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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
Commission File Number 001-00395
NCR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 31-0387920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 SOUTH PATTERSON BLVD.
DAYTON, OHIO 45479
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (937) 445-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]
Number of shares of common stock, $.01 par value, outstanding as of July
31, 1997 was 102,363,901.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
DESCRIPTION PAGE
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Item 1. Financial Statements
Condensed Consolidated Statements of Operations (Unaudited)
Three and six months ended June 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 8
PART II. OTHER INFORMATION
DESCRIPTION PAGE
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Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NCR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES
Sales $ 919 $ 937 $ 1,633 $ 1,812
Services 726 742 1,401 1,453
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TOTAL REVENUES 1,645 1,679 3,034 3,265
------- ------- ------- -------
OPERATING EXPENSES
Cost of sales 647 663 1,136 1,300
Cost of services 559 552 1,076 1,096
Selling, general, and administrative expenses 362 356 676 711
Research and development expenses 96 97 183 184
------- ------- ------- -------
TOTAL OPERATING EXPENSES 1,664 1,668 3,071 3,291
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS (19) 11 (37) (26)
Interest expense 4 13 6 26
Other (income), net (25) (6) (30) (3)
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 2 4 (13) (49)
Income tax expense 6 22 7 34
------- ------- ------- -------
NET LOSS $ (4) $ (18) $ (20) $ (83)
======= ======= ======= =======
NET LOSS PER COMMON SHARE $ (.04) $ (.18) $ (.20) $ (.82)
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS) 102.1 101.4 101.8 101.4
======= ======= ======= =======
See accompanying notes.
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NCR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
JUNE 30 DECEMBER 31
1997 1996
------- -----------
ASSETS
Current assets
Cash and short-term investments $ 1,156 $1,203
Accounts receivable, net 1,446 1,457
Inventories 517 439
Other current assets 244 219
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TOTAL CURRENT ASSETS 3,363 3,318
Rental equipment and service parts, net 261 277
Property, plant, and equipment, net 885 930
Other assets 776 755
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TOTAL ASSETS $ 5,285 $5,280
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 56 $ 28
Accounts payable 303 352
Payroll and benefits liabilities 330 383
Customer deposits and deferred service revenue 417 348
Other current liabilities 834 856
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TOTAL CURRENT LIABILITIES 1,940 1,967
Long-term debt 36 48
Pension and indemnity liabilities 310 300
Postretirement and postemployment benefits liabilities 802 777
Other liabilities 469 503
Minority interests 298 289
------- ------
TOTAL LIABILITIES 3,855 3,884
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Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share (authorized: 500
million shares; issued and outstanding: 102.3 million
shares at June 30, 1997 and 101.4 million shares at
December 31, 1996) 1 1
Paid-in capital 1,412 1,394
Retained earnings (deficit) (20) --
Other 37 1
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TOTAL SHAREHOLDERS' EQUITY 1,430 1,396
------- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,285 $5,280
======= ======
See accompanying notes.
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NCR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
DOLLARS IN MILLIONS
SIX MONTHS ENDED JUNE 30
------------------------
1997 1996
---- ----
OPERATING ACTIVITIES
Net loss $ (20) $ (83)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 186 175
Changes in operating assets and liabilities:
Receivables 11 733
Inventories (78) 61
Other operating assets and liabilities (25) (537)
------- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES 74 349
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INVESTING ACTIVITIES
Purchases of short-term investments, net (277) (17)
Expenditures for service parts (66) (58)
Expenditures for property, plant, and equipment (83) (173)
Other investing activities 15 18
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NET CASH USED IN INVESTING ACTIVITIES (411) (230)
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FINANCING ACTIVITIES
Short-term borrowings, net 28 (6)
Repayments of long-term debt, net (12) (231)
Transfers from AT&T, net -- 595
Other financing activities 18 --
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NET CASH PROVIDED BY FINANCING ACTIVITIES 34 358
------- -----
Effect of exchange rate changes on cash and cash equivalents (21) (7)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (324) 470
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,163 314
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 839 $ 784
======= =====
See accompanying notes.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by NCR
Corporation ("NCR") without audit pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of management, include
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the consolidated results of operations, financial position,
and cash flows for each period presented. The consolidated results for interim
periods are not necessarily indicative of results to be expected for the full
year. These financial statements should be read in conjunction with NCR's 1996
Annual Report to Shareholders and Form 10-K for the year ended December 31,
1996.
2. SUPPLEMENTAL BALANCE SHEET INFORMATION
June 30 December 31
1997 1996
------- -----------
(In millions)
CASH AND SHORT-TERM INVESTMENTS
Cash and cash equivalents $ 839 $1,163
Short-term investments 317 40
------ ------
Total cash and short-term investments $1,156 $1,203
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INVENTORIES
Finished goods $ 342 $ 297
Work in process and raw materials 175 142
------ ------
Total inventories $ 517 $ 439
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3. CONTINGENCIES
In the normal course of business, NCR is subject to various regulations,
proceedings, lawsuits, claims, and other matters, including actions under laws
and regulations related to the environment and health and safety, among others.
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 adequate in light of the
probable and estimable liabilities, there can be no assurances that the amounts
required to discharge alleged liabilities from various lawsuits, claims, legal
proceedings, and other matters, and to comply with applicable laws and
regulations, will not exceed the amounts reflected in NCR's consolidated
financial statements or will not have a material adverse effect on its
consolidated financial condition, results of operations, or cash flows. Any
amounts of costs that may be incurred in excess of those amounts provided as of
June 30, 1997 cannot presently be determined.
LEGAL PROCEEDINGS
As of June 30, 1997, there were a number of individual product liability claims
pending against NCR alleging that its products, including personal computers,
supermarket bar code scanners, cash registers, and check encoders, caused
so-called "repetitive strain injuries" or "cumulative trauma disorders," such as
carpal tunnel syndrome. As of June 30, 1997, approximately 80 such claims were
pending against NCR. In such lawsuits, the plaintiff typically alleges that the
injury was caused by the design of the product at issue or a failure to warn of
alleged hazards. These plaintiffs generally seek compensatory damages and, in
many cases, punitive damages. Most other manufacturers of these products have
also been sued by plaintiffs on similar theories. Ultimate resolution of the
litigation against NCR may substantially depend on the outcome of similar
matters of this type pending in various courts. NCR has denied the merits and
basis for the pending claims against it and intends to continue to contest these
cases vigorously.
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 attorneys'
fees, based on state antitrust and common-law claims of unlawful restraints 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 amount of any liabilities or other costs, if any, that may be
incurred in connection with this matter cannot currently be determined.
