DAYTON, Ohio--(BUSINESS WIRE)--Oct. 26, 2006--NCR Corporation (NYSE:NCR):
-- Teradata Data Warehousing revenue increased 5 percent
-- Retail Store Automation revenue up 5 percent
-- Customer Service profitability improved 400 basis points on
slightly higher revenue
-- NCR increases guidance for 2006 full-year earnings per share,
largely due to lower pension expense
-- In 2005, third-quarter results included $142 million, or $0.76
per share of benefit from tax items
NCR Corporation (NYSE:NCR) today reported revenue of $1.517 billion and earnings of $0.49 per diluted share for the quarter ended Sept. 30, 2006. The 1 percent increase in revenue from the third quarter of 2005 included 1 percentage point of benefit from currency fluctuations.
NCR reported third-quarter net income of $89 million, or $0.49 per diluted share, which included $7 million, or $0.03 per diluted share, of incremental expense related to stock-based compensation. This compares to $222 million of net income, or $1.18 per diluted share, generated in the third quarter of 2005. Results for the third quarter of 2005 included $142 million of benefit, or $0.76 per share, from prior-year tax items.(1)(5)
"NCR produced another solid quarter of operating profit improvement, led by growth in Teradata Data Warehousing and continued progress in our Customer Services business," said Bill Nuti, president and chief executive officer of NCR. "Overall, we continue to see strong earnings growth potential for NCR as demand for NCR products and services, including our Teradata data warehousing and self-service technologies, remains strong."
Operating Segment Results(2)
Teradata Data Warehousing
NCR's Teradata Data Warehousing segment reported third-quarter revenue of $378 million. Revenue increased 5 percent from the third quarter of 2005, with no benefit from currency translation.
Third-quarter operating income of $75 million, or 20 percent of revenue, increased from $72 million in the third quarter of 2005 as higher revenue more than offset increased investment in sales and demand-creation resources.
Financial Self Service (ATMs)
The Financial Self Service segment generated third-quarter revenue of $349 million, the same as reported in the third quarter of 2005. The third-quarter year-over-year revenue comparison included a 2 percentage point benefit from currency translation.
Operating income of $43 million was down from $60 million generated in the third quarter of 2005. As expected, an adverse geographic revenue mix shift resulted in lower margins and underabsorption in NCR's North American manufacturing facility. The company's newly opened manufacturing facility in Budapest, Hungary, should enable incremental cost reduction in the future.
Retail Store Automation
Retail Store Automation revenue of $219 million was up 5 percent from the third quarter of 2005. The third-quarter year-over-year revenue comparison included a 1 percentage point benefit from currency translation. Retail Store Automation revenue growth was led by double-digit growth in self-service technologies, which includes retail self-checkout systems and other self-service kiosks that enable customers to pay bills and check-in at airports, hotels and hospitals.
Operating income of $12 million increased from $9 million in the third quarter of 2005, largely due to higher revenue and a more favorable mix of revenues from self-service technologies.
Customer Services
Customer Services revenue of $454 million was up slightly from the $451 million recorded in the third quarter of 2005. The third-quarter year-over-year revenue comparison included a 1 percentage point benefit from currency translation. NCR is successfully increasing the mix of revenues from the service of NCR-branded products while reducing lower-margin revenues associated with servicing third-party products. Revenues from the maintenance of ATMs increased 13 percent in the third quarter, while revenues from the maintenance of third-party products declined by 14 percent.
Operating income increased to $27 million from $8 million generated in the third quarter of 2005. The 400-basis point improvement in operating margin, to 6 percent of revenue, was driven by continued structural changes designed to optimize efficiency and the improving revenue mix.
Other Items
Also included in the results was $2 million of Other Income, versus $2 million of Other Expense reported in the third quarter of 2005.
NCR's tax rate in the third quarter of 2006 was 26 percent, higher than the 22 percent tax rate expected for the full year, driven by the mix of profits and losses by country in the quarter. This compares to the 27 percent effective rate in the third quarter of 2005, which excluded the $142 million of benefit from prior-year tax items.(1)(5) NCR continues to expect its 2006 full-year tax rate to be 22 percent.
Cash Flow
During the third quarter, NCR generated $142 million of cash from operations, a $2 million increase from the prior-year period. As expected, capital expenditures in the third quarter of 2006 increased to $52 million, compared to $39 million of capital expenditures in the year-ago period. Capital spending increased due to certain real estate-related initiatives and increased investment in software development. NCR generated $90 million of free cash flow (cash from operations less capital expenditures)(3) in the third quarter of 2006 versus generating $101 million in the year-ago period. Higher levels of capital expenditures affected the year-over-year comparison.
