Market Overview

NCR Announces Second Quarter 2018 Results

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NCR Corporation (NYSE:NCR) reported financial results today for the
three months ended June 30, 2018. Second quarter highlights include:

  • Revenue of $1.54 billion, down 4% as reported
  • Software revenue up 1% driven by cloud revenue growth of 7%
  • GAAP diluted EPS of $(1.31); Non-GAAP diluted EPS of $0.65
  • Services revenue up 4% and gross margin expansion of 70 basis points
  • Additional $200 million share repurchase authorized
  • Guidance reduced for full year 2018

"Second quarter results were mixed and given current execution
challenges we are lowering our full year outlook," said Michael Hayford,
President and Chief Executive Officer. "I spent my first ninety days
engaging with customers and employees around the world and am excited
about our long-term growth profile. We are taking a number of steps to
address current challenges with the goal of accelerating our growth and
driving improved utilization of our resources. We added new members to
our executive leadership team and made other organizational changes that
are focused on improving the quality and delivery of our solutions,
simplifying our business, and putting a greater focus on customer voice
and success."

Hayford continued, "NCR's business model is sound and is supported by
our global scale and ability to power transactions across multiple
attractive markets. We will continue to lead with compelling software
and services offerings that drive competitive advantage, diversify our
revenue streams, and develop customer loyalty, while streamlining our
costs. Execution of this strategy and building upon our global
leadership will best position NCR to deliver sustainable shareholder
value creation. Our focus on innovation will continue, but in the near
term our priority will be on resolving our execution challenges."

In this release, we use certain non-GAAP measures, including presenting
certain measures on a constant currency basis. These non-GAAP measures
include free cash flow and others with the words "non-GAAP," or
"constant currency" in their titles. These non-GAAP measures are listed,
described, and reconciled to their most directly comparable GAAP
measures, under the heading "Non-GAAP Financial Measures" later in this
release.

Second Quarter 2018 Operating Results

Revenue

Second quarter revenue of $1.54 billion was down
4% year-over-year. Foreign currency fluctuations had a favorable impact
on the revenue comparison of 1%.

The following table shows the revenue by segment for the second quarter:

$ in millions   2018   2017   % Change  

% Change
Constant
Currency

Software License $ 68 $ 77 (12 %) (13 %)
Software Maintenance 93 91 2 % 1 %
Cloud 155 145 7 % 7 %
Professional Services 154   151   2 % %
Software Revenue $ 470   $ 464   1 % %
 
Services Revenue $ 610 $ 588 4 % 3 %
 
ATM $ 180 $ 227 (21 %) (22 %)
SCO 99 96 3 % 3 %
POS 178 213 (16 %) (18 %)
IPS   5   (100 %) (100 %)
Hardware Revenue $ 457   $ 541   (16 %) (17 %)
   
Total Revenue $ 1,537   $ 1,593   (4 %) (5 %)
 

Software revenue was up 1% driven by cloud revenue growth of 7%.
Software license revenue declined 12% primarily due to lower Hardware
sales and unattached software licenses.

Services revenue was up 4% driven by hardware maintenance and
implementation services growth, as well as continued momentum in managed
service offerings.

Hardware revenue was down 16%. ATM revenue declined 21% primarily due to
supply constraints related to higher than expected demand for new
products. ATM orders increased for the second consecutive quarter, which
is expected to drive improved revenue performance in the back half of
the year. SCO revenue increased 3% due to the timing of customer
roll-outs. POS revenue decreased 16% in the quarter compared to growth
of 18% in the prior year, which benefited from several large customer
roll-outs.

Gross Margin

Second quarter gross margin of $403 million was down from $461 million
in the prior year period. Gross margin rate was 26.2%, down from 28.9%.
The decrease in gross margin was primarily due to $41 million of costs
incurred related to our restructuring and transformation initiatives.
Second quarter gross margin (non-GAAP) of $449 million was down from
$477 million in the prior year period. Gross margin rate (non-GAAP) was
29.2%, down from 29.9%. The decrease in gross margin (non-GAAP) was
primarily due to lower software license and Hardware revenues, offset by
continued focus on productivity improvements in our Services segment.

Expenses

Second quarter operating expenses of $509 million increased from $286
million in the prior year period. The increase in operating expenses
(GAAP) was primarily due to $183 million of asset impairment charges
described below and $25 million of costs incurred related to
restructuring and transformation initiatives. Second quarter operating
expenses (non-GAAP) of $284 million increased from $265 million. The
increase in operating expenses (non-GAAP) was due to continued
investment in the business to improve execution.