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ENVIRONMENTAL MATTERS
NCR's facilities and operations are subject to a wide range of environmental
protection laws in the U.S. and other countries related to solid and hazardous
waste disposal, the control of air emissions and water discharges, and the
mitigation of impacts to the environment from past operations and practices. NCR
has investigatory and remedial activities underway at a number of currently and
formerly owned or operated facilities 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, NCR received notice from the U.S. Department of the Interior,
Fish & Wildlife Service (USF&WS) that USF&WS considers NCR a PRP under the FWPCA
and CERCLA with respect to alleged natural resource restoration and damages to
the Fox River and related Green Bay environment (Fox River System) due to, among
other things, sediment contamination in the Fox River System allegedly resulting
from liability arising out of 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 natural resource restoration and damages in the Fox River System
resulting from their ongoing or former paper manufacturing operations in the Fox
River Valley. In addition, NCR has been identified, along with a number of other
companies, by the Wisconsin Department of Natural Resources (State Trustee) with
respect to alleged liability arising out of alleged past discharges that have
contaminated sediments in the Fox River System. In December 1996, USF&WS, two
Native American tribes, and other federal agencies (Federal Trustees) invited
NCR, the other PRP companies, and the State Trustee to enter into settlement
negotiations over these environmental claims. In January 1997, NCR and the other
PRP companies reached agreement on an interim settlement with the State Trustee.
The Federal Trustees are not party to that agreement. In January 1997, the
Federal Trustees notified NCR and the other PRPs of the Federal Trustees' intent
to commence a natural resource damages lawsuit under CERCLA and the FWCPA within
60 days of the notice, unless a negotiated resolution of their claims was
reached. In March 1997, NCR and the other identified PRPs entered into a tolling
agreement with the Federal Trustees, effectively staying the 60-day notice for
an additional 60 days. In July 1997, the State Trustee, the United States
Environmental Protection Agency (USEPA), and the Federal Trustees entered into a
Memorandum of Agreement (MOA). The MOA states that it provides a framework under
which the parties to that agreement can coordinate remedial and restoration
studies and actions regarding the Fox River, including the assertion of claims
against the PRPs. In June 1997, USEPA announced its intention to propose the Fox
River for inclusion on the National Priorities List; shortly thereafter, the
State of Wisconsin announced its opposition to such listing. In July 1997, the
USEPA sent the PRPs a Special Notice Letter calling for formal negotiations on
the preparation of a remedial investigation and feasibility study (RI/FS) on the
Fox River; on July 15, 1997, the PRPs agreed to enter into such negotiations.
The Special Notice Letter also requested an extension of the tolling agreement
for an additional period. The State Trustee has recently proposed that it, the
PRPs, USEPA, and the Federal Trustees enter into a more comprehensive agreement
by early 1998. NCR expects there will be further discussions over the next few
months about the preparation of an RI/FS and the State Trustee's proposal for a
more comprehensive agreement. An estimate of NCR's ultimate share, if any, of
such cleanup costs or natural resource restoration and damages liability cannot
be made with certainty at this time due to (i) the unknown magnitude, scope, and
source of any alleged contamination, (ii) the absence of selected remedial
objectives and methods, and (iii) the uncertainty of the amount and scope of any
alleged natural resource restoration and damages. NCR believes that there are
additional PRPs who may be liable for such natural resource damages and
remediation costs. Further, in 1978, NCR sold the business to which the claims
apply and believes the claims described above are the responsibility of the
buyer and its former parent company pursuant to the terms of the sale agreement.
In this connection, NCR has commenced litigation against the buyer to enforce
its position.
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 provided as of June
30, 1997 will be paid out over the period of investigation, negotiation,
remediation, and restoration for the applicable sites, which may be 30 years or
more. Provisions for estimated losses from environmental 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. 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 financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table displays selected components of NCR's consolidated
statements of operations, expressed as a percentage of revenue.
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
1997 1996 1997 1996
----- ----- ----- -----
Sales revenue 55.9% 55.8% 53.8% 55.5%
Services revenue 44.1% 44.2% 46.2% 44.5%
----- ----- ----- -----
Total revenue 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Sales gross margin 29.6% 29.2% 30.4% 28.3%
Services gross margin 23.0% 25.6% 23.2% 24.6%
----- ----- ----- -----
Total gross margin 26.7% 27.6% 27.1% 26.6%
Selling, general, and administrative expenses 22.0% 21.2% 22.3% 21.8%
Research and development expenses 5.8% 5.8% 6.0% 5.6%
----- ----- ----- -----
Operating income (loss) (1.1)% 0.6% (1.2)% (0.8)%
===== ===== ===== =====
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
REVENUE
Revenue for the three months ended June 30, 1997 was $1,645 million, a decrease
of 2% from the second quarter of 1996. When adjusted for the unfavorable impact
of quarter-to-quarter changes in foreign currency exchange rates, revenue
increased by 1% compared to the second quarter of 1996.
Sales revenue decreased 2% to $919 million in the second quarter of 1997
compared to the second quarter of 1996. Revenue gains from the year ago quarter
in retail products of 25% and financial products of 13% were more than offset by
revenue declines in computer products of 19% and systemedia products of 9%.
Revenue increased for NCR's enterprise servers used in scalable data warehousing
applications but was not sufficient to offset declines in other parts of the
computer business. Services revenue decreased 2% to $726 million in the second
quarter of 1997 compared to the second quarter of 1996. Revenue from
professional services increased by 9% in the second quarter of 1997 from the
year ago quarter despite the adverse currency rate impacts. The increase in
professional services revenue was not sufficient to offset a decline of 3% in
customer services revenue. Customer services revenue was impacted by the
decrease in sales revenue and unfavorably influenced by foreign currency rate
impacts.
Revenue in the second quarter of 1997 compared with the second quarter of 1996
increased by 1% in the Asia Pacific region, decreased by 2% in the Americas, and
decreased by 6% in Europe/Middle East/Africa (EMEA). When adjusted for the
unfavorable impact of quarter-to-quarter changes in foreign currency exchange
rates, revenue on a local currency basis increased 8% in Asia Pacific and
increased 1% in EMEA. The Americas region made up 48% of NCR's total second
quarter 1997 customer revenue, EMEA region comprised 29%, and Asia Pacific
region 23%.
OPERATING EXPENSES
Gross margin as a percentage of revenue decreased 0.9 percentage points from
27.6% in the second quarter of 1996 to 26.7% in the second quarter of 1997.
Sales gross margins increased 0.4 percentage points to 29.6% for the second
quarter of 1997. Services gross margins were down 2.6 percentage points to 23.0%
for the second quarter of 1997. Services gross margins declined primarily due to
lower reported revenue against a cost structure developed to support higher
revenue levels.
