DAYTON, Ohio--(BUSINESS WIRE)--July 29, 2004--(NYSE:NCR)
-- Data Warehousing operating profit up almost 90 percent on 10
percent revenue growth
-- Financial Self Service revenue growth of 27 percent drives
operating margin improvement
-- Retail Store Automation revenue and operating profit improve
-- Lower Customer Services results due to revenue decline and
incremental severance costs
NCR Corporation (NYSE:NCR) today reported financial results for the quarter ended June 30, 2004, including earnings of $1.27 per diluted share and revenue of $1.45 billion, up 6 percent from the second quarter of 2003. Included in the year-over-year revenue comparison was 3 percentage points of benefit from foreign currency fluctuations, less than the 4 points the company anticipated at the beginning of the quarter.
Operating income for the second quarter was $53 million versus $16 million in the prior-year period. Included in NCR's second-quarter operating results was $32 million of pension expense, which was $8 million more than the $24 million included in the second quarter of 2003.
NCR reported second-quarter net income of $122 million, or $1.27 per diluted share, versus a net loss of $13 million, or $0.14 loss per diluted share, in the second quarter of 2003.
In addition to strong operational results, the company benefited from an $85 million release of tax accruals, related to the successful resolution of prior-year tax audits, and a $2 million after-tax break-up fee the company received during the quarter. Included in NCR's 2003 second-quarter results was a $35 million charge for an environmental matter. Excluding these items(1), earnings per share would have been $0.37 in the second quarter of 2004 versus $0.09 in the same period in 2003.
"NCR delivered another strong quarter, with higher-than-expected revenues in each of our three major business units and further improvements in the cost and expense lines across the company," said Mark Hurd, president and chief executive officer of NCR.
"While we will continue to work to drive revenue and further reduce expenses, these results clearly demonstrate the positive leverage created by our improved operating model. I am very encouraged by our performance to date and confident that our strategy to improve the long-term profitability of NCR is on the right track."
Operating Segment Results(2)
Data Warehousing:
10 percent revenue growth drives 18 percent operating margin, an increase of 7 points
NCR's Data Warehousing segment reported record second-quarter revenue of $331 million, up 10 percent from the second quarter of 2003. The second-quarter year-over-year revenue comparison included a benefit of 3 percentage points from foreign currency fluctuations.
Operating income of $60 million for the quarter increased from $32 million in the second quarter of 2003 due to higher volume, an attractive contribution margin from incremental revenue and a lower cost structure.
Companies continue to invest in enterprise analytics and are installing and upgrading Teradata(R) data warehouses to better understand their businesses, customers and financial results.
Financial Self Service:
27 percent revenue growth leads to 4 points of operating margin expansion
The Financial Self Service segment generated record second-quarter revenue of $330 million, up 27 percent from the year-ago period. Second-quarter revenue growth included a year-over-year benefit of 4 percentage points from foreign currency fluctuations.
Operating margin of 16 percent improved from 12 percent in the second quarter of 2003 due to higher revenue and a lower cost structure.
Globally, we are seeing continued growth in upgrades, replacements and the purchase of new automated teller machines (ATMs) as banks focus more on branch banking, transaction migration and compliance with regulatory changes. These new deposit-capable ATMs should allow banks to reduce cash-handling, check-processing and transportation costs, providing a very attractive return on investment while improving the levels of service and convenience for consumers.
Retail Store Automation:
4 percent revenue growth and better cost management generates operating improvement
For the second quarter of 2004, Retail Store Automation generated $212 million of revenue, up 4 percent from $204 million in the second quarter of 2003. The second-quarter year-over-year revenue comparison for Retail Store Automation included a benefit of 3 percentage points from foreign currency fluctuations.
Retail Store Automation improved its operating income by $5 million from the prior-year period due to cost and expense reductions, higher volume and the favorable impact from foreign currency fluctuations.
Although retailers continue to be disciplined in their capital spending, they have begun to replace and upgrade their point-of-sale terminals and expand their deployment of self-checkout systems.
Customer Services:
Operating results impacted by actions to improve future profitability, continued pricing pressure and exited businesses
Customer Services reported revenue of $453 million, down 2 percent from the second quarter of 2003. The second-quarter year-over-year revenue comparison for Customer Services included a benefit of 3 percentage points from foreign currency fluctuations.
The Customer Services operating segment generated an $8 million operating loss in the quarter, versus $7 million of operating income in the second quarter of 2003. The reduction in profitability was due to pricing pressure, incremental severance costs to improve future profitability and the continued decline in higher-margin revenue from exited businesses.
Non-Operating Items
Other Expense of $2 million in the second quarter of 2004 was down from $39 million in the prior-year period. During the second quarter of 2004, NCR received a $3 million pre-tax break-up fee associated with a proposed acquisition that was not consummated. Included in NCR's 2003 second-quarter results was a $35 million charge related to an environmental matter. NCR continues to believe it has established appropriate reserves for this contingent liability.