For the period ended September 30
---------------------------------
Three Months Nine Months
---------------- ----------------
2006 2005 2006 2005
-------- ------- -------- -------
Cash provided by operating activities
(GAAP) (3)(4) $142 $140 $288 $303
Less capital expenditures for:
Expenditures for property,
plant and equipment (27) (19) (65) (51)
Additions to capitalized
software (25) (20) (69) (57)
-------- ------- -------- -------
Total capital expenditures (52) (39) (134) (108)
Free cash flow (non-GAAP measure) (3) $90 $101 $154 $195
Balance Sheet
NCR ended the third quarter with $761 million in cash and cash equivalents, a $14 million increase from the $747 million balance on June 30, 2006. Free cash flow generated in the third quarter was, for the most part, used for share repurchase activity.
As of Sept. 30, 2006, NCR had short- and long-term debt of $311 million, up slightly from $307 million on June 30, 2006.
NCR repurchased approximately 2.8 million shares of NCR common stock for $94 million during the third quarter. The company has approximately $264 million authorized for future share repurchases. During the quarter, approximately 228,000 options were exercised.
Due to changes to NCR's U.S. pension plans made at the end of the third quarter, the company was required to complete a remeasurement of the U.S. pension plan. As a result of this remeasurement, NCR was required to record an adjustment that reduced the company's additional minimum pension liability. The pre-tax effect of this noncash adjustment was a $385 million increase to NCR's Stockholder Equity.
2006 Outlook
NCR is increasing its prior earnings guidance for 2006, now expecting to generate GAAP earnings per share in the $1.90 to $1.95 range. NCR's 2006 GAAP earnings estimate includes approximately $0.10 of incremental stock-based compensation expense and $0.04 of expense related to a Customer Services early retirement program in the first quarter of 2006.
Prior 2006 Updated 2006
Guidance Guidance
-------------- --------------
Year-over-year revenue growth:
Total NCR 1 % 1 %
Teradata Data Warehousing 5 - 7 % 5 - 7 %
Financial Self Service (ATMs) 1 - 2 % (0 - 1) %
Retail Store Automation 3 - 4 % 2 - 3 %
Customer Services (2) % (1) %
Earnings per share - GAAP $1.81 - $1.86 $1.90 - $1.95
Non-GAAP - excludes early retirement
expense (1) $1.85 - $1.90 $1.94 - $1.99
2006 Third-Quarter Earnings Conference Call
A conference call is scheduled today at 10:00 a.m. (EDT) to discuss the company's third-quarter results. 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 2006 third-quarter operating results is also available on NCR's Web site.
About NCR Corporation
NCR Corporation (NYSE:NCR) is a leading global technology company helping businesses build stronger relationships with their customers. NCR's Teradata(R) data warehouses, ATMs, retail systems, self-service solutions and IT services provide Relationship Technology(TM) that maximizes the value of customer interactions and helps organizations create a stronger competitive position. Based in Dayton, Ohio, NCR (www.ncr.com) employs approximately 29,300 people worldwide.
NCR and Teradata are trademarks or registered trademarks of NCR Corporation in the United States and other countries.
NCR reports its results in accordance with Generally Accepted Accounting Principles in the United States, or GAAP. However, as described below, the company believes that certain non-GAAP measures found in this release are useful for investors. The following table reconciles certain non-GAAP measures contained in this release.
Reconciliation of GAAP to Non-GAAP Measures(1)
Q3 2006 Q3 2005 FY 2006
Actual Actual Guidance
------- ------- ------------
Earnings Per Share (GAAP) $0.49 $1.18 $1.90-$1.95
Benefit from prior-year tax items(5) - 0.76 -
Early retirement-related pension expense - - (0.04)
------- ------- ------------
Adjusted Earnings Per Share (Non-
GAAP)(1) $0.49 $0.42 $1.94-$1.99
(1) NCR's management looks at 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 operating segment results discussed in this earnings release exclude the impact of $33 million of pension expense in the third quarter of 2006 and $31 million of pension expense in the third quarter of 2005. 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/used by operating activities 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' definition 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 under GAAP.
(4) In the second quarter, NCR changed its accounting for reworkable service parts from a long-term depreciable asset to a current asset within Inventories. As a result of this change, expenditures for reworkable service parts, previously recorded under cash flows from investing activities, are now recorded under cash flows from operating activities. This change was retrospectively applied to the prior-period financial statements and did not affect overall cash flows or have a material impact on the company's results of operations or financial position.
