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NCR Announces Third Quarter Results

  • Q3 2010 Operational Results above Expectations; GAAP EPS from Continuing Operations of $0.48 Per Diluted Share; Non-GAAP EPS(1) from Continuing Operations of $0.46 Per Diluted Share

  • Revenues Increased 6% year over year; Orders up 7% versus the Prior Year

  • NCR Buys Back Approximately 1.5 million Shares in Q3 under Our Share Repurchase Program

  • NCR Raises Full Year 2010 Earnings Guidance
     

DULUTH, Georgia – NCR Corporation (NYSE: NCR) reported financial results today for the three months ended September 30, 2010. Reported revenue of $1.21 billion increased 6 percent from the third quarter of 2009 and included a 1 percent negative impact from foreign currency translation.   

NCR reported third quarter income from continuing operations (attributable to NCR) of $78 million, or $0.48 per diluted share, compared to income from continuing operations (attributable to NCR) of $15 million, or $0.09 per diluted share, in the third quarter of 2009. Income from continuing operations (attributable to NCR) in the third quarter of 2010 included $50 million of pension expense ($33 million or $0.20 per diluted share, after-tax), $39 million ($0.24 per diluted share) of income tax benefit due to the release of a valuation reserve related to our Japanese subsidiary, and $6 million ($3 million or $0.02 per diluted share, after-tax) of incremental costs directly related to the relocation of the Company’s global headquarters. Income from continuing operations (attributable to NCR) for the third quarter of 2009 included $41 million of pension expense ($30 million or $0.19 per diluted share, after-tax), an investment impairment charge of $17 million ($11 million or $0.07 per diluted share, after-tax) and $6 million in litigation charges ($4 million or $0.02 per diluted share, after-tax).  Excluding these items, non-GAAP income from continuing operations(1) in the third quarter of 2010 was $0.46 per diluted share compared to $0.37 in the prior year period.  

“The entire NCR team executed at a high level during the third quarter and we are on track to deliver growth for the full year,” said Bill Nuti, Chairman and Chief Executive Officer. “We generated solid growth in orders, revenue and non-pension operating income in the third quarter and have entered the fourth quarter with momentum across our businesses. Our core financial and retail businesses have further stabilized and our multi-channel self-service technologies continue to gain mindshare and market penetration.  Looking ahead, we believe our focus on generating profitable revenue growth, striving for best-in-class cost structure, and fulfilling our ongoing commitment to innovation all combine to position NCR to benefit as the economic recovery continues and the consumer self-service revolution accelerates.”  

Third Quarter 2010 Highlights

Financial highlights –In the Europe/Middle East/Africa (EMEA) region, revenue grew 10 percent from the third quarter of 2009 due to a higher volume of product and services sales in the financial, retail and hospitality industries. Growth in the EMEA region was negatively impacted 7 percent due to foreign currency translation.

In the Asia-Pacific-Japan (APJ) region, revenue increased 5 percent as compared to the prior year due to higher product revenues in North Asia Pacific and higher service revenues in South Asia Pacific, both within the financial services industry. Foreign currency translation positively impacted APJ revenues by 6 percent.

Revenue increased 4 percent in the Americas region over the prior year period due to growth in the retail and hospitality and entertainment industries. These increases were partially offset by decreases in the financial services industry.   Foreign currency translation positively impacted revenues by 1 percent.

Income from operations was $34 million in the third quarter of 2010, which included $50 million of pension expense and $6 million of incremental costs directly related to the Company’s headquarters relocation. This compares to $29 million in income from operations in the third quarter of 2009, which included $41 million of pension expense. Excluding these items, non-GAAP income from operations(2) was $90 million in the third quarter of 2010 compared to $70 million in the third quarter of 2009, reflecting year-over-year growth of 29 percent.

NCR had income tax benefit of $45 million in the third quarter of 2010 compared to $12 million of income tax benefit in the third quarter of 2009. The increased income tax benefit was primarily due to the release of a valuation reserve in Japan.  NCR expects its full year 2010 effective income tax rate to be approximately 27 percent.

