCR does not
sell its software products without the related hardware as the software products
are embedded in the hardware. The Company's 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 its more complex solutions. For these complex solutions,
revenue is deferred until the installation is complete. As a solutions provider,
the Company's 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, NCR accounts 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. Amounts deferred for services are determined based
upon vendor-specific objective evidence of the fair value 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.
Warranty, Post Sales Support and Sales Returns
Provisions for product warranties, post sales support, and sales returns and
allowances are recorded in the period in which the related revenue is
recognized. The Company accrues warranty reserves and sales returns and
allowances using percentages of revenue as an overall proxy to reflect the
Company's historical average warranty and sales return claims.
Income Taxes
Income tax expense is provided based on income before income taxes. Deferred
income taxes reflect the impact of temporary differences between assets and
liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes. These deferred taxes are measured by applying
currently enacted tax laws. NCR records valuation allowances related to its
deferred income tax assets when, in the opinion of management, it is more likely
than not that some portion or all of the deferred income tax assets will not be
realized.
Net Income Per Common Share
Basic earnings per share is calculated by dividing net income by the weighted
average number of shares outstanding during the reported period. The calculation
of diluted earnings per share is similar to basic, except that the weighted
average number of shares outstanding includes the additional dilution from
potential common stock, such as stock options and restricted stock awards.
Notes to Consolidateed Financial Statements NCR 2001 25
Cash, Cash Equivalents and Short-Term Investments
All short-term, highly liquid investments having original maturities of
three months or less are considered to be cash equivalents. Short-term
investments include certificates of deposit, commercial paper and other
investments having maturities less than one year. Such investments are
stated at cost, which approximates fair value at December 31, 2001 and
2000.
Transfer of Financial Assets
NCR offers its customers the option to acquire its products and services
through payment plans, financing or leasing contracts. From time to time,
the Company factors certain receivables, or transfers future payments under
these contracts, to financing institutions on a non-recourse basis. NCR may
act as servicing agent for the purchaser and retain collection and
administrative responsibilities. These transfers are recorded as sales of
the related accounts receivable when NCR is considered to have surrendered
control of such receivables. The Company had factored receivables of
approximately $76 million and $58 million at December 31, 2001 and 2000,
respectively. The related cost of the factoring was immaterial to the
Company's consolidated financial results.
Inventories
Inventories are stated 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.
Investments in Marketable Securities
All marketable securities, which are included in other assets, are deemed
by management to be available-for-sale and are reported 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 management to be other than temporary, the cost basis of the investment
is written down to fair value, and the amount of the write-down is included
in the determination of income. Realized gains and losses are recorded
based on the specific identification method and average cost method, as
appropriate, based upon the investment type. The fair value of the
Company's investments in marketable securities in aggregate was $73 million
and $72 million at December 31, 2001 and 2000, respectively. The cost basis
of the Company's investments in marketable securities was $69 million and
$70 million at December 31, 2001 and 2000, respectively.
Long-Lived Assets
Capitalized Software. Certain direct development costs associated with
internal-use software are capitalized within other assets and are amortized
over the estimated useful lives of the resulting software. NCR typically
amortizes capitalized internal-use software over three years beginning when
the asset is substantially ready for use.
Research and development costs incurred for the development of computer
software that will be sold, leased or otherwise marketed are capitalized
when technological feasibility has been established. These costs are
included within other assets and are amortized over the estimated useful
lives of the resulting software. The Company typically amortizes
capitalized software over three years beginning when the product is
available for general release. Costs capitalized include direct labor and
related overhead costs. Costs incurred prior to technological feasibility
and after general release are expensed as incurred. Amortization of
capitalized software development costs was $70 million in 2001, $68 million
in 2000 and $63 million in 1999. Gross capitalized software development
costs were $252 million and $242 million at December 31, 2001 and 2000,
respectively, and accumulated amortization for capitalized software
development costs was $144 million and $131 million at December 31, 2001
and 2000, respectively.
Goodwill. Goodwill is included in other assets and is carried at cost less
accumulated amortization. Goodwill amortization was computed on a
straight-line basis over estimated useful lives ranging from three to 20
years. Goodwill amortization expense recorded in operating expense was $67
million, $33 million and $20 million, in 2001, 2000 and 1999, respectively.
Goodwill amortization expense recorded in other expense was $7 million, $6
million and $3 million in 2001, 2000 and 1999, respectively. Accumulated
amortization was $127 million and $58 million at December 31, 2001 and
2000, respectively.
In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangibles" (SFAS 142), NCR will no longer amortize
goodwill beginning January 1, 2002. Furthermore, NCR will conduct goodwill
impairment analyses at least annually using one or more of the asset
impairment tests described in the statement.
26 NCR 2001 Notes to Consolidated Financial Statements
Property, Plant and Equipment. Property, plant and equipment, reworkable
service parts, and rental equipment are stated at cost less accumulated
depreciation. Reworkable service parts are those parts that can be
reconditioned and used in installation and ongoing maintenance services and
integrated service solutions for NCR's customers. Depreciation is computed
over the estimated useful lives of the related assets primarily on the
straight-line basis. Buildings are depreciated over 25 to 45 years,
machinery and other equipment over three to 10 years and reworkable service
parts over three to six years.
Valuation of 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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 133 and No. 138. NCR
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 the Company is 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 the Company is 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, NCR 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. SFAS 141
further defines criteria for recognition of intangible assets apart from
goodwill and disclosure requirements for business combinations. NCR does
not expect this standard to have any material impact on the Company's
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, the Company expects to recognize annual amortization expense savings
of approximately $70 million, of which less than $5 million would have been
recognized in other expense. The Company is 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.
Notes to Consolidated Financial Statements NCR 2001 27
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.
NCR does not expect this standard to have any material impact on the
Company's consolidated financial position, results of operations or cash
flows.
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 to
be 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. NCR does not expect this
standard to have any material impact on the Company's consolidated
financial position, results of operations or cash flows.
note 2 business combinations, divestitures and equity investments
During 2001, 2000 and 1999, NCR completed a number of acquisitions
accounted for as purchase business combinations. The earnings from the
acquired entities were included in NCR's consolidated financial results
from the dates of acquisition. Purchase price and related acquisition costs
were allocated to the acquired tangible and intangible assets and
liabilities based on fair market values, with residual amounts recorded as
goodwill. Also, in 2001, 2000 and 1999, NCR completed other investments and
sold assets related to portions of its businesses to third parties.
During 2001, NCR acquired two companies that were not individually, or in
the aggregate, significant to its financial position, results of operations
or cash flows. In 2001, the Company recorded approximately $9 million of
integration costs related to acquisitions, which were expensed as incurred
($6 million in cost of revenue and $3 million in selling, general and
administrative expenses). Also during 2001, NCR sold its account and item
processing outsourcing businesses for approximately $44 million. Unaudited
pro forma financial information has not been presented because the effects
of the acquisitions and divestitures were not material on either an
individual or aggregate basis.
