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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
Commission File Number 001-00395
NCR CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 31-0387920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 South Patterson Blvd.
Dayton, Ohio 45479
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (937) 445-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $.01 per share New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 26, 1999 was approximately $4.1 billion. At February
26, 1999, there were 105,766,824 shares of common stock issued and 99,478,328
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II: Portions of the registrant's Annual Report to Stockholders for
the year ended December 31, 1998 and the current report on Form
8-K filed with the SEC dated October 15, 1998.
Part III: Portions of the registrant's Proxy Statement dated March 4,
1999, issued in connection with the annual meeting of
stockholders.
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TABLE OF CONTENTS
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PART I
Item Description Page
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1. Business ............................................................................... 1
2. Properties ............................................................................. 6
3. Legal Proceedings ...................................................................... 6
4. Submission of Matters to a Vote of Security Holders .................................... 6
4.(a) Executive Officers of the Registrant ................................................... 6
PART II
Description
5. Market for the Registrant's Common Equity and Related Stockholder Matters .............. 8
6. Selected Financial Data ................................................................ 8
7. Management's Discussion and Analysis of Results of Operations and Financial Condition .. 8
7.(a) Quantitative and Qualitative Disclosures about Market Risk ............................. 8
8. Financial Statements and Supplementary Data ............................................ 8
9. Changes in Accountants ................................................................. 8
9.(a) Disagreements with Accountants on Accounting and Financial Disclosure .................. 8
PART III
Description
10. Directors and Executive Officers of the Registrant ..................................... 9
11. Executive Compensation ................................................................. 9
12. Security Ownership of Certain Beneficial Owners and Management ......................... 9
13. Certain Relationships and Related Transactions ......................................... 9
PART IV
Description
14. Financial Statement Schedules, Reports on Form 8-K and Exhibits ........................ 10
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This Report contains trademarks, service marks, and registered marks of the
Company and its subsidiaries, and other companies, as indicated.
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PART I
Item 1. BUSINESS
General
NCR Corporation and its subsidiaries (NCR or the Company) provide
information technology hardware, software and consulting and support services.
NCR combines these hardware, software and services components into solutions
designed to solve complex business problems for its customers. NCR's solutions
offer companies the opportunity to capture and transform data from transactions
into information for building consumer relationships.
Through its presence at customer interaction points, such as automated
teller machines (ATMs) or point-of-sale workstations, NCR's solutions are
designed to help businesses capture valuable consumer transaction data. They
also offer businesses the opportunity to centralize detailed information in a
data warehouse, analyze the complex relationships among all of the different
data elements, and respond with programs designed to improve consumer
acquisition, retention and profitability. NCR offers specific solutions for the
retail and financial services industries and also provides solutions for the
communications, transportation, insurance and utilities industries, consumer
goods manufacturers and government entities. These solutions are complemented by
NCR's business media products, such as paper rolls, ink ribbons and other
business forms. Integrated within the solutions NCR provides its customers, the
Company offers a complete range of services in support of critical transaction-
based systems.
NCR was originally incorporated in 1884 and was a publicly traded company
on the New York Stock Exchange prior to its merger with a wholly-owned
subsidiary of AT&T Corp. ("AT&T") on September 19, 1991. Effective December 31,
1996, AT&T distributed to its stockholders all of its interest in NCR (the
"Distribution") on the basis of one share of NCR common stock for each 16 shares
of AT&T common stock. The Distribution resulted in approximately 101.4 million
shares of NCR common stock outstanding as of December 31, 1996. NCR common stock
is listed on the New York Stock Exchange and trades under the symbol "NCR".
Revenue by similar classes of products or services is reported on page 6 of
NCR's 1998 Annual Report to Stockholders and is incorporated herein by
reference.
Geographic information is reported in Note 9, "Segment Information and
Concentrations" in the Notes to Consolidated Financial Statements on pages 28-30
of NCR's 1998 Annual Report to Stockholders and is incorporated herein by
reference.
NCR operates in one industry, the information technology industry, and its
business is structured along the four operating segments described below.
Retail Industry Solutions
Products, Services and Solutions
NCR offers customers in the retail industry hardware and software
components combined with consulting and support services to create store-level
and enterprise-wide solutions. These solutions are designed to improve service
levels and operating efficiency. Products delivered to retail customers include
traditional retail offerings such as point-of-sale terminals, barcode scanners,
scanner-scales, electronic price labeling, applications software and other
computer products typically found in merchandise checkout areas of supermarkets,
department stores, specialty stores, convenience stores and quick-service
restaurants. NCR provides the networking technology and services to link these
products to computer servers on site and to link systems to enterprise-wide
networks. Traditional retail products and NCR's networking offerings are
typically provided to customers through NCR's Store Automation solutions
portfolio. The Company also provides its retail customers in-store and decision
level-support systems using NCR's scalable data warehousing technology,
Teradata(R), and other enterprise server products (such as large servers with
parallel processing capabilities, disk storage systems, database application
software and other software tools). NCR offers consulting services to develop
data warehouses and integrate them with a variety of consumer interaction points
and application systems, including those offered through NCR's Store Automation
solutions. NCR's Teradata technology for the retail industry is offered through
its High Performance Merchandising and Marketing (HPM&M)
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solutions portfolio. These solutions are designed to enable retailers to use the
valuable information gathered from consumer transactions to analyze and manage
every outlet, every product and every consumer relationship, individually.
Retail industry solutions also incorporate consulting and support services
to help customers design, integrate, install and support in-store networks of
scanners, point-of-sale terminals, network servers and enterprise-level
decision-support and data warehousing systems. NCR incorporates third-party
products and software as required to create individualized solutions for
specific customer needs.
Target Markets and Distribution Channels
The major segments of the retail industry market served by NCR are general
merchandise, food and drug and hospitality. The general merchandise segment
includes department stores, specialty retailers, mass merchandisers and catalog
stores; the food and drug segment includes supermarkets, hypermarkets, grocery,
drug, wholesalers and convenience stores; and the hospitality segment includes
lodging (hotel/motel), fast food/quick service and restaurants.
NCR's offerings for the retail industry are marketed through a combination
of direct and indirect channels. The majority of the networked and scalable data
warehousing offerings sold by NCR into the retail industry are sold through the
Company's direct sales force. In addition to being sold by NCR's direct sales
force, NCR retail products, services and solutions are sold through alliances
with value-added resellers, distributors and dealers worldwide. NCR provides
supporting services, including collateral sales materials, sales leads, porting
facilities and marketing programs, to this sales channel. In recent years, over
70% of traditional retail product sales (primarily barcode scanners and point-
of-sale terminals) were sold by the direct sales force; the remainder were sold
through indirect channels.
Competition
NCR faces significant competition in the retail industry in all geographic
areas where it operates. The bases of competition can vary by geographic area
but typically include quality of the solutions or products, total cost of
ownership, industry knowledge of the vendor, and knowledge, experience and
quality of the vendor's consulting and support services. NCR's competitors vary
by solution, product, service offering and geographic area.
Financial Industry Solutions
Products, Services and Solutions
NCR provides a full line of solutions, products and services to the
financial services industry with particular focus on retail banking.
Specifically, the Company offers a complete range of self-service consumer
interaction points (principally ATMs), including specialized ATMs for different
markets, locations and the self-service branch market, associated software and
services and self-service devices that dispense information and non-cash items
(such as tickets and coupons). NCR incorporates biometrics technology in certain
of its offerings to the financial services industry, including iris-scanning for
customer identification and ATMs for the sight-impaired. These products,
services and technologies are generally provided to customers through NCR's
Self-Service solutions portfolio. The Company also provides its financial
services customers a combination of NCR's Teradata scalable data warehousing
technologies, other enterprise server products, consulting services, and
applications and modeling tools developed specifically for the financial
services industry. These offerings are part of NCR's Customer Management
portfolio of solutions which are designed to enable financial services
institutions to transform data about consumer behavior into information that can
be used to change the way these customers interact with consumers.
NCR also provides products and services related to bank branch automation,
call centers, home banking, switching and account processing through its Channel
Delivery solutions portfolio. These solutions are designed to help increase the
efficiency and marketing capabilities of banks and other financial service
providers. In addition, NCR offers customers in the financial services industry
item-processing devices that read and sort checks and other paper items, image-
processing devices that convert checks and other paper items into electronic
images, outsourced management of item- and image-processing facilities, and
products and services related to emerging methods of payment, particularly
''smart'' cards. These products and services are offered as components of NCR's
Payment solutions which are designed to enable even the most cumbersome and
paper-based form of transaction to be handled
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effectively in digital format.
Financial industry solutions also incorporate consulting and support
services to help customers design, integrate, install and support self-service
devices and networks, item- and image-processing systems, branch automation and
call-center software and equipment, network servers and data warehousing
systems. NCR incorporates third-party products and software as required to
create individualized solutions for specific customer needs.
Target Markets and Distribution Channels
NCR serves a number of segments in the financial services industry. These
segments include retail banking, which covers both traditional and newer
providers of consumer banking services and financial services, such as the
insurance and card payment industries, as well as the non-traditional financial
services segment, including companies that have diversified into the financial
services area to complement their core businesses. NCR's financial services
industry customers are located throughout the world in both established and
emerging markets. These customers range from very large to very small financial
service providers, reflecting, in NCR's view, its ability to develop solutions
for the variety of companies that make up the world's financial services
industry.
NCR has historically distributed most of its financial solutions, products
and services through NCR's direct sales channel, although certain revenues are
derived through sales by distributors. The Company expects to increase the level
of business transacted through indirect channels and partners, where
appropriate, in both current and emerging markets.
Competition
NCR faces significant competition in the financial services industry in all
geographic areas where it operates. The bases of competition can vary, but
typically include quality of the solutions or products, the industry knowledge
of the vendor, the vendor's ability to provide and support a total, end-to-end
solution, the vendor's ability to integrate new and existing systems, the fit of
the vendor's strategic vision with the customer's strategic direction and the
quality of the vendor's support and consulting services. NCR's competitors vary
by solution, product, service offering and geographic area.
National Accounts Solutions
Products, Services and Solutions
NCR's National Accounts Solutions Group provides solutions, products and
services to generally large customers outside the retail and financial
industries, including customers in the communications, transportation, insurance
and utilities industries, consumer goods manufacturers and government entities.
Such offerings include scalable data warehousing technologies, products and
services focused on maintaining or improving system availability in transaction
processing and electronic commerce, and consulting and support services. As part
of its data warehousing technology offerings, the National Accounts Solutions
Group provides the Customer Knowledge solutions portfolio which uses NCR's
Teradata technology as the foundation to provide a high level of linear
performance, scalability, availability and manageability of data for both
repetitive and ad hoc (iterative) queries in a decision-support environment.
This offering, coupled with other enterprise server products and consulting
services, is designed to help companies profitably increase business by using
data warehousing capabilities to gain insight to consumers' activities and
choices, asset use, operations and financial results. In addition, the National
Accounts Solutions Group offers the Customer Interaction solutions portfolio,
which includes providing call center services, web interaction solutions and
kiosks. NCR's Lifekeeper(R) software is also offered through the Customer
Interaction solutions portfolio and is designed to maximize system availability
by recognizing and recovering hardware components or application faults before a
total system failure occurs. The offerings of the National Accounts Solutions
Group integrate NCR's software, hardware and consulting and support services as
well as other products from leading technology firms.
The National Accounts Solutions also incorporate consulting and support
services to help customers design, integrate, install and support data
warehousing and customer interaction technologies and products to create
individualized solutions for specific customer needs.
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Target Markets and Distribution Channels
The National Accounts Solutions Group serves customers outside the retail
and financial industries, including customers in the communications,
transportation, insurance, utilities and healthcare industries, consumer goods
manufacturers and government entities.
NCR's National Accounts Solutions Group's offerings are marketed through a
combination of direct and indirect channels. In recent years, approximately 90%
of NCR's revenue from the National Accounts Solutions Group's offerings has been
generated by the Company's direct sales force. The remaining revenues have
historically been generated from the indirect channel and through alliances with
value-added resellers, distributors and OEMs.
Competition
NCR faces significant competition in the industries served by the National
Accounts Solutions Group in all geographic areas where it operates. NCR
believes that key competitive factors in these markets are vendor experience,
customer referrals, database sophistication, support and professional service
capabilities, quality of the solutions or products, total cost of ownership,
industry knowledge of the vendor and platform scalability. In addition, the
movement toward common industry standards (such as Intel processors and UNIX(R)
and Microsoft operating systems) has accelerated product development, but has
also made differentiation more difficult. Hardware and operating system
commoditization has extended beyond PCs into the server business. In the
markets in which the National Accounts Solutions Group competes, customers
require applications, database software, system software, hardware, professional
services and systems integration skills. Many competitors offer one or two of
these components, but NCR believes it is one of few companies that can provide
complete, open solutions that include all of these customer requirements.
Systemedia Group
Products, Services and Solutions
Systemedia develops, produces and markets a complete line of business
consumables to complement NCR's solutions for the retail, financial services and
other industries. These products include paper rolls, paper products and imaging
supplies for ink jet, laser, impact and thermal-transfer printers for the small
office and home-office environment and forms for business operations and
equipment. Systemedia also provides support specific to NCR's financial and
retail industry solutions by working with banks and merchants to develop
customer media programs for front- and back-office applications. Products
developed for the financial services and retail industries include full-color
customer printed receipt rolls, coupons, value documents, security papers,
printer ribbons, encoding products, ink-jet cartridges, optical diskettes,
journal paper, business forms and smart checks. In addition, Systemedia develops
Automatic Identification solutions that bring together barcode labels, ribbons,
software and printers to meet the product marketing and distribution
requirements of manufacturers and retailers.
Target Markets and Distribution Channels
The major industry segments targeted by the Systemedia Group include
general merchandise, food and drug, hospitality, financial and consumer goods
manufacturing. The Systemedia Group has a direct sales force in nineteen
countries focused on providing solutions to major accounts. In addition,
Systemedia solutions are sold through office product resellers, value-added
resellers and telemarketing.
Competition
Competition in the consumable and media solutions business is significant
and varies by geographic area and product group. The primary areas of
competitive differentiation are typically quality, logistics and supply chain
management expertise and total cost of ownership. While price is always a
factor, the Systemedia Group focuses on total cost of ownership for all of its
products and services. Total cost of ownership takes into account not only the
per unit cost of the media, but also service, usage and support costs over the
life of the system.
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Research and Development
Research and development expenditures for NCR are reported on page 8 of
NCR's 1998 Annual Report to Stockholders and are incorporated herein by
reference.
Seasonality
Seasonality information for NCR is reported on page 10 of NCR's 1998 Annual
Report to Stockholders and is incorporated herein by reference.
Backlog
NCR's operating results and the amount and timing of revenue are affected
by numerous factors, including the volume, mix and timing of orders received
during a period and conditions in the information technology industry and in the
general economy. The Company believes that backlog is not a meaningful indicator
of future business prospects due to the shortening of product delivery schedules
and the significant portion of revenue related to its customer support services
business, for which order information is not recorded. Accordingly, NCR believes
that backlog information is not material to an understanding of its business.
Sources and Availability of Raw Materials
Sources and availability of raw materials information for NCR is reported
on page 10 of NCR's 1998 Annual Report to Stockholders and is incorporated
herein by reference.
Patents and Trademarks
NCR owns approximately 1,300 patents in the United States and 1,400 in
foreign countries. The foreign patents are generally counterparts of NCR's
United States patents. Many of the patents owned by NCR are licensed to others
and NCR is licensed to use certain patents owned by others. In connection with
the Distribution, NCR entered into an extensive cross-licensing agreement with
AT&T and Lucent Technologies Inc. ("Lucent"), a former subsidiary of AT&T. While
NCR's portfolio of patents and patent applications is of significant value to
NCR, the Company does not believe that any particular individual patent is
itself of material importance to NCR's business as a whole.
NCR has registered certain trademarks and service marks in the United
States and in a number of foreign countries. NCR considers the mark "NCR" and
many of its other trademarks and service marks to be valuable assets.
Employees
At December 31, 1998, NCR had approximately 33,100 employees and
contractors.
Environmental Matters
Information regarding environmental matters is included in the material
captioned "Environmental Matters" on pages 30-31 of NCR's 1998 Annual Report to
Stockholders and is incorporated herein by reference.
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Item 2. PROPERTIES
At February 26, 1999, NCR operated approximately 34 research and
development and manufacturing facilities which occupy in excess of 4.1 million
square feet throughout the world. As of this same date, NCR also operated
approximately 676 additional facilities which include warehouse, repair, office
and other miscellaneous sites, occupying in excess of 11.8 million square feet
throughout the world. Of the Research & Development and Manufacturing
facilities, on a square footage basis, approximately 87% are owned and 13% are
leased. Of the other sites, on a square footage basis, approximately 61% are
owned and 39% are leased. NCR maintains facilities in 80 countries.
NCR's business units are headquartered in: Dayton, Ohio (National Accounts
Solutions Group and Systemedia Group); London, United Kingdom (Financial
Solutions Group); and Atlanta, Georgia (Retail Solutions Group).
NCR believes its plants and facilities are suitable and adequate, and have
sufficient productive capacity to meet its current needs.
Item 3. LEGAL PROCEEDINGS
The information required by this item is included in the material captioned
"Legal Proceedings" on page 31 of NCR's 1998 Annual Report to Stockholders and
is incorporated herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4. (a) EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of NCR (as of February 26, 1999) are as follows:
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Name Age Position and Offices Held
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Lars Nyberg 47 Chairman of the Board, Chief Executive Officer and President
David Bearman 53 Senior Vice President and Chief Financial Officer
Wilbert J. M. Buiter 40 Senior Vice President, Human Resources
Robert A. Davis 48 Senior Vice President and Chief Quality Officer
William J. Eisenman 52 Senior Vice President, Worldwide Customer Services Group
Daniel J. Enneking 51 Senior Vice President, Systemedia Group
Tony Fano 55 Senior Vice President, Retail Solutions Group
Jonathan S. Hoak 49 Senior Vice President and General Counsel
Mark V. Hurd 42 Senior Vice President, National Accounts Solutions Group
Per-Olof Loof 48 Senior Vice President, Financial Solutions Group
Hideaki Takahashi 50 Chairman, NCR Japan, Ltd., and Senior Vice President
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Lars Nyberg. Mr. Nyberg has been Chairman, Chief Executive Officer and
President of NCR since June 1, 1995. Before joining NCR, from 1993 to 1995, Mr.
Nyberg was Chairman and Chief Executive Officer of the Communications Division
of Philips Electronics NV, an electronics and electrical products company
("Philips"). He also served as a member of the Philips Group Management
Committee during that time. In 1992, Mr. Nyberg was appointed Managing
Director, Philips Consumer Electronics Division. From 1990 to 1992, he was the
Chairman and Chief Executive Officer of Philips Computer Division. Mr. Nyberg
became a director of NCR in 1995.
David Bearman. Mr. Bearman has been Senior Vice President and Chief
Financial Officer of NCR since September 1, 1998. Before joining NCR, from 1989
to August 1998, Mr. Bearman was Executive Vice President and Chief Financial
Officer of Cardinal Health, Inc., a pharmaceutical services provider.
Wilbert J. M. Buiter. Mr. Buiter has been Senior Vice President, Human
Resources, of NCR since August 1, 1998. Before joining NCR, from July 1997 to
July 1998, Mr. Buiter was Senior Vice President, Human Resources, for Philips
Consumer Communications, a joint venture formed by Lucent and Philips. From
1995 to July 1997, Mr. Buiter was Human Resources Director of Philips Consumer
Communications, a division of Philips, and prior to that he was a Human
Resources Executive within the Philips Product Division Communications Systems.
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Robert A. Davis. Mr. Davis became Senior Vice President and Chief Quality
Officer for NCR in 1995. From 1994 to 1995, Mr. Davis was with Ideon Group,
Inc., a provider of credit card registry services, as Senior Vice President and
Chief Quality Officer. From 1990 to 1994, Mr. Davis was Vice President and
Chief Quality Officer with AT&T Universal Card Services Corp.
William J. Eisenman. Mr. Eisenman became Senior Vice President, Worldwide
Customer Services Group, in November 1998. From 1995 to November 1998, Mr.
Eisenman was Senior Vice President, National Accounts Solutions Group. In 1994,
he was appointed Vice President, NCR Worldwide Services, Global Remote Services.
From 1991 to 1994, he was Vice President, NCR Large Computer Products Division.