Selling, general, and administrative expenses increased $6 million or 2% in the
second quarter of 1997 from the year ago quarter. As a percentage of revenue,
selling, general, and administrative expenses were 22.0% in the second quarter
of 1997 and 21.2% in the same period of 1996. The increase was entirely driven
by additional investments in selling expense; general and administrative expense
declined from the year ago quarter. Research and development expenses decreased
$1 million to $96 million in the second quarter of 1997. As a percentage of
revenue, research and development expenses were 5.8% in both the second quarter
of 1997 and 1996.
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INCOME (LOSS) BEFORE INCOME TAXES
NCR reported an operating loss of $19 million in the second quarter of 1997
compared to an operating profit of $11 million in the second quarter of 1996.
Interest expense was $4 million in the second quarter of 1997 compared to $13
million in the second quarter of 1996. The decrease in interest expense was the
result of reduced debt levels in 1997 compared to 1996. Other income, net of
expenses, was $25 million in the second quarter of 1997 compared to $6 million
in the second quarter of 1996. The increase in other income results from higher
interest income on increased levels of cash and short-term investments and
positive impacts in 1997 of certain foreign exchange contracts and insurance
proceeds related to a prior year loss.
NCR reported income before taxes of $2 million in the second quarter of 1997
compared to a income before taxes of $4 million in the second quarter of 1996.
NET LOSS
The provision for income taxes was $6 million in the second quarter of 1997
compared to $22 million in the second quarter of 1996. NCR's tax provision
results from a normal provision for income taxes in those foreign tax
jurisdictions where its subsidiaries are profitable, and an inability to reflect
tax benefits from net operating losses and tax credits, primarily in the United
States.
Net loss was $4 million in the second quarter of 1997 and $18 million in the
same period in 1996.
SIX MONTHS 1997 COMPARED TO SIX MONTHS 1996
REVENUE
Revenue for the first six months of 1997 was $3,034 million, a decrease of 7%
from the comparable period last year. When adjusted for the unfavorable impact
in foreign currency exchange rates, revenue decreased by 4% compared to the
year-to-date period in 1996.
Sales revenue decreased 10% to $1,633 million in the first six months of 1997
compared to the same period of 1996. Revenue gains in retail products of 10% and
financial products of 2% were more than offset by revenue declines in computer
products of 16%, PCs/entry level server products of 27% and systemedia products
of 9%. The decrease in PCs\entry level server products revenue was due to NCR's
decision to longer sell these products through high-volume indirect channels.
Services revenue decreased 4% to $1,401 million in the first six months of 1997
compared to the same period of 1996. Revenue for professional services increased
by 7% in the first six months of 1997 despite the adverse currency rate impacts.
The increase in professional services revenue was not sufficient to offset a
decline of 5% in customer services revenue.
Revenue in the first six months of 1997 compared with the first six months of
1996 increased by 1% in the Asia Pacific region, decreased by 7% in the
Americas, and decreased by 12% in EMEA. When adjusted for the unfavorable impact
in foreign currency exchange rates, revenue on a local currency basis increased
8% in Asia Pacific and decreased 5% in EMEA. The Americas region made up 49% of
NCR's total first six months 1997 revenues, EMEA region comprised 29%, and Asia
Pacific region comprised 22%.
OPERATING EXPENSES
Gross margin as a percentage of revenue increased 0.5 percentage points from
26.6% in the first six months of 1996 to 27.1% in the first six months of 1997.
Sales gross margins increased 2.1 percentage points to 30.4% for the first six
months of 1997. Services gross margins were down 1.4 percentage points to 23.2%
for the first six months of 1997.
Selling, general, and administrative expenses decreased $35 million or 5% in the
first six months of 1997. As a percentage of revenue, selling, general, and
administrative expenses were 22.3% in the first six months of 1997 and 21.8% in
the same period of 1996. The decrease in 1997 was primarily the result of NCR's
continued focus on expense discipline and the favorable impact on expenses of
foreign currency exchange rates. Research and development expenses decreased $1
million to $183 million in the first six months of 1997. As a percentage of
revenue, research and development expenses were 6.0% in the first six months of
1997 and 5.6% in the first six months of 1996.
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INCOME (LOSS) BEFORE INCOME TAXES
NCR reported an operating loss of $37 million in the first six months of 1997
compared to an operating loss of $26 million in the first six months of 1996.
Interest expense was $6 million in the first six months of 1997 compared to $26
million in the second quarter of 1996. Other income, net of expenses, was $30
million in the first six months of 1997 compared to $3 million in the first six
months of 1996.
NCR reported a loss before taxes of $13 million in the first six months of 1997
compared to a loss before taxes of $49 million in the first six months of 1996.
NET LOSS
The provision for income taxes was $7 million in the first six months of 1997
compared to $34 million in the first six months of 1996. NCR's tax provision
results from a normal provision for income taxes in those foreign tax
jurisdictions where its subsidiaries are profitable, and an inability to reflect
tax benefits from net operating losses and tax credits, primarily in the United
States.
Net loss was $20 million in the first six months of 1997 and $83 million in the
same period in 1996.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
NCR's cash and short-term investments totaled $1,156 million at June 30, 1997
compared to $1,203 million at December 31, 1996.
Net cash provided by operating activities was $74 million in the first six
months of 1997 and $349 million in the first six months of 1996. Receivable
balances were essentially flat at June 30, 1997 compared to December 31, 1996,
but decreased $733 million in the first six months of 1996 due largely to NCR's
decision to no longer sell PC/entry level servers through high-volume indirect
channels and a reduction in receivable balances due to the sale of NCR's
Switzerland data services business. Inventory balances increased $78 million in
the first six months of 1997 compared to a decrease of $61 million in the
comparable period of 1996. The decrease in 1996 resulted from overall improved
supply line management and an increased focus on inventory management practices.
The increase in inventory in the first six months of 1997 is consistent with
historical inventory increases generally experienced during the first three
quarters of the year. Cash required for other operating assets and liabilities
decreased from $537 million in the first six months of 1996 to $25 million in
the same period of 1997 primarily due to payments made in the first half of 1996
relating to NCR's 1995 restructuring.
Net cash used in investing activities was $411 million in the first six months
of 1997 and $230 million in the same period of 1996. In 1997, NCR purchased $277
million of short-term investments as a part of its overall cash management
strategy. Capital expenditures were $149 million for the first half of 1997 and
$231 million for the comparable period in 1996. Capital 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.
Net cash provided by financing activities was $34 million in the first six
months of 1997 and $358 million in the same period of 1996. In 1996, NCR relied
on AT&T to provide financing for its operations. The cash flows reflected as
transfers from AT&T in the consolidated statements of cash flows for 1996
represent capital infusions that were used to fund NCR's ongoing operations. In
addition, $231 million of debt was repaid in the first six months of 1996.