The favorable settlement of tax audit issues relating to the period when NCR was a subsidiary of AT&T resulted in a non-cash income tax benefit of $85 million in the quarter.
During the second quarter of 2004, the company repurchased approximately 2 million shares of NCR common stock for approximately $92 million, which more than offset option-exercise activity during the quarter.
Balance Sheet
NCR ended the second quarter with $633 million in cash and short-term investments, a slight decrease from the $666 million cash balance as of March 31, 2004. NCR's cash balance declined primarily due to significant share-repurchase activity during the second quarter. As of June 30, 2004, NCR had short- and long-term debt of $310 million versus $312 million on March 31, 2004.
Cash Flow
NCR generated $81 million of cash from operations in the second quarter of 2004 versus $98 million in the same period in 2003. Capital expenditures in the second quarter of 2004 were $67 million compared to $45 million of capital expenditures in the year-ago period.
NCR generated $14 million of free cash flow(3) (cash from operations less capital expenditures) in the second quarter of 2004 versus the $53 million of free cash flow generation in the year-ago period. The decrease in free cash flow resulted from higher inventories and increased capital spending.
For the Period ended June 30
----------------------------
Three Months Six Months
------------- -------------
2004 2003 2004 2003
------ ------ ------ ------
Cash provided by operating
activities (GAAP) (1) $ 81 $ 98 $ 90 $ 200
Less capital expenditures for:
Net expenditures for
reworkable service parts (22) (13) (39) (45)
Expenditures for property, plant
and equipment (22) (15) (33) (29)
Additions to capitalized software (23) (17) (40) (33)
----- ----- ----- -----
Total capital expenditures (67) (45) (112) (107)
Free cash flow (non-GAAP measure) (3) $ 14 $ 53 $ (22) $ 93
Outlook
NCR is increasing full-year 2004 earnings guidance to $1.20 to $1.25 per share to reflect better-than-expected operating results in the first half of the year, as well as $20 million, or approximately $0.15 per share, of incremental severance costs that will moderate NCR's reported operating results for the year.
Original Increased
2004 Full-Year 2004 Full-Year
Guidance Guidance
-------------- --------------
Year-over-year revenue growth:
Total NCR Flat 2%
Data Warehousing 3-5% 5%
Financial Self Service 3-5% 8-10%
Retail Store Automation Flat 2-3%
Customer Services (0-3)% (3-5)%
Systemedia Flat Flat
Payment & Imaging (0-5)% (4-6)%
Other (20-25)% (10-15)%
Earnings per share - GAAP $0.85-$0.95 $2.20-$2.25(a)
Earnings per share - non-GAAP(b) $0.85-$0.95 $1.20-$1.25
(a) Includes $85 million of tax benefit, $3 million break-up fee and
$10 million of real estate gains.
(b) Excluding items identified above(1).
NCR expects third-quarter earnings per share in the $0.15 to $0.20 range. Third-quarter earnings per share will include approximately $0.04 of incremental severance expense related to the company's actions to improve future long-term profitability. NCR's Data Warehousing business was successful in closing several transactions in the second quarter, which resulted in some pull-forward of Data Warehousing revenue from the third quarter.
2004 Second-Quarter Earnings Conference Call
NCR's senior management will discuss the company's second-quarter results during a conference call today at 10:00 a.m. (ET). 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/. Supplemental financial information regarding NCR's 2004 second-quarter operating results is also available on NCR's Web site.
Reconciliation of GAAP to Non-GAAP Measures
Non-GAAP measures exclude the effect of the items listed below
Results Guidance
--------------- -------------------------
Q2 2004 Q2 2003 Q3 2004 2004
------- ------- ------------ -----------
Earnings Per Share (GAAP) $ 1.27 $(0.14) $0.15-$0.20 $2.20-$2.25
Resolution of prior-year
tax audits 0.88 - - 0.88
Receipt of acquisition-
related break-up fee 0.02 - - 0.02
Gains on real estate
transactions - - - 0.10
Addition to
environmental reserves - 0.23 - -
------ ------ ----------- -----------
Adjusted Earnings
Per Share (Non-GAAP) $ 0.37 $ 0.09 $0.15-$0.20 $1.20-$1.25
(1) While NCR reports its results in accordance with Generally
Accepted Accounting Principles in the United States, or GAAP, the
company believes that the exclusion of certain non-operating items
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 its earnings per share
excluding these items to manage and determine the effectiveness of
its business managers and as a basis for incentive compensation.
This non-GAAP measure should not be considered as a substitute for
or superior to earnings per share determined in accordance with
GAAP.
