? Solid revenue growth of 5 percent drives better-than-expected operating results
? NCR reports GAAP EPS of $0.19 per share, including $0.22 of special costs
NCR Corporation (NYSE: NCR) today reported revenue of $1.35 billion for the quarter ended March 31, 2007. The 5 percent increase in revenue from the first quarter of 2006 included 2 percentage points of benefit from currency fluctuations. NCR reported first-quarter net income of $34 million, or $0.19 per diluted share, which compares to $41 million of net income, or $0.22 per diluted share, generated in the first quarter of 2006. Results for the first quarter of 2007 included $46 million of costs related to NCR?s previously announced manufacturing realignment, as well as approximately $2 million of costs associated with the anticipated spin off of the company?s Teradata Data Warehousing business later in 2007. These costs equaled $0.22 per share.(1) Results for the first quarter of 2006 included $9 million of incremental pension expense associated with an early retirement program, or $0.04 per share.(1)
"NCR?s Financial Self Service and Customer Service businesses were standouts in what is historically our seasonally weak quarter, with the improved sales and profitability of both units
driving a solid first-quarter performance. Teradata delivered as expected and its outlook remains
encouraging," said Bill Nuti, president and chief executive officer of NCR. "As illustrated by these results, our market-leading technologies should continue to drive future performance for Teradata and NCR once we complete the strategic separation of the company and begin operations as two independent public companies."
Update on Strategic Separation of Teradata and NCR
In January 2007, NCR announced its intention to separate into two independent, publicly
traded companies through the spin off of the company?s Teradata Data Warehousing business to
NCR?s shareholders. This strategic separation is expected to enable the two publicly traded
companies, both leaders in their respective markets, to gain a sharper focus on their respective
business strategies, distinct customer bases and operational needs.
During the first quarter of 2007, NCR began implementing its plan to complete the
eventual spin off of the Teradata Data Warehousing business. The company has requested a
favorable tax ruling from the Internal Revenue Service regarding the proposed tax-free
distribution of NCR?s wholly owned subsidiary that will own the assets and liabilities associated
with the Teradata Data Warehousing business. In addition, NCR anticipates that it will file its
initial registration statement, or Form 10, with respect to the spin off with the Securities and
Exchange Commission (SEC) in the second quarter of 2007, both important milestones in
completing the strategic separation as currently anticipated by the end of the third quarter of
2007.
Operating Segment Results(2)
Teradata Data Warehousing
NCR?s Teradata Data Warehousing segment reported first-quarter revenue of
$358 million, a 10 percent increase from the first quarter of 2006. The year-over-year revenue
comparison included 2 percentage points of benefit from currency translation.
First-quarter operating income of $65 million was slightly lower than the $67 million
reported in the first quarter of 2006. Although Teradata drove higher revenue in the first quarter
of 2007, the year-over-year operating income comparison was affected by an unfavorable
revenue mix comparison, increased investment in sales and demand-creation resources, as well
as an increased legal reserve related to a 2002 matter in China. The first quarter of 2007
included a higher-than-usual mix of hardware revenues, while the first quarter of 2006 included a
higher-than-usual mix of software revenue.
Financial Self Service (ATMs)
The Financial Self Service segment generated first-quarter revenue of $312 million, a 20
percent increase from the first quarter of 2006. The first-quarter year-over-year revenue
comparison included 4 percentage points of benefit from currency translation. Strong revenue
growth in Europe and Asia outpaced a revenue decline in the Americas region and led to the
year-over-year revenue increase.
Operating income of $28 million improved from $13 million reported in the first quarter
of 2006. Higher revenue significantly outpaced the cost of operating two manufacturing
facilities in Europe as NCR initiated its manufacturing realignment in the first quarter of 2007.
Retail Store Automation
Retail Store Automation reported revenue of $155 million, down 10 percent from the first
quarter of 2006. The year-over-year revenue comparison included 2 percentage points of benefit
from currency translation. Although Retail Store Automation?s revenue mix continues to
improve, with a higher mix of self-service technologies, the timing of both traditional point-ofsale
(POS) and self-service transactions resulted in lower revenue and profitability in the
seasonally weak first quarter. Operating loss of $10 million increased from a $7 million
operating loss in the first quarter of 2006.
Customer Services
Customer Services revenue of $437 million increased 4 percent from the $419 million
recorded in the first quarter of 2006. The first-quarter year-over-year revenue comparison
included a 2 percentage point benefit from currency translation. NCR continues to be successful
in 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 10 percent in the first quarter, while revenues from the
maintenance of third-party products declined by 8 percent.
Operating income improved to $28 million from $20 million generated in the first quarter
of 2006. The year-over-year comparison benefited from higher revenues, the improving revenue
mix and continued emphasis on cost reduction.
Other Items
As stated earlier, NCR incurred approximately $46 million of costs associated with the
realignment of its manufacturing facilities. These costs primarily included severance and other
benefits related to the realignment. Additionally, the company incurred approximately $2
million of legal and consulting costs associated with the proposed strategic separation of the
Teradata Data Warehousing business from NCR.
Included in the results was $3 million of Other Income, consistent with the $3 million of
Other Income reported in the first quarter of 2006.
NCR?s tax rate in the first quarter of 2007 was 24 percent versus 18 percent in the yearago
period. The year-over-year difference in tax rates was driven by profit and losses by country
in the seasonally weak first quarter.
Cash Flow
For the first quarter, NCR generated $151 million of cash from operations, a
$139 million increase from the prior-year period, driven by an improvement in working capital
and the timing of 2006 year-end transactions. Capital expenditures in the first quarter of 2007
increased to $53 million, compared to $35 million of capital expenditures in the year-ago period.
Capital spending increased due to planned manufacturing and real estate initiatives and increased
investment in software development. NCR generated $98 million of free cash flow (cash from
operations less capital expenditures)(3) in the first quarter of 2007 versus using $23 million of
cash in the first quarter of 2006. NCR expects free cash flow in 2007, excluding the cash used in
the company?s manufacturing realignment and strategic separation, to increase to approximately
$425 million, as a result of higher operating income and the timing of working capital items
between 2006 and 2007.
For the period ended March 31
Three Months
2007 2006
Cash provided by operating activities (GAAP) (3) $151 $12
Less capital expenditures for:
Expenditures for property, plant and equipment (29) (15)
Additions to capitalized software (24) (20)
Total capital expenditures (53) (35)
Free cash flow (non-GAAP measure) (3) $98 $(23)
Balance Sheet
NCR ended the first quarter with $1.08 billion in cash and cash equivalents, a $133
million increase from the $947 million balance as of Dec. 31, 2006. As of March 31, 2007, NCR
had short- and long-term debt of $307 million, the same as of Dec. 31, 2006.
2007 Outlook
NCR is increasing its 2007 earnings guidance by $0.05. Including the special costs
included in the first-quarter results, 2007 GAAP earnings per share are now expected to be $2.28
to $2.38. Excluding these costs included in the first-quarter results, as well as additional costs
associated with the manufacturing realignment and the proposed spin off of the Teradata Data
Warehousing business anticipated later in the year, earnings are expected to be $2.50 to $2.60
per share.(1)
NCR now expects to generate 3 percent to 4 percent year-over-year revenue growth in
2007.
A conference call is scheduled today at 10:00 a.m. (ET) to discuss the company?s firstquarter
2007 results and increased guidance for 2007. 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 first-quarter 2007 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® data warehouses,
ATMs, retail systems, self-service solutions and IT services provide Relationship Technology?
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
29,500 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.
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 proposed separation of Teradata and NCR?s other businesses, including the
ability of each to operate as an independent entity; 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; 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.
