DAYTON, Ohio, Jul 26, 2005 (BUSINESS WIRE) -- NCR Corporation (NYSE:NCR):
-- Teradata Data Warehousing generates operating margin of 21 percent
-- Customer Services operating income improves $30 million from second quarter of 2004
-- $114 million increase in cash from operations versus second quarter of 2004
-- Further increasing full-year earnings-per-share guidance
NCR Corporation (NYSE:NCR) today reported earnings of $0.67 per share and revenue of $1.47 billion for the quarter ended June 30, 2005. The 1 percent revenue increase from the second quarter of 2004 was benefited by 2 percentage points from currency fluctuations. Due to the strengthening U.S. dollar, the year-over-year revenue comparison included 2 percentage points less of benefit than NCR anticipated when it provided revenue guidance for the second quarter.
NCR reported second-quarter net income of $127 million, or $0.67 per share. This included the benefit of $64 million from the favorable settlement of prior-year tax audits, $19 million of incremental pension expense associated with a previously announced early-retirement program and the net benefit of $9 million from other non-operational items described below. Excluding these items, NCR generated $70 million of net income, or $0.37 per share.(1)
"We are pleased with NCR's continued operating margin improvement in the quarter. The better-than-expected results were led by higher-than-expected revenue growth and profitability in our Teradata Data Warehousing business, continued improvement in our Customer Services business, as well as NCR's continued success in executing our multiyear profit improvement plan," said James M. Ringler, director and interim chief executive officer of NCR. "Those contributions enabled NCR to exceed earnings expectations despite lower-than- expected results in our Financial Self Service business."
Operating Segment Results(2)
Teradata Data Warehousing
NCR's Teradata Data Warehousing segment reported second-quarter revenue of $361 million, up 9 percent from the second quarter of 2004. The second-quarter year-over-year revenue comparison included a 2 percentage point benefit from currency fluctuations.
Operating income of $76 million increased 27 percent from the prior-year period. Operating margin increased more than 300 basis points to 21 percent. The increase in profitability was due to higher volume and increased profitability from support services.
Financial Self Service (ATMs)
The Financial Self Service segment generated second-quarter revenue of $323 million, down 2 percent from a very strong year-ago period. The second-quarter year-over-year revenue comparison included a 2 percentage point benefit from currency fluctuations. Financial Self Service revenue was lower than expected due to the adverse timing of transactions in Eastern Europe and China as well as less benefit than anticipated from currency translation.
Operating income of $43 million was down from $54 million in the strong second quarter of 2004, primarily due to lower volume, an adverse mix of transactions and the impact of increased pricing pressure.
Retail Store Automation
Retail Store Automation revenue of $211 million was roughly the same as the revenue generated in the second quarter of 2004. The second-quarter year-over-year revenue comparison included a benefit of 1 percentage point from currency fluctuations.
Retail Store Automation improved its operating profit to $6 million largely due to expense reductions and a higher volume of revenues from self-service technologies.
Customer Services
Customer Services revenue was down 4 percent to $456 million due to the company's strategy to reduce revenues associated with third-party products. Although total Customer Services revenues declined as anticipated, ATM maintenance revenues increased 10 percent from the second quarter of 2004. The year-over-year revenue comparison included a benefit of 2 percentage points from currency fluctuations.
NCR's strategic shift to focus on maintenance of NCR-branded products and structural changes being made to optimize the efficiency of its Customer Services business resulted in operating income of $8 million, a $30 million improvement from the second quarter of 2004.
Non-Operating Items
Other Income in the quarter included a $15 million gain from the sale of real estate in Dayton. NCR is using $6 million of the gain from the real estate transaction to provide multiyear funding of NCR's charitable foundation for reinvestment back into its local communities. Excluding these items(1), Other Expense was $3 million in the second quarter of 2005 compared to $2 million of Other Expense in the prior-year period.
The company now expects to lower its tax rate to 22 percent for 2005 primarily due to legal entity restructuring. As a result, NCR's operational tax rate for the second quarter of 2005 was 20 percent, adjusting for the 25 percent tax rate used in the first quarter.
Additionally in the second quarter, the company's GAAP results included the non-cash benefit of $64 million related to the successful resolution of prior-year tax audits.
