NCR Corporation (NYSE: NCR) reported financial results today for the three months ended December 31, 2011. Reported revenue of $1.64 billion increased 17 percent from the fourth quarter of 2010, on both an actual and a constant currency basis.
NCR reported fourth-quarter loss from continuing operations (attributable to NCR) of $13 million, or $0.08 per diluted share, compared to income from continuing operations (attributable to NCR) of $33 million, or $0.20 per diluted share, in the fourth quarter of 2010.
Income from continuing operations in the fourth quarter of 2011 included $56 million ($38 million or $0.23 per diluted share, after-tax) of pension expense, a $98 million ($70 million or $0.43 per diluted share, after tax) impairment charge related to the Entertainment line of business, $5 million ($3 million or $0.02 per diluted share, after tax) of acquisition related transaction costs, $1 million ($1 million or $0.01 per diluted share, after tax) of acquisition related severance costs, and $9 million ($6 million or $0.04 per diluted share, after tax) of acquisition related amortization of intangible assets. Income from continuing operations for the fourth quarter of 2010 included $52 million ($43 million or $0.27 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. Excluding these items, non-GAAP income from continuing operations(2) in the fourth quarter of 2011 was $0.65 per diluted share compared to $0.56 in the prior year period.
"2011 was a highly successful year for NCR as our consistent execution drove record revenues and gross margin and excellent free cash flow growth," said Bill Nuti, chairman and CEO of NCR. "We generated strong order growth in our core financial and retail businesses and these businesses closed the year with the highest combined backlog in our history. We also established an attractive third core vertical - Hospitality and Specialty Retail -- that furthers our strategy of improving our revenue mix in favor of software and services. Looking ahead, we are operating with an intense focus on mining the significant opportunities in our core businesses, as well as our growing presence in emerging verticals, such as Telecom & Technology and Travel, that leverage both our ability to innovate and our strong services footprint."
Fourth-Quarter 2011 Operating Segment Results(2)
NCR's Financial Services segment generated fourth-quarter revenue of $908 million, an increase of 16 percent from the fourth quarter of 2010. The increase was driven primarily by growth in the North America, Brazil/India/China/Middle East Africa (BICMEA) and the Caribbean Latin America theaters. The fourth-quarter year-over-year revenue comparison was negatively impacted by 1 percentage point of foreign currency translation.
Operating income for Financial Services was $108 million in the fourth quarter of 2011 as compared to $79 million in the fourth quarter of 2010. This increase was driven by higher revenue and an improved gross margin rate driven which was by favorable customer mix and higher software revenue.
The Retail Solutions segment generated revenue of $469 million in the fourth quarter of 2011 compared to revenue of $479 million in the fourth quarter of 2010, a decline of 2 percent. The decrease was caused largely by a decline in revenues in the North America and Europe theaters, partially offset by an increase in the South Asia Pacific theater. The fourth-quarter year-over-year revenue comparison included 1 percentage point of benefit from foreign currency translation.
Operating income for Retail Solutions was $28 million in the fourth quarter of 2011 as compared to $34 million in the fourth quarter of 2010. The decrease was driven by lower revenues and higher paper prices in the current quarter.
Hospitality and Specialty Retail
The Hospitality and Specialty Retail segment generated revenue of $105 million, driven largely by product volumes and services revenue in the North America theater.
Operating income for Hospitality and Specialty Retail was $17 million in the fourth quarter of 2011.
Entertainment revenue was $46 million, an increase of 44 percent over the $32 million in revenue in the fourth quarter of 2010. The increase was driven by growth in the North America theater and a sale of kiosks to a customer in the South Asia Pacific theater.
Operating loss for Entertainment was $15 million in the fourth quarter of 2011 and 2010. The loss in each quarter was primarily a result of kiosk depreciation and DVD amortization.
NCR has entered into an agreement to sell certain assets related to its Entertainment Line of Business to Redbox for up to $100 million. The acquisition includes the purchase of the DVD kiosks, certain retailer contracts, and DVD inventory from NCR's entertainment line of business. In connection with the transaction, NCR will also enter into a Manufacturing and Services Agreement with Redbox's parent company, Coinstar, that would allow Coinstar to procure from NCR hardware, software and services that will yield $25 million in gross profit over five years. The transaction is subject to regulatory approval and is expected to close in the third quarter of 2012.