NCR used $48 million of cash from operating activities during the third quarter of 2010, as compared to generating $59 million in cash from operating activities in the year-ago period. Third quarter 2010 cash from operating activities was negatively impacted by changes in working capital due primarily to an increase in accounts receivable related to higher sales, as well as increased inventory levels associated with planned revenue roll outs in the fourth quarter of 2010. Net capital expenditures increased to $69 million in the third quarter of 2010 from $53 million in the year-ago period, primarily due to investments in the entertainment business. Discontinued operations yielded $6 million of positive cash flow in the third quarter of 2010 versus $8 million of cash used in the third quarter of 2009.  Free cash flow (cash from operating activities and discontinued operations related to the Fox River environmental matter, less capital expenditures and additions to capitalized software)(3) was negative $111 million in the third quarter of 2010, compared to negative $2 million in the third quarter of 2009. NCR expects the change in working capital will improve significantly in the fourth quarter, as the increase in the third quarter was primarily related to timing issues.  NCR continues to expect break even free cash flow for the 2010 full year.

NCR ended the quarter with $360 million in cash and cash equivalents, an $87 million decrease from the $447 million balance as of June 30, 2010. During the third quarter of 2010, the Company spent $20 million to repurchase approximately 1.5 million shares of NCR common stock. As of September 30, 2010, NCR had a debt balance of $10 million. NCR contributed approximately $63 million to its international and executive pension benefit plans during the first nine months of 2010 and expects to contribute approximately $110 million for the full year.  The Company’s global pension plans were underfunded by approximately $1.0 billion as of December 31, 2009.

Business highlights – The following are NCR’s third quarter business highlights across its industry offerings.

In the financial business, NCR began installing its Solidcore Suite for APTRA™ across Unicredit Bank’s entire multivendor ATM network in its branches across Russia. Solidcore for APTRA™ is a multivendor ATM software security solution designed to protect ATMs from insider attacks by offering real-time centralized management that prohibits the introduction of unauthorized code.

Barclays Bank PLC selected NCR to provide outsourced management and maintenance services for its U.K. network of 550 remote and host-operated ATMs.  Under the two-year agreement, NCR will be responsible for delivering a complete managed services solution which includes helpdesk services, incident management, first- and second-line maintenance and co-managing cash replenishment services.

NCR further enhanced its offerings for the retail market by launching two new compact point-of-sale (POS) terminals that feature innovative and unique designs: the NCR RealPOSä 40 and the NCR RealPOSä 60. These new terminals deliver outstanding value to retailers through high performance, greater energy efficiency and more compact size.

Hudson’s Bay Company, Canada’s largest diversified general merchandise retailer and provider of Canada’s largest gift registry, deployed NCR’s SelfServä 60 kiosk systems in-store at Bay and Home Outfitter locations across the country. Hudson’s Bay customers will benefit from the increased versatility, improved speed, enhanced graphics and superior monitors of the SelfServä 60 system.

Big Y Foods completed its initial deployment of automated deli ordering kiosks powered by NCR’s self-service technology. Now featured in 18 Big Y stores throughout New England, each Big Y deli kiosk uses the NCR Netkey deli ordering application and select kiosks run on NCR EasyPointä Advantage kiosk hardware.

In China, Shandong New Beiyang Info-Tech Co., Ltd. (SNBC) recently signed an intellectual property license agreement with NCR that permits SNBC to utilize NCR’s 2STä two-sided printing technology.  This technology improves the efficiency of the printing process by allowing simultaneous printing on both the front and back side of a receipt (or other media), reducing paper consumption, while optimizing productivity and lowering costs.

NCR continued to advance its entertainment kiosk strategy during the quarter. Together with MOD Systems, NCR is installing Download2Go digital kiosks at 20 InMotion entertainment stores in 12 U.S. airports. Download2Go kiosks offer consumers the first opportunity to purchase or rent digital movies in GreenPlay format by transferring content to portable SD cards where it can be watched on Windows-enabled PCs, along with a growing number of consumer electronics devices. In addition to digital movies, consumers will be able to download television shows to SD cards, and music tracks and albums to flash drives and directly to MP3 players.

2010 Outlook

As previously disclosed, NCR expects full-year 2010 revenues to increase in the range of 2 to 5 percent on a constant currency basis compared with 2009. Including the continuing investment in its entertainment portfolio, the Company now expects its full-year 2010 Income from Operations (GAAP) to be in the range of $92 million to $102 million, Non-pension operating income (NPOI)(2) to be in the range of $325 million to $335 million, GAAP diluted earnings per share from continuing operations (attributable to NCR) to be in the range of $0.65 to $0.73, and non-GAAP diluted earnings per share from continuing operations (attributable to NCR) excluding pension expense(1) to be in the range of $1.42 to $1.50 per diluted share. The 2010 non-GAAP EPS guidance excludes estimated pension expense of approximately $215 million (approximately $151 million after-tax) compared to actual pension expense of $159 million ($108 million after-tax) in 2009. NCR expects its full year 2010 effective income tax rate to be approximately 27 percent.