Cash Flow
NCR's cash from operations increased to $195 million from $81 million in the second quarter of 2004. Capital expenditures in the second quarter of 2005 were $62 million, compared to $67 million of capital expenditures in the year-ago period. NCR generated $133 million of free cash flow (cash from operations less capital expenditures) in the second quarter of 2005 versus $14 million in the year-ago period.(3)
Assuming approximately $250 million of capital expenditures, NCR is increasing its expectation for cash flow from operations less capital expenditures, or free cash flow, to $240 million to $250 million in 2005.
For the Period Ended June 30
----------------------------
Three Months Six Months
------------ ----------
2005 2004 2005 2004
---- ---- ---- ----
Cash provided by operating activities
(GAAP) (3) $195 $81 $206 $90
Less capital expenditures for:
Net expenditures for reworkable
service parts (25) (22) (43) (39)
Expenditures for property, plant and
equipment (16) (22) (32) (33)
Additions to capitalized software (21) (23) (37) (40)
----------------------------
Total capital expenditures (62) (67) (112) (112)
Free cash flow (non-GAAP measure) (3) $133 $14 $94 $(22)
Balance Sheet
NCR ended the first quarter with $724 million in cash, cash equivalents and short-term investments, an increase from the $655 million cash balance on March 31, 2005. NCR's cash balance increased due to free cash flow generation exceeding net cash used for share repurchases.
NCR repurchased approximately 2.8 million shares of NCR common stock for approximately $98 million during the second quarter. The company has $138 million remaining on its current share-repurchase authorization from its board of directors.
As of June 30, 2005, NCR had short- and long-term debt of $308 million, versus $309 million as of March 31, 2005.
Outlook
NCR is adjusting its revenue guidance to reflect the strengthening of the U.S. dollar. As a result, NCR now does not expect any benefit from currency translation in the third-quarter or the full-year revenue comparisons.
For the third quarter, NCR expects total revenue to grow 2 percent to 3 percent from the prior-year period. Earnings per share for the third quarter are expected to be $0.28 to $0.33.
For the full year, total revenue is expected to increase 1 percent to 2 percent. Including the non-operational items described earlier, NCR expects its GAAP earnings per share to be $1.75 to $1.80. Excluding the net benefit of the non-operational items identified and included in NCR's first- and second-quarter results, and using a 22 percent tax rate, NCR is further increasing its guidance for 2005 earnings per share to $1.47 to $1.52 per share.
Updated
Third-Quarter 2005 2005 Full-Year
Guidance Guidance
-------- --------
Year-over-year revenue growth:
Total NCR 2 - 3% 1 - 2%
Teradata Data Warehousing 8 - 10% 6 - 8%
Financial Self Service
(ATMs) 6 - 10% 4 - 6%
Retail Store Automation (2 - 3)% 1 - 2%
Customer Services (3 - 4)% (4 - 5)%
Earnings per share - GAAP $0.28 - 0.33 $1.75 - 1.80
Earnings per share - Non-GAAP(1) $0.28 - 0.33 $1.47 - 1.52
Reconciliation of GAAP to Non-GAAP Measures(1)
Non-GAAP measures exclude the effect of the items listed below
Results Guidance
----------------- ------------------------
Q2 2005 Q2 2004 Q3 2005 FY 2005
------- ------- ------- -------
Earnings Per Share (GAAP) $0.67 $0.63 $0.28-$0.33 $1.75-$1.80
Benefit from the
resolution of prior-year
tax audits 0.34 0.44 - 0.34
Early retirement-related
pension expense (0.08) - - (0.08)
Gains from real estate
transactions 0.06 - - 0.06
Multiyear funding of
NCR's charitable
foundation (0.02) - - (0.02)
Receipt of acquisition-
related break-up fee - 0.01 - -
Net effect of non-
operational items in Q1
2005(4) - - - (0.02)
----- ----- ------ ------
Adjusted Earnings Per
Share (Non-GAAP) $0.37 $0.18 $0.28-$0.33 $1.47-$1.52
2005 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 2005 second-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 ATMs, retail systems, Teradata(R) data warehouses and IT services provide Relationship Technology(TM) 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 28,300 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.
(1) NCR's management looks at the company's earnings-per-share 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 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 $52 million of pension expense in the second quarter of 2005 and $32 million of pension expense in the second quarter of 2004. 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.
