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NCR announces fourth-quarter results
- Q4 2009 operational results ahead of expectations
- Entertainment rollout on track
- Strong cash flow inclusive of business investment; Q4 2009 operating cash
- flow of $107M and free cash flow(3) of $48M
- Cost structure initiatives on track towards longterm goal of $200M-$250M
- 2010 guidance provided; Revenue growth of 2% to 5%; GAAP earnings per share of $0.41 - $0.51; non-GAAP earning per share excluding pension expense(1) of $1.35 - $1.45, an increase of 6% to 14%
NCR Corporation (NYSE: NCR) reported financial results today for the three months ended December 31, 2009. Reported revenue of $1.35 billion decreased 5 percent from the fourth quarter of 2008 and included approximately 4 percentage points of benefit from foreign currency translation.
NCR reported a fourthquarter loss from continuing operations (attributable to NCR) of $56 million, or $0.35 per diluted share, compared to income from continuing operations (attributable to NCR) of $55 million, or $0.34 per diluted share, in the fourth quarter of 2008. Income from continuing operations in the fourth quarter of 2009 included a $151 million ($97 million aftertax) net charge, or $0.60 per diluted share, related to the Fox River environmental matter, a $24 million ($15 million aftertax), or $0.09 per diluted share, impairment charge related to an equity investment and related assets, and $6 million ($4 million aftertax), or $0.03 per diluted share of incremental costs related to the relocation of the Company's global headquarters. Income from continuing operations for the fourth quarter of 2008 included $53 million ($38 million aftertax) in costs, or $0.24 per diluted share, resulting from organizational realignment activities, legal matters and the Fox River environmental matter. Excluding these items, non-GAAP earnings per share (1) in the fourth quarter of 2009 was $0.37 per diluted share compared to $0.58 in the prior year period.
"The economic challenges that 2009 imposed on our business affected our results but did not slow the initiatives we're putting in place to build NCR into an exciting growth company," said Bill Nuti, chairman and chief executive officer of NCR. "This year we successfully launched our entertainment business, opened new manufacturing plants and greatly strengthened our operating infrastructure. Despite tough endmarket conditions, we also finished 2009 on a solid note, exceeding expectations largely due to improvements in our core industries. Taken together, we believe these accomplishments and our ongoing commitment to investing in innovation put us firmly on the path to produce better results in 2010 and make continued progress toward our long term goals."
Fourth-Quarter 2009 Highlights
Financial highlights - Yearoveryear revenue comparisons were negatively impacted by global economic conditions and the resulting impact on the global financial services industry and the retail and hospitality industries. Revenues declined 7 percent in the Americas region, primarily due to lower product sales to customers in the financial services industry and the retail and hospitality industries in the United States, the Caribbean, and Latin America. Revenues in the Americas region were positively impacted by 1 percent due to foreign currency translation. In the Europe/Middle East/Africa (EMEA) region, the revenue decline of 12 percent was primarily due to lower product sales to customers in financial services across the region. Product sales to the retail and hospitality industries also declined in EMEA, while revenue was positively impacted by 4 percent due to foreign currency translation. Revenues grew 12 percent in the Asia-Pacific/Japan (APJ) region due to higher sales in the financial services industry. Revenue in APJ was positively impacted by 8 percent due to foreign currency translation.
Income from operations was $39 million in the fourth quarter of 2009, which included $41 million of pension expense, a $22 million charge for the impairment of assets and the accrual of purchase commitments related to an equity investment, and $6 million of incremental costs related to the headquarters relocation. This compares to $95 million of income from operations in the fourth quarter of 2008, which included $7 million of pension expense and $25 million of costs related to organizational realignment and legal matters. Excluding these items and pension expense, non-GAAP income from operations (2) was $108 million in the fourth quarter of 2009 compared to $127 million in the fourth quarter of 2008.
NCR generated $107 million of cash from operating activities during the fourth quarter of 2009 compared to $108 million in the yearago period. Net capital expenditures of $59 million in the fourth quarter of 2009 increased from the $33 million in capital expenditures in the yearago period, primarily due to investments in the entertainment business. NCR generated free cash flow (cash from operations less capital expenditures)(3) of $48 million in the fourth quarter of 2009, compared to free cash flow of $75 million in the fourth quarter of 2008. For the full year 2009, NCR generated $223 million of cash from operating activities, compared to $415 million in 2008. Net capital expenditures of $173 million in 2009 were up from $138 million in 2008, primarily due to investments in the entertainment business. NCR generated $50 million of free cash flow(3) in 2009, compared to free cash flow of $277 million in 2008.
NCR contributed approximately $83 million to its international and executive pension plans in 2009 and expects to contribute approximately $110 million in 2010. The net funded status of the company's global pension plans was approximately $(1.0) billion as of December 31, 2009, an improvement of $149 million from the previous year end.
Other expense was $154 million in the fourth quarter of 2009 compared to other expense of $28 million in the prior year period. Other expense in the fourth quarter of 2009 included a $2 million impairment charge related to an equity investment and a charge to increase the Fox River environmental reserves by $157 million, offset by $6 million of income from insurance recoveries related to the Fox River environmental matter.