Operating Income

Second quarter loss from operations of $106 million decreased from
income from operations of $175 million in the prior year period. The
decrease in income from operations was primarily due to $183 million of
asset impairment charges described below and $66 million of costs
incurred related to restructuring and transformation initiatives. Second
quarter operating income (non-GAAP) of $165 million decreased from $212
million. Operating income (non-GAAP) reflected lower software license
and Hardware revenue and continued investment in the business, partially
offset by continued Services margin expansion.

Other (Expense)

Second quarter other (expense) and other (expense) (non-GAAP) of $50
million increased from $45 million compared to the prior year period.

Income Tax Expense

Second quarter income tax benefit of $12 million decreased from expense
of $33 million compared to the prior year period. The second quarter
effective income tax rate was 8% compared to 25% in the prior year.
Second quarter income tax expense (non-GAAP) of $18 million decreased
from $45 million in the prior year period. The second quarter effective
income tax rate (non-GAAP) was 16% compared to 27% in the prior year.
Income tax expenses decreased due to lower income before taxes in the
quarter, favorable audit settlements and the impact of U.S. Tax Reform.

Net Income from Continuing Operations Attributable to NCR

Second quarter net loss from continuing operations attributable to NCR
of $143 million decreased from net income of $97 million in the prior
year period. Second quarter net income from continuing operations
attributable to NCR (non-GAAP) of $97 million decreased from $122
million in the prior year.

Cash Flow

Second quarter cash provided by operating activities of $119 million
increased from cash provided by operating activities of $95 million in
the prior year period. Free cash flow was $27 million in the second
quarter of 2018 as compared to $18 million in the second quarter of
2017. The increases were due to working capital improvements, primarily
in accounts receivable.

Non-Cash Charges

In the second quarter of 2018, the Company recorded pre-tax asset
impairment charges of approximately $183 million due to expected lower
operating performance of the Hardware business. These non-cash charges
included a $146 million pre-tax impairment of goodwill assigned to the
Hardware operating segment, for which no goodwill remains after this
impairment, and a $37 million pre-tax impairment charge related to
long-lived assets held and used in our Hardware operations.

Restructuring and Transformation Initiatives

Our previously announced restructuring and transformation initiatives
continue to progress on track. In Services, our Mission One performance
and profit improvement program continues to deliver revenue growth and
margin expansion. In Hardware, we are moving to a more variable cost
structure by reducing the number of manufacturing plants and increasing
the use of contract manufacturers. We will continue to manage our costs
and seek to capture operational efficiencies, as part of the normal
course of business.

As part of these initiatives, in the second quarter of 2018 we incurred
a $66 million pre-tax charge and $22 million of cash payments. In the
six months ended June 30, 2018, we incurred a $82 million pre-tax charge
and $36 million of cash payments. Our outlook remains unchanged and we
still expect to incur a pre-tax charge over the next two years in the
range of approximately $200 million to $250 million, with $100 million
to $150 million in 2018, which will be included in income from
operations. The cash impact is still expected to be approximately $150
million to $200 million over the next two years, with $100 million in
2018. We plan to achieve run-rate savings of approximately $150 million
per year by 2020. The estimate of the pre-tax charges and cash impact
has been included in our 2018 GAAP diluted earnings per share and free
cash flow guidance.

Share Repurchase Program

NCR has repurchased shares of its common stock for approximately $45
million in the second quarter and $210 million in the first half of 2018
of the previously authorized $300 million share repurchase program.

Additionally, on July 25, 2018, the Company's board of directors
authorized an incremental $200 million of share repurchases. The timing
and amount of any repurchases under the program will depend upon market
conditions and will be made at the Company's discretion. Repurchases
under the program may be made from time to time in the open market,
private transactions, accelerated stock repurchase programs, issuer
self-tenders or otherwise, and may be discontinued at any time.

Full Year 2018 Outlook

We are reducing our full year 2018 guidance. The execution challenges
surrounding product introductions, including supply chain constraints,
is negatively impacting our revenue and costs versus our previous
expectations. We are focused on improving execution in the current year
to benefit 2019. Foreign currency has negatively impacted our revenue
guidance by approximately $90 million and non-GAAP diluted earnings per
share by approximately $0.08 from the previous quarter guidance. We now
expect revenue growth to be (1)% to (3)%, (previous guidance of 0% to
3%). In addition to foreign currency, we have experienced softness in
our Hardware revenue and to a lesser extent in our Software business,
primarily due to execution challenges. Our view of ATM revenue growth is
unchanged at roughly flat for the year and is supported by strong
backlog.