(2) The operating segment results discussed in this earnings release
exclude the impact of $32 million of pension expense in the second
quarter of 2004 and $24 million of pension expense in the second
quarter of 2003. When evaluating the year-over-year performance of
and making decisions regarding its operating segments, NCR
excludes the effect of pension expense/income. Schedule B,
included in this earnings release, reconciles total "Income from
operations excluding pension expense/income" for all of the
company's operating segments to "Total income from operations" for
the company.
(3) NCR defines free cash flow as cash provided by operating
activities less capital expenditures for reworkable service parts,
property, plant and equipment and additions to capitalized
software. 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. This non-GAAP measure should not be considered a
substitute for or superior to cash flows from operating activities
under GAAP, or as a proxy for cash flow available for
discretionary spending.
About NCR Corporation
NCR Corporation (NYSE:NCR) is a leading global technology company helping businesses build stronger relationships with their customers. NCR's ATMs, retail systems, Teradata data warehouses and IT services provide Relationship Technology solutions that maximize the value of customer interactions and help organizations create a stronger competitive position. Based in Dayton, Ohio, NCR (www.ncr.com) employs approximately 29,000 people worldwide.
NCR and Teradata are trademarks or registered trademarks of NCR Corporation in the United States and other countries.
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: the uncertain economic climate and its impact on the markets in general or on the ability of our suppliers to meet their commitments to us, or the timing of purchases (including upgrades to existing data warehousing solutions and retail point-of-service solutions) by our current and potential customers and other general economic and business conditions; the timely development, production or acquisition and market acceptance of new and existing products and services (such as self-checkout and electronic shelf-labeling technologies, ATM outsourcing and enterprise data warehousing), 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; short product cycles, rapidly changing technologies and maintaining competitive leadership position with respect to our solution offerings, particularly data warehousing technologies; tax rates; ability to execute our business and reengineering plans; turnover of workforce and the ability to attract and retain skilled employees, especially in light of recent cost-control measures taken by the company; 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.
Schedule A
NCR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
For the Periods Ended June 30
-----------------------------------
Three Months Six Months
----------------- -----------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenue
Products $ 761 $ 675 $ 1,389 $ 1,266
Services 691 691 1,353 1,334
------- ------- ------- -------
Total revenue 1,452 1,366 2,742 2,600
Cost of products 478 444 888 827
Cost of services 581 563 1,139 1,107
------- ------- ------- -------
Total gross margin 393 359 715 666
% of Revenue 27.1% 26.3% 26.1% 25.6%
Selling, general and
administrative expenses 281 287 554 567
Research and development expenses 59 56 116 115
------- ------- ------- -------
Income (loss) from operations 53 16 45 (16)
% of Revenue 3.7% 1.2% 1.6% (0.6%)
Other expense, net 2 39 - 44
------- ------- ------- -------
Income (loss) before income taxes 51 (23) 45 (60)
% of Revenue 3.5% (1.7%) 1.6% (2.3%)
Income tax benefit 71 10 72 20
------- ------- ------- -------
Net income (loss) $ 122 $ (13) $ 117 $ (40)
======= ======= ======= =======
% of Revenue 8.4% (1.0%) 4.3% (1.5%)
Net income (loss) per common share
Basic $ 1.30 $ (0.14) $ 1.24 $ (0.42)
======= ======= ======= =======
Diluted $ 1.27 $ (0.14) $ 1.22 $ (0.42)
======= ======= ======= =======
Weighted average common shares
outstanding
Basic 94.1 94.8 94.4 95.4
Diluted 96.1 94.8 96.1 95.4
Schedule B
NCR CORPORATION
CONSOLIDATED REVENUE and OPERATING INCOME (LOSS) SUMMARY
(in millions)
For the Periods Ended June 30
---------------------------------------------
Three Months Six Months
---------------------- ----------------------
% %
2004 2003 Change 2004 2003 Change
------- ------- ------- -------
Revenue by segment
Data Warehousing
Data Warehousing
solution $ 260 $ 233 12% $ 495 $ 450 10%
Data Warehousing
support services 71 67 6% 142 128 11%
------ ------ ------ ------
Total Data Warehousing 331 300 10% 637 578 10%
Financial Self Service 330 260 27% 581 486 20%
Retail Store Automation 212 204 4% 377 353 7%
Systemedia 117 122 (4%) 231 234 (1%)
Payment and Imaging 36 36 - 65 67 (3%)
Customer Services
Professional and