NCR believes that cash flows from operations, its credit facility, and other
short- and long-term financings, if any, will be sufficient to satisfy its
future working capital, research and development, capital expenditure, and other
financing requirements for the foreseeable future.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Management's Discussion and Analysis contains information based on management's
beliefs and forward-looking statements that involve a number of risks,
uncertainties, and assumptions. There can be no assurances that actual results
will not differ materially from the forward-looking statements as a result of
various factors, including, but not limited to, the following:
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NCR's ability to improve its operating results depends significantly upon its
ability to profitably grow revenue, improve gross margins, maintain expense
discipline, and improve its effective tax rate. There can be no assurances that
NCR will not face unforeseen costs, delays or other impediments in the
implementation of its strategy and business plan, that its strategy and business
plan will generate the expected benefits, or that NCR's strategy will be
successful. The success of NCR's strategy will also depend, among other things,
upon the technologies, actions, products, and strategies of NCR's current and
future competitors, general domestic and foreign economic and business
conditions, the condition of the information technology industry and the
industries in which NCR's customers operate, and other factors, including those
described below.
The markets for many of NCR's offerings are characterized by rapidly changing
technology, evolving industry standards and a movement toward common industry
standards making differentiation more difficult, frequent new product
introductions, and the increasing commoditization of products, including servers
and other computer products. NCR's operating results depend to a significant
extent on its ability to design, develop, or otherwise obtain and introduce new
products, services, systems, and solutions that are competitive in the
marketplace. The success of these and other new offerings is dependent on many
factors, including proper identification of customer needs, cost, timely
completion and introduction, differentiation from offerings of NCR's
competitors, and market acceptance. The ability to successfully introduce new
competitive products, services offerings, and solutions could have a significant
impact on NCR's results of operations.
Due to NCR's focus on providing complex integrated solutions to customers, NCR
frequently relies on third parties to provide significant elements of NCR's
offerings, which must be integrated with the elements provided by NCR. NCR has
from time to time formed alliances with third parties that have complementary
products, services, and skills. These business practices often require NCR to
rely on the performance and capabilities of third parties which are beyond NCR's
control. NCR's reliance on third parties introduces a number of risks to NCR's
business. In addition to the risk of non-performance by alliance partners or
other third parties, the need to integrate elements provided by NCR with those
of third parties could result in delays in the introduction of new products,
services, systems, or solutions. Further, the failure of any of these third
parties to provide products or services that conform to NCR's specifications or
quality standards could impair the ability of NCR to offer solutions that
include such third party elements or may impair the quality of such solutions.
Any of these factors could have an adverse impact on NCR's financial condition
or results of operations.
A number of NCR's products and systems rely on specific suppliers for
microprocessors, operating systems, and other central components. For example,
NCR's computer systems are based on microprocessors and related peripheral chip
technology designed by Intel Corporation. NCR incorporates UNIX(1) and Microsoft
Windows NT(2) operating systems into its products and utilizes Oracle
Corporation and Informix Corporation's commercial databases for NCR's Scalable
Data Warehousing and High Availability Transaction Processing solutions. The
failure of any of these technologies to remain competitive, either individually
or as part of a system or solution, or the failure of these providers to
continue such technologies, could adversely impact NCR's financial condition or
results of operations.
NCR also uses many standard parts and components in its products and systems,
and believes there are a number of competent vendors for most parts and
components. However, a number of important components are developed by and
purchased from single sources due to price, quality, technology, or other
considerations. In some cases, those components are available only from single
sources. The process of substituting new producers of such parts could adversely
impact NCR's results of operations.
NCR faces significant competition in the geographic areas where it operates. Its
markets are characterized by continuous, rapid technological change, short
product life cycles, frequent product performance improvements, price
reductions, and the need to introduce products in a timely manner in order to
take advantage of market opportunities. Product development or manufacturing
delays, changes in product costs, and delays in customer purchases of existing
products in anticipation of new product introductions are among the factors that
may adversely impact the transition from current products to new products. In
addition, the timing of introductions of new products and services offered by
NCR's competitors could impact the future operating results of NCR, particularly
when these introductions coincide or precede NCR's own new products, services,
systems and solutions introductions. Likewise, some of NCR's new products,
services, systems and solutions may replace or compete with NCR's current
offerings. NCR's future operating results will also depend upon its ability to
forecast the proper mix of products, services, systems and solutions to meet the
demands of its customers.
The significant competition in the information technology industry has decreased
gross margins for many companies in recent years and could continue to do so in
the future. Future operating results will depend in part on NCR's ability to
mitigate such margin pressure by maintaining a favorable mix of products,
services, systems, solutions and other revenues and by achieving component cost
reductions and operating efficiencies. Changes in the mix of products, services,
systems, and solutions revenues could cause operating results to vary. NCR's
future operating results may depend on its recognition of and expansion into new
and emerging markets. Failure to recognize and penetrate these markets in a
timely fashion with the proper mix of products, services, systems, and solutions
could have an adverse affect on NCR's financial condition or results of
operations.
NCR's success is dependent on, among other things, its ability to attract and
retain the highly-skilled technical, sales, and other personnel necessary to
enable NCR to successfully develop and sell new and existing products, services,
systems and solutions.
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NCR's sales are historically seasonal, with revenue higher in the fourth quarter
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 depending on the
variability in the volume, timing, and mix of product sales. In addition, in
many quarters, a large portion of NCR's revenue is realized in the third month
of the quarter. Operating expenses are relatively fixed in the short term and
often cannot be materially reduced in a particular quarter if revenue falls
below anticipated levels for such quarter.
NCR's foreign operations are subject to a number of risks inherent in operating
abroad. Such operations may be adversely affected by a variety of factors, many
of which cannot be readily foreseen and over which NCR has no control. A
significant change in the value of the dollar or other functional currencies
against the currency of one or more countries where NCR recognizes revenues or
earnings or maintains net asset investments may adversely impact future
operating results. NCR attempts to mitigate a portion of such changes through
the use of foreign currency contracts.
NCR's tax rate is dependent upon the proportion of taxable earnings derived from
those international subsidiaries where NCR is historically profitable and
reports a normal provision for income taxes, in relation to its total
consolidated results of operations. To the extent that NCR is unable to reflect
tax benefits from net operating losses and tax credits, arising primarily in the
United States, to offset provisions for income taxes attributable to its
profitable foreign subsidiaries, NCR's overall effective tax rate could
increase.
In the normal course of business, NCR is subject to regulations, proceedings,
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 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 applicable
environmental laws, will not impact future operating results.
(1) UNIX is a registered trademark in the United States and other countries,
exclusively licensed through X/OPEN Company Limited.
(2) WINDOWS NT is a registered trademark of Microsoft Corporation.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Letter Agreement with Lars Nyberg Regarding Employee
Benefits, dated May 9, 1997.