During 2000, NCR completed several acquisitions including 4Front
Technologies, Inc. (4Front). The acquisitions resulted in total goodwill of
$431 million that was being amortized over various periods of five to ten
years, and in-process research and development charges of $25 million. The
total amount of stock issued as part of the acquisitions was $64 million.
NCR recorded approximately $2 million of integration costs related to
acquisitions in 2000, which were expensed as incurred ($1 million in cost
of revenue and $1 million in selling, general and administrative expenses).
All purchase accounting adjustments for acquisitions completed in 2000 were
finalized and included in the 2001 results.
Assuming the acquisition of 4Front had occurred at the beginning of 2000,
the unaudited pro forma revenue, net income and net income per common share
for the period ended December 31, 2000 would have been:
2000
---------------------
Pro Forma Reported
---------------------------------------------------------------------------
In millions, except per share amounts
Revenue $6,138 $ 5,959
Net income 147 178
Net income per common share
Basic $ 1.55 $ 1.87
Diluted 1.50 1.82
---------------------------------------------------------------------------
Unaudited pro forma financial information for other acquisitions and
divestitures completed in 2000 has not been presented because the effects
of the acquisitions and divestitures were not material on either an
individual or aggregate basis.
28 NCR 2001 Notes to Consolidated Financial Statements
note 3 supplemental financial information
For the year ended December 31 2001 2000 1999
------------------------------------------------------------------------------------------------------
In millions
Other expense (income)
Interest income $ (10) $ (31) $ (26)
Other gain on assets, net (23) (33) (107)
Fox River provision (see Note 9) 40 2 2
Other, net 37 (21) (38)
-----------------------------------------------------------------------------------------------------
Other expense (income), net $ 44 $ (83) $ (169)
-----------------------------------------------------------------------------------------------------
At December 31 2001 2000
-----------------------------------------------------------------------------------------------------
In millions
Cash, cash equivalents and short-term investments
Cash and cash equivalents $ 335 $ 347
Short-term investments 1 10
-----------------------------------------------------------------------------------------------------
Total cash, cash equivalents and short-term investments $ 336 $ 357
-----------------------------------------------------------------------------------------------------
Accounts receivable
Trade $ 1,093 $ 1,255
Other 87 107
-----------------------------------------------------------------------------------------------------
Accounts receivable, gross 1,180 1,362
Less: allowance for doubtful accounts 54 24
-----------------------------------------------------------------------------------------------------
Total accounts receivable, net $ 1,126 $ 1,338
-----------------------------------------------------------------------------------------------------
Inventories
Finished goods, net $ 198 $ 219
Work in process and raw materials, net 82 69
------------------------------------------------------------------------------------------------------
Total inventories, net $ 280 $ 288
-----------------------------------------------------------------------------------------------------
Other current assets
Current deferred tax assets $ 113 $ 123
Other 108 128
-----------------------------------------------------------------------------------------------------
Total other current assets $ 221 $ 251
-----------------------------------------------------------------------------------------------------
Reworkable service parts and rental equipment
Reworkable service parts and rental equipment, gross $ 462 $ 494
Less: accumulated depreciation 238 276
-----------------------------------------------------------------------------------------------------
Total reworkable service parts and rental equipment, net $ 224 $ 218
-----------------------------------------------------------------------------------------------------
Property, plant and equipment
Land and improvements $ 88 $ 103
Buildings and improvements 556 641
Machinery and other equipment 1,058 1,107
-----------------------------------------------------------------------------------------------------
Property, plant and equipment, gross 1,702 1,851
Less: accumulated depreciation 1,073 1,109
-----------------------------------------------------------------------------------------------------
Total property, plant and equipment, net $ 629 $ 742
-----------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements NCR 2001 29
note 3 supplemental financial information (continued)
At December 31 2001 2000
---------------------------------------------------------------------
In millions
Other assets
Prepaid pension cost $ 1,104 $ 932
Goodwill, net 457 532
Other 478 448
---------------------------------------------------------------------
Total other assets $ 2,039 $ ,912
---------------------------------------------------------------------
Other liabilities
Income taxes $ 440 $ 525
Other 160 151
---------------------------------------------------------------------
Total other liabilities $ 600 $ 676
---------------------------------------------------------------------
Accumulated other comprehensive loss
Currency translation adjustments $ (54) $ (12)
Unrealized gain on securities 3 1
Unrealized gain on derivatives 7 -
Additional minimum pension liability and other (26) (32)
---------------------------------------------------------------------
Total accumulated other comprehensive loss $ (70) $ (43)
---------------------------------------------------------------------
note 4 debt obligations
NCR had debt with scheduled maturities of less than one year of $138
million and $96 million at December 31, 2001 and 2000, respectively. The
weighted average interest rate for such debt was 3.5% at December 31, 2001
and 7.2% at December 31, 2000. The decrease in the weighted average
interest rate reflects the general decline in interest rates and a higher
proportion of debt in Japan (which has lower interest rates) in 2001 versus
the prior year. NCR had long-term debt and notes totaling $10 million and
$11 million at December 31, 2001 and 2000, respectively. These obligations
had U.S. dollar equivalent interest rates ranging from 7.3% to 14.0% with
scheduled maturity dates from 2004 to 2020. The scheduled maturities of the
outstanding long-term debt and notes during the next five years are $3
million in 2004 and the remainder after 2007.
In 1996, NCR 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, NCR 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 as of December 31, 2001, 2000 or 1999.
note 5 income taxes
For the years ended December 31, income before income taxes consisted of
the following:
2001 2000 1999
----------------------------------------------------------------------------------------------------------
In millions
Income (loss) before income taxes and cumulative effect of accounting
change
United States $ 289 $ 319 $ 264
Foreign (165) (44) (29)
----------------------------------------------------------------------------------------------------------
Total income before income taxes and cumulative effect of accounting change $ 124 $ 275 $ 235
----------------------------------------------------------------------------------------------------------
30 NCR 2001 Notes to Consolidated Financial Statements
For the years ended December 31, income tax (benefit) expense consisted of the
following:
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
In millions
Income tax (benefit) expense
Current
Federal $ 9 $ 32 $ 24
State and local 2 2 2
Foreign (119) 31 59
Deferred
Federal 7 35 (218)
State and local (4) 3 (14)
Foreign 8 (6) 45
- ----------------------------------------------------------------------------------------------------------------
Total income tax (benefit) expense $ (97) $ 97 $ (102)
- ----------------------------------------------------------------------------------------------------------------
The following table presents the principal components of the difference between
the effective tax rate and the U.S. federal statutory income tax rate for the
years ended December 31:
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
In millions
Income tax expense at the U.S. federal tax rate of 35% $ 43 $ 96 $ 82
Foreign income tax differential (147) (8) 74
U.S. permanent book/tax differences (principally goodwill) 9 6 -
U.S. tax losses and valuation allowance - - (260)
Other, net (2) 3 2
- ----------------------------------------------------------------------------------------------------------------
Total income tax (benefit) expense $ (97) $ 97 $ (102)
- ----------------------------------------------------------------------------------------------------------------
NCR's tax provisions include a provision for income taxes in those tax
jurisdictions where its subsidiaries are profitable, but reflect only a portion
of the tax benefits related to certain foreign subsidiaries' tax losses due to
the uncertainty of the ultimate realization of future benefits from these
losses. In 2001, the foreign income tax differential included a $138 million
income tax benefit realized from the favorable resolution of international
income tax issues. In 1999, U.S. tax losses and valuation allowance included the
recognition of $232 million of the Company's federal and a portion of its state
deferred income tax assets that were previously subject to a valuation
allowance.