Daniel J. Enneking. Mr. Enneking became Senior Vice President, Systemedia
Group, in 1993. Mr. Enneking was appointed an officer by the Board of Directors
of NCR in 1991, and from 1991 to 1993, Mr. Enneking held the position of Vice
President, Finance & Administration, NCR U.S. Group.
Tony Fano. Mr. Fano became Senior Vice President, Retail Solutions Group,
in 1995. From 1994 to 1995, Mr. Fano was Senior Vice President, NCR Europe and
Middle East/Africa, responsible for all NCR sales and service activity in that
geographic region. From 1993 to 1994, he was Senior Vice President, Quality and
Reengineering. From 1991 to 1993, he was Vice President, NCR Latin
America/Middle East/Africa Group.
Jonathan S. Hoak. Mr. Hoak became Senior Vice President and General
Counsel for NCR in December 1993. He was a director of the Company from
September 1996 until December 1996. From 1990 to 1993, Mr. Hoak was with AT&T
Federal Systems as a General Attorney.
Mark V. Hurd. Mr. Hurd became Senior Vice President, National Accounts
Solutions Group, in November 1998. From 1995 to November 1998, Mr. Hurd was
Vice President, Americas Sales and Worldwide Marketing. From 1994 to 1995, Mr.
Hurd was Vice President, Americas Professional Services.
Per-Olof Loof. Mr. Loof became Senior Vice President, Financial Solutions
Group, in November 1995. From 1994 to 1995, Mr. Loof was President and Chief
Executive Officer, AT&T Istel Co. Mr. Loof served as Vice President, Sales and
Marketing, for Europe with Digital Equipment Corporation, a computer and related
equipment and software company ("Digital"), in 1994. From 1990 to 1993, Mr.
Loof was Vice President, Financial Industry, with Digital Europe.
Hideaki Takahashi. Mr. Takahashi is currently Chairman, NCR Japan, Ltd.,
and a Senior Vice President. He has announced his intention to leave the
Company effective March 31, 1999, but will continue to serve as a Director and
Advisor to the Chairman of NCR Japan beginning April 1. From October 1997 to
December 1998, Mr. Takahashi was Senior Vice President, Worldwide Field
Operations, responsible for developing global processes for the operational
environment of NCR's sales and services activities. From January 1996 to
October 1997, he was Senior Vice President, Asia/Pacific Region. In July 1994,
Mr. Takahashi was appointed Vice President, Asia/Pacific Region. From 1992 to
1994, Mr. Takahashi was Vice President, Operations, Japan. In 1992, he became
Director, NCR Japan, Ltd. From 1987 to 1992, he was General Manager of NCR's
engineering and manufacturing facility in Oiso, Japan.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
NCR common stock is listed on the New York Stock Exchange and trades under
the symbol "NCR." There were approximately 1 million registered holders of
record of NCR common stock as of December 31, 1998. The following table
presents the high and low per share sales prices for NCR common stock for each
quarter of 1998 and 1997.
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1998 1997
High Low High Low
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1st Quarter 34 3/16 25 5/8 1st Quarter 39 7/8 32
2nd Quarter 38 3/8 30 3/4 2nd Quarter 35 3/8 28 1/4
3rd Quarter 36 23 1/2 3rd Quarter 37 5/16 27 7/16
4th Quarter 41 7/8 27 1/2 4th Quarter 38 1/4 25 15/16
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NCR does not anticipate the payment of cash dividends on NCR common stock
in the foreseeable future. The declaration of dividends will be subject to the
discretion of the Board of Directors of NCR. Payment of dividends on NCR common
stock will also be subject to such limitations as may be imposed by NCR's credit
facilities from time to time.
Item 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1998,
which appears on page 2 of NCR's 1998 Annual Report to Stockholders, is
incorporated by reference in this Form 10-K Annual Report.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Management's discussion of NCR's results of operations and financial
condition is included on pages 3-14 of NCR's 1998 Annual Report to Stockholders
and is incorporated herein by reference.
Item 7. (a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are reported in
the material captioned "Derivative Financial Instruments and Market Risk" on
page 13 of NCR's 1998 Annual Report to Stockholders and are incorporated herein
by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of NCR, together with the report
thereon of PricewaterhouseCoopers LLP dated January 19, 1999 and selected
quarterly financial data appearing on pages 15-32 of NCR's 1998 Annual Report to
Stockholders are incorporated by reference in this Form 10-K Annual Report.
Item 9. CHANGES IN ACCOUNTANTS
The information required by this Item is set forth in NCR's Current Report
on Form 8-K/A dated March 19, 1997, which is incorporated herein in its entirety
by reference.
Item 9. (a) DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to directors of NCR is
included on pages 5-6 of NCR's Proxy Statement, dated March 4, 1999, and is
incorporated herein by reference.
Information regarding executive officers is furnished in a separate
disclosure in Part I of this report because the Company did not furnish such
information in its definitive proxy statement prepared in accordance with
Schedule 14A.
Item 11. EXECUTIVE COMPENSATION
The information regarding the Company's compensation of its named executive
officers is included in the material captioned "Executive Compensation" on pages
23-30 of NCR's Proxy Statement, dated March 4, 1999, and is incorporated herein
by reference. The information regarding the Company's compensation of its
directors is included in the material captioned "Compensation of Directors" on
page 8 of NCR's Proxy Statement, dated March 4, 1999, and is incorporated herein
by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is included in the material captioned "Stock Ownership" on pages 4-5
of NCR's Proxy Statement, dated March 4, 1999, and is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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PART IV
Item 14. FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K AND EXHIBITS
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Pages In
Annual Report
to Stockholders*
<S> <C>
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Accountants..................................................... 15
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996.................................................... 16
Consolidated Balance Sheets for the Years Ended December 31, 1998 and
1997................................................................................ 17
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.................................................... 18
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996.............................................. 19
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996.................................................... 19
Notes to Consolidated Financial Statements ........................................... 20-32
</TABLE>
(2) Financial Statement Schedule:
Report of Independent Accountants on Financial
Statement Schedule
For each of the three years in the period ended December 31, 1998:
II - Valuation and Qualifying Accounts
* Incorporated by reference from the indicated pages of the 1998 Annual Report
to Stockholders.
(b) Reports on Form 8-K
NCR filed a Current Report on Form 8-K dated October 15, 1998, including
unaudited condensed consolidated balance sheets as of September 30,
1998, and unaudited condensed consolidated statements of operations,
consolidated revenue summary and condensed consolidated statements of
cash flows for the quarter ended September 30, 1998, with respect to its
Information Release on its third quarter of 1998 financial results.
(c) Exhibits:
Exhibits identified in parentheses below, on file with the SEC, are
incorporated herein by reference as exhibits hereto.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
3.1 Articles of Amendment and Restatement and Articles Supplementary of NCR Corporation
(Exhibit 3.1 to the NCR Corporation Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 NCR Annual Report")).
3.2 Bylaws of NCR Corporation, as amended and restated on February 19, 1998 (incorporated by
reference to Exhibit 3.2 to the NCR Corporation Annual Report on Form 10-K for the year
ended December 31, 1997).
4.1 Common Stock Certificate of NCR Corporation (Exhibit 4.1 to the 1996 NCR Annual Report).
4.2 Preferred Share Purchase Rights Plan of NCR Corporation, dated as of December 31, 1996,
by and between NCR Corporation and The First National Bank of Boston (Exhibit 4.2 to the
1996 NCR Annual Report).
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.1 Separation and Distribution Agreement, dated as of February 1, 1996 and amended and
restated as of March 29, 1996 (Exhibit 10.1 to the Lucent Technologies Inc. Registration
Statement on Form S-1 (No. 333-00703) (the "Lucent Registration Statement")).
10.2 Employee Benefits Agreement, dated as of November 20, 1996, by and between AT&T Corp.
and NCR Corporation (Exhibit 10.2 to the 1996 NCR Annual Report).
10.3 Volume Purchase Agreement, dated as of November 20, 1996, by and between AT&T Corp. and
NCR Corporation (Exhibit 10.3 to the 1996 NCR Annual Report).
10.4 Patent License Agreement, effective as of March 29, 1996, by and among AT&T Corp., NCR
Corporation and Lucent Technologies Inc. (Exhibit 10.7 to the Lucent Registration
Statement).
10.5 Amended and Restated Technology License Agreement, effective as of March 29, 1996, by
and among AT&T Corp., NCR Corporation and Lucent Technologies Inc. (Exhibit 10.8 to the
Lucent Registration Statement).
10.6 Tax Sharing Agreement, dated as of February 1, 1996, and amended and restated as of
March 29, 1996, by and among AT&T Corp., NCR Corporation and Lucent Technologies Inc.
(Exhibit 10.6 to the Lucent Registration Statement).
10.7 Interim Services and Systems Replication Agreement by and among AT&T Corp., Lucent
Technologies Inc. and NCR Corporation, dated as of February 1, 1996 (Exhibit 10.4 to the
Lucent Registration Statement), as amended by First Amendment to Interim Services and
Systems Replication Agreement, dated September 1, 1996 (Exhibit 10.7 to the 1996 NCR
Annual Report).
10.8 NCR Management Stock Plan (Exhibit 10.8 to the 1996 NCR Annual Report).
10.9 NCR WorldShares Plan (Exhibit 10.9 to the 1996 NCR Annual Report).
10.10 NCR Senior Executive Retirement, Death & Disability Plan (Exhibit 10.10 to the NCR
Corporation Registration Statement on Form 10 (No. 001-00395), dated November 25, 1996
(the "NCR Registration Statement")).
10.11 The Retirement Plan for Officers of NCR (Exhibit 10.11 to the NCR Registration
Statement).
10.12 Employment Agreements with Lars Nyberg (Exhibit 10.12 to the NCR Registration Statement).
10.13 Credit Agreement, dated as of November 20, 1996, among NCR Corporation, The Lenders
Party thereto, The Chase Manhattan Bank, as Administrative Agent, and Bank of America
National Trust & Savings Association, as Documentation Agent (Exhibit 10.15 to the NCR
Registration Statement).
10.14 NCR Change-in-Control Severance Plan for Executive Officers (Exhibit 10.16 to the 1996
NCR Annual Report).
10.15 Change-in-Control Agreement by and between NCR and Lars Nyberg (Exhibit 10.2 to the NCR
Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
10.16 NCR Director Compensation Program (Exhibit 10.18 to the 1996 NCR Annual Report).
10.17 NCR Long Term Incentive Program and NCR Management Incentive Program (Exhibit 10.19 to
the 1996 NCR Annual Report).
10.18 Letter Agreement with Lars Nyberg Regarding Employee Benefits, dated May 9, 1997
(Exhibit 10.1 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997).
10.19 July 13, 1995 Letter Agreement between Lars Nyberg and AT&T Corp., assumed by NCR
pursuant to the Employee Benefits Agreement between NCR and AT&T Corp., dated November
20, 1996 (Exhibit 10 to the NCR Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.20 Letter Agreement with Hideh Takahashi Regarding International Expatriate Assignment to
Singapore, dated October 15, 1997 (Exhibit 10.20 to the NCR Corporation Annual Report on
Form 10-K for the year ended December 31, 1997).
10.21 NCR Supplemental Pension Plan for AT&T Transfers, restated effective January 1, 1997
(Exhibit 10.1 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998).
10.22 NCR Mid-Career Hire Supplemental Pension Plan, restated effective January 1, 1997
(Exhibit 10.2 to the NCR Corporation Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998).
10.23 NCR Nonqualified Excess Plan, restated effective January 1, 1996 (Exhibit 10.3 to the
NCR Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
10.24 Purchase and Manufacturing Agreement, effective April 27, 1998, by and between NCR
Corporation and Solectron Corporation (Exhibit 10.1 to the NCR Corporation Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998). Certain portions of this
exhibit have been granted confidential treatment by the Securities & Exchange Commission.
10.25 Letter Agreement dated July 1, 1998 (Exhibit 10.1 to the NCR Corporation Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998).
10.26 Letter Agreement dated August 5, 1998 (Exhibit 10.2 to the NCR Corporation Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998).
10.27 Letter Agreement dated December 17, 1998.
13 Pages 1-32 of NCR's Annual Report to Stockholders.
21 Subsidiaries of NCR Corporation.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
NCR will furnish, without charge, to a security holder upon written request
a copy of the 1998 Annual Report to Stockholders and the 1999 Proxy Statement,
portions of which are incorporated herein by reference thereto. NCR will furnish
any other exhibit at cost. Document requests are available by writing to:
NCR - Investor Relations
1700 South Patterson Boulevard
Dayton, OH 45479
Phone: 937-445-5905
www.ncr.com/graphics/investor_info.htm
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of NCR Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 19, 1999, appearing on page 15 of the 1998 Annual Report to
Stockholders of NCR Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Dayton, Ohio
January 19, 1999
13
<PAGE>
NCR Corporation
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- ---------- ----------------------- ---------- ----------
Additions
-----------------------
Balance at Charged to Charged to Balance
Beginning Costs & Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
Allowance for doubtful accounts ............. $ 36 $ 26 $ - $ 15 $ 47
Deferred tax asset valuation allowance ...... 553 - - 55 498
Inventory valuation reserves ................ 142 24 - 73 93
Reserves related to business restructuring .. 165 - (111) 54 -
Year Ended December 31, 1997
Allowance for doubtful accounts ............. $ 54 $ 12 $ - $ 30 $ 36
Deferred tax asset valuation allowance ...... 639 - - 86 553
Inventory valuation reserves ................ 152 29 - 39 142
Reserves related to business restructuring .. 247 - - 82 165
Year Ended December 31, 1996
Allowance for doubtful accounts ............. $ 68 $ - $ - $ 14 $ 54
Deferred tax asset valuation allowance ...... 472 167 - - 639
Inventory valuation reserves ................ 330 23 - 201 152
Reserves related to business restructuring .. 858 - - 611 247
</TABLE>
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NCR CORPORATION
Date: March 10, 1999 By:
/s/ Lars Nyberg
--------------------------------
Lars Nyberg, Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title
- --------- -----
/s/ Lars Nyberg
- ------------------------------
Lars Nyberg Chairman of the Board and
Chief Executive Officer and President
/s/ David Bearman
- ------------------------------
David Bearman Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ David R. Holmes
- ------------------------------
David R. Holmes Director
/s/ Linda Fayne Levinson
- ------------------------------
Linda Fayne Levinson Director
/s/ James R. Long
- ------------------------------
James R. Long Director
/s/ Ronald A. Mitsch
- ------------------------------
Ronald A. Mitsch Director
/s/ C. K. Prahalad
- ------------------------------
C.K. Prahalad Director
/s/ James O. Robbins
- ------------------------------
James O. Robbins Director
/s/ William S. Stavropoulos
- ------------------------------
William S. Stavropoulos Director
Date: March 10, 1999
15
<PAGE>
EXHIBIT 10.27
December 17, 1998
Hideaki Takahashi
Worldwide Field Operations
NCR Corporation
Dear Hideh:
We appreciate your years of service to the company. Since you first joined NCR
in 1974, you have made significant contributions to our success, playing key
roles as Chairman of NCR Japan, head of the Asia/Pacific Region, and most
recently as head of Worldwide Field Operations. Your leadership during these
critical times for the company has not gone unrecognized, and all of your
colleagues wish you the best as you leave the company.
As you prepare to depart, I am writing to describe the terms of your concluding
months with NCR, and the respective rights and obligations of you and the
company.
In order to facilitate an effective transition, you have agreed to continue
employment with NCR as Senior Vice President through March 31, 1999, at your
current salary. You will serve as advisor to the senior executive in charge of
WFO. In addition, you will visit all major NCR Japan customers as is the
customary business practice in Japan at this time of year. During these visits,
you have agreed to speak only favorably of NCR and encourage the customers to
continue doing business with NCR.
You will continue to serve as Chairman of NCR Japan until the next regularly
scheduled NCR Japan Shareholders meeting, at which time you agree to resign as
Chairman, but continue serving as a director. You have indicated your
willingness to continue serving as an outside director of NCR Japan, and to
serve as an advisor to the Chairman of NCR Japan, after your termination of
employment. NCR appreciates your assistance in these areas, and will take steps
to have you re-elected to the Board of NCR Japan as necessary for you to
continue to serve. Your service as an outside director will continue for
approximately one year, for as long as is mutually agreeable between you and
NCR. While you are serving as outside director and advisor to the Chairman,
effective April 1, 1999, NCR will pay you an annual fee of $40,000, paid on a
quarterly basis in yen at the exchange rate in effect at the time of payment.
NCR will repatriate you to Japan. Your expatriate package will continue through
March 31, 1999. Details of your repatriation support and conclusion of your
expatriate package are shown in an attachment A to this letter.
You will be eligible for a MIP award for 1998 based on the full year's results
for NCR and WFO, paid at the same time as awards are paid to executive officers.
The MIP awards are determined by the Compensation Committee of the Board of
Directors. You will not be eligible for a MIP award for 1999. Your restricted
stock units awarded for the 1996-1998 LTIP cycle will be paid in cash in March,
1999. Your restricted stock units awarded for the 1997-1999 LTIP cycle will be
forfeited. Your 1998 MIP payment and 1996-98 LTIP restricted stock units will be
paid in U.S. currency in March, and will be subject to the U.S. tax withholding
outside of the tax equalization provisions of your expatriate package.
Your stock options will continue to vest through March 31, 1999 and the
unexercised vested options will be exercisable through May 30, 1999. Your
turnaround option grant will vest in full on January 2, 1999. These terms assume
that you do not violate the noncompetition provision of the option agreements,
which would immediately cancel your options. You will not be eligible for a 1999
management stock option grant. You will be considered an NCR "insider" for
purposes of the insider trading restrictions on option exercise through March
31, 1999. Your restricted stock will be forfeited because you are leaving the
company prior to age 55.
<PAGE>
You are eligible to receive pension benefits from several NCR plans, calculated
according to the terms of the plans. The calculations will be finalized when
final compensation amounts are available. You have a balance in the NCR Savings
Plan in the U.S. that may be withdrawn any time after your termination date. You
are vested in a benefit from the NCR Japan Directors' Plan, based on service
through March 31, 1999, which you may withdraw in a lump sum immediately after
your termination date. You are vested in a benefit from the NCR Pension Plan,
based on service in the U.S. from 1974 through 1985 when you participated in
that plan. You are also eligible for a pension from The Retirement Plan for
Officers of NCR ("SERP II") starting at or after age 55, based on service as an
officer through March 31, 1999. The SERP II benefit is payable in U.S. currency
and is not recalculated after commencement for currency fluctuations. Details of
your pension calculations are shown on attachments to this letter. The
calculations are based on service through February 28, 1999 but will be
recalculated to reflect service through March 31, 1999.
You may use any unused 1998 vacation prior to December 31, 1998. You will be
entitled to take two weeks of vacation in March. You will continue to
participate in the Executive Financial Counseling Program through 1999.
You agree to return to NCR, on or before your termination date, all NCR property
or copies thereof, including, but not limited to, mobile or portable phones,
files, records, computer access codes, computer programs, keys, card key passes,
instruction manuals, documents, business plans, and other property which you
received, prepared or helped to prepare in connection with your employment with
NCR, and to assign to NCR all right, title and interest in such property, and
any other inventions, discoveries or works of authorship created by you during
the course of your employment.
You acknowledge your obligation to keep all Proprietary NCR Information
confidential and not to disclose it to any third party in the future, subject to
any obligation to comply with legal process. As used in this letter agreement,
"Proprietary NCR Information" includes, but is not necessarily limited to,
confidential, technical, marketing, business, financial, or other confidential
information not publicly available.
You agree that a violation of the foregoing provisions relating to the return of
NCR property or the use or disclosure of Proprietary NCR Information, unless you
have the right to use such property or Proprietary NCR Information pursuant to a
separate agreement with NCR, will be considered a material breach of this letter
agreement, for which you will forfeit any moneys not already paid under this
letter agreement. The provisions of this paragraph in no way limit NCR's right
to also commence a court action for an injunction or equitable remedies in the
event you breach any provision of this letter agreement. In the event NCR takes
such action, all of your other obligations under this letter agreement shall
remain in full force and effect.