10.2 Change-in-Control Agreement by and between NCR
Corporation and Lars Nyberg.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On June 24, 1997, NCR filed a Current Report on Form 8-K with
respect to its expected second quarter 1997 financial results.
On July 22, 1997, NCR filed a Current Report on Form 8-K,
including unaudited condensed consolidated balance sheets as
of June 30, 1997, and unaudited condensed consolidated
statements of operations, consolidated revenue summary, and
condensed consolidated statements of cash flows for the
quarter ended June 30, 1997, with respect to its Press Release
on its second quarter financial results.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NCR CORPORATION
Date: August 13, 1997 By: /s/ John L. Giering
--------------------------------------
John L. Giering, Senior Vice-President
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
10.1 Letter Agreement with Lars Nyberg Regarding Employee
Benefits, dated May 9, 1997.
10.2 Change-in-Control Agreement by and between NCR
Corporation and Lars Nyberg.
27 Financial Data Schedule
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EXHIBIT 10.1
May 9, 1997
Mr. Lars Nyberg
3600 Woodhollow Road
Kettering, Ohio 45429
Dear Lars:
In connection with the spin-off of NCR Corporation ("NCR") from AT&T
Corp. ("AT&T"), NCR and AT&T entered into an Employee Benefits Agreement
allocating between the two companies the primary responsibility for payment of
certain items of compensation and benefits, including compensation and benefits
described in letter agreements between you and AT&T dated April 19, 1995 and
June 7, 1996 (the "AT&T Letter Agreements").
This letter agreement (the "Agreement") documents the compensation and
benefits which NCR agreed to pay to you pursuant to the Employee Benefits
Agreement.
1. As of January 1, 1997, you will continue to be employed by NCR as Chairman of
the Board and Chief Executive Officer ("CEO"). You will report to the Board of
Directors of NCR. Your base salary will be established by the Board of
Directors, and will be increased annually to reflect individual performance and
base salary structure changes applicable to similarly situated senior
executives. You will receive annual and long-term incentive payments as
established by the Board of Directors. It is anticipated that, at least
initially, long term incentives provided to you by NCR after its spin-off from
AT&T will be generally comparable to those provided to you by NCR prior to the
spin-off.
2. You will receive an annual cash payment of up to $10,000 to address education
costs for your son in Sweden payable each December during the time he is a
student. Any payment will include an additional tax reimbursement amount
sufficient to pay the income and employment taxes that you incur with respect to
both the educational reimbursement and the tax reimbursement itself.
3. In addition to the compensation and benefits described in this Agreement, you
are entitled to severance benefits as described in the Change-in-Control
Agreement between you and NCR. You are also eligible to participate in the NCR
employee benefit plans available to U.S. based senior executives, including the
benefits listed on Attachment A.
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4. You will be provided a Completion Bonus by NCR based solely on your continued
employment by NCR as follows:
June 1, 1997 $ 375,000
June 1, 1998 $ 375,000
June 1, 1999 $3,875,000
Pursuant to the AT&T Letter Agreements, you received payment of a Completion
Bonus from AT&T of $375,000 as of June 1, 1996.
5. In the event of your (1) death, (2) "Disability" (as defined below), (3)
involuntary termination for other than "Cause" (as defined below), or (4)
"Termination for Good Reason" (as defined below), you (or your estate in the
event of your death) will be provided a one-time payment within 45 days of such
termination or death, equal to $5,000,000 offset by what you have already
received under the schedule of payments set forth in paragraph 4, including the
June 1, 1996 payment from AT&T.
For purposes of this Agreement, "Cause" shall be defined as follows:
(1) your conviction (including a plea of guilty or nolo contendere) of a felony
or any crime of theft, dishonesty, or moral turpitude; or (2) gross omission or
gross dereliction of any statutory or common law duty of loyalty to your
employer. "Disability" shall be defined as your termination of employment for
disability with eligibility to receive long term disability benefits under the
terms of an NCR plan. "Termination for Good Reason" shall be defined as
voluntary termination by you on or before June 1, 1999 following (a) a reduction
in annual total compensation (i.e., base salary, target annual incentive, "Long
Term Incentive" as valued below) to less than $3,000,000, or (b) your ceasing to
hold the position of CEO of NCR. For purposes of these definitions only, the
dollar value of your annual "Long Term Incentive" grants shall be determined by
valuing Performance Shares, Performance Units, Stock Units, Restricted Stock,
Restricted Stock Units, etc., at the market price at grant and assuming 100%
performance achievement if such grants include performance criteria, and Stock
Options and SARs will be valued at 50% of the market price of the shares or
related shares at grant, as applicable.
6. If (1) you continue to be employed as CEO of NCR, and (2) you are asked and
you agree to sign an employment contract for an additional two year period
beyond June 1, 1999, upon the later of (1) execution of that employment contract
or (2) June 1, 1999, you will be paid a Re-enlistment Bonus of $2,000,000.
7. NCR has established a Rabbi Trust with assets sufficient to fund the portion
of the Completion Bonus that was unpaid at the time of the spin-off, as well as
the Re-Enlistment Bonus. Under current IRS regulations, establishment of
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the Trust does not result in immediate taxable income to you. Benefits payable
from the Trust, however, would be taxable income to you at the time of payment.
The foregoing should not be considered tax advice to you, for which you should
consult your own tax advisor.
8. Pursuant to the AT&T Letter Agreements, in September, 1995 AT&T granted you a
Special Equity Grant of 400,000 AT&T Leveraged Stock Options and 35,000 AT&T
Restricted Stock Units. The AT&T Leveraged Stock Options were replaced with a
grant of options for an equivalent number of shares of NCR common stock under
the same terms and conditions on January 2, 1997. In the event of your (1)
involuntary termination from NCR for other than Cause or (2) Termination for
Good Reason from NCR, such replacement options will continue to become
exercisable as applicable in accordance with the terms and conditions of the
option grant, as if you continued to be actively employed by NCR. In the event
of your death or Disability, such options will become immediately exercisable.
The 35,000 AT&T Restricted Stock Units remain denominated in AT&T stock and
remain the responsibility of AT&T, and are not assumed by NCR pursuant to this
Agreement.
9. Pursuant to the AT&T Letter Agreements, effective January 2, 1997, NCR
provided to you an NCR stock option grant with a $5,000,000 "face value" and a
grant of NCR restricted stock units with a $5,000,000 "face value." These
options and restricted stock units will become exercisable or cliff vest, as
applicable, in September, 1999. In the event of your (1) involuntary termination
from NCR for other than Cause or (2) Termination for Good Reason from NCR, these
options and restricted stock units will continue to become exercisable or vest,
as applicable, in accordance with the schedule under which these awards were
granted, subject to their terms and conditions, as if you continued to be
actively employed by NCR. In the event of your death or Disability, such options
and restricted stock units will become immediately exercisable or released of
restricted, as applicable.