Deferred income tax assets and liabilities included in the balance sheets at
December 31 were as follows:
2001 2000
- ----------------------------------------------------------------------------------------------------------------
In millions
Deferred income tax assets
Employee pensions and other benefits $ 37 $ 110
Other balance sheet reserves and allowances 150 170
Tax loss and credit carryforwards 343 445
Capitalized research and development 120 -
Property, plant and equipment 46 29
Other 94 90
- ----------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 790 844
Valuation allowance (281) (304)
- ----------------------------------------------------------------------------------------------------------------
Net deferred income tax assets 509 540
- ----------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities
Property, plant and equipment 32 72
Employee pensions and other benefits 245 164
Taxes on undistributed earnings of foreign subsidiaries - 58
Other 41 63
- ----------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities 318 357
- ----------------------------------------------------------------------------------------------------------------
Total net deferred income tax assets $ 191 $ 183
- ----------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements NCR 2001 31
NCR recorded valuation allowances related to certain deferred income tax
assets due to the uncertainty of the ultimate realization of future
benefits from those assets. The valuation allowance covers deferred tax
assets, primarily tax loss carryforwards, in tax jurisdictions where there
is uncertainty as to the ultimate realization of a benefit from those tax
losses. As of December 31, 2001, NCR had U.S. federal and foreign tax loss
carryforwards of approximately $411 million. The tax loss carryforwards
subject to expiration will expire in the years 2002 through 2020.
NCR did not provide for U.S. federal income taxes or foreign withholding
taxes on approximately $565 million and $568 million of undistributed
earnings of its foreign subsidiaries as of December 31, 2001 and 2000,
respectively, because such earnings are intended to be reinvested
indefinitely.
The income tax (benefit) expense related to other comprehensive income for
2001, 2000 and 1999 was $(15) million, $(48) million and $5 million,
respectively.
note 6 stock compensation plans, purchases of company common stock and put
options
Stock Compensation Plans
The NCR Management Stock Plan provides for the grant of several different
forms of stock-based benefits, including stock options, stock appreciation
rights, restricted stock awards, performance awards, other stock unit
awards and other rights, and interests or options relating to shares of NCR
common stock to employees and non-employee directors. Stock options are
generally granted at the fair market value of the common stock at the date
of grant, generally have a ten-year term and vest within three years of the
grant date. Grants that were issued before 1998 generally had a four-year
vesting period. Options to purchase common stock may be granted under the
authority of the Board of Directors. Option terms as determined by the
Compensation Committee of the Board of Directors will not exceed ten years,
as consistent with the Internal Revenue Code. The plan was adopted by the
Board of Directors, with stockholder approval, effective January 1, 1997.
The plan contains an evergreen provision that initially authorized and made
available for grant 5.6% of the outstanding shares as of January 1, 1997,
as well as sufficient shares to replace all outstanding awards held by
active NCR employees for shares of AT&T Corp. (AT&T) stock. Thereafter, the
number of shares authorized under the plan increases each calendar year by
4% of the outstanding shares on the first day of the year for the 10-year
term of the plan without the need for additional Board approval. The number
of shares of common stock authorized and available for grant under this
plan were approximately 21 million and 6 million, respectively, at December
31, 2001.
NCR adopted the WorldShares Plan effective as of December 31, 1996, the
date AT&T distributed to its stockholders all of its interest in NCR on the
basis of one share of NCR common stock for each 16 shares of AT&T common
stock (the Distribution). The plan provided for the grant of nonstatutory
stock options to substantially all NCR employees at the time of the
Distribution. NCR provided each participant with an option to purchase
shares of NCR common stock with an aggregate market value of $3,000 as of
the Distribution date. Such options had an exercise price of $33.44, equal
to the market value of NCR common stock on January 2, 1997, and had a
five-year expiration period. Subject to certain conditions, participants
became fully vested and able to exercise their options January 2, 1998. The
WorldShares Plan terminated on January 2, 2002, and all unexercised options
expired.
A summary of stock option activity under the NCR Management Stock Plan and
the WorldShares Plan follows (shares in thousands):
2001 2000 1999
---------------------- --------------------- ----------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Under Exercise Under Exercise Under Exercise
Option Price Option Price Option Price
--------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 15,915 $ 36.52 14,577 $ 35.22 12,906 $ 33.13
Granted 3,598 43.89 4,491 38.50 3,967 40.64
Exercised (2,481) 32.73 (2,327) 32.07 (1,631) 31.36
Canceled (864) 38.41 (593) 37.44 (504) 36.47
Expired (649) 34.10 (233) 34.26 (161) 33.27
--------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 15,519 $ 38.87 15,915 $ 36.52 14,577 $ 35.22
--------------------------------------------------------------------------------------------------------------------------
32 NCR 2001 Notes to Consolidated Financial Statements
The following table summarizes information about stock options outstanding at
December 31, 2001 (shares in thousands):
Stock Options Outstanding Stock Options Exercisable
----------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Range of Exercise Price Shares Life Price Shares Price
- ----------------------------------------------------------------------------------------------
$5.92 to $14.51 2 0.16 years $ 9.68 2 $ 9.68
$15.28 to $29.72 248 4.83 years 26.39 223 26.15
$30.31 to $51.63 15,269 6.90 years 39.07 8,065 36.94
- ----------------------------------------------------------------------------------------------
Total 15,519 $ 38.87 8,290 $ 36.64
- ----------------------------------------------------------------------------------------------
There were approximately 8.4 million stock options with a weighted average
exercise price of $34.67 exercisable at December 31, 2000. At December 31, 1999,
there were approximately 8.2 million stock options exercisable with a weighted
average exercise price of $33.31.