GAAP diluted earnings per share is now expected to be $0.07 to $0.65
(previous guidance of $2.08 to $2.48), and non-GAAP diluted earnings per
share to be $2.55 to $2.75 (previous guidance of $3.30 to $3.45). The
decreases in diluted earnings per share is due to lower revenue,
decreased gross margin rates in our Hardware business and continued
investment to improve our execution. GAAP diluted earnings per share has
also been impacted by the asset impairment charges described above.
Non-GAAP diluted earnings per share guidance assumes an effective tax
rate of 23% for 2018 compared to 25% in 2017. The decrease is due to the
expected impact of U.S. Tax Reform. Free cash flow is now expected to
be $300 million to $350 million or approximately 80% - 90% of non-GAAP
net income.

We expect approximately two-thirds of the full year decrease in non-GAAP
diluted earnings per share guidance to impact the third quarter of 2018.
We expect costs and expenses to be higher in the third quarter as we
address our execution and supply challenges. Revenue is expected to be
higher in the fourth quarter as the supply constraints are resolved and
the higher backlog converts to revenue.

2018 Second Quarter Earnings Conference Call

A conference call is scheduled for today at 4:30 p.m. (EDT) to discuss
the second quarter 2018 results and guidance for full year 2018. Access
to the conference call and accompanying slides, as well as a replay of
the call, are available on NCR's web site at http://investor.ncr.com/.
Additionally, the live call can be accessed by dialing 888-820-9413
(United States/Canada Toll-free) or 786-460-7169 (International Toll)
and entering the participant passcode 9669386.

More information on NCR's Q2 2018 earnings, including additional
financial information and analysis, is available on NCR's Investor
Relations website at http://investor.ncr.com/.

About NCR Corporation

NCR Corporation (NYSE:NCR) is a leader in omni-channel solutions,
turning everyday interactions with businesses into exceptional
experiences. With its software, hardware, and portfolio of services, NCR
enables nearly 700 million transactions daily across financial, retail,
hospitality, travel, telecom and technology industries. NCR solutions
run the everyday transactions that make your life easier. NCR is
headquartered in Atlanta, Ga., with about 30,000 employees and does
business in 180 countries. NCR is a trademark of NCR Corporation in the
United States and other countries. NCR encourages investors to visit its
website which is updated regularly with financial and other important
information about NCR.

Website: www.ncr.com
Twitter:
@NCRCorporation
Facebook:
www.facebook.com/ncrcorp
LinkedIn:
https://www.linkedin.com/company/ncr-corporation
YouTube:
www.youtube.com/user/ncrcorporation

Note to Investors This release contains forward-looking
statements. Forward-looking statements use words such as "expect,"
"anticipate," "outlook," "intend," "plan," "believe," "will," "should,"
"would," "could," and words of similar meaning. Statements that describe
or relate to NCR's future growth, plans, goals, intentions, strategies,
or financial outlook, and statements that do not relate to historical or
current fact, are examples of forward-looking statements. The
forward-looking statements in this release include statements about
NCR's plans for further share repurchases; NCR's revised financial
guidance and outlook (including the sections entitled "Full Year 2018
Outlook" and the expected type and magnitude of the non-operational
adjustments included in any forward-looking non-GAAP measures; NCR's
execution challenges and execution strategy; NCR's expected areas of
focus to drive growth and create long-term shareholder value; NCR's
software and services offerings; NCR's plans to diversify revenue and
streamline costs; NCR's global leadership; expectations regarding ATM
revenues and overall revenue in the second half of 2018; expectations
for accelerating recurring revenue; NCR's expected free cash flow
generation and capital allocation strategy; and expected impact of NCR's
previously announced restructuring and transformation activities.
Forward-looking statements are based on our current beliefs,
expectations and assumptions, which may not prove to be accurate, and
involve a number of known and unknown risks and uncertainties, many of
which are out of NCR's control. Forward-looking statements are not
guarantees of future performance, and there are a number of important
factors that could cause actual outcomes and results to differ
materially from the results contemplated by such forward-looking
statements, including those factors relating to: the strength of demand
for ATMs and other financial services hardware and its effect on the
results of our businesses and reportable segments; domestic and global
economic and credit conditions including, in particular, those resulting
from the imposition or threat of protectionist trade policies or import
or export tariffs, global and regional market conditions and spending
trends in the financial services and retail industries, new
comprehensive U.S. tax legislation, modified or new global or regional
trade agreements, the determination by the United Kingdom to exit the
European Union, uncertainty over further potential changes in Eurozone
participation and fluctuations in oil and commodity prices; the
transformation of our business model and our ability to sell
higher-margin software and services; our ability to improve execution in
our sales and services organizations; our ability to successfully
introduce new solutions and compete in the information technology
industry; cybersecurity risks and compliance with data privacy and
protection requirements; the possibility of disruptions in or problems
with our data center hosting facilities; defects or errors in our
products; the impact of our indebtedness and its terms on our financial
and operating activities; the historical seasonality of our sales; tax
rates and new US tax legislation; foreign currency fluctuations; the
success of our restructuring plans and cost reduction initiatives,
including those in our Hardware segment; manufacturing disruptions,
including those caused by or related to outsourced manufacturing; the
availability and success of acquisitions, divestitures and alliances;
our pension strategy and underfunded pension obligation; reliance on
third party suppliers; the impact of the terms of our strategic
relationship with Blackstone and our Series A Convertible Preferred
Stock; our multinational operations, including in new and emerging
markets; collectability difficulties in subcontracting relationships in
certain geographical markets; development and protection of intellectual
property; workforce turnover and the ability to attract and retain
skilled employees; uncertainties or delays associated with the
transition of key business leaders; environmental exposures from our
historical and ongoing manufacturing activities; and uncertainties with
regard to regulations, lawsuits, claims, and other matters across
various jurisdictions. Additional information concerning these and other
factors can be found in the Company's filings with the U.S. Securities
and Exchange Commission, including the Company's most recent annual
report on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8- K. Any forward-looking statement speaks only as of the date
on which it is made. 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.