Emerging Industries revenue was $110 million and grew 3 percent versus the prior year period, on both an actual and a constant currency basis. The increase was driven primarily from growth in the services business with our Telecom & Technology customers in the Europe theater partially offset by lower revenues in the Japan Korea theater.
Operating income for Emerging Industries was $21 million in the fourth quarter of 2011 as compared to $16 million in the fourth quarter of 2010. This increase was primarily driven by an improved product and services mix and lower service delivery costs.
Fourth-Quarter 2011 Business Highlights
In the fourth quarter of 2011, NCR continued the introduction and deployment of its self-service solutions across its core and emerging industries while continuing to expand its global services business. The following are NCR's fourth quarter business highlights.
In the Financial Services segment, TruWest Credit Union, which serves 60,000 members in Phoenix, Arizona and Austin, Texas, is replacing each of its 30 non-NCR ATMs with one of NCR's SelfServTM 32, 34, or 38 models. All of the new NCR SelfServTM ATMs will include NCR's Scalable Deposit Module (SDM) technology. SDM is the only technology on the market that allows consumers to deposit both cash and checks simultaneously in any orientation through a single slot, making the consumer deposit experience up to twice as fast as other ATMs. NCR's SDM technology is also being deployed by Peoples Bank of Alabama, which is deploying 30 NCR SelfServTM ATMs with SDM. Deployment of these ATMs will help enable Peoples Bank of Alabama to secure productivity gains and offer an improved transaction experience to its customers.
NCR also announced the formation of a partnership with PayPal and S1 Corporation to enable real-time person-to-person payments from bank ATMs to almost anyone with a mobile phone or e-mail address. The service will initially be available in the U.S. with the ability to send money to people in more than 60 countries around the world.
In Retail Solutions, NCR continued to win business with its suite of RealPOS™ point-of-sale technologies and suite of APTRATM eMarketing solutions.
Tully's Coffee, a leading specialty coffee retailer, has selected the NCR RealPOS™ 70 XRT point-of-sale workstations as part of its initiative to improve the checkout experience for customers and gain greater business insight into its store operations. NCR will also provide depot repair services for Tully's Coffee through the company's Services organization.
Kroenke Sports & Entertainment LLC signed a multi-year renewal of NCR's Software-as-a-Service (SaaS) NCR APTRATM eMarketing solution. Kroenke, which owns and operates several professional sports teams and venues including the Pepsi Center, Denver Nuggets and Colorado Avalanche, is using NCR's APTRATM solution to provide highly personalized communications to customers based on their individual preferences. Speedway LLC, a gasoline-convenience store operator with 1,375 locations in seven states, has selected the NCR Advanced Marketing Solution and NCR Enterprise Preference Manager to power its customer loyalty program through the implementation of personalized marketing programs based on customers' purchasing behavior and preferences.
NCR recently received its highest ranking to date on the RIS Software Leaderboard. NCR was named in the top ten across 24 categories, including second among large vendor customer satisfaction leaders, and third leading company in total cost of operation by tier one and mid-sized retailers.
In Hospitality and Specialty Retail, NCR will be implementing its Aloha enterprise solution and NCR hardware within each of Einstein Noah Restaurant Group's Einstein Bros.® Bagels and Noah's New York Bagels® restaurants. Einstein Noah chose NCR's Aloha solution to drive faster service, improve order fulfillment and reduce operating costs. NCR also entered into an agreement with Kum & Go, L.C. to implement its c-store technology within each of the retailer's 400+ stores. Kum & Go, the fifth largest privately held, company-operated convenience store chain in the United States, chose the NCR solution to manage a wide range of its business operations from one system including fuel island, food service and multichannel marketing initiatives.
NCR recently launched Reel Time™ a new custom reporting solution designed to take the complexity out of analyzing data and give theater operators the information needed to make important operational decisions. Reel Time provides theater operators with a real-time dashboard view of current and historical data for ticket and concession sales, attendance, feature gross and total revenue which will allow operators to quickly evaluate the impact of promotions, new products or price changes and adjust staffing levels at any time. NCR also introduced Usherman™ a new application that increases a theater's speed of service by enabling ushers to scan and retrieve ticket information at any location in the theater.
In Emerging Industries, NCR continued to advance its self-service technologies across key verticals. In travel, NCR was selected by Nasair, the first low-fare airline in the Kingdom of Saudi Arabia, to design, deliver and support of its full service mobile website that will allow travelers to reserve and purchase tickets, update reservation details and inquire about flight schedule.