NCR accounts for its stock-based compensation plans using the intrinsic
value-based method, which requires compensation expense for options to be
recognized when the market price of the underlying stock exceeds the exercise
price on the date of grant. Compensation cost charged against income for NCR's
stock-based plans was not material in 2001, 2000 and 1999. If NCR recognized
stock-based compensation expense based on the fair value of granted options at
the grant date, net income and net income per diluted share for the years ended
December 31 would have been as follows:
2001 2000 1999
- --------------------------------------------------------------------------------
In millions, except per share amounts
Net income
As reported $ 217 $ 178 $ 337
Pro forma 177 140 309
- --------------------------------------------------------------------------------
Net income per diluted share
As reported $ 2.18 $ 1.82 $ 3.35
Pro forma 1.78 1.43 3.07
- --------------------------------------------------------------------------------
The pro forma amounts calculated are not necessarily indicative of the effects
on net income and net income per diluted share in future years. The pro forma
net income and net income per diluted share for all periods presented were
computed using the fair value of options as calculated using the Black-Scholes
option-pricing method. The following weighted average assumptions were used for
the years ended December 31:
2001 2000 1999
- --------------------------------------------------------------------------------
Dividend yield - - -
Risk-free interest rate 4.86% 6.41% 4.97%
Expected volatility 40.00% 40.00% 40.00%
Expected holding period (years) 4.9 5.0 5.0
- --------------------------------------------------------------------------------
The weighted average fair value of NCR stock options calculated using the
Black-Scholes option-pricing model for options granted during the years ended
December 31, 2001, 2000 and 1999 was $18.53, $17.42 and $17.39 per share,
respectively.
The NCR Employee Stock Purchase Plan enables eligible employees to purchase
NCR's common stock at 85% of the average market price at the end of the last
trading day of each month. Employees may authorize payroll deductions of up to
10% of eligible compensation for common stock purchases. During 2001, 2000 and
1999, employees purchased approximately 700 thousand, 800 thousand and 900
thousand shares, respectively, of NCR common stock for approximately $25
million, $27 million and $30 million, respectively. The number of shares
authorized and available for grant under this plan at December 31, 2001 were
approximately 8 million and 4 million, respectively.
Purchase of Company Common Stock
On December 8, 2000, NCR's Board of Directors approved a share repurchase
program authorizing the systematic repurchase of shares of Company common stock
to offset the dilutive effect of the employee stock plans. The systematic
repurchase program is funded by the proceeds from the purchase of shares under
the Company's Employee Stock Purchase Plan and the exercise of options. Stock
will be repurchased periodically on an ongoing basis in the open market or
through privately negotiated transactions at management's discretion. The
repurchased shares are added to NCR's authorized, but unissued shares. During
2001, NCR committed
Notes to Consolidated Financial Statements NCR 2001 33
approximately $46 million to the repurchase of approximately 1.2 million
shares under this program at an average price per share of $38.12. In 2000,
NCR committed approximately $88 million to the repurchase of approximately
1.8 million shares under this program at an average price per share of
$48.75. This program is expected to continue in 2002.
Under a separate share repurchase program, the Board of Directors on April
15, 1999 and October 21, 1999 authorized $500 million for share
repurchases. As of December 31, 2001, the Company had purchased
approximately $319 million of the total $500 million authorized. No shares
were repurchased under this program in 2001. During 2000, approximately 1.1
million shares were repurchased under this program at an average cost of
$34.04 per share.
Put Options
From time to time, the Company sells put options that entitle the holder of
each option to sell to the Company, by physical delivery, shares of common
stock at a specified price. In a single private placement during the third
quarter of 2001, the Company sold put options for 400 thousand shares of
common stock. These put options were designated as part of the repurchase
program approved by NCR's Board of Directors on December 8, 2000. Of these
400 thousand options, 250 thousand were retired prior to the exercise date.
The remaining 150 thousand were eventually exercised at an average price of
$37.00. There were no put options outstanding at December 31, 2001. During
2000, in a series of private placements, the Company sold put options for
2.0 million shares of common stock. Of these 2.0 million options, 1.6
million expired unexercised during 2000 and 400 thousand were exercised
during the third quarter of 2000 at an average price of $37.00 per share.
In a single private placement during the fourth quarter of 1999, the
Company sold put options for 400 thousand shares of common stock. These put
options expired unexercised in the first quarter of 2000. The put option
obligations had no significant effect on diluted earnings per share for the
periods presented. NCR received net premiums related to Company put options
of approximately $1 million and $5 million in 2001 and 2000, respectively.
The put option activity is summarized as follows:
Put Options Outstanding
-----------------------
Number of Potential
Options Obligation
-----------------------------------------------------------------
In millions
December 31, 1999 0.4 $ 13.1
-----------------------------------------------------------------
Sales 2.0 73.0
Exercises/Retirements (0.4) (14.8)
Expirations (2.0) (71.3)
-----------------------------------------------------------------
December 31, 2000 - $ -
-----------------------------------------------------------------
Sales 0.4 14.8
Exercises/Retirements (0.4) (14.8)
-----------------------------------------------------------------
December 31, 2001 - $ -
-----------------------------------------------------------------
At December 31, 1999, the amount related to the Company's potential
repurchase obligation of approximately $13 million was reclassified from
stockholders' equity to put options.
note 7 employee benefit plans
Pension and Postretirement Plans
NCR sponsors defined benefit plans for substantially all U.S. employees and
the majority of international employees. For salaried employees, the
defined benefit plans are based primarily upon compensation and years of
service. For certain hourly employees in the United States, the benefits
are based on a fixed dollar amount per year of service. NCR's funding
policy is to contribute annually not less than the minimum required by
applicable laws and regulations. Assets of NCR's defined benefit plans are
primarily invested in publicly traded common stocks, corporate and
government debt securities, real estate investments and cash or cash
equivalents.
Prior to September 1998, substantially all U.S. employees who reached
retirement age while working for NCR were eligible to participate in a
postretirement benefit plan. The plan provides medical care and life
insurance benefits to retirees and their eligible dependents. In September
1998, the plan was amended whereby U.S. participants who had not reached a
certain age and years of service with NCR were no longer eligible for such
benefits. Non-U.S. employees are typically covered under government
sponsored programs, and NCR generally does not provide postretirement
benefits other than pensions to non-U.S. retirees. NCR generally funds
these benefits on a pay-as-you-go basis.