(4) Items include a $0.05 per share charge to decrease the value of an equity investment which was partially offset by a $0.03 per share benefit from the reduction of accruals made in previous periods for purchased goods and services.
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; 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; turnover of workforce and the ability to attract and retain skilled employees, especially in light of recent cost-control measures taken by the company and the recent change in the company's chief executive officer position; availability and successful exploitation of new acquisition and alliance opportunities; changes in Generally Accepted Accounting Principles (GAAP) such as the future impact of expensing stock options 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 June 30
-------------------------------
Three Months Six Months
--------------- ---------------
2005 2004 2005 2004
------- ------- ------- -------
Revenue
Products $ 762 $ 761 $1,440 $1,389
Services 708 691 1,373 1,353
------- ------- ------- -------
Total revenue 1,470 1,452 2,813 2,742
Cost of products 495 478 933 888
Cost of services 579 581 1,113 1,139
------- ------- ------- -------
Total gross margin 396 393 767 715
% of Revenue 26.9% 27.1% 27.3% 26.1%
Selling, general and administrative
expenses 265 281 523 554
Research and development expenses 58 59 117 116
------- ------- ------- -------
Income from operations 73 53 127 45
% of Revenue 5.0% 3.7% 4.5% 1.6%
Other (income) expense, net (6) 2 8 -
------- ------- ------- -------
Income before income taxes 79 51 119 45
% of Revenue 5.4% 3.5% 4.2% 1.6%
Income tax benefit (48) (71) (38) (72)
------- ------- ------- -------
Net income $ 127 $ 122 $ 157 $ 117
======= ======= ======= =======
% of Revenue 8.6% 8.4% 5.6% 4.3%
Net income per common share
Basic $ 0.68 $ 0.65 $ 0.84 $ 0.62
======= ======= ======= =======
Diluted $ 0.67 $ 0.63 $ 0.82 $ 0.61
======= ======= ======= =======
Weighted average common shares
outstanding
Basic 186.2 188.3 186.3 188.7
Diluted 190.3 192.3 190.8 192.3
Schedule B
NCR CORPORATION
CONSOLIDATED REVENUE and OPERATING INCOME (LOSS) SUMMARY
(Unaudited)
(in millions)
For the Periods Ended June 30
---------------------------------------------
Three Months Six Months
---------------------- ----------------------
% %
2005 2004 Change 2005 2004 Change
------- ------- ------- -------
Revenue by segment
Data Warehousing
Data Warehousing
solution $ 282 $ 260 8% $ 556 $ 495 12%
Data Warehousing
support services 79 71 11% 155 142 9%
------- ------- ------- -------
Total Data Warehousing 361 331 9% 711 637 12%
Financial Self Service 323 330 (2%) 595 581 2%
Retail Store
Automation 211 212 - 386 377 2%
Customer Services
Customer Services
Maintenance:
Financial Self
Service 153 139 10% 301 277 9%
Retail Store
Automation 117 116 1% 231 229 1%
Payment & Imaging
and Other 33 32 3% 64 64 -
Third-Party
Products and
Exited Businesses 70 82 (15%) 143 173 (17%)
------- ------- ------- -------
Total Customer
Services Maintenance 373 369 1% 739 743 (1%)
Third-Party Products 14 21 (33%) 25 42 (40%)
Professional and
installation-
related services 69 84 (18%) 139 156 (11%)
------- ------- ------- -------
Total Customer
Services 456 474 (4%) 903 941 (4%)
Systemedia 122 117 4% 236 231 2%
Payment & Imaging and
Other 41 42 (2%) 74 74 -
Elimination of
installation-related
services revenue
included in both the
Customer Services
segment and other
segments (44) (54) (19%) (92) (99) (7%)
------- ------- ------- -------
Total revenue $1,470 $1,452 1% $2,813 $2,742 3%
======= ======= ======= =======
Operating income (loss)
by segment
Data Warehousing $ 76 $ 60 $ 148 $ 109
Financial Self Service 43 54 68 71
Retail Store
Automation 6 5 3 (3)
Customer Services 8 (22) 17 (41)
Systemedia (1) 1 (1) 3
Payment & Imaging and
Other 6 4 7 -
Elimination of
installation-related
services operating
income included in
both the Customer
Services segment and
other segments (13) (17) (29) (30)
------- ------- ------- -------