You agree that from the date of this letter agreement through December 31, 1999,
without the prior written consent of the Chief Executive Officer of NCR, you
will not (a) hire, attempt to hire or assist any other person or entity in
hiring or attempting to hire an exempt employee of NCR or any person who was an
NCR exempt employee within the prior six-month period, or (b) solicit, in
competition with NCR, the business of any NCR customer known to you to be an NCR
customer or any entity whose business you knew NCR was actively soliciting
during the six-month period immediately preceding your termination date, (c)
provide either as a sole proprietor, agent, contractor, employee, officer,
director, stockholder or partner on your own behalf or on behalf of any other
entity, consulting or other services to any current or prospective customer of
NCR, (d) participate in the solicitation of NCR employees, customers or
suppliers to breach, modify or terminate any agreement(s) or relationship(s)
that they may have with NCR, or (e) accept employment, either as an employee or
independent contractor, with, or serve as a director of, any of NCR's direct,
major competitors, or their subsidiaries or affiliates, namely: IBM, Anderson
Consulting, Sequent, CSC, Unisys, Digital Equipment, Dell, Hewlett Packard (HP),
Sun Microsystems, Oracle, Informix, Compaq, Data General, EDS, Diebold, and
Perot Systems.
You understand that NCR is at a critical stage in its efforts to grow the
business. You also understand that any adverse comments from you indicating in
any way that NCR's business strategy or management decisions are unwise or
unlikely to succeed could have a significant detrimental effect on NCR.
Similarly, any adverse comments from you about NCR management, its products or
its treatment of employees or customers could have a similar negative effect on
NCR's reputation. NCR's damages, if you made such comments, would be impossible
to calculate with
<PAGE>
precision. Therefore, you agree that you will not, from the date of this letter
agreement through December 31, 1999, make any adverse or critical comments about
NCR, its management, products, business plans or strategies nor will you make
any other comments reasonably likely to create a negative impression about NCR
or its chances for success in the marketplace. It will not be a violation of
this paragraph for you to make truthful statements when required to do so by
law.
In consideration for the non-competition and non-disparagement provisions in the
preceding two paragraphs, you will be paid US$175,000 in a lump sum on September
1, 1999. This payment will be made in U.S. currency and will be subject to
applicable U.S. tax withholding outside of the tax equalization provisions of
your expatriate package. If you violate the non-competition or non-disparagement
provisions after September 1, 1999 but before December 31, 1999, you agree to
refund the full $175,000 to NCR.
Except for (i) our respective rights and obligations stated in this letter
agreement, (ii) NCR's obligation to you under any benefit program in which you
have vested rights, and (iii) any rights to indemnification and related rights
in accordance with Maryland corporate law to which you may be entitled by reason
of your having served as an officer of NCR, you and NCR hereby forever release,
discharge and hold harmless each other, and our respective heirs, subsidiaries,
affiliates, officers, directors, successors and assigns, from any claim or cause
of action whatsoever which either may have against the other resulting from or
arising out of or related to your employment by NCR, or your voluntary
termination of employment, including any claims or causes of action you have or
may have pursuant to Title VII of the Civil Rights Act of 1964 as amended, 42
U.S.C. Sec. 2000 et. seq.; the Age Discrimination in Employment Act, 29 U.S.C.
Sec. 621 et. seq.; the Americans with Disabilities Act, 42 U.S.C. Sec. 12101;
the Employee Retirement Income Security Act, as amended 29 U.S.C. Sec. 1001 et.
seq.; and 42 U.S.C. Sec. 1981, and other state and local human or civil rights
laws as well as all other statutes, in both the U.S. and Japan, which regulate
employment; and the common law of contracts and torts. NCR and you agree not to
make any claim whatsoever against the other (or, in your case, against any of
NCR's direct or indirect subsidiaries) with any state or federal agency or in
any court of law at any time concerning matters relating to your employment by
NCR arising from acts or failures to act which occurred prior to your
termination date.
Subject to NCR's rights to seek injunctive relief or equitable remedies in a
court action, any controversy or claim related in any way to this letter
agreement, or to your employment relationship with NCR (including, but not
limited to, any claim of fraud or misrepresentation), shall be resolved by
arbitration pursuant to this paragraph and the then current rules and
supervision of the American Arbitration Association. The arbitration shall be
held in Dayton, Ohio, before an arbitrator who is an attorney knowledgeable of
employment law. The arbitrator's decision and award shall be final and binding
and may be entered in any court having jurisdiction thereof. The arbitrator
shall not have the power to award punitive or exemplary damages. Issues of
arbitrability shall be determined in accordance with the federal substantive and
procedural laws relating to arbitration; all other aspects shall be interpreted
in accordance with the laws of the State of Ohio. Each party shall bear its own
attorney's fees associated with the arbitration and other costs and expenses of
the arbitration shall be borne as provided by the rules of the American
Arbitration Association. If any portion of this paragraph is held to be
unenforceable, it shall be severed and shall not affect either the duty to
arbitrate or any other part of this paragraph.
This letter agreement shall be governed by the laws of the State of Ohio. If any
part of this letter agreement is held to be unenforceable, the parties intend
for the remaining portion of this letter agreement to be given full force and
effect. In particular, the parties intend for the non-competition and non-
disparagement provisions to be given maximum effect permissible under the law,
in order to protect NCR's trade secrets and confidential and proprietary
information.
This letter agreement is the entire agreement between NCR and you with respect
to your termination of employment with NCR and fully supersedes all prior
written or oral understandings, statements or agreements relating in any way to
the terms and conditions of your employment relationship, or the end of that
relationship with NCR, provided, however, that the terms of any NCR benefit
plans in which you are a participant will govern the payment of benefits from
the respective plans to the extent said plans are not in conflict with the terms
of this letter agreement. You represent and acknowledge that in signing this
letter agreement you have not relied on any representation or statement not set
forth herein made by NCR or its agents, representatives or attorneys with regard
to the subject
<PAGE>
matter of this letter agreement. Any waiver or modification of the terms of this
letter agreement must be in writing and signed by you and NCR.
Sincerely,
Lars Nyberg, Chairman and Chief Executive Officer
<PAGE>
contents
<TABLE>
<C> <S>
2. Selected Financial Data
3. Management's Discussion and Analysis of Results of Operations and
Financial Condition
15. Report of Management
15. Report of Independent Accountants
16. Consolidated Statements of Operations
17. Consolidated Balance Sheets
18. Consolidated Statements of Cash Flows
19. Consolidated Statements of Changes in Stockholders' Equity
19. Consolidated Statements of Comprehensive Income
20. Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
NCR Corporation
Selected Financial Data
Dollars in millions,
except per share amounts
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1998/4/ 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations
Revenue/1/ $6,505 $6,589 $6,963 $ 8,162 $8,461
Operating expenses
Cost of revenue 4,583 4,715 4,925 6,386 5,894
Selling, general and administrative
expenses 1,414 1,510 1,573 2,016 2,169
Research and development expenses 356 383 390 482 500
Non-recurring and restructuring
charges 50 - (55) 1,649 -
- ------------------------------------------------------------------------------
Income (loss) from operations 102 (19) 130 (2,371) (102)
Interest expense 13 15 56 90 44
Other income, net (68) (61) (36) (45) (130)
Non-recurring gain from asset
disposition/2/ (55) - - - -
- ------------------------------------------------------------------------------
Income (loss) before income taxes 212 27 110 (2,416) (16)
Income tax expense (benefit) 90 20 219 (136) 187
- ------------------------------------------------------------------------------
Net income (loss) $ 122 $ 7 $ (109) $(2,280) $ (203)
- ------------------------------------------------------------------------------
Net income (loss) per common
share/3/
Basic $ 1.21 $ .07 $(1.07) $(22.49)
Diluted 1.20 .07 (1.07) (22.49)
- ------------------------------------------------------------------------------
Financial Position and Other Data
Cash and short-term investments $ 514 $1,129 $1,203 $ 338 $ 661
Accounts receivable, net 1,556 1,471 1,457 1,908 1,860
Inventories 384 489 439 621 952
Property, plant, equipment and
reworkable service parts, net 1,104 1,106 1,207 1,215 1,462
Total assets 4,892 5,376 5,280 5,256 5,836
Debt 83 94 76 375 715
Stockholders' equity 1,447 1,353 1,396 358 1,690
- ------------------------------------------------------------------------------
Headcount (employees and
contractors) 33,100 38,300 38,600 41,100 50,000
</TABLE>
- -------------------------------------------------------------------------------
/1/ The majority of the decrease in revenue for the year ended December 31,
1996 was due to NCR's decision in September 1995 to discontinue selling per-
sonal computers and entry-level server products through high-volume indirect
channels.
/2/ Represents a non-recurring gain from the sale of TOP END(R).
/3/ Net loss per share for the years ended December 31, 1996 and 1995 was cal-
culated by dividing the net loss by 101.4 million shares of common stock, as
more fully explained in Note 1 of Notes to Consolidated Financial Statements.
Such shares are assumed to be outstanding since January 1, 1995.
/4/ Income from operations is shown after deducting $50 million related to the
non-recurring charge. (See Note 5 of Notes to Consolidated Financial State-
ments.) Net income includes the non-recurring charge and the benefit of the
non-recurring gain from asset disposition. Excluding these one-time items, the
1998 income from operations, net income and net income per common share (di-
luted) would have been $152, $119 and $1.17, respectively.
NCR .2
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
OVERVIEW
NCR Corporation and its subsidiaries (NCR or the Company) provide information
technology hardware, software and consulting and support services. NCR com-
bines these hardware, software and services components into solutions designed
to solve complex business problems for its customers. NCR's solutions offer
companies the opportunity to capture and transform data from transactions into
information for building consumer relationships.
Through its presence at customer interaction points, such as automated teller
machines (ATMs) or point-of-sale workstations, NCR's solutions are designed to
help businesses capture valuable consumer transaction data. They also offer
businesses the opportunity to centralize detailed information in a data ware-
house, analyze the complex relationships among all of the different data ele-
ments, and respond with programs designed to improve consumer acquisition,
retention and profitability. NCR offers specific solutions for the retail and
financial industries and also provides solutions for the communications,
transportation, insurance and utilities industries, consumer goods manufactur-
ers and government entities through its National Accounts Solutions Group.
These solutions are complemented by NCR's business media products, such as pa-
per rolls, ink ribbons and other business forms.
Integrated within the solutions NCR provides its customers, the Company of-
fers a complete range of services in support of critical transaction-based
systems. The consulting services included within the solutions consist of de-
signing, integrating, installing and supporting scalable data warehousing
technologies, applications software and related hardware and equipment. The
support services are comprised of system staging and implementation, multi-
vendor integration services, system-support services and a wide range of other
support service offerings. Information technology hardware, software and con-
sulting and support services together make up NCR's solutions portfolio.
REVENUE AND OPERATING MARGIN BY INDUSTRY SEGMENT
NCR categorizes its operations into four strategic operating segments: Retail,
Financial, National Accounts Solutions Group (NASG) and Systemedia. The Re-
tail, Financial and National Accounts Solutions Group segments may offer a va-
riety of products, services and solutions to their customers that incorporate
scalable data warehousing, applications software and a variety of other tech-
nologies. Professional consulting and customer support services are also of-
fered through NCR's Retail, Financial and National Accounts Solutions Group
segments. NCR's "All other segments" accumulates the results of operations not
attributable to the above operating segments plus unallocated corporate ex-
penses. (See Note 9 of Notes to Consolidated Financial Statements.)
The following table presents NCR's consolidated revenue and income (loss)
from operations for the years ended December 31:
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated revenue $6,505 $6,589 $6,963
Consolidated income (loss) from operations/1/ $ 152 $ (19) $ 75
- --------------------------------------------------------------------
</TABLE>
1 Consolidated income from operations excludes the impact of a $50 million
one-time pension charge related to the reduction of 1,000 employees in Japan
in 1998, and excludes the effects of $55 million of restructuring reserves
released in 1996. The effects of these items have been excluded from the
amounts presented above and the discussion of operating expenses which fol-
lows. (See Notes 5 and 13 of Notes to Consolidated Financial Statements.)
Total revenue decreased 1% in 1998. When adjusted for the unfavorable impacts
of year-to-year changes in foreign currency exchange rates, revenue increased
1%. The decline in 1998 revenue reflects increased sales in the Retail, Finan-
cial and Systemedia industry segments, which were more than offset by declines
in NASG and NCR's non-industry segments. Across all segments, aggregate reve-
nues in 1998 declined 20% in Japan and 26% in the Asia/Pacific region, re-
flecting the economic conditions in these markets. These declines were largely
offset by increased revenues in the Americas and Europe/Middle East/Africa re-
gions. The significant increase in income from operations in 1998 reflects im-
proved gross margins and tighter expense controls.
Total revenue decreased 5% in 1997. When adjusted for the unfavorable impact
of year-to-year changes in foreign currency exchange rates, revenue decreased
1%. Declines in NASG and Systemedia sales offset increased revenue in the Fi-
nancial industry. NCR's operating loss in 1997 was principally due to signifi-
cant declines in NASG revenue and margins and proportionally higher expenses
as a percentage of revenue.
The following chart presents NCR's revenue by industry segment for the year
ended December 31, 1998.
1998 Revenue by Industry
[1998 GRAPH APPEARS HERE]
NCR . 3
<PAGE>
Retail Industry Solutions
NCR offers customers in the retail industry hardware and software components
combined with consulting and support services to create store-level and enter-
prise-wide solutions. These solutions are designed to improve service levels
and operating efficiency. Products delivered to retail customers include tradi-
tional retail offerings such as point-of-sale terminals, barcode scanners,
scanner-scales, electronic price labeling, applications software and other com-
puter products typically found in merchandise checkout areas of supermarkets,
department stores, specialty stores, convenience stores and quick-service res-
taurants. NCR provides the networking technology and services to link these
products to computer servers on site and to link systems to enterprise-wide
networks. Traditional retail products and NCR's networking offerings are typi-
cally provided to customers through NCR's Store Automation solutions portfolio.
The Company also provides its retail customers in-store and decision level-sup-
port systems using NCR's scalable data warehousing technology, Teradata(R), and
other enterprise server products (such as large servers with parallel process-
ing capabilities, disk storage systems, database application software and other
software tools). NCR offers consulting services to develop data warehouses and
integrate them with a variety of consumer interaction points and application
systems, including those offered through NCR's Store Automation solutions.
NCR's Teradata technology for the retail industry, is offered through its High
Performance Merchandising and Marketing (HPM&M) solutions portfolio. These so-
lutions are designed to enable retailers to use the valuable information gath-
ered from consumer transactions to analyze and manage every outlet, every
product and every consumer relationship, individually.
The following table presents NCR's Retail industry revenue and operating mar-
gin for the years ended December 31:
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- --------------------------------------------------------
<S> <C> <C> <C>
Retail industry revenue $1,449 $1,373 $1,374
Retail industry operating margin $ 32 $ (10) $ (8)
- --------------------------------------------------------
</TABLE>
Retail industry revenues increased 6% in 1998 with sales growth in the Americas
and Europe/Middle East/Africa regions of 13% and 10%, respectively. This reve-
nue increase was partially offset by significant sales declines in Japan and
the Asia/Pacific region. The Retail industry's substantial operating margin in-
crease in 1998 was driven by gross margin improvements and expense reduction in
the Americas. Declines in Japan and the Asia/Pacific region operating margin
partially offset gains in the Americas and Europe/Middle East/Africa regions.
In 1997, Retail industry sales and operating margin remained essentially flat
as retail terminal improvements were offset by declines in other computer prod-
ucts.
The following chart presents revenue for the year ended December 31, 1998 by
the major product and service groups offered to retail industry customers.
1998 Retail Industry Revenue
[1998 GRAPH APPEARS HERE]
Financial Industry Solutions
NCR provides a full line of solutions, products and services to the financial
services industry with particular focus on retail banking. Specifically, the
Company offers a complete range of self-service consumer interaction points
(principally ATMs), including specialized ATMs for different markets, locations
and the self-service branch market, associated software and services, and self-
service devices that dispense information and non-cash items (such as tickets
and coupons). NCR incorporates biometrics technology in certain of its offer-
ings to the financial industry, including iris-scanning for customer identifi-
cation and ATMs for the sight-impaired. These products, services and
technologies are generally provided to customers through NCR's Self-Service so-
lutions portfolio. The Company also provides its financial services customers a
combination of NCR's Teradata scalable data warehousing technologies, other en-
terprise server products, consulting services, and applications and modeling
tools developed specifically for the financial services industry. These offer-
ings are part of NCR's Customer Management portfolio of solutions which are de-
signed to enable financial services institutions to transform data about
consumer behavior into information that can be used to change the way they in-
teract with consumers.
NCR provides products and services related to bank branch automation, call
centers, home banking, switching and account processing through its Channel De-
livery solutions portfolio. These solutions are designed to help increase the
efficiency and marketing capabilities of banks and other financial service
providers. NCR also offers customers in the financial services industry item-
processing devices that read and sort checks and other paper items, image-
processing devices that convert checks and other paper items into electronic
images, outsourced management of item- and image-processing facilities, and
products and services related to emerging methods of payment, particularly
"smart" cards. These products and services are offered as components of NCR's
Payment solutions which are designed to enable even the most cumbersome and pa-
per-based form of transaction to be handled effectively in digital format.
NCR . 4
<PAGE>
The following table presents NCR's Financial industry revenue and operating
margin for the years ended December 31:
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- ---------------------------------------------------------
<S> <C> <C> <C>
Financial industry revenue $2,886 $2,845 $2,766
Financial industry operating margin $ 284 $ 254 $ 270
- ---------------------------------------------------------
</TABLE>
Financial industry revenues rose 1% in 1998, as increases in sales of finan-
cial products in the Americas and Europe/Middle East/Africa regions offset
sales declines in Japan and the Asia/Pacific region, primarily in Korea and
Australia. Operating margin in 1998 increased 12% as compared to 1997. In
1998, higher revenue and improved product mix in the Americas and
Europe/Middle East/Africa contributed to the strong operating margin results,
partially offset by operating expense increases. NCR's Financial industry rev-
enue was up 3% in 1997 due primarily to strong financial products sales in the
Americas, the Europe/Middle East/Africa and the Asia/Pacific regions, exclud-
ing Japan. Operating margins slipped 6% in 1997 as a result of a declining
gross margin percentage.
The following chart presents revenue for the year ended December 31, 1998 by
the major product and service groups offered to financial services industry
customers.
1998 Financial Industry Revenue
[1998 GRAPH APPEARS HERE]
National Accounts Solutions
NCR's National Accounts Solutions Group provides solutions, products and serv-
ices to generally large customers outside the retail and financial industries,
including customers in the communications, transportation, insurance and util-
ities industries, consumer goods manufacturers and government entities. Such
offerings include scalable data warehousing technologies, products and serv-
ices focused on maintaining or improving system availability in transaction
processing and electronic commerce, and consulting and support services. As
part of its data warehousing technology offerings, the National Accounts Solu-
tions Group provides the Customer Knowledge solutions portfolio which uses
NCR's Teradata technology as the foundation to provide a high level of linear
performance, scalability, availability and manageability of data for both re-
petitive and ad hoc (iterative) queries in a decision-support environment.
This offering, coupled with other enterprise server products and consulting
services, is designed to help companies profitably increase business by using
data warehousing capabilities to gain insight to consumers' activities and
choices, asset use, operations and financial results. In addition, NASG offers
the Customer Interaction solutions portfolio, which includes providing call
center services, web interaction solutions and kiosks, and together with Cus-
tomer Knowledge solutions, provides an enterprise approach to understand and
influence customer behavior through continuous communication, improving cus-
tomer acquisition, retention and profitability. NCR's Lifekeeper(R) software
is also offered through the Customer Interaction solutions portfolio and is
designed to maximize system availability by recognizing and recovering hard-
ware components or application faults before a total system failure occurs.
The offerings of the National Accounts Solutions Group integrate NCR's soft-
ware, hardware, and consulting and support services as well as other products
from leading technology firms.
The following table presents NCR's National Accounts Solutions Group industry
revenue and operating margin for the years ended December 31:
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- ------------------------------------------------------
<S> <C> <C> <C>
NASG industry revenue $1,498 $1,562 $1,922
NASG industry operating margin $ 37 $ (41) $ (3)
- ------------------------------------------------------
</TABLE>
National Accounts Solutions Group sales decreased by 4% in 1998 compared to
1997 results. This change is primarily attributable to revenue declines in Ja-
pan and the Asia/Pacific region of 27% and 24%, respectively. These declines
were partially offset by a slight increase in revenue in the Americas. NASG
operating margin improved $78 million in 1998 in comparison to 1997. Operating
margin improvement in 1998 was essentially driven by professional services and
revenue mix shift towards high-end products and operating expense reductions.