Current

2010

Guidance

Prior

2010

Guidance

2009

Actual

Year-over-year revenue (constant currency)

Income from Operations (GAAP)

  2% - 5%

$92 - $102 million

  2% - 5%

$83 - $103 million

  (12%)

$97 million

Non-pension operating income(2)

$325 - $335 million

$310 - $330 million

$284 million

Diluted earnings per share from continuing operations (attributable to NCR) (GAAP)

$0.65 - $0.73

$0.36 - $0.46

$0.36

Diluted earnings per share from continuing operations (attributable to NCR) excluding pension expense (non-GAAP)(1)

$1.42 - $1.50

$1.35 - $1.45

$1.27

The company expects fourth quarter 2010 pension expense of approximately $59 million (approximately $45 million after-tax) compared to actual pension expense of $41 million ($24 million after-tax) in the fourth quarter of 2009.  The Company expects fourth quarter 2010 non-pension operating income (2) to be in the range of $104 million to $114 million, compared to $108 million in the fourth quarter of 2009.  NCR estimates its fourth quarter 2010 effective tax rate to be in the range of 25 to 30 percent.

2010 Third Quarter Earnings Conference Call

A conference call is scheduled today at 4:30 p.m. (EST) to discuss the company’s 2010

third quarter results and guidance for full-year 2010. Access to the conference call, as

well as a replay of the call, is available on NCR’s Web site at http://investor.ncr.com/.

About NCR Corporation

NCR Corporation (NYSE: NCR) is a global technology company leading how the world connects, interacts and transacts with business. NCR’s assisted- and self-service solutions and comprehensive support services address the needs of retail, financial, travel, healthcare, hospitality, entertainment, gaming and public sector organizations in more than 100 countries.  NCR (www.ncr.com) is headquartered in Duluth, Georgia. # # # NCR is a trademark of NCR Corporation in the United States and other countries. News Media Contact Cameron Smith  

NCR Corporation  

770.623.7998  

Cameron.smith@ncr.com  

Investor Contact

Gavin Bell  

NCR Corporation 212.589.8468 gavin.bell@ncr.com

Q3 2010 Actual

Q3 2009 Actual

Current 2010 Guidance

Prior 2010 Guidance

FY 2009 Actual

Diluted Earnings Per Share from Continuing Operations (attributable to NCR) (GAAP)

$0.48

$0.09

$0.65-$0.73

$0.36-$0.46

$0.36

Global headquarters relocation

Japanese subsidiary valuation reserve

Pension Expense

Equity investment impairment charge

Litigation charge

(0.02)

0.24

(0.20)

--

--

--

--

(0.19)

(0.07)

(0.02)

(0.07)

0.24

(0.94)

--

--

(0.05)

--

(0.94)

--

--

(0.02)

--

(0.68)

(0.19)

(0.02)

Diluted Earnings Per Share from Continuing Operations (attributable to NCR) (non-GAAP)(1) 

$0.46

$0.37

$1.42-$1.50

$1.35-$1.45

$1.27

Reconciliation of Income from Operations (GAAP) to Non-GAAP Measures (in millions)

Q3 2010 Actual

Q3 2009 Actual

Q4 2010 Guidance

Q4 2009 Actual

Current 2010 Guidance

Prior 2010 Guidance

FY 2009 Actual

Income from Operations (GAAP)

$34

$29

$45-$55

$39

$92-$102

$83-$103

$97

Global headquarters relocation

Pension expense

Charges related to equity investment

$6

$50

--

--

$41

--

--

$59

--

$6

$41

$22

$18

$215

--

$12

$215

--

$6

$159

$22

Non-pension Operating Income (non-GAAP)(2)

$90

$70

$104-$114

$108

$325-$335

$310-$330

$284

 

Free Cash Flow

 

For the Periods Ended September 30

          (in millions)

 

Three Months

       Nine Months

 

2010

2009

 

2010

2009

Net cash (used in) provided by operating activities (GAAP)