Subtotal - Segment
operating income 125 85 213 109
Pension expense (52) (32) (86) (64)
------- ------- ------- -------
Total income from
operations $ 73 $ 53 $ 127 $ 45
======= ======= ======= =======
Schedule C
NCR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions)
June 30 March 31 December 31
2005 2005 2004
---------- ---------- -----------
Assets
------
Current assets
Cash, cash equivalents and
short-term investments $ 724 $ 655 $ 750
Accounts receivable, net 1,184 1,284 1,304
Inventories, net 369 356 355
Other current assets 232 243 224
---------- ---------- -----------
Total current assets 2,509 2,538 2,633
Reworkable service parts and
rental equipment, net 224 222 224
Property, plant and equipment,
net 408 432 446
Goodwill 124 124 124
Prepaid pension cost 1,346 1,419 1,446
Deferred income taxes 409 375 372
Other assets 298 288 309
---------- ---------- -----------
Total assets $ 5,318 $ 5,398 $ 5,554
========== ========== ===========
Liabilities and stockholders' equity
------------------------------------
Current liabilities
Short-term borrowings $ 2 $ 3 $ 2
Accounts payable 434 429 492
Payroll and benefits
liabilities 230 230 328
Deferred service revenue and
customer deposits 449 486 407
Other current liabilities 438 469 495
---------- ---------- -----------
Total current liabilities 1,553 1,617 1,724
Long-term debt 306 306 307
Pension and indemnity plan
liabilities 491 513 517
Postretirement and postemployment
benefits liabilities 245 241 244
Income taxes 461 496 492
Other liabilities 156 159 166
Minority interests 14 16 18
---------- ---------- -----------
Total liabilities 3,226 3,348 3,468
Total stockholders' equity 2,092 2,050 2,086
---------- ---------- -----------
Total liabilities and stockholders'
equity $ 5,318 $ 5,398 $ 5,554
========== ========== ===========
Schedule D
NCR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
For the Periods Ended June 30
-------------------------------
Three Months Six Months
--------------- ---------------
2005 2004 2005 2004
------- ------- ------- -------
Operating activities
Net income $ 127 $ 122 $ 157 $ 117
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 63 69 126 136
Deferred income taxes - 2 - 4
Income tax settlement (64) (85) (64) (85)
Other adjustments to income, net (11) 2 1 (1)
Changes in assets and
liabilities:
Receivables 106 (24) 125 35
Inventories (14) (42) (14) (75)
Current payables 11 60 (142) (74)
Deferred service revenue and
customer deposits (37) (18) 42 65
Employee severance and pension 26 7 38 7
Other assets and liabilities (12) (12) (63) (39)
------- ------- ------- -------
Net cash provided by operating
activities 195 81 206 90
Investing activities
Purchases of short-term investments - (5) - (15)
Proceeds from sales and maturities
of short-term investments - 5 - 15
Net expenditures and proceeds for
reworkable service parts (25) (22) (43) (39)
Expenditures for property, plant and
equipment (16) (22) (32) (33)
Proceeds from sales of property,
plant and equipment 5 - 7 7
Additions to capitalized software (21) (23) (37) (40)
Other investing activities, net (1) (6) 2 (17)
------- ------- ------- -------
Net cash used in investing activities (58) (73) (103) (122)
Financing activities
Purchase of Company common stock (98) (92) (218) (182)
Short-term borrowings, net (1) 1 - 1
Cash received from real estate
transaction - - - 50
Proceeds from employee stock plans 42 51 102 108
Other financing activities, net - 1 - 1
------- ------- ------- -------
Net cash used in financing activities (57) (39) (116) (22)
Effect of exchange rate changes on
cash and cash equivalents (11) (2) (13) (2)
------- ------- ------- -------
Increase (decrease) in cash and cash
equivalents 69 (33) (26) (56)
Cash and cash equivalents at beginning
of period 655 616 750 639
------- ------- ------- -------
Cash and cash equivalents at end of
period $ 724 $ 583 $ 724 $ 583
======= ======= ======= =======
SOURCE: NCR Corporation
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