Income tax represented a benefit of $58 million in the fourth quarter of 2009 compared to income tax expense of $7 million in the fourth quarter of 2008. The income tax benefit in the fourth quarter of 2009 yielded an actual tax rate of 50 percent that was due to the nonproportional benefit of the significant environmental and impairment charges incurred in the United States. Excluding the effect of these items, the fourth quarter 2009 effective tax rate was 11 percent, compared to 19 percent for the fourth quarter of 2008.
NCR ended the year with $451 million in cash and cash equivalents, a $32 million increase from the $419 million balance as of September 30, 2009. As of December 31, 2009, NCR had a debt balance of $15 million.
Business highlights - In the fourth quarter of 2009, NCR continued the integration of its services business into the Industry Solutions Group which is comprised of the Financial, Retail, Entertainment, Travel and Gaming, and Healthcare solutions offerings. In the fourth quarter, NCR also deployed its industryleading selfservice technologies across the entertainment, travel and retail markets and drove increased penetration of its core ATM solutions.
NCR further advanced its entertainment kiosk strategy during the fourth quarter and exceeded its goal to roll out the first 2,500 DVDrental kiosks by year end. In December, NCR significantly expanded its network of DVDrental kiosks through the acquisition of DVDPlay, an operator of approximately 1,300 kiosks in the United States and Canada. NCR will convert the acquired kiosks to its BLOCKBUSTER Express(TM) brand and plans further expansion in DVDPlay locations. NCR also secured installment of its BLOCKBUSTER Express(TM) brand DVDrental kiosks in more than 200 Duane Reade locations in New York, which will result in the largest deployment of DVDrental kiosks in New York City. Further, in October, NCR expanded its BLOCKBUSTER Express(TM) brand DVDrental kiosks to Tedeschi Food Shops, a 188location convenience store chain across New England while also launching the most secure, high capacity outdoor DVDrental kiosk in the industry. NCR has also continued the deployment of Blockbuster Express(TM) DVDrental kiosks in Publix Super Markets across the Southeast.
NCR and MOD Systems announced a digital download pilot that will allow consumers to select a title from a DVDrental kiosk, rapidly download the title to a secure digital memory card and then play the title on a home television. NCR's existing kiosks, including its outdoor kiosk, were deployed "digital download ready" and NCR expects to integrate this advanced technology across its kiosk footprint as digital download gains incremental popularity.
NCR expanded its travel business with China Southern Airlines, which purchased 40 additional selfservice checkin kiosks following the deployment of 30 NCR TouchPort kiosks earlier this year. The additional kiosks ordered make NCR the airline's primary kiosk supplier as it takes steps to further meet the growing preference for selfservice channels among its customers. In total, the two deployments will give NCR an established presence in eight of China Southern Airlines' major transportation hubs.
In the retail vertical, NCR acquired Netkey, a marketleading provider of kiosk and digital signage software applications used to deliver a growing range of multiindustry selfservice applications. NCR will combine Netkey's software platform with its existing technologies to provide a bestinclass enterprise solution which includes software applications, one of the broadest hardware portfolios in the industry and an advanced suite of services. In addition, NCR was named an approved pointofsale (POS) technology supplier for the Wendy's® restaurant system franchisees. The agreement gives franchise operators of the more than 6,600 Wendy's restaurants globally the opportunity to order and deploy the RealPOS(TM) 70XRT, NCR's most powerful integrated touch POS workstation.
In the Financial business, NCR will equip the ING Belgium branch network with at least 1,200 ATM's featuring cashrecycling functionality in response to steady changes in customer expectations and habits, particularly the trend towards electronic channels. The agreement marks the most extensive deployment of cashrecycling ATM's in Europe. NCR has also made its patented twosided thermal (2ST) printing technology standard on all NCR SelfServ(TM) 20- and 30series ATM's in North America, further differentiating the NCR SelfServ intelligent deposit solution in the marketplace.
NCR continued to take steps to strengthen its global manufacturing and sourcing infrastructure. In November, NCR opened its new innovation hub and manufacturing plant in Brazil to better serve the growing market demand for selfservice ATM's in Brazil, the Caribbean and throughout Latin America. The ability to control manufacturing in Brazil, the world's 3rd largest ATM market, offers NCR distinct competitive advantages and the ability to further capitalize on growth opportunities in the region. In the United States, NCR opened its new ATM manufacturing facility in Georgia in October. The new facility will manufacture advanced ATMs, including intelligent deposit and help strengthen NCR's leadership position in the North American market.
NCR expects fullyear 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 the entertainment portfolio, the company expects its fullyear 2010 Income from Operations (GAAP) to be $95 million to $115 million, Nonpension operating income (NPOI) (2)to be in the range of $310 million to $330 million, GAAP diluted earnings per share to be $0.41 to $0.51, and non-GAAP diluted earnings per share excluding pension expense (1)to be in the range of $1.35 to $1.45 per diluted share.The 2010 non-GAAP EPS guidance excludes estimated pension expense of $215 million (approximately $151 million aftertax) compared to actual pension expense of $159 million ($108 million aftertax) in 2009. NCR expects its full year 2010 effective income tax rate to be approximately 27 percent.
2009 Fourth Quarter Earnings Conference Call
A conference call is scheduled today at 8:00 a.m. (EST) to discuss the company's 2009 fourthquarter results and guidance for fullyear 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/.
Supplemental financial information regarding NCR's fourth quarter 2009 operating results is also available on NCR's Web site.
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