($48)

    $59

 

$61

$150

Less capital expenditures for:

 

 

 

 

 

Property, plant and equipment, net of grant reimbursements

      (54)

     (39)

 

(130)

(68)

Capitalized software

      (15)

     (14)

 

(43)

(46)

Total capital expenditures, net

      (69)

     (53)

 

(173)

(114)

Net cash provided by (used in) discontinued operations (related to the Fox River environmental matter)

    6

     (8)

 

6

(34)

 

 

 

 

 

 

Free cash (used) flow (non-GAAP)(3)

($111)

   ($2)

 

($106)

$2

             

(1) NCR reports its results in accordance with Generally Accepted Accounting Principles in the United States, or GAAP.  However, the company believes that certain non-GAAP measures found in this release are useful for investors. NCR’s management evaluates the company’s results excluding certain items to assess the financial performance of the company and believes this information is useful for investors because it provides a more complete understanding of NCR’s underlying operational performance, as well as consistency and comparability with past reports of financial results.  In addition, management uses earnings per share excluding these items to manage and determine effectiveness of its business managers and as a basis for incentive compensation.  These non-GAAP measures should not be considered as substitutes for or superior to results determined in accordance with GAAP.  (2) The segment results included in Schedule B and non-GAAP income from operations discussed in this earnings release exclude the impact of pension expense and certain items.  NCR’s management evaluates the company’s results excluding certain items to assess the financial performance of the company and believes this information is useful for investors because it provides a more complete understanding of NCR’s underlying operational performance, as well as consistency and comparability with past reports of financial results.  These non-GAAP measures should not be considered as substitutes for or superior to results determined in accordance with GAAP. (3) NCR defines free cash flow as net cash provided by/used in operating activities and cash flow provided by/used in discontinued operations related to the Fox River environmental matter less capital expenditures for property, plant and equipment, and additions to capitalized software.  Free cash flow does not have a uniform definition under GAAP and, therefore, NCR’s definition may differ from other companies’ definitions of this measure.  NCR’s management uses free cash flow to assess the financial performance of the company and believes it is useful for investors because it relates the operating cash flow of the company to the capital that is spent to continue and improve business operations.  In particular, free cash flow indicates the amount of cash generated after capital expenditures for, among other things, investment in the company’s existing businesses, strategic acquisitions, strengthening the company’s balance sheet, repurchase of company stock and repayment of the company’s debt obligations.  Free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other nondiscretionary expenditures that are not deducted from the measure.  This non-GAAP measure should not be considered a substitute for or superior to cash flows from operating activities determined in accordance with GAAP. Note to investors - This news release contains forward-looking statements, including statements as to anticipated or expected results, beliefs, opinions and future financial performance, within the meaning of Section 21E of the Securities and Exchange Act of 1934.  Forward-looking statements include projections of revenue, profit growth and other financial items, future economic performance and statements concerning analysts’ earnings estimates, among other things.  These forward-looking statements are based on current expectations and assumptions and involve risks and uncertainties that could cause NCR’s actual results to differ materially. In addition to the factors discussed in this release, other risks and uncertainties include those relating to: the uncertain economic climate, in particular the current global economic conditions, which could impact the ability of our customers to make capital expenditures thereby affecting their ability to purchase our products, and continued consolidation in the financial services sector, which could impact our business by reducing our customer base; the timely development, production or acquisition and market acceptance of new and existing products and services (such as self-service technologies), including our ability to accelerate market acceptance of new products and services; shifts in market demands, continued competitive factors and pricing pressures and their impact on our ability to improve gross margins and profitability, especially in our more mature offerings; the effect of currency translation; short product cycles, rapidly changing technologies and maintaining a competitive leadership position with respect to our solution offerings; tax rates; ability to execute our business and reengineering plans, including potential impact from our transition from a business unit to functional organizational model; turnover of workforce and the ability to attract and retain skilled employees, especially in light of continued cost-control measures being taken by the company and the relocation of our corporate headquarters; availability and successful exploitation of new acquisition and alliance opportunities; changes in Generally Accepted Accounting Principles (GAAP) and the resulting impact, if any, on the company’s accounting policies; continued efforts to establish and maintain best-in-class internal information technology and control systems; and other factors detailed from time to time in the company’s U.S. Securities and Exchange Commission reports and the company’s annual reports to stockholders.  The company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.