During 1998, a decrease in gross margin in Japan partially offset NCR's over-
all improved operating margins. In 1997, NASG sales declined 19% in comparison
to 1996 sales levels. In 1998 and 1997, the decrease in NASG sales was primar-
ily due to declines in other computer products sales. NASG operating margin
declined to a $41 million loss during 1997 due to significant declines in rev-
enue.
NCR . 5
<PAGE>
The following chart presents National Accounts Solutions Group revenue for
the year ended December 31, 1998 by the major product and service groups of-
fered to its customers.
1998 National Accounts Solutions Industry Revenue
[1998 GRAPH APPEARS HERE]
Systemedia
Systemedia develops, produces and markets a complete line of business
consumables to complement NCR's solutions for the retail, financial and other
industries. These products include paper rolls, paper products and imaging
supplies for ink jet, laser, impact and thermal-transfer printers for the
small office and home-office environment and forms for business operations and
equipment. Systemedia also provides support specific to NCR's financial and
retail industry solutions by working with banks and merchants to develop cus-
tomer media programs for front- and back-office applications. Products devel-
oped for the financial and retail industries include full-color customer
printed receipt rolls, coupons, value documents, security papers, printer rib-
bons, encoding products, ink-jet cartridges, optical diskettes, journal paper,
business forms and smart checks. In addition, Systemedia develops Automatic
Identification solutions that bring together barcode labels, ribbons, software
and printers to meet the product marketing and distribution requirements of
manufacturers and retailers.
The following table presents NCR's Systemedia industry revenue and operating
margin for the years ended December 31:
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- ----------------------------------------------------
<S> <C> <C> <C>
Systemedia industry revenue $514 $510 $551
Systemedia industry operating margin $ 42 $ 50 $ 63
- ----------------------------------------------------
</TABLE>
Systemedia industry revenue increased slightly in 1998, mainly in the Americas
and Europe/Middle East/Africa regions. Operating margins decreased by $8 mil-
lion in 1998, as compared to 1997 levels due to continued declines in paper
pricing partially offset by expense reductions. Systemedia sales decreased 7%
in 1997, as revenue was unfavorably impacted by the strengthening of the U.S.
dollar in relation to certain key foreign currencies and declines in demand
for thermal fax paper. Operating margin as a percentage of revenue declined 2%
from 1996 to 1997.
REVENUE BY PRODUCT AND SERVICE LINE
The following table presents NCR's revenue by product and service line. The
Other category includes revenues derived from other products and services not
directly associated with the specific product and service lines described be-
low:
<TABLE>
<CAPTION>
Year Ended December 31
Revenue --------------------------------------------
% Increase/ % Increase/
Dollars in millions 1998 (Decrease) 1997 (Decrease) 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Retail $ 509 7 $ 474 11 $ 428
Financial 1,146 7 1,069 6 1,007
Enterprise server 411 (2) 420 3 408
Other computer 948 (19) 1,170 (22) 1,494
Customer support services 2,182 2 2,142 (6) 2,273
Professional services 631 - 628 8 580
Systemedia 514 1 510 (7) 551
Other 164 (7) 176 (21) 222
- -----------------------------------------------------------------------
Total $6,505 (1) $6,589 (5) $6,963
- -----------------------------------------------------------------------
</TABLE>
retail products
<TABLE>
<S> <C>
1998............ $509 million
1997............ $474 million
1996............ $428 million
</TABLE>
Revenue from retail products is primarily derived from sales of point-of-sale
terminals, barcode scanners, scanner-scales, electronic price labeling and ap-
plications software specific to the retail industry. In 1998, revenue from re-
tail products increased 7% due to significant increases in sales of point-of-
sale terminals and scanner products in the Americas region. These increases
were somewhat offset by substantial declines in sales of point-of-sale termi-
nals in Japan and the Asia/Pacific region. Retail products revenue increased
11% in 1997 as point-of-sale terminals increased significantly in Japan, the
Europe/Middle East/Africa and Asia/Pacific regions, while scanner products
sales increased slightly.
financial products
<TABLE>
<S> <C>
1998............ $1,146 million
1997............ $1,069 million
1996............ $1,007 million
</TABLE>
Financial products revenue is comprised principally of sales of self-service
products that dispense cash (e.g., ATMs) and non-cash items (e.g., self-serv-
ice information, tickets and coupons), electromechanical item- and image-
processing devices, associated applications software and other products and
software specific to the financial services industry. Revenue from financial
products increased 7% in 1998 over 1997, due primarily to significant in-
creases in revenues from cash-dispensing self-service products and item- and
image-processing products in the Americas and Europe/Middle East/Africa re-
gions. These increases more than offset substantial declines in financial
products revenue in Japan and the Asia/Pacific region. In 1997, the increase
in revenue reflects strong cash-dispensing self-service product sales in the
Americas, the Europe/Middle East/Africa and the Asia/Pacific regions, exclud-
ing Japan.
NCR . 6
<PAGE>
enterprise server products
<TABLE>
<S> <C>
1998............ $411 million
1997............ $420 million
1996............ $408 million
</TABLE>
Revenue from enterprise server products is mainly derived from sales of com-
puters and software used for data warehouses. These products include NCR's
Teradata database software, large servers with parallel processing capabili-
ties, disk storage systems, database applications software and other software
tools. Enterprise server products revenue decreased 2% in 1998 despite a sig-
nificant increase in revenues in the Americas region and a slight increase in
the Europe/Middle East/Africa region. The increases in these regions were en-
tirely offset by declines in enterprise server revenues in Japan and the
Asia/Pacific region. In 1997, enterprise server products revenue increased 3%,
primarily as a result of significant increases in sales in Japan and the
Asia/Pacific region. These increases were somewhat offset by declines in en-
terprise server sales in the Americas and Europe/Middle East/Africa regions.
other computer products
<TABLE>
<S> <C>
1998............ $ 948 million
1997............ $1,170 million
1996............ $1,494 million
</TABLE>
Revenue from other computer products includes sales of medium-range servers
which have symmetrical multiprocessing capabilities, small and entry-level
servers, communications systems, peripherals and personal computers. Other
computer products revenue decreased 19% in 1998 and 22% in 1997. The decline
in both years is due to NCR's decision to no longer sell such products, espe-
cially personal computers and other commodity hardware, in volume but rather
to sell them principally as solutions components.
customer support services
<TABLE>
<S> <C>
1998............................................................. $2,182 million
1997............................................................. $2,142 million
1996............................................................. $2,273 million
</TABLE>
Revenue from customer support services includes staging and implementation
services, networking, multi-vendor integration services, system support serv-
ices, consulting, managed services and industry-specific support services. In
1998, customer support services revenue increased 2%. Similar to NCR's prod-
ucts revenue, customer support services revenue increased in both the Americas
and Europe/Middle East/Africa regions, while substantial declines were experi-
enced in Japan and the Asia/Pacific region. In 1997, revenue from customer
support services decreased 6% due principally to the unfavorable impact of the
strengthening of the U.S. dollar in relation to certain key foreign currencies
and AT&T Corp.'s (AT&T) move to self-maintenance after spinning off NCR in
1996.
professional services
<TABLE>
<S> <C>
1998............ $631 million
1997............ $628 million
1996............ $580 million
</TABLE>
Professional services revenue is mainly comprised of consulting services pro-
vided as an integral part of NCR's various solutions. These professional serv-
ices include business and technology consulting for data warehousing, project
management for information technology architecture and systems integration. In
1998, professional services revenue was essentially flat, reflecting strong
increases in the Americas and Europe/Middle East/Africa regions which were al-
most completely offset by significant declines in Japan and the Asia/Pacific
region. Revenue from professional services increased 8% in 1997, primarily in
Japan and the Asia/Pacific region. Professional services revenue was favorably
impacted in 1997 by the overall increase in those same regions of sales of en-
terprise server products, which are typically used in data warehousing.
systemedia products
<TABLE>
<S> <C>
1998............ $514 million
1997............ $510 million
1996............ $551 million
</TABLE>
Systemedia products revenue includes sales of various business media products
such as imaging supplies for printers, encoding products, customer receipt
rolls and other business and equipment forms. Sales of Systemedia products in-
creased 1% in 1998, mainly in the Americas and Europe/Middle East/Africa re-
gions, compared to a decrease of 7% in 1997. In 1997, revenue was unfavorably
impacted by the strengthening of the U.S. dollar in relation to certain key
foreign currencies and declines in demand for thermal fax paper.
GROSS MARGIN
Gross margin as a percentage of revenue increased 1.2 percentage points in
1998, compared to a decrease of 0.9 percentage points in 1997. The gross mar-
gin increase in 1998 consisted of a 2.2 percentage point increase in product
gross margin and a 0.1 percentage point increase in services gross margin.
Product gross margin in 1998 reflected a favorable sales mix which included
increased sales of higher-margin retail and financial products and decreased
sales of lower-margin other computer products. In addition, during 1998 NCR
implemented certain initiatives, such as headcount reductions and the
outsourcing of the manufacture of its retail and computer products to
Solectron Corporation (Solectron), which contributed to gross margin percent-
age improvements in the retail, financial and enterprise server product
groups. The gross margin decrease in 1997 consisted of a 0.1 percentage point
increase in product gross margin and a 1.9 percentage point decrease in serv-
ices gross margin. The decrease in serv-
NCR . 7
<PAGE>
ices margin was principally the result of NCR's fixed cost structure which was
designed to support higher revenue levels than were realized in 1997, and
higher than anticipated costs on certain professional services contracts.
Without the unfavorable impact of changes in foreign exchange rates, the total
gross margin percentage for 1997 would have approximated the 1996 total gross
margin percentage.
OPERATING EXPENSES
Selling, general and administrative expenses decreased $96 million or 6% in
1998, compared with a decrease of $63 million or 4% in 1997. The decrease in
1998 was primarily due to NCR's continued focus on expense discipline, head-
count reductions and the favorable impact of foreign currency exchange rate
changes on expenses. The decrease in 1997 was primarily the result of contin-
ued focus on expense reduction, principally in the area of general and admin-
istrative costs, as selling expenses increased slightly over 1996, consistent
with NCR's focus on enhancing its sales and customer-facing work force. Over-
all, selling, general and administrative expenses were favorably impacted by
the strengthening of the U.S. dollar in relation to certain key foreign cur-
rencies in 1997 as compared with 1996. As a percentage of revenue, selling,
general and administrative expenses were 21.7%, 22.9% and 22.6% in 1998, 1997
and 1996, respectively.
Research and development expenses decreased $27 million or 7% in 1998, com-
pared with a decrease of $7 million or 2% in 1997. The decrease in 1998 re-
flects the overall headcount reductions in 1998, coupled with the impact of
NCR's decision to outsource the manufacture of its retail and computer prod-
ucts to Solectron. NCR believes the 1998 research and development expenses re-
flect stabilized spending levels; however, the allocation of such expenditures
will continue to move toward software and solutions development efforts, with
less emphasis on hardware, operating systems and middleware. As a percentage
of revenue, research and development expenses decreased slightly to 5.5% in
1998 compared to 5.8% in 1997 and 5.6% in 1996.
INCOME (LOSS) BEFORE INCOME TAXES
NCR had operating income of $152 million in 1998, an operating loss of $19
million in 1997 and operating income of $75 million in 1996 before the impact
of non-recurring items.
Interest expense was $13 million in 1998, $15 million in 1997 and $56 million
in 1996. The decrease in 1997 was the result of reduced debt levels. Interest
expense in 1996 includes amounts charged by AT&T on interest-bearing cash ad-
vances, which were contributed to NCR by AT&T and were recorded in stockhold-
ers' equity as of December 31, 1996.
Other income, net, was $68 million in 1998, $61 million in 1997 and $36 mil-
lion in 1996. The non-recurring gain from asset disposition in 1998 reflects
the gain of $55 million on the sale of NCR's TOP END middleware technology and
product family to BEA Systems, Inc. (BEA). In addition, NCR entered into
agreements relating to the licensing of certain technologies whereby the Com-
pany recognized $17 million of other income in 1998. The $25 million increase
in 1997 was principally attributable to higher interest income on increased
levels of short-term investments.
NET INCOME (LOSS)
Income tax expense was $90 million in 1998, $20 million in 1997 and $219 mil-
lion in 1996. The effective tax rate improvement to 42.5% in 1998 from 74.1%
in 1997 is primarily due to improved profitability in certain tax jurisdic-
tions, principally the United States. The 1998 and 1997 provisions also re-
flect the favorable results of certain programs implemented in 1997 which
lowered tax expense. NCR's tax provisions in 1997 and 1996 resulted from a
provision for income taxes in those foreign tax jurisdictions where NCR's sub-
sidiaries were profitable, and an inability to reflect tax benefits related to
tax losses reported in certain tax jurisdictions, primarily the United States.
The 1996 tax provision included an unfavorable adjustment of $82 million re-
lated to international restructuring tax benefits that were originally re-
corded in 1995 and determined not to be realizable in 1996 as a result of
utilization of a larger amount of the overall restructuring reserves within
the United States.
NCR's reported net income was $122 million and $7 million in 1998 and 1997,
respectively, while NCR reported a net loss of $109 million in 1996. Excluding
non-recurring items, net income was $119 million in 1998, which reflected
NCR's substantial improvement in income from operations over 1997. Net income
was $7 million in 1997 and reflected a substantial unfavorable impact from the
strengthening of the U.S. dollar in relation to certain key foreign curren-
cies. Excluding the impact of restructuring items, net losses were $82 million
in 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
NCR's cash, cash equivalents and short-term investments totaled $514 million
at December 31, 1998, compared with $1,129 million at December 31, 1997 and
$1,203 million at December 31, 1996. The decrease from 1997 to 1998 is pri-
marily due to the Company's acquisition of an additional 27% ownership inter-
est in its Japanese subsidiary at a cost of $274 million and its $200 million
stock purchase program.
NCR used cash in operations of $57 million in 1998, while cash generated from
operations was $248 million in 1997 and $368 million in 1996. The use of cash
in operations in 1998 reflects a decline in other operating liabilities as a
result of the timing of increased postemployment and postretirement benefit
payments. The declines in these employee related liabilities were primarily
due to substantial headcount reductions in 1998 and the curtailment of
postretirement benefits for certain employees (see Note 5 of Notes to Consoli-
dated Financial Statements). The use of cash in 1998 also reflects an increase
in accounts receivable which was primarily due to an
NCR . 8
<PAGE>
increase in revenue during the fourth quarter of 1998 compared with the fourth
quarter of 1997. In addition, 1998 operating activities included a $55 million
gain on the sale of TOP END to BEA. The 1997 cash flow from operations in-
cludes increases in accounts receivable and inventories associated with normal
business activities and cash utilized for payment of restructuring activities
of $82 million. The 1996 cash generated from operations was significantly im-
pacted by restructuring activities, in that both accounts receivable and in-
ventories decreased substantially (due in large part to NCR's decision to no
longer produce PCs, or to sell PCs, entry-level servers and other computer
products through high-volume indirect channels). In addition, $518 million of
cash was used in connection with restructuring activities.
Net cash used in investing activities was $208 million, $524 million and $395
million in 1998, 1997 and 1996, respectively. Investing activities primarily
represent purchases of short-term investments and capital expenditures. Capi-
tal expenditures generally relate to expenditures for reworkable parts used to
service customer equipment, expenditures for equipment and facilities used in
manufacturing and research and development, and expenditures for facilities to
support sales and marketing activities. In 1998, the cash used in investing
reflects the purchase of the minority interest in its Japanese subsidiary for
$274 million. This use of cash was partially offset by proceeds from the sale
of TOP END to BEA and the sale of NCR's retail and computer systems manufac-
turing operations to Solectron. Capital expenditures, a historically signifi-
cant component of investing activities, were $367 million, $309 million and
$423 million, for the years ended 1998, 1997 and 1996, respectively.
Net cash used in financing activities was $154 million in 1998. Net cash pro-
vided by financing activities was $62 million and $895 million for the years
ended 1997 and 1996, respectively. In April 1998, NCR implemented a share re-
purchase program which resulted in the use of $200 million of cash in 1998.
Prior to December 31, 1996, the date AT&T distributed to its stockholders all
of its interest in NCR (the Distribution), AT&T made decisions regarding NCR's
financing activities including cash management and debt structure. According-
ly, until the Distribution date, NCR relied on AT&T to provide financing for
its operations. The cash flows reflected as transfers from AT&T in the consol-
idated statements of cash flows represent capital infusions that were used to
fund NCR's ongoing operations and restructuring activities and were recorded
in the consolidated financial statements as increases in stockholders' equity.
Third party debt of $225 million was repaid in 1996.
In 1996, NCR entered into a five-year, unsecured revolving credit facility
with a syndicate of commercial banks and financial institutions. The credit
facility provides that NCR may borrow from time to time on a revolving credit
basis an aggregate principal amount of up to $600 million. NCR expects to be
able to use the available funds at any time for capital expenditure needs, re-
payment of existing debt obligations, working capital and general corporate
purposes. The credit facility matures in 2001 and contains certain representa-
tions and warranties, conditions, affirmative, negative and financial cove-
nants, and events of default customary for such a facility. Interest rates
charged on borrowings outstanding under the credit facility are based on mar-
ket rates. In addition, a portion of the credit facility is available for the
issuance of letters of credit as required by NCR. No amounts were outstanding
under the facility as of December 31, 1998, 1997 or 1996.
NCR believes that cash flows from operations, the credit facility and other
short- and long-term debt financings, if any, will be sufficient to satisfy
its future working capital, research and development, capital expenditures and
other financing requirements for the foreseeable future.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Management's Discussion and Analysis and other sections of this Annual Report
to Stockholders contain information based on management's beliefs and forward-
looking statements that involve a number of risks, uncertainties and assump-
tions. Any Form 10-K, Form 10-Q, Form 8-K and other written or oral statements
made by the Company or its representatives may also contain such forward-look-
ing statements. These statements are not guarantees of future performance.
Therefore, actual outcomes and results may differ materially from what is ex-
pressed or forecasted in such forward-looking statements as a result of vari-
ous factors, including, without limitation, those listed below.
Competition and New Solutions Introductions
NCR operates in the very competitive information technology industry. This in-
dustry is characterized by rapidly changing technology, evolving industry
standards, frequent new product introductions, price and cost reductions, and
increasingly greater commoditization of products, making differentiation more
difficult. NCR's future operating results depend upon its ability to rapidly
design, develop and market, or otherwise obtain and introduce solutions and
related products and services that are competitive in the marketplace. The
Company must commit significant resources in advance of bringing its business
solutions to market. There are numerous risks and uncertainties inherent in
this complex process, including proper identification of customer needs, tech-
nological changes, timely and cost-effective development and introduction,
differentiation from NCR's competitors, timely recognition of and expansion
into new and emerging markets, and market acceptance. In addition, new offer-
ings may replace or compete with the Company's current offerings. Competition
in the information technology industry has also increased pressure on gross
margins and may cause NCR's future operating results to vary, subject to the
Company's ability to manage margin pressure by maintaining a favorable mix of
solutions, products and services revenues. NCR also faces significant competi-
tion to attract and retain highly skilled technical, sales and other person-
nel.
NCR . 9
<PAGE>
Reliance on Third Parties
Due to NCR's focus on providing complex integrated solutions to customers, the
Company frequently relies on third parties to provide significant elements of
NCR's offerings, which must be integrated with those elements provided by the
Company. NCR has from time to time formed alliances with third parties, such
as Solectron, that have complementary products, services and skills. This in-
troduces certain risks such as non-performance by third parties and difficul-
ties with or delays in integrating elements provided by third parties into
NCR's solutions. Further, the failure of third parties to provide products or
services that conform to NCR's specifications or quality standards could im-
pair the Company's ability to offer, on a timely basis, solutions that include
such third party elements or the quality of such solutions.
A number of NCR's solutions rely on specific suppliers for microprocessors
and operating systems. The Company also uses many standard parts and compo-
nents. NCR believes there are a number of competent vendors for most parts and
components. However, there are a number of important components, microproces-
sors and operating systems that are developed by and purchased from single
sources due to price, quality, technology or other considerations. In some
cases, these items are available only from single sources. For example, NCR's
computer systems are based on microprocessors and related peripheral chip
technology designed by Intel Corporation. Certain parts and components used in
the manufacture of NCR's ATMs are also supplied by single sources. Further,
NCR incorporates UNIX(R) and Microsoft Windows NT(R) operating systems into
certain of its solutions. Accordingly, NCR's results of operations depend upon
the Company's ability to continue to acquire a supply of key parts, compo-
nents, microprocessors and operating systems which continue to be technologi-
cally competitive.