As a result of the accounting change, NCR's unaudited Condensed Consolidated Balance Sheets include amounts for net reworkable service parts as inventory. As of Dec. 31, 2005, prior to the accounting change, $234 million was reported as "Reworkable service parts and rental equipment, net" under long-term assets.
In addition, the operating activities section of NCR's unaudited Condensed Consolidated Statement of Cash Flows includes net expenditures for reworkable service parts of $22 million for the three months ended Sept. 30, 2005, and $65 million for the nine months ended Sept. 30, 2005. These amounts were previously reported under "Investing activities." Net expenditures for reworkable service parts included in operating activities was $28 million for the three months ended Sept. 30, 2006, and $74 million for the nine months ended Sept. 30, 2006. The increase from 2005 is primarily related to the purchases of reworkable service parts that comply with the European Union's new Restriction on Hazardous Substances (RoHS) directive.
(5) In the third quarter of 2005, the company realized $137 million of income tax benefits from the favorable settlement of prior-year tax audits and $5 million of benefit from an adjustment to the company's tax accounts in the United Kingdom.
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 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-service technologies 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; the effect of currency translation; 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; participation by eligible employees in early retirement programs; 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; 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
(Unaudited)
(in millions, except per share amounts)
For the Periods Ended September 30
----------------------------------
Three Months Nine Months
---------------- -----------------
2006 2005 2006 2005
-------- ------- -------- --------
Revenue
Products $795 $806 $2,237 $2,246
Services 722 692 2,094 2,065
-------- ------- -------- --------
Total revenue 1,517 1,498 4,331 4,311
Cost of products 512 512 1,448 1,445
Cost of services 565 550 1,666 1,663
-------- ------- -------- --------
Total gross margin 440 436 1,217 1,203
% of Revenue 29.0% 29.1% 28.1% 27.9%
Selling, general and administrative
expenses 267 267 776 790
Research and development expenses 55 57 173 174
-------- ------- -------- --------
Income from operations 118 112 268 239
% of Revenue 7.8% 7.5% 6.2% 5.5%
Interest expense 6 5 18 17
Other income, net (8) (3) (22) (7)
-------- ------- -------- --------
Other (income) expense, net (2) 2 (4) 10
Income before income taxes 120 110 272 229
% of Revenue 7.9% 7.3% 6.3% 5.3%
Income tax expense (benefit) 31 (112) 64 (150)
-------- ------- -------- --------
Net income $89 $222 $208 $379
======== ======= ======== ========
% of Revenue 5.9% 14.8% 4.8% 8.8%
Net income per common share
Basic $0.50 $1.20 $1.15 $2.04
======== ======= ======== ========
Diluted $0.49 $1.18 $1.13 $1.99
======== ======= ======== ========
Weighted average common shares
outstanding
Basic 178.7 184.9 180.5 185.8
Diluted 181.4 188.7 183.5 190.1
Schedule B
NCR CORPORATION
CONSOLIDATED REVENUE and OPERATING INCOME (LOSS) SUMMARY
(Unaudited)
(in millions)
For the Periods Ended September 30
---------------------------------------------
Three Months Nine Months
---------------------- ----------------------
% %
2006 2005 Change 2006 2005 Change
------- ------- ------- -------
Revenue by segment
Data Warehousing
Data Warehousing
solution $294 $282 4% $854 $838 2%
Data Warehousing
support services 84 79 6% 249 234 6%
------- ------- ------- -------
Total Data Warehousing 378 361 5% 1,103 1,072 3%
Financial Self Service 349 349 - 951 944 1%
Retail Store
Automation 219 209 5% 612 595 3%
Customer Services
Customer Service
Maintenance:
Financial Self
Service 170 150 13% 492 451 9%
Retail Store
Automation 120 115 4% 353 346 2%
Payment & Imaging
and Other 32 32 - 94 96 (2%)
Third-Party
Products and
Exited Businesses 60 70 (14%) 186 213 (13%)
------- ------- ------- -------
Total Customer
Services
Maintenance 382 367 4% 1,125 1,106 2%
Third-Party Products 8 17 (53%) 24 42 (43%)
Professional and
installation-
related services 64 67 (4%) 181 206 (12%)
------- ------- ------- -------
Total Customer
Services 454 451 1% 1,330 1,354 (2%)
Systemedia 118 127 (7%) 339 363 (7%)
Payment & Imaging and
Other 43 42 2% 119 116 3%
Elimination of
installation-related
services revenue
included in both the
Customer Services