Non-GAAP Financial Measures

Non-GAAP Financial Measures. While NCR reports its results in
accordance with Generally Accepted Accounting Principles in the United
States, or GAAP, in this release NCR also uses the non-GAAP measures
listed and described below.

Non-GAAP Diluted Earnings Per Share (EPS), Gross Margin (non-GAAP),
Gross Margin Rate (non-GAAP), Operating Expenses (non-GAAP), Operating
Income (non-GAAP), Operating Margin Rate (non-GAAP), Other (Expense)
(non-GAAP), Income Tax Expense (non-GAAP), Effective Income Tax Rate
(non-GAAP), and Net Income from Continuing Operations Attributable to
NCR (non-GAAP).
NCR's non-GAAP diluted EPS, gross margin (non-GAAP),
gross margin rate (non-GAAP), operating expenses (non-GAAP), operating
income (non-GAAP), operating margin rate (non-GAAP), other (expense)
(non-GAAP), income tax expense (non-GAAP), effective income tax rate
(non-GAAP), and net income from continuing operations attributable to
NCR (non-GAAP) are determined by excluding, as applicable, pension
mark-to-market adjustments, pension settlements, pension curtailments
and pension special termination benefits and other special items,
including amortization of acquisition related intangibles, from NCR's
GAAP earnings per share, gross margin, gross margin rate, expenses,
income from operations, operating margin rate, other (expense), income
tax expense, effective income tax rate and net income from continuing
operations attributable to NCR, respectively. Due to the non-operational
nature of these pension and other special items, NCR's management uses
these non-GAAP measures to evaluate year-over-year operating
performance. NCR also uses operating income (non-GAAP) and diluted EPS
(non-GAAP), to manage and determine the effectiveness of its business
managers and as a basis for incentive compensation. NCR believes these
measures are useful for investors because they provide a more complete
understanding of NCR's underlying operational performance, as well as
consistency and comparability with NCR's past reports of financial
results.

Free Cash Flow and Free Cash Flow as a Percentage of Non-GAAP Net
Income (or Free Cash Flow Conversion Rate).
NCR defines free cash
flow as net cash provided by/used in operating activities and cash flow
provided by/used in discontinued operations less capital expenditures
for property, plant and equipment, additions to capitalized software,
discretionary pension contributions and pension settlements. NCR's
management uses free cash flow to assess the financial performance of
the Company and believes it is useful for investors because it relates
the operating cash flow of the Company to the capital that is spent to
continue and improve business operations. In particular, free cash flow
indicates the amount of cash generated after capital expenditures, which
can be used for, among other things, investment in the Company's
existing businesses, strategic acquisitions, strengthening the Company's
balance sheet, repurchase of Company stock and repayment of the
Company's debt obligations. Free cash flow does not represent the
residual cash flow available for discretionary expenditures since there
may be other nondiscretionary expenditures that are not deducted from
the measure. NCR also describes the ratio of free cash flow to non-GAAP
net income (or free cash flow conversion rate), which is calculated as
free cash flow divided by non-GAAP net income. NCR's management targets
an annual free cash flow conversion rate at or above the range described
in this release because management believes that a conversion rate at or
above that range represents the efficient conversion of non-GAAP net
income to free cash flow for its business. Free cash flow and free cash
flow conversion rate do not have uniform definitions under GAAP and,
therefore, NCR's definitions may differ from other companies'
definitions of these measures.