Seasonality
NCR's sales are historically seasonal, with revenue higher in the fourth quar-
ter of each year. Consequently, during the three quarters ending in March,
June and September, NCR has historically experienced less favorable results
than in the quarter ending in December. Such seasonality also causes NCR's
working capital cash flow requirements to vary from quarter to quarter depend-
ing on the variability in the volume, timing and mix of product sales.
International Operations
For the year ended December 31, 1998, NCR's international operations repre-
sented approximately 56% of the Company's consolidated revenue. Specifically,
Japan, the United Kingdom, Germany and France represented approximately 11%,
6%, 5% and 4% of consolidated revenue, respectively. Although the diversity of
NCR's operations may help to mitigate some risks associated with geographic
concentrations of operations (for example, adverse changes in foreign currency
exchange rates and business disruptions due to natural disasters and economic
or political uncertainties), there are numerous other risks inherent in oper-
ating abroad, many of which cannot be readily foreseen and over which NCR has
no control.
Euro Changeover
On January 1, 1999, several European countries established the "Euro" curren-
cy. The Euro changeover may affect the cross-border competition experienced by
NCR by removing cross-border pricing and market barriers created by varying
currencies among the participating countries. NCR is unable to quantify the
impact of the Euro changeover at this time, but the Company does not antici-
pate the impact to be material to its results of operations, financial condi-
tion or cash flows.
Contingencies
In the normal course of business, NCR is subject to regulations, proceedings,
lawsuits, claims and other matters, including actions under laws and regula-
tions related to the environment and health and safety, among others. Such
matters are subject to the resolution of many uncertainties, and accordingly,
outcomes are not predictable with assurance. Although NCR believes that
amounts provided in its financial statements are currently adequate in light
of the probable and estimable liabilities, there can be no assurances that the
amounts required to discharge alleged liabilities from lawsuits, claims and
other legal proceedings and environmental matters, and to comply with applica-
ble environmental laws, will not impact future operating results.
Year 2000
Please note that this is a Year 2000 Readiness Disclosure, as that term is de-
fined in the Year 2000 Information and Readiness Disclosure Act (105 P.L.271).
Year 2000 issues concern the inability of certain computerized information
systems to properly process date-sensitive information as the year 2000 ap-
proaches. Systems that do not process such information may require modifica-
tion or replacement prior to the year 2000. NCR accords a significant priority
to Year 2000 issues, and in early 1996 established a task force to coordinate
its global efforts to develop and implement its plans to address such issues.
NCR's Year 2000 plans include, without limitation: (1) replacing or upgrading
NCR's affected internal information technology (IT) systems and non-IT systems
(those which include embedded microprocessors such as security systems or fac-
tory production equipment), (2) developing Year 2000 Qualified products as
part of its offerings to customers, (3) designating products that will not be
rendered Year 2000 Qualified, (4) making Year 2000 upgrades available for cer-
tain products and (5) identifying options for customers to migrate from non-
Qualified products to Year 2000 Qualified products. "Year 2000 Qualification"
means that a particular NCR product has been reviewed to confirm that it
stores, processes (including sorting
NCR . 10
<PAGE>
and performing mathematical operations), inputs and outputs data containing
date information correctly, regardless of whether the data contains dates be-
fore, on, or after January 1, 2000. NCR products that do not perform date ma-
nipulation, and that do not alter any date information that flows through
them, are also considered Year 2000 Qualified. This definition is further am-
plified by 45 specific operating conditions and date processing requirements
that must be satisfied for a product to be Qualified.
State of Readiness: In assessing the Year 2000 readiness of its products, IT
systems and non-IT systems, the Company employs a process consisting of five
phases: (1) inventory (identifying affected systems and products); (2) assess-
ment (determining where failures may occur, and prioritizing solutions,
workarounds and plans to repair or replace); (3) remediation (analyzing and
renovating); (4) testing; and (5) deployment (including making Year 2000 Qual-
ified products available to customers and, for the Company's internal systems,
replacing or modifying designated IT and non-IT systems).
The Company has completed inventory, assessment, remediation and testing of
all of the products it presently develops and provides to customers. Installa-
tion of Year 2000 Qualified products at customer sites is largely dependent
upon, among other things, the customers' schedules, the availability of per-
sonnel for installations and the presence or absence of Year 2000 plans on the
customers' part. NCR expects that installation of Year 2000 Qualified products
or upgrades will continue to take place at customer sites throughout 1999.
Many such installations occurred in 1998. NCR is encouraging its customers to
plan such installations promptly, because if a large number of customers delay
their plans until late in the year, the demand for installation and related
services may exceed their availability. There are certain products, primarily
developed prior to 1995, which NCR does not intend to render Year 2000 Quali-
fied that may continue to be requested by customers. NCR will evaluate such
requests and may, under certain circumstances, including customer acknowledg-
ment of a product's Year 2000 status, provide these products to customers.
The Company previously offered highly specialized products specifically
targeted for niche markets, often unique to a single country ("local prod-
ucts"). The Company has nearly completed its assessment of these local prod-
ucts, typically sold prior to 1995 under the Company's previous business
model, and has determined that the majority of them are not Year 2000 Quali-
fied. NCR expects to complete this assessment in the first quarter of 1999.
Where practical, NCR is communicating with purchasers of these products and is
offering to assist them in identifying replacement NCR products, if available.
The Company has completed its inventory and assessment of the Year 2000 is-
sues associated with its critical IT systems (e.g., manufacturing, financial
management, incident management, payroll and statutory, and order processing
systems). Remediation and testing for approximately 95% of such identified
systems have been completed, with the remainder expected to be completed by
the second quarter of 1999. Deployment is now complete for approximately 75%
of these critical IT systems, with approximately 95% expected to be completed
through the second quarter of 1999, and the remainder to be completed in the
third quarter of 1999. The Company has also completed its analysis of non-
critical internal information systems and has developed plans to address the
Year 2000 issues associated with them, as appropriate. In addition, the Com-
pany has completed its inventory and assessment of the Year 2000 issues asso-
ciated with its non-IT systems, including telecommunication equipment,
security systems and embedded microprocessors, at its significant manufactur-
ing, distribution and office facilities around the world. The Company has also
completed its inventory of non-IT systems for its smaller or less critical fa-
cilities, and it expects to complete its assessment of the Year 2000 issues
for these facilities in the first and possibly second quarters of 1999. As-
sessments of approximately 95% of critical non-IT systems were completed by
the end of 1998, and the Company did not identify any significant business im-
pact as a result of Year 2000 issues. The Company anticipates that assessment
of the remainder of these systems will be completed by the end of the first
quarter of 1999. For its most critical facility functions, such as manufactur-
ing and parts distribution, NCR is planning site audits, including integration
or subsystem testing as deemed necessary, in the first and possibly the second
quarters of 1999.
NCR has requested information from substantially all of its suppliers con-
cerning their Year 2000 readiness to assess the suppliers' ability to continue
to deliver products and services to NCR, as well as the Year 2000 readiness of
those products and services themselves. Suppliers are categorized as critical
or non-critical, with 260 and 530 suppliers currently identified in those re-
spective categories. NCR has conducted reviews of its critical suppliers in
accordance with its Year 2000 Qualification guidelines, and completed its ini-
tial assessment of approximately 85% of those critical suppliers in 1998; NCR
expects to complete its assessment of the remaining critical suppliers in the
first quarter of 1999. All of the critical suppliers that the Company has as-
sessed to date either have completed their Year 2000 internal compliance ac-
tivities or have presented plans or statements that, at present, meet NCR's
expectations. NCR will continue to monitor these suppliers and expects to be
prepared to shift to alternate sources should the Company determine that any
of its critical suppliers will not complete their plans on schedule. NCR also
plans to test system interfaces with its critical suppliers as the Year 2000
approaches. In addition, NCR continues to assess its non-critical suppliers.
As of the end of 1998, NCR had assessed approximately 80% of its non-critical
suppliers; the Company expects that its assessment of the remaining non-criti-
cal suppliers will be completed at or near the end of the first quarter of
1999.
NCR . 11
<PAGE>
NCR's assessment of its suppliers is dependent upon its ability to obtain ac-
curate and complete information from them, and on their willingness to provide
such information. Moreover, there can be no assurances that all of NCR's sup-
pliers, including its critical suppliers, will be able to effectively achieve
Year 2000 readiness. NCR is developing contingency plans to address such situ-
ations with respect to its critical suppliers. Because of Solectron's particu-
lar significance to the Company's manufacturing operations, NCR will conduct
multiple on-site reviews of Solectron's facilities in the first and possibly
the second quarters of 1999 to ascertain the status of those facilities' Year
2000 readiness. Any major Year 2000 failures by Solectron or other critical
suppliers could materially and adversely impact the Company.
NCR believes that no single customer represents so significant a portion of
the Company's revenues that failure on the part of such a customer to plan ef-
fectively for Year 2000 would materially impact NCR's consolidated results of
operations, financial condition or cash flows. In addition, NCR believes that
the diversity of its customer base minimizes the potential financial impact of
such an event. However, if broad technology customer buying trends are reduced
due to Year 2000 issues, which some commentators have predicted, NCR's reve-
nues could be adversely affected.
Costs to Address Year 2000 Issues: Due to a number of factors, it is diffi-
cult to calculate the total cost of addressing the Company's Year 2000 issues
with precision. These factors include, without limitation, the large number of
NCR employees and contractors devoting a portion of their time and efforts to
Year 2000 issues, and the inability to separately identify Year 2000 costs due
to the concurrent remediation of both Year 2000 and non-Year 2000 issues asso-
ciated with NCR's products, IT systems and non-IT systems. The Company esti-
mates the total cost to address its Year 2000 issues, including costs already
incurred in 1997 and 1998, to be approximately $205 million. These costs are
comprised of (1) in connection with the products offered by the Company, per-
sonnel expenses, product upgrades, and other modifications, including the re-
placement of legacy systems, and (2) in connection with the Company's
infrastructure, the internal IT and non-IT systems being addressed in the
Company's Year 2000 plans as discussed above. Approximately $85 million of
such total costs were incurred in fiscal 1998; the Company estimates it in-
curred approximately $20 million of such costs in 1997. NCR intends to capi-
talize or expense its Year 2000 costs as required by generally accepted
accounting principles. In addition, the Company expects to fund these costs
through operating cash flows. Because these Year 2000 costs will be funded
through a reallocation of NCR's overall research and development, information
technology and administrative spending, Year 2000 costs are not expected to
result in significant increases in such expenditures. These cost estimates do
not include potential increased service, customer satisfaction, warranty or
litigation costs that may arise from Year 2000 issues affecting the Company's
products or from unanticipated failures of the Company's IT and non-IT sys-
tems, nor do they include any increased costs, such as those associated with
execution of contingency plans, that may result from supplier or customer dis-
ruptions related to a lack of readiness for Year 2000 issues. Although NCR be-
lieves its cost estimates are reasonable, there can be no assurance, for the
reasons stated below, that the costs of implementing the Company's Year 2000
plans will not differ materially from its estimates.
Risks of Year 2000 Issues: Year 2000 problems can be difficult to identify or
predict for a number of reasons. These include, among others, the complexity
of testing (whether by NCR or by a customer) inter-connected products, operat-
ing environments, networks and applications, including those developed and/or
sold by third parties; the difficulty of simulating and testing for all possi-
ble variables and outcomes associated with critical dates in 1999 and 2000;
and the reliability of test results obtained in a laboratory environment
against actual occurrences in a live production environment. As a result of
such difficulties and the risks described below, there can be no assurances
that Year 2000 issues will not materially adversely impact NCR's consolidated
results of operations, financial condition or cash flows.
Despite the Company's substantive Year 2000 plans and efforts, the Company
could face significant risks associated with its business-critical operations,
including, without limitation, the possible malfunction of NCR's IT and non-IT
systems due to undetected errors or defects, and the potential impacts of Year
2000 difficulties experienced by third parties (e.g., suppliers, customers,
utilities, governmental units and financial institutions). In particular,
risks associated with non-U.S. third parties may be greater than those located
domestically, as it is widely reported that many non-U.S. businesses and gov-
ernments are not addressing their Year 2000 issues on a timely basis.
In addition, despite the Company's Year 2000 Qualification and testing
processes, NCR could face significant Year 2000 risks as a vendor of technol-
ogy products and services. Such risks include, but are not limited to, the
following uncertainties: NCR's products may contain undetected errors or de-
fects associated with Year 2000 issues; NCR may be unable to identify and no-
tify affected customers of local or other products that are not Year 2000
Qualified; installation schedules of Year 2000 Qualified products may be de-
layed; and demand for installation services may exceed the ability of NCR and
other service providers to meet that demand. In addition, NCR has provided a
range of services, including software code development, as contracted and
specified by its customers. Typically, such services and products have been
accepted by the customers and warranties for them have expired; however, there
is some risk that customers will claim that NCR bears responsibility for Year
2000 issues involving their systems. The Company also has provided Year 2000
code remediation services to a small number of its customers. Some commenta-
tors have noted that the complexity of identifying and testing Year 2000
NCR . 12
<PAGE>
issues in connection with such services raises prospects of liability. NCR's
contractual arrangements typically contain limited warranties and limitations
on liability, but there can be no assurance that these limitations will be up-
held in all instances. Any of these or other unforeseen Year 2000 risks could
increase service, customer satisfaction, warranty and litigation costs. While
no litigation has been initiated against NCR in connection with Year 2000 is-
sues, suits have been brought against other technology vendors and such claims
may be advanced against NCR in the future.
As previously discussed, NCR has made certain estimates and judgments in
evaluating the anticipated costs and risks of Year 2000 issues. These antici-
pated costs and risks are based on management's best estimates using informa-
tion currently available and numerous assumptions of future events. There can
be no assurances that these estimates will not change or that there will not
be delays in implementing the Company's Year 2000 plans. In addition, the con-
tinued availability of personnel to address Year 2000 issues cannot be as-
sured, which could result in increased costs or delays in implementing NCR's
Year 2000 plans.
Contingency Plans: NCR believes it has developed effective Year 2000 plans
for the critical areas of its business. However, the Company recognizes that
it is not possible to identify and test all potential variables and outcomes
relative to Year 2000 issues. Accordingly, the Company is developing business
continuity and contingency plans for each of its critical processes and facil-
ities. NCR business continuity and contingency plans will include the poten-
tial for Year 2000 failures of third parties, including suppliers. Business
continuity and contingency plans are also being developed for, among other
things, customer support services, services delivery, order management, help
desks, incident-based services, manufacturing systems, accounting and payroll,
networks and processing centers. Such plans will be completed on a phased
schedule, with the last of the plans targeted for completion by the end of the
second quarter of 1999.
DERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISK
NCR is exposed to market risk, including changes in foreign currency exchange
rates and interest rates. NCR uses a variety of measures to monitor and manage
these risks, including derivative financial instruments. Because a substantial
portion of NCR's operations and revenue occur outside the United States, NCR's
results can be significantly impacted by changes in foreign currency exchange
rates. To manage the exposures to changes in currency exchange rates, NCR en-
ters into various derivative financial instruments such as forward contracts,
swaps and options. These instruments generally mature within twelve months. At
inception, the derivative instruments are designated as hedges of inventory
purchases and sales and certain financing transactions which are firmly com-
mitted or forecasted. Gains and losses on qualifying hedged transactions are
deferred and recognized in the determination of income when the underlying
transactions are realized, canceled or otherwise terminated. When hedging cer-
tain foreign currency transactions of a long-term investment nature, gains and
losses are recorded in the currency translation adjustment component of stock-
holders' equity. Gains and losses on other foreign exchange contracts are gen-
erally recognized currently in other income or expense as exchange rates
change. NCR does not hold or enter into derivative financial instruments for
trading purposes.
For purposes of specific risk analysis, NCR uses sensitivity analysis to de-
termine the impacts that market risk exposures may have on the fair values of
the Company's hedge portfolio. The foreign currency exchange risk is computed
based on the market value of future cash flows as impacted by the changes in
the rates attributable to the market risk being measured. The sensitivity
analysis represents the hypothetical changes in value of the hedge position
and does not reflect the opposite gain or loss on the underlying transaction.
The results of the foreign currency exchange rate sensitivity analysis at De-
cember 31, 1998 and 1997 were: a 10% movement in the levels of foreign cur-
rency exchange rates against the U.S. dollar with all other variables held
constant would result in a decrease in the fair values of the Company's finan-
cial instruments by $13 million and $35 million, respectively, or an increase
in fair values of the Company's financial instruments by $26 million and $36
million, respectively.
The interest rate risk associated with NCR's borrowing and investing activi-
ties at December 31, 1998 is not material in relation to NCR's consolidated
financial position, results of operations or cash flows. NCR does not gener-
ally use derivative financial instruments to alter the interest rate charac-
teristics of its investment holdings or debt instruments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 1998, the Financial Accounting Standards Board issued Statement of Fi-
nancial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging." SFAS 133 provides guidance for the recognition and
measurement of derivatives and hedging activities. It requires an entity to
record, at fair value, all derivatives as either assets or liabilities in the
balance sheet, and it establishes specific accounting rules for certain types
of hedges. This Statement is effective for fiscal years beginning after June
15, 1999 and will be adopted by the Company when required, if not earlier. The
impact, if any, of adopting SFAS 133 on NCR's consolidated financial position,
results of operations and cash flows, has not been fully determined.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1
(SOP 98-1), "Accounting for the Costs of Computer Software Developed or Ob-
tained for Internal Use." This Statement provides guidance on accounting for
the costs of computer software developed or obtained for internal use and es-
tablishes certain capitalization criteria for
NCR . 13
<PAGE>
such costs. SOP 98-1 is effective for fiscal years beginning after December
31, 1998 and will be adopted by NCR when required. The adoption of SOP 98-1 is
expected to result in the capitalization of approximately $10 million of in-
ternal-use software development costs which will be amortized straight-line
over three years.
NCR . 14
<PAGE>
Report of Management
NCR management is responsible for the preparation, integrity and objectivity of
NCR's consolidated financial statements and other financial information pre-
sented in this Annual Report. The accompanying consolidated financial state-
ments were prepared in accordance with generally accepted accounting principles
and include certain amounts based on currently available information and man-
agement's judgment of current conditions and circumstances.
NCR maintains an internal control structure designed to provide reasonable as-
surance, at reasonable cost, that NCR's assets are safeguarded, and that trans-
actions 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 inter-
nal audits and operational reviews assists management in monitoring the effec-
tiveness 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 NCR's indepen-
dent accountants and internal auditors.
PricewaterhouseCoopers LLP, independent accountants, are engaged to perform
audits of NCR's consolidated financial statements. These audits are performed
in accordance with generally accepted auditing standards, which include the
consideration of NCR's 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 the accounting,
reporting and internal control structure of NCR. NCR's 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
Lars Nyberg
Chairman of the Board and
Chief Executive Officer
/s/ David Bearman
David Bearman
Senior Vice President and
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 operations, of changes in stockholders' equity, of
cash flows and of comprehensive income present fairly, in all material re-
spects, the financial position of NCR Corporation and its subsidiaries at De-
cember 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of NCR Corporation's management; our respon-
sibility is to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance with gener-
ally accepted auditing standards which require that we plan and perform the au-
dit 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 man-
agement, and evaluating the overall financial statement presentation. We be-
lieve that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PriceWaterhouseCoopers LLP
Dayton, Ohio
January 19, 1999
NCR . 15
<PAGE>
NCR Corporation
Consolidated Statements of Operations
In millions,
except per share amounts
<TABLE>
<CAPTION>
Year Ended December
31
----------------------
1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Products $3,577 $3,709 $3,986
Services 2,928 2,880 2,977
- ---------------------------------------------------------------------
Total Revenue 6,505 6,589 6,963
- ---------------------------------------------------------------------
Operating Expenses
Cost of products 2,362 2,528 2,722
Cost of services 2,221 2,187 2,203
Selling, general and administrative expenses 1,414 1,510 1,573
Research and development expenses 356 383 390
Non-recurring and restructuring charges 50 - (55)
- ---------------------------------------------------------------------
Total Operating Expenses 6,403 6,608 6,833
- ---------------------------------------------------------------------
Income (Loss) from Operations 102 (19) 130
Interest expense 13 15 56
Other income, net (68) (61) (36)
Non-recurring gain from asset disposition (55) - -
- ---------------------------------------------------------------------
Income Before Income Taxes 212 27 110
Income tax expense 90 20 219
- ---------------------------------------------------------------------
Net Income (Loss) $ 122 $ 7 $ (109)
- ---------------------------------------------------------------------
Net Income (Loss) per Common Share
Basic $ 1.21 $ .07 $(1.07)
Diluted $ 1.20 $ .07 $(1.07)
- ---------------------------------------------------------------------
Weighted Average Common Shares Outstanding
Basic 101.0 102.0 101.4
Diluted 102.1 102.0 101.4
- ---------------------------------------------------------------------
</TABLE>
The notes on pages 20 through 32 are an integral part of the consolidated fi-
nancial statements.