34 NCR 2001 Notes to Consolidated Financial Statements
Reconciliation of the beginning and ending balances of the benefit obligations
for NCR's pension and postretirement benefit plans were:
Pension Benefits Postretirement Benefits
------------------- -----------------------
2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------
In millions
Change in benefit obligation
Benefit obligation at January 1 $ 3,593 $ 3,462 $ 332 $ 326
Gross service cost 78 81 1 1
Interest cost 234 234 25 24
Amendments 3 52 - (2)
Actuarial loss 12 99 31 21
Benefits paid (240) (245) (42) (38)
Currency translation adjustments (57) (93) - -
Other (2) 3 - -
- -------------------------------------------------------------------------------------------------------------------
Benefit obligation at December 31 $ 3,621 $ 3,593 $ 347 $ 332
- -------------------------------------------------------------------------------------------------------------------
A reconciliation of the beginning and ending balances of the fair value of the
plan assets of NCR's pension plan follows:
Pension Benefits
------------------
2001 2000
- -------------------------------------------------------------------------------------------------------------------
In millions
Change in plan assets
Fair value of plan assets at January 1 $ 4,540 $ 4,707
Actual return on plan assets (528) 120
Company contributions 59 62
Benefits paid (240) (245)
Currency translation adjustments (51) (108)
Other (5) 4
- -------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $ 3,775 $ 4,540
- -------------------------------------------------------------------------------------------------------------------
Accrued pension and postretirement benefit assets (liabilities) included in
NCR's consolidated balance sheets at December 31 were:
Pension Benefits Postretirement Benefits
------------------- -----------------------
2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------
In millions
Reconciliation to balance sheet
Funded status $ 154 $ 947 $ (347) $ (332)
Unrecognized net loss (gain) 600 (380) 40 6
Unrecognized prior service cost (benefit) 45 66 (26) (36)
Unrecognized transition asset (5) (25) - -
- -------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 794 $ 608 $ (333) $ (362)
- -------------------------------------------------------------------------------------------------------------------
Total recognized amounts consist of:
Prepaid benefit cost $ 1,104 $ 932 $ - $ -
Accrued benefit liability (343) (366) (333) (362)
Intangible asset 3 4 - -
Accumulated other comprehensive income 30 38 - -
- -------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 794 $ 608 $ (333) $ (362)
- -------------------------------------------------------------------------------------------------------------------
The weighted average rates and assumptions utilized in accounting for these
plans for the years ended December 31 were:
Pension Benefits Postretirement Benefits
------------------------------ -------------------------------
2001 2000 1999 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
In millions
Discount rate 6.9% 7.0% 7.0% 7.3% 7.5% 7.5%
Expected return on plan assets 9.8% 10.0% 10.0% - - -
Rate of compensation increase 4.2% 4.2% 4.1% 4.3% 4.3% 4.3%
- -------------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements NCR 2001 35
For postretirement benefit measurement purposes, NCR assumed growth in the per
capita cost of covered health care benefits (the health care cost trend rate)
would gradually decline from 8.0% and 6.0%, pre-65 and post-65, respectively, in
2001 to 5.0% by the year 2006. In addition, a one percentage point change in
assumed health care cost trend rates would have the following effect on the
postretirement benefit costs and obligation:
1% Increase 1% Decrease
- ------------------------------------------------------------------------------------------------------------
In millions
2001 service cost and interest cost $ 2 $ (2)
Postretirement benefit obligation at December 31, 2001 20 (19)
- ------------------------------------------------------------------------------------------------------------
The net periodic benefit (income) cost for the plans for the years ended
December 31 follows:
Pension Benefits Postretirement Benefits
---------------------------------- ------------------------------
2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------
In millions
Net service cost $ 77 $ 78 $ 78 $ 1 $ 1 $ 1
Interest cost 234 234 225 25 24 23
Expected return on plan assets (431) (414) (360) - - -
Settlement charge (credit) 15 (8) - - - -
Amortization of:
Transition asset (20) (21) (22) - - -
Prior service cost 22 23 16 (13) (12) (12)
Actuarial (gain) loss (21) (16) 3 - - -
- ------------------------------------------------------------------------------------------------------------
Net benefit (income) cost $ (124) $ (124) $ (60) $ 13 $ 13 $ 12
- ------------------------------------------------------------------------------------------------------------
For pension plans with accumulated benefit obligations in excess of plan assets,
the projected benefit obligation, accumulated benefit obligation and fair value
were $439 million, $378 million and $39 million, respectively, at December 31,
2001, and $483 million, $408 million and $46 million, respectively, at December
31, 2000.
In 1996, NCR entered into an agreement with the Pension Benefit Guaranty
Corporation (PBGC) concerning the provision by NCR of additional support for its
domestic defined benefit pension plans. Under this agreement, among other terms
and conditions, NCR agreed to provide security interests in support of such
plans as collateral with an aggregate value (calculated by applying specified
discounts to market value) of $84 million. This collateral is comprised of
certain domestic real estate. NCR does not believe that its agreement with the
PBGC will have a material effect on its financial condition, results of
operations or cash flows.
Savings Plans
All U.S. employees and many international employees participate in defined
contribution savings plans. These plans generally provide either a specified
percent of pay or a matching contribution on participating employees' voluntary
elections. NCR's matching contributions typically are subject to a maximum
percentage or level of compensation. Employee contributions can be made pre-tax,
after-tax or a combination thereof. The expense under these plans was
approximately $28 million in each of 2001, 2000 and 1999.
Other Postemployment Benefits
NCR offers various postemployment benefits to involuntarily terminated and
certain inactive employees after employment but before retirement. These
benefits are paid in accordance with NCR's established postemployment benefit
practices and policies. Postemployment benefits may include disability benefits,
supplemental unemployment benefits, severance, workers' compensation benefits,
and continuation of health care benefits and life insurance coverage. NCR
provides appropriate accruals for these postemployment benefits. These
postemployment benefits are funded on a pay-as-you-go basis.
note 8 financial instruments
In the normal course of business, NCR enters into various financial instruments,
including derivative financial instruments. These instruments primarily consist
of foreign exchange forward contracts and options that are used to reduce the
Company's exposure to changes in currency exchange rates. Derivatives used as a
part of NCR's risk management strategy, which are designated at inception as
cash-flow hedges, are measured for effectiveness both at inception, and on an
ongoing basis, with gains or losses deferred in
36 NCR 2001 Notes to Consolidated Financial Statements
other comprehensive income until the underlying hedged transaction is realized,
canceled or otherwise terminated. The forward contracts and options generally
mature within 12 months. The majority of NCR's foreign exchange forward
contracts were to exchange pounds, euro and yen.
NCR may also hedge certain foreign currency transactions of a long-term
investment nature with the resulting gains and losses recorded in the currency
translation adjustment component of stockholders' equity. Foreign exchange
contracts that are not used to hedge currency transactions of a long-term
investment nature, or that are not designated as cash-flow hedges, are
recognized in the determination of income as exchange rates change.
Letters of Credit
Letters of credit are purchased guarantees that ensure NCR's performance or
payment to third parties in accordance with specified terms and conditions.
Letters of credit may expire without being drawn upon. Therefore, the total
notional or contract amounts do not necessarily represent future cash flows.
Fair Value of Financial Instruments
The fair values of debt and foreign exchange contracts are based on market
quotes of similar instruments. The fair values of letters of credit are based on
fees charged for similar agreements. The table below presents the fair value,
carrying value and notional amount of foreign exchange contracts, debt and
letters of credit at December 31, 2001 and 2000. The notional amounts represent
agreed-upon amounts on which calculations of dollars to be exchanged are based,
and are an indication of the extent of NCR's involvement in such instruments.
These notional amounts do not represent amounts exchanged by the parties and,
therefore, are not a measure of the instruments.
