This excerpt taken from the TDC DEF 14A filed Mar 3, 2009.
Payouts of Stub Awards
In connection with the spin off, NCR made certain adjustments to the outstanding performance-based shares that were awarded in 2006 to our Named Executive Officers (other than Mr. Scheppmann, who did not receive any equity grants in 2006 because he was not employed by NCR at that time). Payment of the performance-based restricted shares was based on the extent to which NCR achieved a specified level of Cumulative Net Operating Profit (or CNOP, as defined below), during a three-year performance period starting January 1, 2006 and ending December 31, 2008. No shares would vest unless certain threshold levels of return on capital were achieved.
Part of the 2006 performance-based restricted share awards was canceled and replaced with an award of performance-based restricted stock units with a new CNOP performance measure based on Teradata performance during a performance period that began on October 1, 2007 and ended on December 31, 2008 (the Stub Awards). The Stub Awards were granted by Teradata on October 24, 2007. The number of shares of Teradata common stock earned ranged from a threshold of 25% to a maximum of 150% of the performance units granted depending on the extent to which performance was achieved through December 31, 2008. However, no units vest unless Teradata also achieves a minimum level of Return on Capital (as defined below).
Under the Stub Awards, CNOP is defined as Cumulative Net Operating Profit which is determined by multiplying Controllable Capital (as defined below) by 10% (which approximates the weighted average cost of capital), and subtracting this amount from the sum of non-pension operating income (NPOI) as reported for each quarterly reporting period during the performance period. By Controllable Capital, we mean: (i) working capital (accounts receivable plus inventory, minus the sum of accounts payable, deferred revenue and customer deposits), (ii) plus the sum of property, plant and equipment, other current assets excluding taxes, and capitalized software, (iii) minus the sum of payroll and employee benefits and other current liabilities excluding taxes and severance. Return on Capital is equal to NPOI divided by Controllable Capital.
At the Committees November 26, 2007 meeting, the Committee approved the application of adjustments to the 2007 and 2008 actual results when determining performance under the Stub Awards to account for certain items relating to the spin off, including (i) extraordinary spin-related expenses and public company costs and initiatives, and (ii) one-time changes to Teradatas revenue and profit targets in light of the carve-out of the Teradata data warehousing business from NCRs financial statements.
In February 2009, the Committee certified a payout level under the Stub Awards of 85.2% of target, based on the following calculation of CNOP as reconciled to Teradatas reported operating income during the performance period:
Please refer to the Option Exercises and Stock Vested section of this proxy statement at page 37 for more information on the payout of the Stub Awards.