NCR . 16
<PAGE>
NCR Corporation
Consolidated Balance Sheets
In millions,
except per share amounts
<TABLE>
<CAPTION>
At December
31
-------------
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and short-term investments $ 514 $1,129
Accounts receivable, net 1,556 1,471
Inventories 384 489
Other current assets 178 196
- -----------------------------------------------------------------------------
Total Current Assets 2,632 3,285
- -----------------------------------------------------------------------------
Reworkable service parts, net 232 248
Property, plant and equipment, net 872 858
Other assets 1,156 985
- -----------------------------------------------------------------------------
Total Assets $4,892 $5,376
- -----------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings $ 50 $ 59
Accounts payable 376 378
Payroll and benefits liabilities 303 343
Customer deposits and deferred service revenue 352 348
Other current liabilities 619 850
- -----------------------------------------------------------------------------
Total Current Liabilities 1,700 1,978
- -----------------------------------------------------------------------------
Long-term debt 33 35
Pension and indemnity liabilities 420 342
Postretirement and postemployment benefits liabilities 655 813
Other liabilities 593 591
Minority interests 44 264
- -----------------------------------------------------------------------------
Total Liabilities 3,445 4,023
- -----------------------------------------------------------------------------
Commitments and contingencies
Stockholders' Equity
Preferred stock: par value $.01 per share, 100.0 shares
authorized, no shares issued and outstanding at December 31,
1998 and 1997 - -
Common stock: par value $.01 per share, 500.0 shares
authorized, 105.0 and 103.2 shares issued and 98.7 and 103.2
shares outstanding at December 31, 1998 and 1997,
respectively 1 1
Paid-in capital 1,295 1,438
Retained earnings 129 7
Accumulated other comprehensive income (loss) 22 (93)
- -----------------------------------------------------------------------------
Total Stockholders' Equity 1,447 1,353
- -----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $4,892 $5,376
- -----------------------------------------------------------------------------
</TABLE>
The notes on pages 20 through 32 are an integral part of the consolidated fi-
nancial statements.
NCR . 17
<PAGE>
NCR Corporation
Consolidated Statements of Cash Flows
In millions
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 122 $ 7 $ (109)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 364 383 385
Deferred income taxes 54 13 241
Non-recurring and restructuring charges 50 - (55)
Net (gain) loss on sales of assets (47) 4 13
Changes in operating assets and liabilities:
Receivables (85) (14) 451
Inventories 15 (50) 182
Accounts payable and other current liabilities (271) (34) (882)
Other operating assets and liabilities (259) (61) 142
- ------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (57) 248 368
- ------------------------------------------------------------------------------
Investing Activities
Purchases of short-term investments (356) (685) (284)
Sales of short-term investments 573 482 268
Expenditures for reworkable service parts (143) (147) (207)
Expenditures for property, plant and equipment (224) (162) (216)
Acquisition of minority interest in subsidiary (274) - -
Proceeds from sales of facilities and other assets 310 99 98
Other investing activities (94) (111) (54)
- ------------------------------------------------------------------------------
Net cash used in investing activities (208) (524) (395)
- ------------------------------------------------------------------------------
Financing Activities
Purchase of Company common stock (200) - -
Short-term borrowings, net (9) 31 (17)
Long-term borrowings, net (2) (13) (282)
Transfers from AT&T, net - - 1,194
Other financing activities 57 44 -
- ------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (154) 62 895
- ------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents 21 (63) (19)
- ------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (398) (277) 849
Cash and cash equivalents at beginning of year 886 1,163 314
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 488 $ 886 $ 1,163
- ------------------------------------------------------------------------------
</TABLE>
The notes on pages 20 through 32 are an integral part of the consolidated fi-
nancial statements.
NCR .18
<PAGE>
NCR Corporation
Consolidated Statements of Changes in Stockholders' Equity
In millions
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
-------------- Paid-in AT&T's Net Comprehensive Retained
Shares Amount Capital Investment Income Earnings Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1996 $ 310 $ 48 $ 358
Net loss (109) - (109)
Currency translation
adjustments - (58) (58)
Additional minimum
pension liability and
other - 11 11
Transfers from AT&T,
net 1,194 - 1,194
Distribution of NCR
common stock by AT&T 101 $ 1 $1,394 (1,395) - -
- --------------------------------------------------------------------------------------------
December 31, 1996 101 1 1,394 - 1 1,396
Net income - - - - - $ 7 7
Currency translation
adjustments - - - - (79) - (79)
Employee stock purchase
and stock compensation
plans 2 - 44 - - - 44
Additional minimum
pension liability and
other - - - - (15) - (15)
- --------------------------------------------------------------------------------------------
December 31, 1997 103 1 1,438 - (93) 7 1,353
Net income - - - - - 122 122
Currency translation
adjustments - - - - 95 - 95
Employee stock purchase
and stock compensation
plans 2 - 57 - - - 57
Additional minimum
pension liability and
other - - - - 20 - 20
Purchase of Company
common stock (6) - (200) - - - (200)
- --------------------------------------------------------------------------------------------
December 31, 1998 99 $ 1 $1,295 $ - $ 22 $129 $1,447
- --------------------------------------------------------------------------------------------
</TABLE>
Effective December 31, 1996, AT&T Corp. (AT&T) distributed to its stockholders
all of its interest in NCR. The distribution resulted in 101 million shares of
NCR common stock outstanding as of December 31, 1996. Prior to the Distribu-
tion, NCR was a wholly-owned subsidiary of AT&T. (See Note 1 of Notes to Con-
solidated Financial Statements.)
NCR Corporation
Consolidated Statements of Comprehensive Income
In millions
<TABLE>
<CAPTION>
Year Ended
December 31
----------------
1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $122 $ 7 $(109)
Other comprehensive income (loss), net of tax:
Currency translation adjustments 95 (79) (58)
Additional minimum pension liability and other 20 (15) 11
- -----------------------------------------------------------------
Comprehensive income (loss) $237 $(87) $(156)
- -----------------------------------------------------------------
</TABLE>
The notes on pages 20 through 32 are an integral part of the consolidated fi-
nancial statements.
NCR . 19
<PAGE>
NCR Corporation
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 information
technology hardware, software and consulting and support services throughout
the world. NCR combines these hardware, software and services components into
solutions designed to solve complex business problems for its customers. NCR's
solutions offer companies the opportunity to capture and transform data from
transactions into information for building consumer relationships.
Through its presence at customer interaction points such as automated teller
machines or point-of-sale workstations, NCR's solutions are designed to help
businesses capture valuable consumer transaction data. They also offer busi-
nesses the opportunity to centralize detailed information in a data warehouse,
analyze the complex relationships among all of the different data elements,
and respond with programs designed to improve consumer acquisition, retention
and profitability. NCR offers specific solutions for the retail and financial
industries and also provides solutions for the communications, transportation,
insurance and utilities industries, consumer goods manufacturers and govern-
ment entities. These solutions are complemented by NCR's business media prod-
ucts, such as paper rolls, ink ribbons and other business forms.
Integrated within the solutions NCR provides its customers, the Company of-
fers a complete range of information technology services in support of criti-
cal transaction-based systems and networks, including staging and
implementation, multi-vendor services, system-support services, consulting,
managed services, life-cycle services and a wide range of other support serv-
ices. In addition, NCR offers its customers consulting and support services
which include designing, integrating, installing and supporting scalable data
warehousing technologies, applications software and related hardware and
equipment.
Effective December 31, 1996, AT&T Corp. (AT&T) distributed to its stockhold-
ers 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 Distribution
resulted in 101.4 million shares of NCR common stock outstanding as of Decem-
ber 31, 1996. From September 19, 1991 to the Distribution date, NCR was a
wholly-owned subsidiary of AT&T; previously, NCR was a separate publicly-
traded company.
Financial Statement Presentation
For the years ended December 31, 1998 and 1997, NCR's consolidated financial
statements reflect the results of operations, financial position, cash flows,
changes in stockholders' equity and comprehensive income of NCR as it operates
on a stand-alone, separate company basis. NCR's consolidated financial state-
ments at and prior to the Distribution reflect the results of operations, fi-
nancial position and cash flows of NCR as if NCR were a separate entity. Such
financial statements were derived from the consolidated financial statements
of AT&T using historical results of operations and the historical bases in the
assets and liabilities of the businesses operated by NCR.
Prior to the Distribution, changes in AT&T's net investment represented capi-
tal contributions, interest-bearing cash advances made by AT&T to NCR and the
net income (loss) of NCR including cost allocations from AT&T. NCR's financing
requirements during AT&T's ownership were primarily provided through capital
contributions and interest-bearing cash advances from AT&T. NCR's historical
consolidated statements of operations include interest expense relating to
such interest-bearing cash advances, which were contributed to NCR by AT&T and
included in stockholders' equity as of December 31, 1996. NCR began accumulat-
ing its retained earnings effective January 1, 1997.
Prior to the Distribution, general corporate overhead related to AT&T's cor-
porate headquarters and common support functions was allocated to NCR, to the
extent such amounts were applicable to NCR, based on the ratio of NCR's exter-
nal costs and expenses to AT&T's external costs and expenses. Management be-
lieves these allocations are reasonable. However, the costs of these services
charged to NCR may not necessarily be indicative of the costs that would have
been incurred if NCR had performed these functions as a stand-alone entity. As
a result of the Distribution, NCR began using its own resources or purchased
services to perform these functions and is fully responsible for the costs and
expenses associated with the management of a public corporation.
The financial information for the year ended December 31, 1996 may not neces-
sarily reflect the consolidated results of operations, financial position,
cash flows, changes in stockholders' equity and comprehensive income of NCR
had NCR been a separate entity during that period.
Basis of Consolidation
The consolidated financial statements include the accounts of NCR and its ma-
jority-owned subsidiaries in which NCR exercises significant influence and
control. Long-term investments in affiliated companies in which NCR exercises
significant influence, but which it does not control are accounted for under
the equity method. Investments in which NCR does not exercise significant in-
fluence (generally less than a 20% ownership interest) are accounted for under
the cost method. All significant intercompany transactions and accounts have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent
NCR . 20
<PAGE>
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. Estimates are made when accounting for uncollectible accounts
receivable, excess and obsolete inventory, product warranty, depreciation and
amortization, employee benefit plans, income taxes, restructuring charges and
environmental and other contingencies, among others.
Foreign Currency
For most 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 trans-
lated at average exchange rates prevailing during the year. Currency transla-
tion adjustments resulting from fluctuations in exchange rates are recorded in
other comprehensive income.
In the normal course of business, NCR enters into various financial instru-
ments, including derivative financial instruments, for purposes other than
trading. Derivative financial instruments are not entered into for trading
purposes. The use of foreign exchange forward contracts, options and swaps al-
lows NCR to reduce its exposure to changes in currency exchange rates. Deriva-
tives used as a part of NCR's risk management strategy must be designated at
inception as hedges and measured for effectiveness both at inception and on an
ongoing basis. NCR primarily uses forward contracts and options to hedge its
foreign currency exposures relating largely to inventory purchases by market-
ing units and inventory sales by manufacturing units. For foreign exchange
contracts that hedge firm commitments, and foreign exchange options contracts
that hedge anticipated transactions, the gains and losses are deferred and
recognized as adjustments of carrying amounts when the underlying hedged
transaction is realized, canceled or otherwise terminated. For other foreign
exchange contracts that hedge anticipated transactions, gains and losses are
recognized currently in other income and expense as exchange rates change.
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. Cash 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. At December 31, 1998, deferred net gains on foreign exchange options
which hedged anticipated transactions were $6 million, and the unamortized
foreign exchange option premiums were $9 million. The applicable amounts at
December 31, 1997 were insignificant.
Revenue Recognition
Revenue from product and software license sales is generally recognized upon
performance of contractual obligations, such as shipment, installation or cus-
tomer acceptance. To the extent that significant obligations remain or signif-
icant uncertainties exist about customer acceptance of such products or
licenses at the time of sale, revenue is not recognized until the obligations
are satisfied or the uncertainties are resolved. Services and maintenance rev-
enue is recognized proportionately over the contract period or as services are
performed.
Warranty, Sales Returns and Post Sales Support
Provisions for product warranties, sales returns and allowances and post sales
support are recorded in the period in which the related revenue is recognized.
Research and Development Expenses
Research and development expenses are charged to operations as incurred. Costs
incurred for the development of computer software that will be sold, leased or
otherwise marketed are capitalized when technological feasibility has been es-
tablished. These costs are recorded as capitalized software and generally am-
ortized over no more than three years. Capitalized software is subject to an
ongoing assessment of recoverability based upon anticipated future revenues
and identified changes in hardware and software technologies. Costs capital-
ized include direct labor and related overhead costs. Amortization of capital-
ized software development costs was $65 million in 1998 and $66 million in
both 1997 and 1996. Accumulated amortization for software development costs
was $105 million and $125 million at December 31, 1998 and 1997, respectively.
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 rec-
ognized for tax purposes. These deferred taxes are measured by applying cur-
rently 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.
NCR's operations were included in the income tax returns filed by AT&T from
September 19, 1991 through the Distribution date. During such time, income tax
expense in NCR's consolidated financial statements was calculated as if NCR
had filed separate income tax returns.
Net Income (Loss) Per Common Share
Basic earnings (loss) per share is calculated by dividing net income (loss) by
the weighted average number of shares outstanding during the reported period.
The calculation of diluted earnings (loss) per share is similar to basic, ex-
cept that the weighted average number of shares outstanding includes the addi-
tional dilution from potential common stock such as stock options and
restricted stock awards. For the year ended December 31, 1998, the weighted-
average number of common
NCR . 21
<PAGE>
shares outstanding used to compute diluted earnings per share included 0.5
million of restricted stock awards and 0.6 million of stock options. For the
year ended December 31, 1997, the dilutive effect of potential common stock
had no impact on reported net income per common share. Potential common stock
during the year ended December 31, 1996 was not considered in calculating the
net loss per common share since the effects would be antidilutive.
Cash, Cash Equivalents and Short-Term Investments
Short-term investments include certificates of deposit, commercial paper and
other investments having maturities greater than three months at the date of
acquisition. Such investments are stated at cost which approximates fair value
at December 31, 1998 and 1997. All short-term, highly liquid investments hav-
ing maturities of three months or less at the date of acquisition are consid-
ered to be cash equivalents.
Inventories
Inventories are stated at the lower of average cost or market.
Long-Lived Assets and Goodwill
Property, plant and equipment, and reworkable service parts 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 equipment over three to ten years and reworkable service parts over three
to five years.
Goodwill is included in other assets and is carried at cost less accumulated
amortization. Amortization is computed on a straight-line basis over useful
lives ranging from 5 to 25 years. Accumulated amortization was $18 million and
$11 million at December 31, 1998 and 1997, respectively.
NCR reviews the carrying value of long-lived assets and goodwill for impair-
ment when events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable.
Reclassifications
Certain prior years amounts have been reclassified to conform to the 1998 pre-
sentation.
Recently Issued Accounting Pronouncements
In July 1998, the Financial Accounting Standards Board issued Statement of Fi-
nancial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging." SFAS 133 provides guidance for the recognition and
measurement of derivatives and hedging activities. It requires an entity to
record, at fair value, all derivatives as either assets or liabilities in the
balance sheet, and it establishes specific accounting rules for certain types
of hedges. This Statement is effective for fiscal years beginning after June
15, 1999 and will be adopted by the Company when required, if not earlier. The
impact, if any, of adopting SFAS 133 on NCR's consolidated financial position,
results of operations and cash flows, has not been fully determined.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1
(SOP 98-1), "Accounting for the Costs of Computer Software Developed or Ob-
tained for Internal Use." This Statement provides guidance on accounting for
the costs of computer software developed or obtained for internal use and es-
tablishes certain capitalization criteria for such costs. SOP 98-1 is effec-
tive for fiscal years beginning after December 31, 1998 and will be adopted by
NCR when required. The adoption of SOP 98-1 is expected to result in the capi-
talization of approximately $10 million of internal-use software development
costs which will be amortized on the straight-line basis over three years.
NCR . 22
<PAGE>
Note 2.
Supplementary Financial Information
<TABLE>
<CAPTION>
Year Ended
December 31
---------------
In millions 1998 1997 1996
- ------------------------------------------------
<S> <C> <C> <C>
Other Income
Interest income $ 44 $52 $ 29
Gain (loss) on sales of assets 47 (4) (13)
Other, net 32 13 20
- ------------------------------------------------
Total other income, net $123 $61 $ 36
- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At December 31
---------------
In millions 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Cash and Short-Term Investments
Cash and cash equivalents $ 488 $ 886
Short-term investments 26 243
- ---------------------------------------------------------------------
Total cash and short-term investments $ 514 $ 1,129
- ---------------------------------------------------------------------
Accounts Receivable
Trade $1,423 $ 1,344
Other 180 163
- ---------------------------------------------------------------------
1,603 1,507
Less: allowance for doubtful accounts (47) (36)
- ---------------------------------------------------------------------
Total accounts receivable, net $1,556 $ 1,471
- ---------------------------------------------------------------------
Inventories
Finished goods, net $ 324 $ 353
Work in process and raw materials, net 60 136
- ---------------------------------------------------------------------
Total inventories $ 384 $ 489
- ---------------------------------------------------------------------
Reworkable Service Parts
Reworkable service parts $ 555 $ 572
Less: accumulated depreciation (323) (324)
- ---------------------------------------------------------------------
Total reworkable service parts, net $ 232 $ 248
- ---------------------------------------------------------------------
Property, Plant and Equipment
Land and improvements $ 155 $ 90
Buildings and improvements 747 762
Machinery and other equipment 1,313 1,352
- ---------------------------------------------------------------------
2,215 2,204
Less: accumulated depreciation (1,343) (1,346)
- ---------------------------------------------------------------------
Total property, plant and equipment, net $ 872 $ 858
- ---------------------------------------------------------------------
Other Assets
Prepaid pension cost $ 723 $ 607
Capitalized software, net 104 98
Other 329 280
- ---------------------------------------------------------------------
Total other assets $1,156 $ 985
- ---------------------------------------------------------------------
Accumulated Other Comprehensive Income (Loss)
Currency translation adjustments $ 43 $ (52)
Additional minimum pension liability and other (21) (41)
- ---------------------------------------------------------------------
Total accumulated other comprehensive income (loss) $ 22 $ (93)
- ---------------------------------------------------------------------
</TABLE>
Note 3.
Income Taxes
Income before income taxes consists of the following (in millions):
<TABLE>
<CAPTION>
Year Ended
December 31
------------------
1998 1997 1996
- ------------------------------------------------------
<S> <C> <C> <C>
Income (Loss) Before Income Taxes
U.S. $272 $(121) $(555)
Foreign (60) 148 665
- ------------------------------------------------------
Total income before income taxes $212 $ 27 $ 110
- ------------------------------------------------------
</TABLE>
Income tax expense (benefit) consists of the following (in millions):
<TABLE>
<CAPTION>
Year Ended
December 31
-----------------
1998 1997 1996
- ------------------------------------------------
<S> <C> <C> <C>
Income Tax Expense (Benefit)
Current
Federal $21 $(17) $ -
State and local (8) (17) 11
Foreign 23 41 (33)
Deferred
Federal - - -
State and local - - -
Foreign 54 13 241
- ------------------------------------------------
Total income tax expense $90 $ 20 $ 219
- ------------------------------------------------
</TABLE>
The following table presents the principal components (in millions) of the
difference between the effective tax rate and the U.S. federal statutory in-
come tax rate:
<TABLE>
<CAPTION>
Year Ended
December 31
-----------------
1998 1997 1996
- ---------------------------------------------------
<S> <C> <C> <C>
Income tax expense at the U.S.
federal tax rate of 35% $ 74 $ 10 $ 39
Foreign income tax differential 98 2 (24)
Net U.S. tax losses (91) 42 194
Other, net 9 (34) 10
- ---------------------------------------------------
Total income tax expense $ 90 $ 20 $ 219
- ---------------------------------------------------
</TABLE>
NCR's tax provisions include a provision for income taxes in those tax juris-
dictions where its subsidiaries are profitable, but reflect no or only a por-
tion of the tax benefits related to U.S. and certain foreign subsidiaries' tax
losses due to the uncertainty of the ultimate realization of future benefits
from these losses. In 1997, Other, net primarily reflects the favorable im-
pacts from the resolution of certain prior year tax matters.