installation-related
services 84 81 4% 156 144 8%
Customer Service
Maintenance:
Financial Self
Service 139 136 2% 277 268 3%
Retail Store
Automation 116 118 (2%) 229 237 (3%)
Payment and
Imaging 28 27 4% 55 53 4%
Other 86 101 (15%) 182 209 (13%)
------ ------ ------ ------
Total Customer Services 453 463 (2%) 899 911 (1%)
Other 51 56 (9%) 97 104 (7%)
Elimination of
installation-related
services included in
both the Customer
Services segment and
the other reported
segments (78) (75) 4% (145) (133) 9%
------ ------ ------ ------
Total revenue $1,452 $1,366 6% $2,742 $2,600 5%
====== ====== ====== ======
Operating Income (Loss)
by segment
Data Warehousing $ 60 $ 32 $ 109 $ 63
Financial Self Service 54 32 71 41
Retail Store Automation 5 - (3) (23)
Systemedia 1 3 3 2
Payment and Imaging 5 5 6 10
Customer Services (8) 7 (12) 10
Other (8) (15) (21) (29)
Elimination of
installation-related
services operating
income included in both
the Customer Services
segment and the other
reported segments (24) (24) (44) (42)
------ ------ ------ ------
Subtotal - Segment
operating income 85 40 109 32
Pension expense (32) (24) (64) (48)
------ ------ ------ ------
Total income (loss)
from operations $ 53 $ 16 $ 45 $ (16)
====== ====== ====== ======
Schedule C
NCR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
June 30, March 31, December 31,
2004 2004 2003
------------ ------------ ------------
Assets
------
Current assets
Cash, cash equivalents and
short-term investments $ 633 $ 666 $ 689
Accounts receivable, net 1,195 1,171 1,230
Inventories 382 341 308
Other current assets 205 193 195
----------- ----------- -----------
Total current assets 2,415 2,371 2,422
Property, plant and
equipment, net 703 716 746
Prepaid pension cost 1,382 1,397 1,386
Deferred income taxes 553 550 558
Other assets 387 389 368
----------- ----------- -----------
Total assets $ 5,440 $ 5,423 $ 5,480
=========== =========== ===========
Liabilities and stockholders' equity
------------------------------------
Current liabilities
Short-term borrowings $ 4 $ 4 $ 3
Accounts payable 425 363 414
Payroll and benefits 236 234 300
Customer deposits and
deferred service revenue 427 445 362
Other current liabilities 508 508 500
----------- ----------- -----------
Total current liabilities 1,600 1,554 1,579
Long-term debt 306 308 307
Pension and indemnity 479 483 484
Postretirement and
postemployment benefits 261 262 272
Other long-term liabilities 853 956 963
----------- ----------- -----------
Total liabilities 3,499 3,563 3,605
Total stockholders' equity 1,941 1,860 1,875
----------- ----------- -----------
Total liabilities and
stockholders' equity $ 5,440 $ 5,423 $ 5,480
=========== =========== ===========
Schedule D
NCR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
For the Periods Ended June 30
-------------------------------
Three Months Six Months
--------------- ---------------
2004 2003 2004 2003
------- ------- ------- -------
Operating Activities
Net income (loss) $ 122 $ (13) $ 117 $ (40)
Adjustments to reconcile net
income (loss) to cash provided by
operating activities:
Depreciation and amortization 69 80 136 163
Deferred income taxes 2 1 4 (8)
Income tax adjustment (85) - (85) -
Other adjustments to
income (loss), net 2 3 (1) 4
Changes in assets and
liabilities:
Receivables (24) (25) 35 72
Inventories (42) (23) (75) (34)
Current payables 60 46 (74) (70)
Customer deposits and
deferred service revenue (18) (30) 65 64
Employee severance and
pension 7 6 7 11
Other assets and liabilities (12) 53 (39) 38
------ ------ ------ ------
Net cash provided by
operating activities 81 98 90 200
Investing Activities
Net expenditures for
reworkable service parts (22) (13) (39) (45)
Expenditures for property,
plant and equipment (22) (15) (33) (29)
Proceeds from sales of property,
plant and equipment - 3 7 4
Additions to capitalized software (23) (17) (40) (33)
Other investing activities (6) (1) (17) (3)
------ ------ ------ ------
Net cash used in investing activities (73) (43) (122) (106)
Financing Activities
Purchase of Company common stock (92) (9) (182) (59)
Short-term borrowings, net 1 (7) 1 1
Long-term debt, net - - - -
Cash received from
real estate transaction - - 50 -
Other financing activities 52 8 109 13
------ ------ ------ ------
Net cash used in financing activities (39) (8) (22) (45)
Effect of exchange rate changes on
cash and cash equivalents (2) 10 (2) 10
------ ------ ------ ------
(Decrease) increase in cash and
cash equivalents (33) 57 (56) 59
Cash and cash equivalents at
beginning of period 666 528 689 526
------ ------ ------ ------
Cash and cash equivalents at
end of period $ 633 $ 585 $ 633 $ 585
====== ====== ====== ======
CONTACT: NCR Corporation
For media information:
John Hourigan, 937-445-2078
john.hourigan@ncr.com
or
For investor information:
Gregg Swearingen, 937-445-4700
gregg.swearingen@ncr.com
SOURCE: NCR Corporation