Contract Carrying Amount Fair Value
-------------------- ----------------------
Notional Amount Asset Liability Asset Liability
- ------------------------------------------------------------------------------------------------------
In millions
2001
Foreign exchange forward contracts $ 881 $ 15 $ 3 $ 15 $ 3
Foreign currency options 132 - 1 - 1
Debt - - 148 - 149
Letters of credit 50 - - - -
- ------------------------------------------------------------------------------------------------------
2000
Foreign exchange forward contracts $ 886 $ 30 $ 39 $ 33 $ 44
Foreign currency options 275 15 1 15 1
Debt - - 107 - 108
Letters of credit 50 - - - -
- ------------------------------------------------------------------------------------------------------
Fair values of financial instruments represent estimates of possible value that
may not be realized in the future.
Concentration of Credit Risk
NCR is 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. NCR's business often involves large transactions with customers, and
if one or more of those customers were to default in its obligations under
applicable contractual arrangements, the Company could be exposed to potentially
significant losses. 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, management believes that the reserves for potential
losses are adequate. At December 31, 2001 and 2000, NCR did not have any major
concentration of credit risk related to financial instruments.
In the first quarter of 2001, NCR recorded a $40 million charge ($39 million in
selling, general and administrative expenses and $1 million in other expense)
related to the provision for loans and receivables with Credit Card Center
(CCC), a distributor of ATM equipment in the U.S. small retailer marketplace.
Notes to Consolidated Financial Statements NCR 2001 37
note 9 commitments and contingencies
Contingencies
In the normal course of business, NCR is subject to various
regulations, proceedings, lawsuits, claims and other matters,
including actions under laws and regulations related to the
environment and health and safety, among others. NCR believes the
amounts provided in its consolidated financial statements, as
prescribed by generally accepted accounting principles, are adequate
in light of the probable and estimable liabilities. However, there can
be no assurances that the actual amounts required to discharge alleged
liabilities from various lawsuits, claims, legal proceedings and other
matters, including the Fox River environmental matter discussed below,
and to comply with applicable laws and regulations, will not exceed
the amounts reflected in NCR's consolidated financial statements or
will not have a material adverse effect on its consolidated results of
operations, financial condition or cash flows. Any amounts of costs
that may be incurred in excess of those amounts provided as of
December 31, 2001 cannot currently be reasonably determined.
Environmental Matters
NCR's facilities and operations are subject to a wide range of
environmental protection laws, and NCR has investigatory and remedial
activities underway at a number of facilities that it currently owns
or operates, or formerly owned or operated, to comply, or to determine
compliance, with such laws. Also, NCR has been identified, either by a
government agency or by a private party seeking contribution to site
cleanup costs, as a potentially responsible party (PRP) at a number of
sites pursuant to various state and federal laws, including the
Federal Water Pollution Control Act (FWPCA) and comparable state
statutes, and the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (CERCLA), as amended, and comparable state
statutes.
Various federal agencies, Native American tribes and the State of
Wisconsin (Claimants) consider NCR to be a PRP under the FWPCA and
CERCLA for alleged natural resource damages (NRD) and remediation
liability with respect to the Fox River and Green Bay (Fox River site)
due to, among other things, sediment contamination allegedly resulting
in part from NCR's former carbonless paper manufacturing in Wisconsin.
Claimants have also notified a number of other paper manufacturing
companies of their status as PRPs resulting from their ongoing or
former paper manufacturing operations in the Fox River Valley, and
Claimants have entered into a Memorandum of Agreement among themselves
to coordinate their actions, including the assertion of claims against
the PRPs. Additionally, the federal NRD Claimants have notified NCR
and the other PRPs of their intent to commence a NRD lawsuit, but have
not as yet instituted litigation. In addition, one of the Claimants,
the U.S. Environmental Protection Agency (USEPA), has formally
proposed the Fox River site for inclusion on the CERCLA National
Priorities List, but no action has yet been taken on this proposal.
During the fourth quarter of 2000, the federal Claimants released a
proposed Restoration and Compensation Determination Plan (RCDP). The
range of damages in the proposed RCDP is from $176 million to $333
million.
On October 2, 2001, the Wisconsin Department of Natural Resources
(WDNR) and USEPA Region 5 made available for public review a Proposed
Remedial Action Plan (PRAP) for the Fox River site, along with a
revised draft remedial investigation and feasibility study (RI/FS) and
related documents. The PRAP segregates the Fox River into four
segments and includes a fifth segment for Green Bay, describes the
various remedial alternatives that were considered for the cleanup of
each segment and then selects a proposed alternative. The proposed
alternative in the PRAP is to dredge a total of approximately
7,250,500 cubic yards of sediment from three segments of the Fox River
site, dispose of the dredged sediment in local landfills after
treatment, and utilize monitored natural recovery for the other Fox
River segment and for the Green Bay segment, at a total estimated cost
of approximately $370 million, including a 20% contingency. (The range
of estimated costs for other Fox River alternatives considered and
rejected was between approximately $18 million and $1,096 million and
the range of estimated costs for other Green Bay alternatives
considered and rejected was between approximately $18 million and
$2,454 million, all exclusive of contingencies; the latter number
consists mainly of the cost of dredging the Green Bay, an action that
has been characterized by WDNR as infeasible.) While NCR plans to
continue to review the PRAP, RI/FS and related documents, including
the cost estimates, and filed comments with the agencies on January
21, 2002, NCR recorded a $40 million environmental provision during
the third quarter of 2001 based on the PRAP.
NCR, in conjunction with the other PRPs, has developed a substantial
body of evidence that may demonstrate that eventual selection of
alternatives involving river-wide restoration/remediation,
particularly massive dredging, would be inappropriate and unnecessary.
There is ongoing debate within the scientific, regulatory, legal,
public policy and legislative communities over how to properly manage
large areas of contaminated sediments, and NCR believes there is a
high degree of uncertainty about the appropriate scope of alternatives
that may ultimately be required by Claimants. NCR's ultimate share of
restoration/remediation and damages liability
38 NCR 2001 Notes to Consolidated Financial Statements
cannot be determined at this time, except by reference to a range of potential
outcomes, due to uncertainties with respect to: the scope and cost of the
potential alternatives; the outcome of further federal and state NRD
assessments; the amount of NCR's share of such restoration/remediation expenses;
the timing of any restoration/remediation; the evolving nature of
restoration/remediation technologies and governmental policies; the
contributions from other parties; and the recoveries from insurance carriers and
other indemnitors. NCR believes the other currently named PRPs would be required
and are presently able to pay their respective shares toward restoration and
remediation, and that there are additional parties, some of which have
substantial resources, that may also be liable. Further, in 1978 NCR sold the
business to which the claims apply, and NCR and the buyer, Appleton Papers Inc.
(API), have reached an interim settlement agreement under which the parties are
sharing both defense and liability costs.
Last year, NCR and API entered into an Interim Settlement with the Claimants,
which was recently approved by the federal court in Wisconsin. The key terms of
the Interim Settlement are as follows: (a) API/NCR will provide funds to the
Claimants totaling $10.375 million per year over a four-year period for
remediation or natural resource restoration activities at the Fox River site;
(b) the Claimants will not initiate an enforcement action (including natural
resource damage actions or administrative orders) against API or NCR during the
four-year period; and (c) before the term of the Interim Settlement expires, the
Claimants and API/NCR will engage in settlement discussions regarding all claims
against API/NCR at the Fox River site.
