NCR Corporation reported financial results today for the three months ended December 31, 2010. Reported revenue of $1.4 billion increased 5 percent from the fourth quarter of 2009 on both an actual and constant currency basis.
NCR reported fourth-quarter income from continuing operations (attributable to NCR) of $32 million, or $0.20 per diluted share, compared to income from continuing operations (attributable to NCR) of $41 million, or $0.25 per diluted share, in the fourth quarter of 2009. Income from continuing operations in the fourth quarter of 2010 included $52 million ($43 million or $0.26 per diluted share, after-tax) of pension expense, a $14 million ($9 million or $0.06 per diluted share, after-tax) impairment charge related to an investment, and an $8 million ($5 million or $0.03 per diluted share, after-tax) litigation charge. Income from continuing operations for the fourth quarter of 2009 included $41 million ($24 million or $0.16 per diluted share, after-tax) of pension expense, a $24 million ($16 million or $0.10 per diluted share, after-tax) impairment charge related to an equity investment and related assets, and $6 million ($4 million or $0.02 per diluted share, after-tax) of incremental costs related to the relocation of the company's global headquarters. Excluding these items, non-GAAP income from continuing operations(2) in the fourth quarter of 2010 was $0.55 per diluted share compared to $0.53 in the prior year period.
"NCR had a good close to 2010 and as a result is better positioned to improve revenue growth and NPOI expansion in 2011. Order growth in Q4 was strong, our backlog has improved and we continue to execute well on sustainable productivity improvements thanks to the efforts of our continuous improvement teams around the company. 2010 was a year in which NCR regained our leadership in innovation in a number of areas both in hardware, such as our unrivaled scalable deposit module, and software, such as the great progress we made in converged channel solutions. Our strong position as we enter 2011 can be traced directly to our employees who executed well and are passionately dedicated to our vision. As we move into 2011 we will continue to be focused on our value creation strategy which includes ongoing operational execution along with a focus on reducing our pension risk and a commitment to share repurchase."
Fourth-Quarter 2010 Highlights
Financial highlights - Revenues increased 12 percent in the Americas region, primarily due to higher product sales to customers in the financial services and 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, revenues increased 2 percent primarily due to higher product sales to customers in the financial services and retail and hospitality industries across the region. Foreign currency translation negatively impacted EMEA revenues by 5 percent. Revenues fell 5 percent in the Asia-Pacific/Japan (APJ) region due to lower product sales to customers in the financial services and retail and hospitality industries across the region. Revenue in APJ was positively impacted by 5 percent due to foreign currency translation.
Income from operations was $52 million in the fourth quarter of 2010, which included $52 million of pension expense and an $8 million litigation charge. This compares to $39 million of income from operations in the fourth quarter of 2009, which included $41 million of pension expense, a $22 million charge for the impairment of assets related to an equity investment, and $6 million of incremental costs related to the company's headquarters relocation. Excluding these items, non-GAAP income from operations(2) was $112 million in the fourth quarter of 2010 compared to $108 million in the fourth quarter of 2009.
NCR generated $181 million of cash from operating activities during the fourth quarter of 2010 compared to $106 million in the year-ago period. Cash from operating activities in the fourth quarter of 2010 was positively impacted by changes in working capital primarily due to a decrease in accounts receivable and inventory. Net capital expenditures of $53 million in the fourth quarter of 2010 decreased from $59 million in the year-ago period. Discontinued operations yielded $15 million of positive cash flow in the fourth quarter 2010 compared to $1 million of positive cash flow in the fourth quarter of 2009. NCR generated free cash flow (cash from operations and discontinued operations related to the Fox River environmental matter, less capital expenditures and additions to capitalized software)(3) of $143 million in the fourth quarter of 2010, compared to free cash flow of $48 million in the fourth quarter of 2009. For the full year 2010, NCR generated $242 million of cash from operating activities, compared to $256 million in 2009. Net capital expenditures of $226 million in 2010 were up from $173 million in 2009, primarily due to investments in the entertainment business. Discontinued operations yielded $21 million of positive cash flow for the full year 2010 compared to $33 million of cash used for the full year 2009. NCR generated $37 million of free cash flow (3) in 2010, compared to free cash flow of $50 million in 2009.
NCR contributed approximately $105 million to its international and executive pension plans in 2010 and expects to contribute approximately $125 million in 2011. The net funded status of the company's global pension plans was approximately $(997) million as of December 31, 2010, an improvement of $51 million from the previous year end.
Other expense was $14 million in the fourth quarter of 2010 compared to other expense of $3 million in the prior year period. Other expense in the fourth quarter of 2010 included a $14 million impairment charge related to an investment. Other expense in the fourth quarter of 2009 included a $2 million impairment charge related to an equity investment.
Income tax expense was $7 million in the fourth quarter of 2010 compared to a benefit of $4 million in the fourth quarter of 2009. Excluding the effect of pension and non-recurring items, the fourth quarter 2010 effective tax rate was 21 percent, compared to 21 percent for the fourth quarter of 2009.