NCR received $271 million under its tax allocation agreement with AT&T for
the U.S. tax losses and credits generated during the year ended December 31,
1996.
NCR paid income taxes of $60 million, $108 million and $88 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
NCR . 23
<PAGE>
Deferred income tax assets and liabilities included in the balance sheets at
December 31 were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Deferred Income Tax Assets
Employee pensions and other benefits $242 $330
Other balance sheet reserves and allowances 261 288
Tax loss and credit carryforwards 252 209
Property, plant and equipment 31 22
Other 91 70
- --------------------------------------------------------------------
Total deferred income tax assets 877 919
Valuation allowance (498) (553)
- --------------------------------------------------------------------
Net deferred income tax assets 379 366
- --------------------------------------------------------------------
Deferred Income Tax Liabilities
Property, plant and equipment 77 49
Employee pensions and other benefits 122 113
Taxes on undistributed earnings of foreign subsidiaries 126 83
Other 89 85
- --------------------------------------------------------------------
Total deferred income tax liabilities 414 330
- --------------------------------------------------------------------
Total net deferred income tax (liabilities) assets $(35) $ 36
- --------------------------------------------------------------------
</TABLE>
NCR has recorded valuation allowances related to its deferred income tax as-
sets due to the uncertainty of the ultimate realization of future benefits
from such assets. The 1998 net change in the valuation allowance is primarily
attributable to utilization of U.S. tax loss carryforwards partially offset by
incremental foreign deferred tax valuation allowances. It is reasonably possi-
ble that the valuation allowance could continue to decrease in the near term
if operations in certain of NCR's tax jurisdictions are able to demonstrate
sustained profitability. As of December 31, 1998, NCR has U.S. federal and
foreign tax loss carryforwards of approximately $408 million. The tax loss
carryforwards subject to expiration expire in years 2001 through 2012.
NCR has not provided for U.S. federal income taxes or foreign withholding
taxes on approximately $399 million and $457 million of undistributed earnings
of a foreign subsidiary as of December 31, 1998 and 1997, respectively, be-
cause such earnings are intended to be reinvested indefinitely. It is not
practicable to determine the amount of applicable taxes that would be due if
such earnings were distributed.
The income tax effects relating to comprehensive income for 1998, 1997 and
1996 were not significant as a result of the Company's tax position in these
years.
In 1996, NCR entered into an agreement with AT&T and Lucent Technologies Inc.
(Lucent) that governs contingent tax liabilities and benefits and other tax
matters with respect to tax periods ended on or before the Distribution date.
Under this agreement, adjustments to certain taxes that are clearly attribut-
able to one party are to be borne solely by that party and adjustments to
other tax liabilities are generally to be allocated on a defined basis.
Note 4.
Debt Obligations
NCR has debt with scheduled maturities within one year of $50 million and $59
million as of December 31, 1998 and 1997, respectively. The weighted average
interest rate for such debt was 7.3% in 1998 and 7.4% in 1997. NCR has long-
term debt and notes totaling $33 million and $35 million at December 31, 1998
and 1997, respectively. These obligations have interest rates ranging from
7.64% to 9.49% with scheduled maturity dates from 2000 to 2020. The scheduled
maturities of the outstanding long-term debt and notes during the next five
years are: $26 million in 2001, and the remainder after 2004. Interest paid
was approximately $13 million, $19 million and $66 million in 1998, 1997 and
1996, respectively.
In 1996, NCR entered into a five-year, unsecured revolving credit facility
with a syndicate of commercial banks and financial institutions. The credit
facility provides that NCR may borrow on a revolving credit basis an aggregate
principal amount of up to $600 million. The credit facility matures in 2001
and contains certain representations and warranties, conditions, affirmative,
negative and financial covenants, and events of default customary for such fa-
cilities. Interest rates charged on borrowings outstanding under the credit
facility are based on prevailing market rates. No amounts were outstanding un-
der the facility as of December 31, 1998 or 1997.
Note 5.
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 U.S., the benefits are based on a fixed dollar
amount per year of service. NCR's funding policy is generally to contribute
annually not less than the minimum required by applicable laws and regula-
tions. Assets of NCR's defined benefit plans are primarily invested in public-
ly-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 retire-
ment 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 participants who had not reached a certain age and
years of service with NCR were no longer eligible for such benefits. NCR rec-
ognized a $19 million pre-tax gain on the curtailment of these benefits and
expects that this and other plan changes will favorably impact future
postretirement net benefit costs. Non-U.S. employees are typically covered
NCR . 24
<PAGE>
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 from operations.
Reconciliations of the beginning and ending balances of the benefit obliga-
tions for NCR's pension and postretirement benefit plans were (in millions):
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
-------------- ----------------
1998 1997 1998 1997
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at January 1 $3,084 $2,861 $ 394 $ 377
Gross service cost 78 73 4 5
Interest cost 222 204 27 28
Amendments 7 4 (90) -
Actuarial loss 328 334 36 16
Benefits paid (204) (199) (36) (32)
Curtailment - (9) (19) -
Settlement (145) (107) - -
Currency translation adjustments 52 (77) - -
- --------------------------------------------------------------------
Benefit Obligation at December 31 $3,422 $3,084 $ 316 $ 394
- --------------------------------------------------------------------
</TABLE>
A reconciliation of the beginning and ending balances of the fair value of the
plan assets of NCR's pension plans follows (in millions):
<TABLE>
<CAPTION>
Pension
Benefits
--------------
1998 1997
- ---------------------------------------------------------
<S> <C> <C>
Change in Plan Assets
Fair value of plan assets at January 1 $3,662 $3,450
Actual return on plan assets 573 528
Company contributions 72 50
Plan participant contributions 6 5
Benefits paid (204) (199)
Settlement (145) (107)
Currency translation adjustments 36 (65)
- ---------------------------------------------------------
Fair Value of Plan Assets at December 31 $4,000 $3,662
- ---------------------------------------------------------
</TABLE>
Accrued pension and/or postretirement benefit assets (liabilities) included in
NCR's consolidated balance sheets at December 31 were (in millions):
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
----------- ----------------
1998 1997 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reconciliation to Balance Sheet
Funded status $579 $ 578 $ (316) $ (394)
Unrecognized net gain (206) (229) (35) (73)
Unrecognized prior service cost 40 53 (58) 29
Unrecognized transition asset (69) (90) - -
- ----------------------------------------------------------------------
Net Amount Recognized $344 $ 312 $ (409) $ (438)
- ----------------------------------------------------------------------
Total Recognized Amounts Consist of:
Prepaid benefit cost $723 $ 607 $ - $ -
Accrued benefit liability (401) (339) (409) (438)
Intangible asset 2 8 - -
Accumulated other comprehensive income 20 36 - -
- ----------------------------------------------------------------------
Net Amount Recognized $344 $ 312 $ (409) $ (438)
- ----------------------------------------------------------------------
</TABLE>
The weighted average rates and assumptions utilized in accounting for these
plans for the years ended December 31 were:
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
---------------- ----------------
1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.8% 7.3% 7.4% 7.0% 7.5% 7.5%
Expected return on plan assets 10.0% 9.6% 9.2% - - -
Rate of compensation increase 4.3% 4.3% 4.4% 4.3% 4.3% 4.5%
</TABLE>
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 9.5% and 7.0%, pre-65 and post-65, respectively,
in 1998 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 (in millions):
<TABLE>
<CAPTION>
1% Increase 1% Decrease
- -------------------------------------------------------------------------------
<S> <C> <C>
1998 service and interest costs $ 3 $ (2)
Postretirement benefit obligation at December 31, 1998 $21 $(19)
</TABLE>
The net periodic benefit cost for the plans for the years ended December 31,
follows (in millions):
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
------------------- ----------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net service cost $ 75 $ 69 $ 71 $ 4 $ 5 $ 5
Interest cost 222 204 205 27 28 27
Expected return on plan assets (349) (314) (277) - - -
Settlement 46 - - - - -
Curtailment 1 - - (19) - -
Amortization of:
Transition asset (22) (21) (21) - - -
Prior service cost 17 17 22 (3) 2 3
Actuarial losses (gains) 4 (2) (1) (1) (3) (4)
- -----------------------------------------------------------------------
Net Benefit Cost $ (6) $ (47) $ (1) $ 8 $ 32 $ 31
- -----------------------------------------------------------------------
</TABLE>
In connection with a reduction in workforce of NCR's Japanese subsidiary of
1,000 employees, NCR settled the pension benefit obligations relating to the
affected employees. As a result, the Company recognized a $50 million pre-tax
non-recurring charge on the pension settlement/curtailment and other related
charges in the fourth quarter of 1998.
The projected benefit obligation, accumulated benefit obligation and fair
value of assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $460 million, $386 million and $10 million, respec-
tively, at December 31, 1998 and $509 million, $417 million and $106 million,
respectively, at December 31, 1997.
NCR . 25
<PAGE>
During AT&T's ownership of NCR, the assets of NCR's U.S. pension plans were
held as part of a master trust managed by AT&T. In the third quarter of 1997,
the valuation of the December 31, 1996 assets attributable to the AT&T, Lucent
and NCR pension plans was finalized as called for under the Employee Benefit
Agreement previously entered into between NCR and AT&T. In that connection,
the valuation of assets utilized by NCR to determine its 1997 pension expense
was increased by approximately $230 million. As a result of the finalization
of the NCR pension plan asset valuation, 1997 pension expense decreased $23
million, favorably impacting gross margins and expenses.
In 1996, NCR entered into an agreement with the Pension Benefit Guaranty Cor-
poration (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 in collateral with an aggregate value (calculated by applying spec-
ified 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' volun-
tary elections. NCR's matching contributions typically are subject to a maxi-
mum 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 $24 million, $30 million and $31 million for 1998, 1997 and
1996, respectively.
Other Postemployment Benefits
NCR offers various postemployment benefits to involuntarily terminated and
certain inactive employees after employment but before retirement. These bene-
fits are paid in accordance with NCR's established postemployment benefit
practices and policies. Postemployment benefits may include disability bene-
fits, supplemental unemployment benefits, severance, workers compensation ben-
efits and continuations of health care benefits and life insurance coverage.
The accrued postemployment liability at December 31, 1998 and 1997 was $271
million and $400 million, respectively. The decrease is attributable to bene-
fit payments.
Note 6.
Acquisition of Minority Interest in Subsidiary
During 1998, NCR acquired an additional 27% ownership interest in its Japanese
subsidiary, NCR Japan, Ltd. at a cost of $274 million, increasing NCR's owner-
ship of the subsidiary to over 97%. As a result of the acquisition, which is
being accounted for as a purchase, goodwill of approximately $65 million was
recorded by NCR and is being amortized on a straight-line basis over 20 years.
On a pro forma basis, the impact of the transaction on NCR's consolidated net
income and net income per share for the years ended December 31, 1998 and 1997
was not material.
Note 7.
Stock Compensation Plans and Purchases of Company Common Stock
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, 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 will not exceed ten years, as consistent with the Internal Revenue Code.
The number of shares of common stock authorized and available for grant under
this plan were approximately 17 million and 10 million, respectively, at De-
cember 31, 1998.
NCR adopted the WorldShares Plan effective as of the Distribution date. The
plan provides for the grant of nonstatutory stock options to substantially all
NCR employees. 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 Distri-
bution date. Such options have an exercise price of $33.44, equal to the mar-
ket value of NCR common stock on January 2, 1997, and have a five-year
expiration period. Subject to certain conditions, participants became fully
vested and able to exercise their options January 2, 1998. The number of
shares authorized and available for grant under this plan were approximately 7
million and 4 million, respectively, at December 31, 1998.
Prior to the Distribution date, certain employees of NCR participated in AT&T
equity-based plans, under which they received stock options and other equity-
based awards. On the Distribution date, with certain exceptions, these awards
were
NCR . 26
<PAGE>
converted into comparable awards based on NCR common stock under equity-based
plans (hereafter referred to as "the substituted options").
A summary of stock option activity under the NCR Management Stock Plan and the
WorldShares Plan follows (shares in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 12,521 $33.26 6,871 $32.34
Granted 2,904 31.87 6,491 33.24
Exercised (703) 27.13 (425) 20.43
Canceled (1,552) 33.95 (349) 34.91
Expired (264) 36.06 (67) 34.53
- -------------------------------------------------------------------
Outstanding at End of Year 12,906 $33.13 12,521 $33.26
- -------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
Stock Options
Stock Options Outstanding Exercisable
------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life Price Shares Price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.92 to $14.27 160 1.51 years $12.92 160 $12.92
$15.28 to $29.72 881 3.87 years 23.84 733 23.36
$30.31 to $43.15 11,865 6.25 years 34.13 5,908 33.80
- ----------------------------------------------------------------------------------
Total 12,906 $33.16 6,801 $32.18
- ----------------------------------------------------------------------------------
</TABLE>
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 1998, 1997 and 1996. Had NCR recognized stock-based
compensation expense based on the fair value of granted options at the grant
date, net income (loss) and net income (loss) per share for the years ended De-
cember 31 would have been as follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) As reported $ 122 $ 7 $ (109)
Pro forma 81 (58) (144)
Net income (loss) per diluted share As reported $1.20 $.07 $(1.07)
Pro forma .80 (.57) (1.42)
</TABLE>
The pro forma amounts in 1997 contain a charge for the January 2, 1997 grant of
options to substantially all NCR employees under the WorldShares Plan of $32
million. The pro forma amounts in 1996 include a $26 million charge represent-
ing the incremental costs of substituting NCR options for AT&T options. The pro
forma amounts shown above are not necessarily indicative of the effects on net
income (loss) and net income (loss) per share in future years.
The above pro forma net income (loss) and net income (loss) per 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:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------
<S> <C> <C>
Dividend yield 0% 0%
Risk-free interest rate 5.35% 6.35%
Expected volatility 40% 40%
Expected holding period (years) 5.00 4.06
</TABLE>
For the 1996 pro forma amounts, the following weighted average assumptions
were used to compute the fair value of granted AT&T options at the grant date:
dividend yield of 2.4%; risk-free interest rate of 6.59%; expected volatility
of 19.4%; and an expected holding period of 6 years. The incremental fair value
of AT&T post-Lucent options substituted for the AT&T options as of September
30, 1996 was also used in computing the 1996 pro forma amounts, together with
the following weighted average assumptions: dividend yield of 2.8%; risk-free
interest rate of 6.05%; expected volatility of 21%; and an expected holding pe-
riod of 4.5 years, adjusted to reflect the remaining period to maturity of the
substituted options. Additionally, the incremental fair value of NCR options
substituted for the AT&T post-Lucent options on December 31, 1996 was used in
computing the 1996 pro forma amounts and was calculated using the following
weighted average assumptions: dividend yield of 0.0%; risk-free interest rate
of 6.28%; expected volatility of 35%; and an expected holding period of 4.5
years, adjusted to reflect the remaining period to maturity of the substituted
options. 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, 1998, 1997 and 1996 was $13.85, $13.14 and $18.79 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 both 1998 and
1997, employees purchased approximately 1 million shares of NCR common stock
for approximately $28 million. The number of shares authorized for future issu-
ance and available for grant under this plan at December 31, 1998 were approxi-
mately 8 million and 6 million, respectively.
Purchase of Company Common Stock
On April 16, 1998, NCR's Board of Directors approved a share repurchase program
authorizing the purchase of shares of Company common stock valued up to $200
million. In the third quarter of 1998, NCR completed its stock buyback program,
NCR . 27
<PAGE>
purchasing a total of 6.3 million shares at a cost of $200 million.
Note 8.
Financial Instruments
In the normal course of business, NCR enters into various financial instru-
ments, including derivative financial instruments, for purposes other than
trading. These instruments primarily consist of foreign exchange forward con-
tracts, options and swaps which are used to reduce NCR's exposure to changes in
currency exchange rates. At inception, foreign exchange contracts are desig-
nated as hedges of firmly committed or forecasted transactions. These transac-
tions are generally expected to occur in less than one year. The forward
contracts, options and swaps generally mature within twelve months. The major-
ity of NCR's foreign exchange forward contracts were to exchange British
pounds, French francs and Canadian dollars.
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 carrying amounts of cash, cash equivalents, short-term investments, ac-
counts receivable, accounts payable and other current liabilities approximate
fair value due to the short maturity of these instruments. The fair values of
long-term debt and foreign exchange contracts are based on market quotes of
similar instruments. The fair value of letters of credit are based on fees
charged for similar agreements. The table below presents the fair value, carry-
ing value and notional amount of foreign exchange contracts, debt and letters
of credit at December 31, 1998 and 1997. 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. They
do not represent amounts exchanged by the parties and, therefore, are not a
measure of the instruments.
<TABLE>
<CAPTION>
Contract Carrying Amount Fair Value
Notional --------------- ---------------
In millions Amount Asset Liability Asset Liability
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Foreign exchange forward contracts $ 902 $37 $37 $57 $39
Foreign currency options 309 16 1 12 2
Debt - - 83 - 85
Letters of credit 47 - - - -
1997
Foreign exchange forward contracts $1,216 $34 $43 $38 $49
Foreign exchange swap contracts 173 - 20 - 20
Foreign currency options 81 - - 1 1
Debt - - 94 - 96
Letters of credit 74 - - - -
</TABLE>
Fair values of financial instruments represent estimates of possible value that
may not be realized in the future.
Concentration of Credit Risk
Financial instruments that potentially subject NCR to concentrations of credit
risk consist primarily of cash and cash equivalents, short-term investments,
accounts receivables and hedging instruments. By their nature, all such finan-
cial instruments involve risk, including the credit risk of nonperformance by
counterparties, and the maximum potential loss may exceed the amount recognized
in the balance sheet. At December 31, 1998 and 1997, in management's opinion,
there was no significant risk of loss in the event of nonperformance of the
counterparties to these financial instruments. Exposure to credit risk is man-
aged through credit approvals, credit limits, selecting major international fi-
nancial institutions (as counterparties to hedging transactions) and monitoring
procedures, and management believes that the reserves for losses are adequate.
NCR had no significant exposure to any individual customer or counterparty at
December 31, 1998 or 1997, nor does NCR have any major concentration of credit
risk related to any financial instrument.
Note 9.
Segment Information and Concentrations
NCR operates in the information technology industry, which includes designing,
developing and marketing information technology products, services, systems and
solutions worldwide.
Operating Segment Information
NCR assesses performance and allocates resources based principally on the cus-
tomers served and the industries in which such customers operate. Accordingly,
NCR categorizes its operations into four strategic segments: Retail, Financial,
National Accounts Solutions Group and Systemedia. The Retail and Financial in-
dustry segments serve customers that operate in the respective industries. The
National Accounts Solutions
NCR . 28
<PAGE>
Group provides solutions, products and services to generally large customers
outside of the retail and financial industries, including customers in the
communications, transportation, insurance and utility industries, consumer
goods manufacturers and government entities. The Systemedia segment develops,
produces and markets consumable media products principally for customers in
industries served by NCR's other operating segments. The Retail, Financial and
National Accounts Solutions Group segments may offer a variety of products,
services and solutions to their customers which incorporate scalable data
warehousing and a variety of other technologies.
Through its Retail industry segment, NCR provides a full line of solutions,
systems, products and services for customers in the retail industry. Included
in these offerings are NCR's point-of-sale terminals and barcode scanners,
scaleable data warehousing technologies and networking. NCR's Financial indus-
try segment provides a full line of solutions, products and services for cus-
tomers in the financial industry. These offerings include automated teller
machines, scaleable data warehousing technologies and electromechanical item-
and image-processing devices, as well as, bank branch automation, call cen-
ters, home banking and account processing solutions. The Company's National
Accounts Solutions Group segment provides to its customers solutions, prod-
ucts, systems and services which include NCR's transaction processing, high
availability and data warehousing technologies. Professional consulting and
customer support services are also offered through NCR's Retail, Financial and
National Accounts Solutions Group segments. In addition, third-party applica-
tions and technologies are incorporated into the solutions and systems NCR
provides through its operating segments. NCR's "All other segments" accumu-
lates the revenue and operating income not attributable to the above operating
segments. Unallocated corporate expenses primarily include the following types
of charges: global education, corporate staff organizations and benefit plan
costs.