Given the numerous uncertainties regarding the cost estimates for remediation
and restoration of the Fox River site and the factors bearing upon NCR's share
of those costs, NCR's potential liability falls within a range as to which no
amount in the range is a better estimate than any other, and even then it is not
possible to estimate the high end of the range. It is possible that NCR's
exposure for costs could be higher than the low end of the range, but an
estimate of those amounts cannot be made. Also, a portion of NCR's potential
liability at the site under CERCLA may be joint and several. If, in the future,
one or more of the other PRPs described above were to become insolvent or unable
to pay their respective shares, NCR could be responsible for a portion of such
shares.
It is difficult to estimate the future financial impact of environmental laws,
including potential liabilities. NCR records environmental provisions when it is
probable that a liability has been incurred and the amount or range of the
liability is reasonably estimable. Provisions for estimated losses from
environmental restoration and remediation are, depending on the site, based
primarily on internal and third-party environmental studies (except for the Fox
River site where the estimated costs are taken directly from the above-described
PRAP), estimates as to the number and participation level of any other PRPs, the
extent of the contamination, and the nature of required remedial and restoration
actions. Accruals are adjusted as further information develops or circumstances
change. Management expects that the amounts accrued from time to time will be
paid out over the period of investigation, negotiation, remediation and
restoration for the applicable sites. The amounts provided for environmental
matters in NCR's consolidated financial statements are the estimated gross
undiscounted amounts of such liabilities (except for the Fox River site where
the PRAP estimates certain long-term costs at net present worth), without
deductions for insurance or third-party indemnity claims. Except for the sharing
arrangement described above with respect to the Fox River site, in those cases
where insurance carriers or third-party indemnitors have agreed to pay any
amounts and management believes that collectability of such amounts is probable,
the amounts would be reflected as receivables in the consolidated financial
statements.
Leases
NCR conducts certain of its sales and manufacturing operations using leased
facilities, the initial lease terms of which vary in length. Many of the leases
contain renewal options and escalation clauses. Future minimum lease payments
under non-cancelable leases as of December 31, 2001 were:
Later
2002 2003 2004 2005 2006 Years Total
- --------------------------------------------------------------------------------
In millions
Operating leases $ 59 $ 51 $ 41 $ 30 $ 25 $ 128 $ 334
- --------------------------------------------------------------------------------
Total rental expense for operating leases was $81 million, $83 million and $99
million in 2001, 2000 and 1999, respectively.
Notes to Consolidated Financial Statements NCR 2001 39
note 10 segment information and concentrations
Operating Segment Information
NCR assesses performance and allocates resources based principally on
its three key solutions: Data Warehousing, Financial Self Service and
Retail Store Automation. Each solution combines hardware, software,
professional consulting services, customer support services, and third
party applications and technologies. For reporting purposes, NCR
categorizes its operations into six reportable segments: the three key
solutions, Systemedia, Payment and Imaging solutions, and Other.
Designed to help businesses gain insight into consumers' activities
and choices, asset use, and operations and financial results, Data
Warehousing solutions provide the hardware, software and related
services necessary to transform large volumes of data into knowledge.
NCR's Data Warehousing solutions serve a multitude of industries
including retail, financial, telecommunications, transportation,
insurance, utilities and electronic commerce, as well as consumer
manufacturing and government entities. The Company's Financial Self
Service solutions offer a complete line of ATM hardware and software,
and related services, enabling businesses to reduce costs, generate
new revenue streams and build customer loyalty. Financial Self Service
solutions primarily serve the financial services industry, with
particular focus on retail banking. NCR's Retail Store Automation
solutions are designed to improve selling productivity and checkout
processes, and increase service levels. Primarily serving the retail
industry, Retail Store Automation solutions deliver traditional
point-of-sale, web-enabled kiosk, self-checkout and electronic shelf
label solutions. Systemedia develops, produces and markets a complete
line of consumable media products. The Company's Payment and Imaging
solutions are designed to digitally capture, process and retain
item-based transactions, thereby helping businesses reduce operating
costs and increase efficiency. Payment and Imaging solutions primarily
serve the financial services industry. NCR's Other segment accumulates
the revenue and operating income from individually insignificant and
dissimilar businesses, as well as unallocated corporate expenses.
The following tables present revenue and operating income by segment
for the years ended December 31:
2001 2000 1999
-----------------------------------------------------------------
In millions
Revenue
Data Warehousing $1,149 $1,134 $ 900
Financial Self Service 1,615 1,511 1,565
Retail Store Automation 1,272 1,359 1,435
Systemedia 503 502 506
Payment and Imaging 301 304 324
Other 1,077 1,149 1,466
-----------------------------------------------------------------
Consolidated revenue $5,917 $5,959 $6,196
-----------------------------------------------------------------
Operating income (loss)
Data Warehousing $ (32) $ (34) $ (142)
Financial Self Service 249 201 224
Retail Store Automation 4 (17) 20
Systemedia 9 15 30
Payment and Imaging 44 42 17
Other (40) 63 54
Adjustments to reconcile
operating income
(loss) to GAAP/1/ (48) (65) (125)
-----------------------------------------------------------------
Consolidated operating income $ 186 $ 205 $ 78
-----------------------------------------------------------------
/1/ In 2001, adjustments to reconcile operating income (loss) include
the provision for loans and receivables related to Credit Card Center
($39 million in Financial Self Service) and integration charges
related to acquisitions ($1 million in Systemedia and $8 million in
Other). In 2000, adjustments to reconcile operating income (loss)
include in-process research and development charges related to
acquisitions ($20 million in Data Warehousing and $5 million in Retail
Store Automation), integration charges related to acquisitions ($2
million in Other) and restructuring and other related charges ($38
million not directly attributable to any reportable segment). In 1999,
adjustments to reconcile operating income (loss) include restructuring
and other related charges ($125 million not directly attributable to
any reportable segment).