10. All of your unexercised AT&T stock options and all of your
undistributed/unvested AT&T restricted stock units outstanding on the spin-off
date, other than the 35,000 AT&T restricted stock units granted by AT&T to you
in September, 1995, were replaced with comparable awards based on NCR stock with
share numbers and exercise prices, as applicable, adjusted to preserve the value
(including any aggregate spread) of such awards at spin-off.
11. This letter is not an employment contract and should not be construed or
interpreted as containing any guarantee of continued employment. The employment
relationship at NCR is by mutual consent ("employment-at-will"). NCR reserves
the right to discontinue your employment with or without cause at any time and
for any reason.
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12. Payments and benefits under NCR plans and programs, as well as other
payments referred to in this Agreement, are subject to Internal Revenue Service
rules and regulations with respect to tax withholding and reporting, and will
not be grossed-up for taxes unless specifically stated otherwise. NCR reserves
the right to discontinue or modify any plans, programs and practices.
13. For purposes of NCR employee benefit plans, the definition of compensation
is as stated in the plans. Currently, benefits under the NCR Pension Plan, the
NCR Savings Plan and the NCR Group Benefits Plan for Active Associates are based
on base salary and bonuses, excluding retention and work completion bonuses and
moving expenses. All other compensation and payments reflected in this
Agreement, e.g., the Completion Bonus, Re-enlistment Bonus, educational
reimbursement and tax-gross-up, stock options and restricted stock units, are
not included in the calculation of employee benefits.
14. This Agreement documents NCR's willingness to pay you certain compensation
and benefits described in the AT&T Letter Agreements. Any rights that you
continue to have under the A&T Letter Agreements are not affected by execution
of this Agreement.
If you agree with the foregoing, please sign this Agreement in the
space provided below and return the executed copy to me.
Sincerely,
/Richard H. Evans/
------------------------------
Richard H. Evans
Senior Vice President
Global Human Resources
/Lars Nyberg/ May 20, 1997
- ----------------------------------- ---------------------------------
Acknowledged and Agreed to Date
L. Nyberg
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Attachment A
Lars Nyberg Participation in NCR Employee Benefit Plans
1. NCR Pension Plan
2. NCR Savings Plan
3. NCR Employee Stock Purchase Plan
4. NCR WorldShares Plan
5. The Retirement Plan for Officers of NCR ("SERP II")
6. Group Benefits Plan for Active Associates of NCR (includes Personal Choice
selection of available options for health care, dental care, life
insurance, short term and long term disability coverage, and other group
benefits)
7. NCR Workforce Redeployment Plan
8. NCR Executive Financial Planning
9. Change-in-Control Agreement between NCR and Lars Nyberg, effective January
1, 1997
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EXHIBIT 10.2
CHANGE-IN-CONTROL
AGREEMENT
AGREEMENT by and between NCR Corporation, a Maryland corporation (the
"Company") and Lars Nyberg, effective as of January 1, 1997.
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have your continued dedication, notwithstanding the
possibility, threat or occurrence of a Change-in-Control (as defined below) of
the Company. The Board believes it is imperative to diminish your inevitable
distraction by the personal uncertainties and risks created by a pending or
threatened Change-in-Control and to encourage your full attention and dedication
to the Company currently and in the event of any threatened or pending
Change-in-Control, and to provide you with compensation and benefits
arrangements upon a Change-in-Control which ensure that your compensation and
benefits expectations will be satisfied and are competitive with those of other
corporations. Therefore, to accomplish these objectives, the Board has caused
the Company to enter into this Agreement.
In order to induce you to remain in the employ of the Company, the
Company agrees that you shall receive the severance benefits set forth in this
Agreement in the event your employment with the Company is terminated subsequent
to a Change-in-Control in the circumstances hereinafter described.
1. Entitlement to Benefits
If your employment with the Company is terminated during the three-year
period beginning on the date of a Change-in-Control, either (a) involuntarily,
except for Cause, or (b) voluntarily, due to Good Reason, you will be entitled
to receive the benefits described in Section 3 ("Change-in-Control Benefits"),
provided you execute a release of all employment-related claims against the
Company and its subsidiaries and affiliates existing as of the date of
execution, in the standard form used by the Company without material
modification, addition or deletion. You will also become entitled to the
Change-in-Control Benefits if you voluntarily terminate employment with the
Company for any reason during the thirteenth month following the month in which
a Change-in-Control occurs, provided a release of claims is executed. You will
not receive such benefits if your employment with the Company terminates due to
any other reason, such as death or your becoming disabled to the extent that you
qualify for benefits from the NCR Long Term Disability Plan. The
Change-in-Control Benefits are payable in lieu of any benefits you might be
entitled to receive under the NCR Workforce Redeployment Plan.
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2. Change-in-Control Benefits
The Change-in-Control Benefits consist of the following:
(a) Separation Pay. A lump sum payment of three times your annual base
pay in effect on the date of termination of employment, or the date of the
Change-in-Control if higher, paid within 60 days after termination of
employment.
(b) Incentive Pay. The Change-in-Control Benefits include a lump sum
payment made within 60 days after termination of employment equal to the
following incentive pay:
(i) The incentive pay earned under the Management Incentive Plan
for Executive Officers, or any successor plan ("MIP") for the
calendar year in which termination of employment occurs, at
the greater of target for year of termination of employment or
the actual cash payment for the preceding year, pro-rated in
1/12 increments for the portion of the calendar year prior to
the last day of the month in which termination of employment
occurs.
(ii) Three times the greater of (A) the target MIP award for the
calendar year in which termination of employment occurs, or
(B) the actual cash MIP award for the preceding calendar year.
(iii) Cash payment for performance cycles under the Long Term
Incentive Program ("LTIP") that commenced prior to the date of
termination of employment and have not been paid out. For
performance cycles for which the cash value of the award has
been determined (either by the issuance of restricted stock
units or otherwise), the cash payment will equal the actual
cash value of the award. For performance cycles for which the
cash value of the award is not yet determinable, the cash
payment will be calculated using the target award amount. The
cash payment for the performance cycle beginning with the
calendar year in which termination of employment occurs will
be prorated in 1/12 increments for the portion of the
performance cycle prior to the last day of the month in which
termination of employment occurs.
(iv) Three times the greater of the following: (A) the target LTIP
award for the performance cycle beginning in the calendar year
in which termination of employment occurs, or (B) the cash
value of the most recent actual LTIP award received by you.