The following tables present data for revenue and operating income by indus-
try operating segments for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Retail $1,449 $1,373 $1,374
Financial 2,886 2,845 2,766
National Accounts Solutions Group 1,498 1,562 1,922
Systemedia 514 510 551
All other segments 158 299 350
- --------------------------------------------------------------------------
Consolidated revenue $6,505 $6,589 $6,963
- --------------------------------------------------------------------------
Operating Income
Retail $ 32 $ (10) $ (8)
Financial 284 254 270
National Accounts Solutions Group 37 (41) (3)
Systemedia 42 50 63
Unallocated corporate expenses and other segments (243) (272) (247)
Non-recurring and restructuring charges (50) -- 55
- --------------------------------------------------------------------------
Consolidated operating income $ 102 $ (19) $ 130
- --------------------------------------------------------------------------
</TABLE>
The assets attributable to NCR's operating segments consist primarily of ac-
counts receivable, inventories and manufacturing assets dedicated to a spe-
cific segment. Assets not attributable to segments consist primarily of fixed
assets not dedicated to a specific segment, prepaid pension costs, cash and
short-term investments. Operating segment assets at December 31 were (in mil-
lions):
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------
<S> <C> <C> <C>
Operating Segment Assets
Retail $ 464 $ 444 $ 446
Financial 969 874 841
National Accounts Solutions Group 578 683 842
Systemedia 192 200 205
- ---------------------------------------------------------
Operating segment assets 2,203 2,201 2,334
Assets not attributable to segments 2,689 3,175 2,946
- ---------------------------------------------------------
Consolidated assets $4,892 $5,376 $5,280
- ---------------------------------------------------------
</TABLE>
The following tables present revenue by product and service line and geo-
graphic area for NCR for the years ended December 31. 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 pro-
vided.
Revenue by Product and Service Line
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- ------------------------------------------------
<S> <C> <C> <C>
Retail products $ 509 $ 474 $ 428
Financial products 1,146 1,069 1,007
Enterprise server products 411 420 408
Other computer products 948 1,170 1,494
Customer support services 2,182 2,142 2,273
Professional services 631 628 580
Systemedia products 514 510 551
Other 164 176 222
- ------------------------------------------------
Consolidated revenue $6,505 $6,589 $6,963
- ------------------------------------------------
</TABLE>
Revenue by Geographic Area
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- --------------------------------------------------------
<S> <C> <C> <C>
United States $2,846 $2,735 $2,944
Americas (excluding United States) 523 476 488
Europe/Middle East/Africa 2,046 1,976 2,131
Japan 687 859 865
Asia/Pacific (excluding Japan) 403 543 535
- --------------------------------------------------------
Consolidated revenue $6,505 $6,589 $6,963
- --------------------------------------------------------
</TABLE>
The following tables present certain long-lived assets by country at December
31:
Property, Plant and Equipment, Net
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
United States $366 $411 $451
Japan 210 130 148
All other countries 296 317 331
- ---------------------------------------------------------------
Consolidated property, plant and equipment, net $872 $858 $930
- ---------------------------------------------------------------
</TABLE>
NCR . 29
<PAGE>
Reworkable Service Parts, Net
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- ----------------------------------------------------------
<S> <C> <C> <C>
United States $117 $137 $145
Japan 18 18 21
All other countries 97 93 111
- ----------------------------------------------------------
Consolidated reworkable service parts, net $232 $248 $277
- ----------------------------------------------------------
</TABLE>
Concentrations
No single customer accounts for more than 10% of NCR's consolidated revenue.
As of December 31, 1998, NCR is not aware of any significant concentration of
business transacted with a particular customer that could, if suddenly elimi-
nated, 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 im-
pact on its operations.
A number of NCR's products, systems and solutions rely primarily on specific
suppliers for microprocessors and other component products, 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.
Inventories are routinely subject to changes in value, resulting from rapid
technological change, intense price competition and changes in customer demand
patterns. While NCR has provided for estimated declines in the market value of
inventories, no estimate can be made of a range of amounts of loss that are
reasonably possible under various competitive conditions.
Note 10.
Contingencies
In the normal course of business, NCR is subject to various regulations, pro-
ceedings, lawsuits, claims and other matters, including actions under laws and
regulations related to the environment and health and safety, among others.
Such matters are subject to the resolution of many uncertainties, and accord-
ingly, outcomes are not predictable with assurance. 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 es-
timable liabilities. However, there can be no assurances that the amounts re-
quired to discharge alleged liabilities from various lawsuits, claims, legal
proceedings and other matters, and to comply with applicable laws and regula-
tions, will not exceed the amounts reflected in NCR's consolidated financial
statements or will not have a material adverse effect on its consolidated re-
sults 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,
1998 cannot presently be determined.
Environmental Matters
NCR's facilities and operations are subject to a wide range of environmental
protection laws related to solid and hazardous waste disposal, the control of
air emissions and water discharges, and the mitigation of impacts to the envi-
ronment from past operations and practices. NCR has investigatory and remedial
activities underway at a number of facilities that it currently owns or oper-
ates, or formerly owned or operated, to comply, or to determine compliance,
with applicable environmental protection laws. 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 a variety of statutory schemes, both state and federal, including
the Federal Water Pollution Control Act (FWPCA) and comparable state statutes,
and the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended (CERCLA), and comparable state statutes.
In February 1996, the U.S. Department of the Interior, Fish & Wildlife Serv-
ice (USF&WS), two Native American tribes, and other federal agencies (Federal
Trustees) notified NCR that the Federal Trustees consider NCR to be a PRP un-
der the FWPCA and CERCLA with respect to alleged natural resource damages
(NRD) to the Fox River and related Green Bay environment (Fox River System)
due to, among other things, sediment contamination in the Fox River System al-
legedly resulting from NCR's former carbonless paper manufacturing operations
at Appleton and Combined Locks, Wisconsin. USF&WS has also notified a number
of other manufacturing companies of their status as PRPs under the FWPCA and
CERCLA for NRD in the Fox River System resulting from their ongoing or former
paper manufacturing operations in the Fox River Valley. In January 1997, the
Federal Trustees notified NCR and the other PRPs of the Federal Trustees' in-
tent to commence a NRD lawsuit. The PRPs and the Federal Trustees agreed to
postpone litigation and entered into tolling and standstill agreements; howev-
er, those agreements have expired and the Federal Trustees have not instituted
litigation. In addition, NCR was identified, along with a number of other com-
panies, by the State of Wisconsin (State) with respect to alleged liability
under CERCLA and comparable Wisconsin law concerning the contaminated sedi-
ments in the Fox River. In July 1997, the Federal Trustees, the State and the
United States Environmental Protection Agency (USEPA) entered into a Memoran-
dum of Agreement to coordinate studies and actions regarding the Fox River,
including the assertion of claims against the PRPs. In December 1997, the
USEPA denied the PRPs' good faith proposal to perform a remedial investigation
and feasibility study of Fox River (RI/FS) and the State thereafter commenced
work on the RI/FS in conjunction with the USEPA. Finally, in July 1998, the
USEPA formally proposed the Fox River for inclusion on the National Priorities
List. An estimate of NCR's ultimate share of NRD or remedial liability cannot
be made with certainty at this time due to (i) the unknown magnitude, scope
and source of any alleged con-
NCR . 30
<PAGE>
tamination, (ii) the uncertainty of the amount and scope of any alleged natu-
ral resource restoration or damages, and (iii) the absence of selected reme-
dial and restoration objectives and methods. NCR believes that there are
additional PRPs who may be liable for NRD or remediation costs. Further, in
1978, NCR sold the business to which the claims apply. In this connection, NCR
commenced litigation against the buyer and its former parent alleging that
they are responsible for the above-described claims. The parties have reached
an interim partial settlement and arbitration agreement under which the par-
ties are presently, and for the foreseeable future will be, sharing both de-
fense and liability costs.
It is difficult to estimate the future financial impact of environmental
laws, including potential liabilities. NCR accrues environmental provisions
when it is probable that a liability has been incurred and the amount of the
liability is reasonably estimable. Management expects that the amounts accrued
from time to time will be paid out over the period of investigation, negotia-
tion, remediation and restoration for the applicable sites, which may as to
the Fox River site be 10 to 20 years or more. Provisions for estimated losses
from environmental restoration and remediation are, depending on the site,
based primarily on internal and third-party environmental studies, 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.
The amounts provided for environmental matters in NCR's consolidated financial
statements are the estimated gross undiscounted amount of such liabilities,
without deductions for insurance or third-party indemnity claims. Except for
the sharing arrangement described above with respect to the Fox River, in
those cases where insurance carriers or third-party indemnitors have agreed to
pay any amounts and management believes that collectibility of such amounts is
probable, the amounts are reflected as receivables in the consolidated finan-
cial statements.
Legal Proceedings
NCR was named as one of the defendants in a purported class-action suit filed
in November 1996 in Florida. The complaint seeks, among other things, damages
from the defendants in the aggregate amount of $200 million, trebled, plus at-
torneys' fees, based on state antitrust and common-law claims of unlawful re-
straints of trade, monopolization, and unfair business practices. The portions
of the complaint pertinent to NCR, among other things, assert a purported
agreement between Siemens-Nixdorf entities (Siemens) and NCR regarding the
servicing of certain "ultra-high speed printers" manufactured by Siemens and
the agreement's impact upon independent service organizations, brokers and
end-users of such printers. The case is still in the discovery stage on class
certification issues. The amount of any liabilities or other costs, if any,
that may be incurred in connection with this matter cannot currently be deter-
mined but, at this time, NCR does not believe they will be material.
Note 11.
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 noncancelable leases as of December 31, 1998 were:
<TABLE>
<CAPTION>
Later
In millions 1999 2000 2001 2002 2003 Years Total
- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating leases $55 $49 $44 $27 $23 $33 $231
</TABLE>
Total rental expense for operating leases was $76 million, $81 million and
$85 million in 1998, 1997 and 1996, respectively.
Note 12.
Transactions With AT&T and Affiliates
For the year ended December 31, 1996, NCR had revenues from sales and services
to AT&T and its current and former affiliates of $258 and $218 million, re-
spectively. At December 31, 1996 receivables related to these revenues
amounted to $71 million and amounts payable to AT&T were $11 million. AT&T al-
located general corporate overhead expenses to NCR of $8 million in 1996. Ad-
ditionally, NCR purchased products and services from AT&T and affiliates,
primarily for long distance service, Bell Labs services, PBX systems and mis-
cellaneous inventory, of $103 million for the year ended December 31, 1996.
Pursuant to the NCR Distribution Agreement, AT&T made contributions of capi-
tal to NCR prior to the Distribution date and contributed certain intercompany
advances outstanding from AT&T to NCR. The consolidated financial statements
reflect these contributions in stockholders' equity as of December 31, 1996.
The capital contributions consisted of $419 million in cash and the contribu-
tion of additional cash in an amount sufficient to retire or defease a total
of $68 million of NCR debt (including payment of related expenses).
In connection with the Distribution, NCR, AT&T and Lucent entered into agree-
ments which, among other things, provide for the allocation and indemnifica-
tion of certain contingent liabilities, the purchase and provision of products
and services, technology access and development, patent and technology licens-
ing and certain defensive protection arrangements.
NCR . 31
<PAGE>
Note 13.
1995 Business Restructuring
In 1995, NCR announced and implemented a restructuring plan which included dis-
continuing the manufacture of personal computers and the distribution of per-
sonal computers through high-volume indirect channels, consolidating facilities
globally, and reducing industry markets served, as well as separating approxi-
mately 8,500 employees and contractors. To provide for this restructuring, a
pre-tax charge of $1,649 million was recorded in 1995.
In the fourth quarter of 1996, NCR released $55 million of reserves related to
the 1995 restructuring. In 1997, NCR substantially completed its restructuring
plan. The remaining restructuring liability at December 31, 1998 was not sig-
nificant.
Note 14.
Quarterly Information (Unaudited)
<TABLE>
<CAPTION>
In millions, except
per share amounts First Second/1/ Third Fourth/2/ Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Total revenues $1,309 $1,574 $1,555 $2,067 $6,505
Gross margin 354 472 461 635 1,922
Net income - 48 25 49 122
Net income per share:
Basic $ 0.0 $ .47 $ .25 $ .50 $ 1.21
Diluted 0.0 .46 .25 .49 1.20
1997
Total revenues $1,389 $1,645 $1,563 $1,992 $6,589
Gross margin 400 458 449 567 1,874
Net income (loss) (16) (4) (9) 36 7
Net income (loss) per share, basic
and diluted $ (.16) $ (.04) $ (.09) $ .35 $ .07
</TABLE>
1. In the second quarter of 1998, NCR recognized a $55 million pre-tax gain on
the sale of its TOP END(R) middleware technology and products family to BEA
Systems, Inc.
2. In the fourth quarter of 1998, NCR recognized a $50 million pre-tax loss on
the settlement of pension benefit obligations relating to a reduction in
workforce of the Company's Japanese subsidiary as more fully explained in
Note 5.
NCR . 32
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF NCR CORPORATION
<TABLE>
<CAPTION>
Organized under the
Laws of
<S> <C>
Compris Technologies, Inc. Georgia
Data Pathing Incorporated Delaware
International Investments Inc. Delaware
The National Cash Register Company Maryland
NCR Autotec Inc. Delaware
NCR European Logistics, Inc. Delaware
The NCR Foundation Ohio
NCR Government Systems Corporation Delaware
NCR International, Inc. Delaware
NCR Ivory Coast, Inc. Delaware
NCR Overseas Trade Corporation Delaware
NCR Personnel Services Inc. Delaware
NCR Scholarship Foundation Ohio
North American Research Corporation Delaware
Old River Software Inc. Delaware
Quantor Corporation Delaware
Sparks, Inc. Ohio
Teradata Corporation Delaware
Teradata International Corporation Delaware
The Microcard Corporation Delaware
NCR Argentina S.A. Argentina
NCR Australia Pty. Limited Australia
NCR Superannuation Nominees, Ltd. Australia
NCR Oesterreich Ges.m.b.H. Austria
NCR (Bahrain) W.L.L. Bahrain
NCR Belgium & Co. Belgium
NCR (Bermuda) Limited Bermuda
NCR Services Limited Bermuda
Global Assurance Limited Bermuda
NCR Brasil Ltda Brazil
NCR Monydata Ltda. Brazil
NCR Bulgaria Ltd. Bulgaria
NCR Cameroon, S.A. Cameroon
NCR Canada Ltd. Canada
NCR de Chile, S.A. Chile
NCR (Shanghai) Technology Services Ltd. China
NCR Colombia S.A. Colombia
NCR Croatia d.o.o. Croatia
NCR (Cyprus) Limited Cyprus
NCR (Middle East) Limited Cyprus
NCR (North Africa) Limited Cyprus
NCR (IRI) Ltd. Cyprus
NCR Danmark A/S Denmark
NCR Dominicana C. por A. Dominican Republic
NCR Finland Oy Finland
NCR Petrol Management Systems Oy Finland
NCR France S.A. France
NCR Antilles S.A.R.L. France
NCR Gabon S.A.R.L. Gabon
</TABLE>
<PAGE>
NCR Holding GmbH Germany
NCR GmbH Germany
NCR OEM Europe GmbH Germany
NCR Central and Eastern Europe GmbH Germany
NCR Czeska republika spol. s.r.o. Czech Republic
NCR Ghana Limited Ghana
NCR (Hellas) S.A. Greece
NCR Foreign Sales Corporation Guam
NCR (Hong Kong) Limited Hong Kong
NCR (China) Limited Hong Kong
NCR (Asia) Limited Hong Kong
NCR Asia Pacific Logistics Center Limited Hong Kong
NCR Magyarorszag Kft. Hungary
NCR Corporation India Private Limited India
P. T. NCR Rencana Indonesia
NCR Italia S.p.A. Italy
NCR Japan, Ltd. Japan
NCR Japan Sales Co., Ltd. Japan
NCR Holdings Ltd. Japan
NCR (Kenya) Limited Kenya
Afrique Investments Ltd. Kenya
Data Processing Printing and Supplies Limited Kenya
NCR Korea Co., Ltd. Korea
NCR (Macau) Limited Macau
NCR (Malaysia) Sdn. Bhd. Malaysia
EPNCR (Malaysia) Sdn. Bhd. Malaysia
Compu Search Sdn Bhd Malaysia
NCR de Mexico, S.A. de C.V. Mexico
NCR (Maroc) Morocco
NCR Nederland N.V. Netherlands
NCR European Logistics Center BV Netherlands
NCR EMEA Regional Care Center B.V. Netherlands
NCR Financial Shared Services Center B.V. Netherlands
NCR (NZ) Limited New Zealand
NCR (Nigeria) PLC Nigeria
NCR Norge A/S Norway
NCR Corporation de Centro-America, S.A. Panama
NCR Corporation de Panama, S.A. Panama
NCR del Peru S.A. Peru
NCR Corporation (Philippines) Philippines
NCR Software Corporation (Philippines) Philippines
NCR Polska Sp.z.o.o. Poland
NCR Portugal-Informatica, Lda Portugal
NCR Corporation of Puerto Rico Puerto Rico
NCR Romania Information Technology S.R.L. Romania
NCR A/O Russia
NCR Singapore Pte Ltd Singapore
NCR Asia Pacific Pte Ltd. Singapore
NCR Slovensko spol. s.r.o. Slovakia
NCR I.T. d.o.o. Slovenia
NCR International (South Africa) (Pty) Ltd. South Africa
NCR Espana, S.A. Spain
NCR (Switzerland) Switzerland
National Registrierkassen AG Switzerland
NCR Systems Taiwan Limited Taiwan
NCR Taiwan Software Ltd Taiwan
NCR (Thailand) Limited Thailand
<PAGE>
NCR Tunisia, Societe Anonyme Tunisia
NCR Bilisim Sistemleri, A.S. Turkey
NCR UK Group Limited United Kingdom
NCR Limited United Kingdom
NCR (Holdings) Ltd. United Kingdom
NCR Properties Limited United Kingdom
Express Boyd Limited United Kingdom
NCR Capita Limited United Kingdom
NCR Financial Solutions Group Limited United Kingdom
NCR Treasury Services Limited United Kingdom
Regis Court Management Limited United Kingdom
NCR Capita (May) Limited United Kingdom
Melcombe Court Management (Marylebone) Limited United Kingdom
Teradata UK Ltd United Kingdom
NCR (Zambia) Ltd. Zambia
NCR Zimbabwe (Private) Limited Zimbabwe
N Timms & Co. (Private) Limited Zimbabwe
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to incorporation by reference in the Registration Statements
on Form S-8 (Nos. 333-18797, 333-18799, 333-18801 and 333-18803) of NCR
Corporation of our report dated January 19, 1999 appearing on page 15 of the
Annual Report to Stockholders which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears in the Form 10-K.
PricewaterhouseCoopers LLP
Dayton, Ohio
March 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF NCR CORPORATION AT DECEMBER 31, 1998 AND 1997 AND
THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 488 886
<SECURITIES> 26 243
<RECEIVABLES> 1,556 1,471
<ALLOWANCES> 0 0
<INVENTORY> 384 489
<CURRENT-ASSETS> 2,632 3,285
<PP&E> 2,215 2,204
<DEPRECIATION> 1,343 1,346
<TOTAL-ASSETS> 4,892 5,376
<CURRENT-LIABILITIES> 1,700 1,978
<BONDS> 33 35
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 1,446 1,352
<TOTAL-LIABILITY-AND-EQUITY> 4,892 5,376
<SALES> 3,577 3,709
<TOTAL-REVENUES> 6,505 6,589
<CGS> 2,362 2,528
<TOTAL-COSTS> 4,583 4,715
<OTHER-EXPENSES> 1,820 1,893
<LOSS-PROVISION> 26 12
<INTEREST-EXPENSE> 13 15
<INCOME-PRETAX> 212 27
<INCOME-TAX> 90 20
<INCOME-CONTINUING> 122 7
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 122 7
<EPS-PRIMARY> 1.21 .07
<EPS-DILUTED> 1.20 .07
</TABLE>
