Operating income for the third quarter was $59 million versus $33 million in the prior-year period. Included in NCR's third-quarter operating results was $38 million of pension expense, compared to the $31 million of pension expense included in the third quarter of 2003.

NCR reported third-quarter net income of $44 million, or $0.46 per diluted share, versus net income of $18 million, or $0.19 per diluted share, in the third quarter of 2003.

"Strong revenue growth in our Teradata Data Warehousing and Financial Self Service businesses as well as cost and expense improvements across the company enabled NCR to deliver another solid quarter," said Mark Hurd, president and chief executive officer of NCR.

Operating Segment Results

Teradata Data Warehousing: 14 percent revenue growth drives operating-margin improvement of 5 percentage points

NCR's Teradata Data Warehousing segment reported record third-quarter revenue of $312 million, up 14 percent from the third quarter of 2003. The third-quarter year-over-year revenue comparison included a benefit of 3 percentage points from foreign currency fluctuations.

Operating income of $42 million increased 100 percent from $21 million in the third quarter of 2003 due to higher volume, improvement in services profitability and reduction in infrastructure costs.

Companies are realizing that in order to make better, faster decisions in this competitive business climate, they must extract detail-level data from operational systems into a central repository that delivers a single, integrated view of the business. This enterprise-wide approach, enabled through Teradata technology and services, makes it possible for these companies to deeply analyze and optimize their financial performance, business operations and customer relationships more effectively and at a significantly lower cost than other approaches.

Financial Self Service: 25 percent revenue growth fuels 19 percent operating margin

The Financial Self Service segment generated record third-quarter revenue of $338 million, up from $271 million reported for the year-ago period. Third-quarter revenue growth included a year-over-year benefit of 4 percentage points from foreign currency fluctuations.

Operating income of $63 million increased 34 percent from $47 million in the third quarter of 2003 due to higher revenue and, to a much lesser extent, the positive effect of currency fluctuations.

Globally, NCR is seeing continued growth in upgrades, replacements and the purchase of new automated teller machines (ATMs) as banks focus more on branch banking, transaction migration and compliance with regulatory changes. Motivated by the recently enacted Check 21 legislation, banks in the United States are investing in new deposit-capable ATMs that allow the bank to reduce cash-handling, check-processing and transportation costs, providing a very attractive return on investment while improving the levels of service and convenience for consumers.

Retail Store Automation: Cost actions and better expense management enable operating improvement

For the third quarter of 2004, Retail Store Automation generated $217 million of revenue, up 3 percent from $210 million in the third quarter of 2003. The third-quarter year-over-year revenue comparison for Retail Store Automation included a benefit of 3 percentage points from foreign currency fluctuations.

Retail Store Automation generated $11 million of operating income in the quarter, an increase of $2 million from the prior-year period due in large part to expense reductions.

Although retailers continue to be disciplined in their capital spending, we are seeing retailers refreshing their point-of-sale systems and expanding their deployment of self-checkout systems.

Customer Services: Cost reductions offset by continued pricing pressure and exited businesses

Customer Services reported revenue of $452 million, down 1 percent from the third quarter of 2003. The third-quarter year-over-year revenue comparison for Customer Services included a benefit of 3 percentage points from foreign currency fluctuations.

The Customer Services operating segment generated $4 million of operating income in the quarter, versus $11 million of operating income in the third quarter of 2003. While results continue to reflect pricing pressure and the decline in higher-margin revenue from exited businesses, the company's cost reduction and revenue-mix actions are expected to improve Customer Services profitability in 2005.

Non-Operating Items

Other Expense of $2 million in the third quarter of 2004 was down from $8 million in the prior-year period.

NCR's effective tax rate for 2004 has been reduced from 27 percent to 25 percent. As a result, the company's tax rate of 23 percent for the third quarter reflects the year-to-date adjustment associated with the lower rate. The reduction is principally due to an increased proportion of operating profits attributable to foreign operations.

During the third quarter of 2004, the company repurchased approximately 2 million shares of NCR common stock for approximately $89 million, which more than offset option-exercise activity during the quarter. Year-to-date, NCR has repurchased 6 million shares, which more than offsets the effect of the 3.4 million options that have been exercised. NCR's board of directors authorized an additional $250 million share-repurchase program at its regularly scheduled board meeting on Oct. 27, 2004.

Cash Flow

NCR doubled its generation of cash from operations in the third quarter to $151 million from $74 million in the third quarter of 2003. Capital expenditures in the third quarter of 2004 were $71 million compared to $52 million of capital expenditures in the year-ago period.

NCR generated $80 million of free cash flow (cash from operations less capital expenditures) in the third quarter of 2004 versus the $22 million of free cash flow generation in the year-ago period. Assuming capital expenditures of approximately $250 million, NCR expects approximately $115 million of free cash flow generation in 2004.

Balance Sheet

NCR ended the third quarter with $625 million in cash, cash equivalents and short-term investments, down slightly from the $633 million cash balance on June 30, 2004. NCR's cash balance declined as significant share-repurchase activity and the funding of the $26 million acquisition of Kinetics, Inc. slightly outpaced free cash flow generated in the third quarter. As of Sept. 30, 2004, NCR had short- and long-term debt of $311 million versus $310 million on June 30, 2004.

Outlook

NCR expects fourth-quarter earnings per share in the $0.76 to $0.81 range, or $0.72 to $0.77 excluding $0.04 of net benefit from gains and charges related to real estate transactions expected in the fourth quarter.

NCR is further increasing full-year 2004 earnings guidance to $2.45 to $2.50 per diluted share, including the net benefit from the gains and charges related to real estate transactions expected in the fourth quarter of 2004 and other previously disclosed items as listed in the reconciliation table below. Excluding the benefit of these items, earnings per share is expected to be $1.48 to $1.53(4). See the table below for a reconciliation of GAAP earnings per share to non-GAAP earnings per share excluding these items.

Assuming $125 million of pension expense in 2005, NCR now expects 2005 earnings per share to be approximately $2.15 to $2.25, an increase from previous 2005 earnings guidance of $2.00 per share.