(c) Health Care and Insurance Coverage. Coverage for you and your
eligible dependents under the following Company welfare plans at no cost to you
for the separation pay period: (i) Coverage under the NCR Health Care Plan at
the Choice 2 level (20% co-payment); (ii) Coverage under the NCR Dental Plan at
the Choice 2 level;
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(iii) Life insurance coverage at two times base pay; and (iv) Accidental death
and dismemberment coverage at two times base pay.
If you are enrolled in Health Care Choice 1 or an HMO immediately prior
to termination of employment, you may continue this coverage in lieu of the
Health Care Choice 2 by paying the difference in cost between the current
coverage and Health Care Choice 2.
The coverages described in this subparagraph (c) will not terminate if
you become employed by an unrelated company, but will be secondary to any
coverage as an active employee. Extended health care and dental care coverage
runs concurrently with COBRA continuation coverage rights, so no additional
coverage under COBRA is available after the three-year severance period.
(d) Financial Counseling Continuation of executive financial
counseling benefits as in effect under the Company's policy on the date of the
Change-in-Control, for three years following termination of employment.
(e) Outplacement Assistance The Change-in-Control Benefits include
the Company's executive outplacement assistance program for three years
following termination of employment, provided by Wright Associates or a similar
organization, as in effect under the Company's policy on the date of the
Change-in-Control.
(f) Tax Gross-Up
(i) If it is determined that any payment or distribution by the
Company to you or for your benefit (whether paid or payable or
distributed or distributable pursuant to the terms of this
Plan or otherwise, but determined without regard to any
additional payments required under this subsection (f)) (a
"Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are
incurred by you with respect to such excise tax (such excise
tax, together with any such interest and penalties,
hereinafter collectively referred to as the "Excise Tax"),
then the Change-in-Control Benefits shall include an
additional payment ("Gross-Up Payment") in an amount such that
after payment by you of all taxes (including any interest or
penalties imposed with respect to such taxes), including,
without limitation, any federal and state income taxes (and
any interest and penalties imposed with respect thereto), the
Medicare portion of FICA, and excise taxes imposed upon the
Gross-Up Payment, you retain an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the payments.
(ii) Subject to the provisions of subsection (iii), all
determinations required to be made under this subsection (f),
including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the
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assumptions to be utilized in arriving at such determination,
shall be made by Price Waterhouse (the "Accounting Firm"),
which shall provide detailed supporting calculations both to
the Company and you within 15 business days of the receipt of
notice from you that there has been a Payment, or such earlier
time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change-in-Control,
you shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this subsection (f), shall be paid by
the Company to you within five days of the receipt of the
Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and you. As
a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that
the Company exhausts its remedies pursuant to subsection (iii)
and you thereafter are required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to you or for your
benefit.
(iii) You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no
later than ten business days after you are informed in writing
of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be
paid. You shall not pay such claim prior to the expiration of
the 30-day period following the date on which you give such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies you in writing prior to the
expiration of such period that it desires to contest such
claim, you shall:
(A) give the Company any information reasonably requested
by the Company relating to such claim,
(B) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
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respect to such claim by an attorney reasonably
selected by the Company,
(C) cooperate with the Company in good faith in order
effectively to contest such claim, and
(D) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold you harmless, on an after-tax basis,
for any Excise Tax or federal and state income tax (including
interest and penalties with respect thereto) and the Medicare
portion of FICA imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
foregoing provisions of this subsection (iii), the Company
shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and
all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct you to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and you agree to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs you to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to you,
on an interest-free basis and shall indemnify and hold you
harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further
provided that any extension of the statute of limitations
relating to payment of taxes for your taxable year with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable
hereunder and you shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(iv) If, after the receipt by the Participant of an amount advanced
by the Company pursuant to subsection (f), you become entitled
to receive any refund with respect to such claim, you shall
(subject to the Company's complying with the requirements of
subsection (iii)) promptly pay to the Company the amount of
such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt
by you of an amount advanced by the Company pursuant to
subsection (iii), a
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determination is made that you shall not be entitled to any
refund with respect to such claim and the Company does not
notify you in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance
shall offset, to the extent, thereof, the amount of Gross-Up
Payment required to be paid.
3. Death Benefits
If you die after becoming entitled to the Change-in-Control Benefits
but before receiving payment, the Change-in-Control Benefits will be paid to
your estate. Your eligible dependents will continue coverage under the Health
Care Plan and Dental Plan for the remainder of the three-year coverage period.
4. Trust
The Compensation Committee may establish a trust with a bank trustee
(the "Trust") for the purpose of paying benefits under this Agreement, as well
as the NCR Change-in-Control Severance Plan for Executive Officers and the NCR
Change-in-Control Severance Plan for At-Risk Associates. The trust may be a
grantor trust subject to the claims of the Company's creditors.
5. Term of Agreement
This Agreement shall commence on December 31, 1996 and shall continue
in effect through December 31, 2000; provided, however, that commencing on
January 1, 1998, and on each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year beyond its original or
extended termination date so that, unless notice shall have been given as
provided in the following paragraph, on each January 1, this Plan shall have an
unexpired term of three years.
The Board of Directors of the Company may, not later than November 30
of any year, by resolution duly adopted by a majority of the entire membership
of the Board, determine that this Agreement shall not be extended, in which
event this Agreement shall expire at the end of the three-year term which began
on the January 1 immediately preceding such November 30.
Notwithstanding any resolution of the Board not to extend the term of
this Agreement, if a Change-in-Control shall have occurred during the original
or any extended term of the Agreement, the Agreement shall continue in effect
for three years after the date of the Change-in-Control.
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6. Successors
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform
under this Agreement in the same manner and to the same extent that the Company
or a subsidiary (as appropriate) is required to perform. Failure of the Company
to obtain such assumption and agreement prior to the effectiveness of any such
succession shall entitle you, if you terminate employment during the period of
time the Agreement would have been in effect had the Company complied with the
first sentence of this Paragraph 6, to compensation from the Company in the same
amount and on the same terms as you would be entitled hereunder if you had
terminated employment for Good Reason following a Change-in-Control.
7. Definitions
(a) "Cause" means:
(i) your willful and continued failure to perform substantially
the appropriate duties of your position with the Company or
one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), for a
period of at least 30 days after a written demand for
substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes
that you have not substantially performed your duties, or
(ii) you willfully engage in illegal conduct or gross misconduct
which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on your part,
shall be considered "willful" unless it is done, or omitted to be done,
in bad faith or without reasonable belief that your action or omission
was in the best interests of the Company. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done in good faith
and in the best interests of the Company. The termination of your
employment shall not be deemed to be for Cause unless and until there
shall have been delivered to you a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to you and you are
given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, you are
guilty of the conduct described in subsection (i) or (ii) above, and
specifying the particulars.