40 NCR 2001 Notes to Consolidated Financial Statements
The assets attributable to NCR's segments consist primarily of accounts
receivable, inventories, manufacturing assets, capitalized software and goodwill
dedicated to a specific solution. Assets not attributable to segments consist
primarily of fixed assets not dedicated to a specific segment, deferred tax
assets, prepaid pension costs, cash, cash equivalents and short-term
investments. Segment assets at December 31 were:
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
In millions
Segment assets
Data Warehousing $ 523 $ 525 $ 325
Financial Self Service 536 589 543
Retail Store Automation 377 460 409
Systemedia 186 200 191
Payment and Imaging 78 87 81
Other 610 717 454
- ----------------------------------------------------------------------------------------------------------------
Segment assets 2,310 2,578 2,003
Assets not attributable to segments 2,545 2,528 2,892
- ----------------------------------------------------------------------------------------------------------------
Consolidated assets $ 4,855 $ 5,106 $ 4,895
- ----------------------------------------------------------------------------------------------------------------
Revenues are attributed to geographic areas/countries based principally upon the
geographic area/country to which the product is delivered or in which the
service is provided. The following table presents revenue by geographic area for
NCR for the years ended December 31:
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
In millions
Revenue by geographic area
United States $ 2,550 $ 2,707 $ 2,655
Americas (excluding United States) 459 432 533
Europe/Middle East/Africa 1,788 1,681 1,941
Japan 504 576 612
Asia/Pacific (excluding Japan) 616 563 455
- ----------------------------------------------------------------------------------------------------------------
Consolidated revenue $ 5,917 $ 5,959 $ 6,196
- ----------------------------------------------------------------------------------------------------------------
The following table presents certain long-lived assets, primarily composed of
property, plant and equipment, prepaid pension, capitalized software and
goodwill by country at December 31:
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
In millions
Long-lived assets
United States $ 1,251 $ 1,279 $ 1,094
Japan 201 228 274
All other countries 1,074 1,105 741
- ----------------------------------------------------------------------------------------------------------------
Consolidated long-lived assets $ 2,526 $ 2,612 $ 2,109
- ----------------------------------------------------------------------------------------------------------------
Concentrations
No single customer accounts for more than 10% of NCR's consolidated revenue. As
of December 31, 2001, NCR is not aware of any significant concentration of
business transacted with a particular customer that could, if suddenly
eliminated, have a material adverse impact on NCR's operations. NCR also does
not have a concentration of available sources of labor, services, licenses or
other rights that could, if suddenly eliminated, have a material adverse impact
on its operations.
A number of NCR's products, systems and solutions rely primarily on specific
suppliers for microprocessors and other component products, manufactured
assemblies, operating systems, commercial databases and other central
components. There can be no assurances that any sudden impact to the
availability or cost of these technologies would not have a material adverse
impact on NCR's operations.
Notes to Consolidated Financial Statements NCR 2001 41
note 11 quarterly information (unaudited)
First Second Third Fourth Total
- -------------------------------------------------------------------------------------------------
In millions, except per share amounts
2001
Total revenues $ 1,376 $ 1,499 $ 1,442 $ 1,600 $ 5,917
Gross margin 410 463 408 513 1,794
Operating income (loss) (19) 59 35 111 186
Net income (loss) 117 35 (6) 71 217
Net income (loss) per share:
Basic $ 1.22 $ 0.36 $ (0.07) $ 0.73 $ 2.25
Diluted 1.18 0.35 (0.07) 0.72 2.18
- -------------------------------------------------------------------------------------------------
2000
Total revenues $ 1,255 $ 1,448 $ 1,464 $ 1,792 $ 5,959
Gross margin 358 470 463 576 1,867
Operating income (loss) (18) 43 67 113 205
Net income (loss) (5) 39 54 90 178
Net income (loss) per share:
Basic $ (0.05) $ 0.41 $ 0.57 $ 0.93 $ 1.87
Diluted (0.05) 0.39 0.55 0.90 1.82
- -------------------------------------------------------------------------------------------------
Teradata is either a registered trademark or trademark of NCR
International, Inc. in the United States and/or other countries.
Aptra, Transforming Transactions into Relationships, and
Relationship Technology are either registered trademarks or
trademarks of NCR Corporation in the United States and/or other
countries. UNIX is either a registered trademark or trademark of The
Open Group in the United States and/or other countries. Windows NT
is either a registered trademark or trademark of Microsoft
Corporation in the United States and/or other countries. Six Sigma
is either a registered trademark or trademark of Motorola, Inc. in
the United States and/or other countries.
42 NCR 2001 Notes to Consolidated Financial Statements
SELECTED FINANCIAL DATA
For the year ended December 31 2001/1/ 2000/2/ 1999/3/ 1998/4/ 1997
---------------------------------------------------------------------------------------------------------------------
Dollars in millions, except per share amounts
Revenue $ 5,917 $ 5,959 $ 6,196 $ 6,505 $ 6,589
Income (loss) from operations 186 205 78 102 (19)
Other expense (income), net 62 (70) (157) (110) (46)
Income tax (benefit) expense (97) 97 (102) 90 20
Net income 217 178 337 122 7
Net income per common share
Basic $ 2.25 $ 1.87 $ 3.45 $ 1.21 $ 0.07
Diluted 2.18 1.82 3.35 1.20 0.07
---------------------------------------------------------------------------------------------------------------------
At December 31
---------------------------------------------------------------------------------------------------------------------
Total assets $ 4,855 $ 5,106 $ 4,895 $ 4,892 $ 5,376
Debt 148 107 77 83 94
Stockholders' equity 2,027 1,758 1,596 1,447 1,353
Cash dividends - - - - -
Number of employees and contractors 31,400 32,900 32,800 33,100 38,300
---------------------------------------------------------------------------------------------------------------------
/1/Income from operations for 2001 includes a $39 million provision for loans
and receivables with Credit Card Center (CCC) and $9 million of integration
costs related to acquisitions (see Notes 2 and 8 of Notes to Consolidated
Financial Statements). Net income for 2001 includes the after-tax impacts of
a $39 million provision for loans and receivables with CCC, $9 million of
integration costs related to acquisitions, $40 million for a charge
associated with an environmental matter, a $1 million provision for interest
receivables with CCC, a $138 million tax benefit from the resolution of
international income tax issues and $4 million cumulative effect of adopting
Statement of Financial Accounting Standards No. 133 (see Notes 1, 2, 5, 8
and 9 of Notes to Consolidated Financial Statements). Excluding these items,
the 2001 income from operations, net income and net income per common share
(diluted) would have been $234 million, $142 million and $1.43,
respectively.
/2/Income from operations for 2000 includes $38 million for restructuring and
other related charges, $25 million for in-process research and development
charges related to acquisitions, and $2 million for integration costs
related to acquisitions (see Notes 1 and 2 of Notes to Consolidated
Financial Statements). Excluding these items, the 2000 income from
operations, net income and net income per common share (diluted) would have
been $270 million, $229 million and $2.34, respectively.
/3/Income from operations for 1999 includes $125 million for restructuring and
other related charges (see Note 1 of Notes to Consolidated Financial
Statements). Net income for 1999 includes the after-tax impacts of $125
million for restructuring and other related charges, $98 million of gains
from significant asset dispositions and $232 million of favorable impact
from a tax valuation allowance release (see Notes 1 and 5 of Notes to
Consolidated Financial Statements). Excluding these items, the 1999 income
from operations, net income and net income per common share (diluted) would
have been $203 million, $162 million and $1.61, respectively.
/4/Income from operations for 1998 includes a $50 million non-recurring pension
charge. Net income for 1998 includes the after-tax impacts of $50 million
for a non-recurring pension charge and a $55 million significant gain from
an asset disposition. Excluding these items, the 1998 income from
operations, net income and net income per common share (diluted) would have
been $152 million, $119 million and $1.17, respectively.
Selected Financial Data NCR 2001 43