segment and other
segments (44) (41) 7% (123) (133) (8%)
------- ------- ------- -------
-
Total revenue $1,517 $1,498 1% $4,331 $4,311 -
======= ======= ======= =======
Operating income (loss)
by segment
Data Warehousing $75 $72 $228 $220
Financial Self Service 43 60 87 128
Retail Store
Automation 12 9 13 12
Customer Services 27 8 72 25
Systemedia 2 - 3 (1)
Payment & Imaging and
Other 4 7 9 14
Elimination of
installation-related
services operating
income included in
both the Customer
Services segment and
other segments (12) (13) (32) (42)
------- ------- ------- -------
Subtotal - Segment
operating income 151 143 380 356
Pension expense (33) (31) (112) (117)
------- ------- ------- -------
Total income from
operations $118 $112 $268 $239
======= ======= ======= =======
Schedule C
NCR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions)
September 30 June 30 December 31
2006 2006 2005
------------- ----------- -----------
Assets
--------------------------------
Current assets
Cash and cash equivalents $761 $747 $810
Accounts receivable, net 1,306 1,301 1,305
Inventories, net 708 665 595
Other current assets 265 253 217
------------- ----------- -----------
Total current assets 3,040 2,966 2,927
Property, plant and equipment,
net 376 372 378
Goodwill 150 148 129
Prepaid pension cost 1,324 1,012 976
Deferred income taxes 391 545 522
Other assets 380 366 355
------------- ----------- -----------
Total assets $5,661 $5,409 $5,287
============= =========== ===========
Liabilities and stockholders'
equity
--------------------------------
Current liabilities
Short-term borrowings $5 $2 $2
Accounts payable 514 484 490
Payroll and benefits
liabilities 282 231 292
Deferred service revenue and
customer deposits 468 495 444
Other current liabilities 438 428 417
------------- ----------- -----------
Total current liabilities 1,707 1,640 1,645
Long-term debt 306 305 305
Pension and indemnity plan
liabilities 497 575 557
Postretirement and
postemployment benefits
liabilities 264 264 259
Deferred taxes 134 127 140
Tax reserves 199 198 167
Other liabilities 141 157 158
Minority interests 20 22 21
------------- ----------- -----------
Total liabilities 3,268 3,288 3,252
Total stockholders' equity 2,393 2,121 2,035
------------- ----------- -----------
Total liabilities and
stockholders' equity $5,661 $5,409 $5,287
============= =========== ===========
Schedule D
NCR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
For the Periods Ended September 30
------------------------------------
Three Months Nine Months
------------------ -----------------
2006 2005 2006 2005
--------- -------- -------- --------
Operating activities
Net income $89 $222 $208 $379
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 40 41 118 127
Stock-based compensation
expense 8 1 22 3
Excess tax benefit from
stock-based compensation (1) - (13) -
Deferred income taxes 22 12 40 24
Income tax settlement - (137) - (201)
Other adjustments to income,
net (4) (1) (5) (2)
Changes in assets and
liabilities:
Receivables (3) (86) 1 39
Inventories (49) (28) (114) (43)
Current payables and
accrued expenses 84 110 17 (44)
Deferred service revenue
and customer deposits (27) (19) 23 23
Employee severance and
pension 10 8 44 46
Other assets and
liabilities (27) 17 (53) (48)
--------- -------- -------- --------
Net cash provided by operating
activities 142 140 288 303
Investing activities
Expenditures for property,
plant and equipment (27) (19) (65) (51)
Proceeds from sales of
property, plant and equipment 1 - 13 7
Additions to capitalized
software (25) (20) (69) (57)
Other investing activities,
business acquisitions and
divestitures, net 7 - (24) 2
--------- -------- -------- --------
Net cash used in investing
activities (44) (39) (145) (99)
Financing activities
Purchase of Company common
stock (94) (102) (280) (320)
Excess tax benefit from stock-
based compensation 1 - 13 -
Short-term borrowings,
additions 3 - 3 -
Long-term debt, additions 1 - 1 -
Proceeds from employee stock
plans 7 15 68 117
Other financing activities, net (3) - (3) -
--------- -------- -------- --------
Net cash used in financing
activities (85) (87) (198) (203)
Effect of exchange rate changes
on cash and cash equivalents 1 2 6 (11)
--------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents 14 16 (49) (10)
Cash and cash equivalents at
beginning of period 747 724 810 750
--------- -------- -------- --------
Cash and cash equivalents at end
of period $761 $740 $761 $740
========= ======== ======== ========
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