In addition, NCR's Credential Authentication Technology - Boarding Pass Scanning System (CAT/BPSS) was selected by the U.S. Transportation Security Administration (TSA) for use in a pilot program that aims to automatically verify passenger identification documents and boarding passes. CAT/BPSS utilizes a computerized system that reads and analyzes data and embedded security features on passenger IDs and boarding passes to identify fraudulent credentials.
In the Telecom/Technology vertical, NCR achieved Data Center Unified Computing Authorized Technology Provider (ATP) status from Cisco. This designation recognizes NCR as having fulfilled the training and program prerequisites to sell, deploy and support the Cisco Unified Computing System. With the designation, NCR will be able to help meet significant market demand for cloud computing services from telecom carriers and enterprises across the quickly growing MEA region.
NCR's global services business continues to grow its global footprint. NCR is partnering with Foresight Technologies, a data center consultancy firm in UAE and Pakistan, to offer a range of independent data center design consultancy services in the high growth Middle East and Africa region. NCR and Foresight will be offering independent data center review, environmental assessment, design and design validation, compliance audit, certification and training services in the MEA region.
Fourth-Quarter 2011 Financial Highlights
Loss from operations was $10 million in the fourth quarter of 2011, which included $56 million of pension expense, a $98 million impairment charge related to the Entertainment line of business, $5 million of acquisition related transaction costs, $1 million of acquisition related severance costs and $9 million of acquisition related amortization of intangible assets. This compares to $54 million of income from operations in the fourth quarter of 2010, which included $52 million of pension expense and an $8 million litigation charge. Excluding these items, non-GAAP income from operations(2) was $159 million in the fourth quarter of 2011 compared to $114 million in the fourth quarter of 2010.
Net cash provided by operating activities was $270 million during the fourth quarter of 2011 compared to $182 million in the year-ago period. Cash from operating activities in the fourth quarter of 2011 was positively impacted by improvement in working capital period-over-period. Net capital expenditures of $35 million in the fourth quarter of 2011 decreased from $53 million in the fourth quarter of 2010, primarily due to a lower level of investment in the Entertainment line of business. Discontinued operations resulted in $6 million of cash outflow in the fourth quarter of 2011 compared to $14 million of cash inflow in the fourth quarter of 2010, largely a result of lower insurance recoveries compared to the prior year period. Free cash flow (net cash from operations and discontinued operations, less capital expenditures for property, plant and equipment, and additions to capitalized software)(3) was $229 million in the fourth quarter of 2011, compared to $143 million in the fourth quarter of 2010.
NCR contributed approximately $125 million to its international and executive pension plans in 2011 and expects to contribute approximately $215 million in 2012. The net funded status of the company's global pension plans was approximately $(1.3) billion as of December 31, 2011.
Other expense, net was $16 million in the fourth quarter of 2011 compared to other expense, net, of $14 million in the prior year period mainly due to higher interest expense in the current period and an impairment charge related to an investment recorded in the fourth quarter of 2010.
Income tax benefit was $10 million in the fourth quarter of 2011 compared to income tax expense of $8 million in the fourth quarter of 2010.
NCR ended the fourth quarter of 2011 with $398 million in cash and cash equivalents compared to a balance of $341 million as of September 30, 2011. As of December 31, 2011, NCR had a long term debt balance of $852 million compared to a long term debt balance of $1.061 billion as of September 30, 2011.
NCR expects full-year 2012 revenues to increase in the range of 7 to 9 percent on a constant currency basis compared with 2011. NCR expects its full-year 2012 Income from Operations (GAAP) to be $360 million to $375 million, non-pension operating income (NPOI)(2) to be in the range of $560 to $575 million, GAAP diluted earnings per share to be in the range of $1.47 to $1.54 and non-GAAP diluted earnings per share(2) to be in the range of $2.36 to $2.43 per diluted share. The 2012 non-GAAP diluted EPS guidance excludes estimated pension expense of $165 million (approximately $119 million after-tax) compared with actual pension expense of $222 million ($155 million after-tax) in 2011 and amortization of intangibles from the Radiant acquisition of approximately $35 million ($24 million after tax). NCR expects approximately $40 million of Other Expense, net including interest expense in 2012 and its full-year 2012 effective income tax rate to be approximately 27 percent.
The company expects first quarter 2012 non-pension operating income (NPOI)(2) to be in the range of $85 million to $90 million, compared to $59 million in the first quarter of 2011.
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