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8
(b) "Change-in-Control" means any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Article 13(d)(3) or 14(d)(2) of the Exchange Act)
(an "Entity") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more
of either (A) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock"), or (B)
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (1) any
acquisition, directly from the Company, other than an
acquisition by virtue of the exercise of a conversion
privilege unless the security being so converted was itself
acquired directly from the Company, (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (4) any acquisition by
any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of subsection (iii) below; or
(ii) A change in the composition of the Board such that the
individuals who, as of January 1, 1997, constitute the Board
(such Board shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that for purposes of this
definition, any individual who becomes a member of the Board
subsequent to January 1, 1997, whose election, or nomination
for election by the Company's stockholders, was approved by a
vote of at least a majority of those individuals who are
members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
provision) shall be considered as though such individual were
a member of the Incumbent Board; and provided further,
however, that any such individual whose initial assumption of
office occurs as a result of or in connection with either an
actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of an Entity other than
the Board shall not be so considered as a member of the
Incumbent Board; or
(iii) The approval by the stockholders of the Company of a merger,
reorganization or consolidation or sale or other disposition
of all or substantially all of the assets of the Company
(each, a "Corporate Transaction") or, if consummation of such
Corporate Transaction is subject, at the time of such approval
by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however,
such a
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9
Corporate Transaction pursuant to which (A) all or
substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the
combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Corporate Transaction (including, without
limitation, a corporation or other Person (as defined below)
which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries (a "Parent Company")) in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Entity (other
than the Company, any employee benefit plan (or related trust)
of the Company, such corporation resulting from such Corporate
Transaction or, if reference was made to equity ownership of
any Parent Company for purposes of determining whether clause
(A) above is satisfied in connection with the applicable
Corporate Transaction, such Parent Company) will beneficially
own, directly or indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of
directors unless such ownership resulted solely from ownership
of securities of the Company prior to the Corporate
Transaction, and (C) individuals who were members of the
Incumbent Board will immediately after the consummation of the
Corporate Transaction constitute at least a majority of the
members of the board of directors of the corporation resulting
from such Corporate Transaction (or, if reference was made to
equity ownership of any Parent Company for purposes of
determining whether clause (A) above is satisfied in
connection with the applicable Corporate Transaction, of the
Parent Company); or
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
As used herein, "Person" means any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated
organization, limited liability company, other entity or government or
political subdivision thereof.
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10
(c) "Good Reason" means:
(i) the assignment to you of any duties inconsistent in any
respect with your position (including status, offices, titles
and reporting requirements), authority, duties or
responsibilities, as in effect immediately prior to a
Change-in-Control, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by you;
(ii) any reduction in your annual base salary as in effect
immediately before the Change-in-Control,
(iii) the failure to pay incentive compensation to which you are
otherwise entitled under the terms of the Company's Management
Incentive Plan for Executive Officers ("MIP") or Long Term
Incentive Program ("LTIP"), or any successor incentive
compensation plans at the time at which such awards are
usually paid or as soon thereafter as administratively
feasible, unless the failure to pay the incentive compensation
is because of the failure to meet objectives based on
quantitative performance;
(iv) the provision to you of an opportunity to earn a target annual
bonus under the MIP or a target performance award under the
LTIP or any successor incentive compensation plans
substantially less in amount than your target opportunities
for the last complete fiscal year of the Company ending prior
to the Change-in-Control;
(v) the failure by the Company to continue in effect any incentive
stock option plan in which you participate immediately prior
to the Change-in-Control, unless a substantially equivalent
alternative compensation arrangement (embodied in an ongoing
substitute or alternative plan) has been provided to you, or
the failure by the Company to continue your participation in
any such stock option plan on substantially the same basis,
both in terms of the amount of benefits provided and the level
of your participation relative to other participants, as
existed immediately prior to the Change-in-Control;
(vi) Except as required by law, the failure by the Company to
continue to provide to you employee benefits substantially
equivalent, in the aggregate, to those enjoyed by you under
the qualified and nonqualified employee benefit and welfare
plans of the Company, including, without limitation, the
pension, life insurance, medical, dental, health and accident,
disability retirement, and savings plans, in which you were
eligible to participate immediately prior to the
Change-in-Control, or the failure by the Company to provide
you with the number of paid vacation days to which you were
entitled under the Company's vacation policy immediately prior
to the Change-in-Control.
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11
(vii) the Company's requiring you to be based at any office or
location other than the principal place of your employment in
effect immediately prior to the Change-in-Control that is more
than 35 miles distant from the location of such principal
place of employment, unless the relocation is part of a
relocation, for bona fide business reasons, of the Company, or
the Company's requiring you to travel on Company business to a
substantially greater extent than required immediately prior
to the Change-in-Control;
(viii) any failure by the Company to comply with Paragraph 6,
Successors.
Any good faith determination of "Good Reason" made by you shall be
conclusive.
8. Legal Fees
The Company agrees to pay as incurred, to the full extent permitted by
law, all legal fees and expenses which you may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, you or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (whether such contest is
between the Company and you or between either of us and any third party), plus
in each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code, unless, in
the case of a legal action brought by you or in your name, a court finally
determines that such action was not brought in good faith.
9. Arbitration
Any dispute or controversy arising under or in connection with this
Plan shall be settled exclusively by arbitration in the City of Dayton, Ohio in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
10. Miscellaneous
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by you and such officer as may be specifically designated by the Board or the
Compensation Committee. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
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No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof (i.e., change-in-control
severance benefits) have been made by either party which are not expressly set
forth in this Agreement. This Agreement does not supersede or replace any other
agreement or plan under which you are entitled to benefits or compensation from
the Company that is in effect on the date of your termination of employment,
except for the NCR Workforce Redeployment Plan and the NCR Change-in-Control
Severance Plan for Executive Officers. Accordingly, the letter agreement
between you and NCR effective January 1, 1997, specifying NCR's obligation to
pay compensation and benefits due to you under the letter agreements between
you and AT&T dated April 18, 1995 and June 7, 1996, are not superseded or
otherwise affected by this Change-in-Control Agreement.
This Agreement shall be subject to the laws of the State of Ohio. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of the Company under
Paragraphs 3 and 4 shall survive the expiration of the term of this Agreement.
The invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
NCR CORPORATION
By: /Richard H. Evans/ /Lars Nyberg/
-------------------------------- ----------------
Richard H. Evans Lars Nyberg
Senior Vice President, Global HR Chairman and CEO
Date: May 9, 1997 Date: May 20, 1997
----------- ------------
12
5
1,000,000
U.S. DOLLARS
6-MOS
DEC-31-1997
JUN-30-1997
1
839
317
1,446
0
517
3,363
2,308
1,423
5,285
1,940
36
0
0
1
1,429
5,285
1,633
3,034
1,136
2,212
859
0
6
(13)
7
(20)
0
0
0
(20)
(.20)
0