NCR ended the year with $496 million in cash and cash equivalents, a $136 million increase from the $360 million balance as of September 30, 2010. As of December 31, 2010, NCR had a debt balance of $11 million.
Business highlights
In the fourth quarter of 2010, NCR continued to deploy its leading solutions and offerings across its core and emerging industries. The following are NCR's fourth quarter business highlights:
In the financial business, NCR announced it will install ATMs at hundreds of Chase locations in 2011, helping one of the nation's largest banks deliver a faster and easier customer experience. The roll-out will include ATMs equipped with NCR's next generation Scalable Deposit Module - or SDM - technology, in which customers can deposit both cash and checks - in any orientation - through a single slot. This new technology, designed for NCR SelfServ ATMs, delivers a consumer deposit experience that is twice as fast as other ATMs, which will help Chase speed transactions, reduce the length of lines at the ATM, and improve the customer experience.
NCR extended its market leadership in China, securing orders for nearly 6,000 NCR SelfServ™ ATMs from China's top five commercial banks. NCR also made inroads with small and mid-sized banks in China, including a new automated teller machine (ATM) order totaling 1,500 units from ATMU (China) Technology Co. which includes the NCR SelfServ™ ATM family with intelligent cash deposit and cash recycling functions.
In the retail vertical, NCR launched the NCR SelfServ Checkout Enterprise Suite, a software platform that enables chain store retailers to centrally manage self-checkout terminals across their entire network of stores. The new platform will allow simpler and more effective management of networks of self-service lanes from a centralized location and will help retailers lower IT administration costs, make more informed business decisions, and enhance the shopping experience for their customers.
NCR also formed a partnership with Pace Communications to provide the e-mail marketing and preference center modules of the hosted NCR APTRA eMarketing solution. Pace will use NCR's software to handle multichannel customer communications programs and drive a seamless consumer experience for its custom publishing and e-commerce divisions.
The APTRA eMarketing solution was one of the many converged retailing (NCR c-tailing™) technologies and services NCR demonstrated during the National Retail Federation BIG Show in New York City in January. NCR made several announcements at the show including innovations in personalization and preference management, point-of-sale technology, self-service kiosks and new consultancy and service offerings.
NCR reached a new distribution agreement with Warner Home Video that will make new release titles available in NCR's BLOCKBUSTER Express® branded DVD rental kiosks after a 28-day window. The agreement provides NCR with lower acquisition costs, a direct relationship with the studio, and access to theatrical new release titles four weeks after the street date. NCR also began testing premium-price new-release movies in four major cities - Atlanta, Miami, Phoenix and San Francisco, giving consumers convenient access to these new titles, without a 28-day window, on the same date that they are released for sale by the studios. Under this pilot program, NCR is offering new movies from Twentieth Century Fox and Universal Studios Home Entertainment for $2.99 for the first night. Its library of older movies will continue to be available for $1 per night.
NCR renewed its agreement with NRT Technology Corp., the leading supplier of self-serve cash handling kiosk solutions for the casino industry, to provide hardware support services for 1,300 NRT Ticket-in/Ticket-out (TITO) cash redemption devices across the United States.
Zebra Technologies Corporation and KANZAN Spezialpapier GmBH, a majority owned subsidiary of Oji Paper Co. Ltd., signed intellectual property licenses related to NCR's two-sided thermal printer technology.
NCR extended its partnership with Transoft for cash management using Transoft's OptiCash for cash forecasting and cash optimization. NCR and Transoft will continue to work together to deliver solutions that help customers achieve cost efficiencies while delivering high availability. NCR's market-leading managed services portfolio will now include the latest versions of Transoft's OptiCash®, OptiNet, and OptiVault® to help customers fully optimize their end-to-end self-service channel across multiple industries including financial, healthcare, retail and gaming.
2011 Outlook
NCR expects full-year 2011 revenues to increase in the range of 5 to 7 percent on a constant currency basis compared with 2010. Including the continuing investment in the entertainment portfolio, the company expects its full-year 2011 income from operations (GAAP) to be in the range of $160 million to $180 million, non-pension operating income (NPOI)(2) to be in the range of $370 to $390 million, GAAP diluted earnings per share to be in the range of $0.71 to $0.81 and non-GAAP diluted earnings per share excluding pension expense(2) to be in the range of $1.65 to $1.75 per diluted share. The 2011 non-GAAP EPS guidance excludes estimated pension expense of $210 million (approximately $151 million after-tax) compared to actual pension expense of $208 million ($149 million after-tax) in 2010. NCR expects its full year 2011 effective income tax rate to be approximately 27 percent.
The company expects first quarter 2011 non-pension operating income (NPOI)(2) to be in the range of $45 million to $50 million, compared to $43 million in the first quarter of 2010.
Squid-inspired technology could replace needles for medications and vaccines