Constant Currency. NCR presents certain financial measures, such
as period-over-period revenue growth, on a constant currency basis,
which excludes the effects of foreign currency translation by
translating prior period results at current period monthly average
exchange rates. Due to the overall variability of foreign exchange rates
from period to period, NCR's management uses constant currency measures
to evaluate period-over-period operating performance on a more
consistent and comparable basis. NCR's management believes that
presentation of financial measures without this result is more
representative of the company's period-over-period operating
performance, and provides additional insight into historical and/or
future performance, which may be helpful for investors.

NCR's definitions and calculations of these non-GAAP measures may differ
from similarly-titled measures reported by other companies and cannot,
therefore, be compared with similarly-titled measures of other
companies. These non-GAAP measures should not be considered as
substitutes for, or superior to, results determined in accordance with
GAAP. These non-GAAP measures are reconciled to their most directly
comparable GAAP measures in the tables below.

 

Reconciliation of Gross Margin (GAAP) to Gross Margin (non-GAAP)

 
$ in millions Q2 2018 Q2 2017
Gross Margin (GAAP) $ 403 $ 461
Transformation & Restructuring costs 41 4
Acquisition-related amortization of intangibles 5   12
Gross Margin (Non-GAAP) $ 449   $ 477
 
   

Reconciliation of Gross Margin Rate (GAAP) to Gross Margin Rate
(non-GAAP)

 
Q2 2018 Q2 2017
Gross Margin Rate (GAAP) 26.2 % 28.9 %
Transformation and Restructuring costs 2.7 % 0.3 %
Acquisition-related amortization of intangibles 0.3 % 0.7 %
Gross Margin Rate (Non-GAAP) 29.2 % 29.9 %
 
   

Reconciliation of Operating Expenses (GAAP) to Operating
Expenses (non-GAAP)

 
$ in millions Q2 2018 Q2 2017
Operating Expenses (GAAP) $ 509 $ 286
Transformation and Restructuring costs (25 ) (4 )
Asset impairment charges (183 )
Acquisition-related amortization of intangibles (16 ) (16 )
Acquisition-related costs (1 ) (1 )
Operating Expenses (Non-GAAP) $ 284   $ 265  
 
   

Reconciliation of Income from Operations (GAAP) to Operating
Income (non-GAAP)

 
$ in millions Q2 2018 Q2 2017
(Loss) Income from Operations (GAAP) $ (106 ) $ 175
Transformation and Restructuring costs 66 8
Asset impairment charges 183
Acquisition-related amortization of intangibles 21 28
Acquisition-related costs 1   1
Operating Income (Non-GAAP) $ 165   $ 212
 
   

Reconciliation of Income Tax Expense (GAAP) to Income Tax
Expense (non-GAAP)

 
$ in millions Q2 2018 Q2 2017
Income Tax (Benefit) Expense (GAAP) $ (12 ) $ 33
Transformation and Restructuring costs 16 2
Asset impairment charges 8
Acquisition-related amortization of intangibles 4 9
Acquisition-related costs 1
Impact of U.S. tax reform 2  
Income Tax Expense (Non-GAAP) $ 18   $ 45
 
   

Reconciliation of Net Income (Loss) from Continuing Operations
Attributable to NCR (GAAP) to

Net Income from
Continuing Operations Attributable to NCR (non-GAAP)

 
$ in millions Q2 2018 Q2 2017
Net (Loss) Income from Continuing Operations Attributable to NCR
(GAAP)
$ (143 ) $ 97
Transformation and Restructuring costs 50 6
Asset impairment charges 174
Acquisition-related amortization of intangibles 17 19
Acquisition-related costs 1
Impact of U.S. tax reform (2 )
Net Income from Continuing Operations Attributable to NCR
(Non-GAAP)
$ 97   $ 122
 
       

Reconciliation of Diluted Earnings (Loss) Per Share (GAAP) to
Non-GAAP Diluted Earnings Per Share (non-GAAP)

 

Q2 2018
Actual

Q2 2017
Actual

Current FY 2018
Guidance (2)

Prior FY 2018
Guidance (2)

Diluted Earnings (Loss) Per Share (GAAP) (1) $ (1.31 ) $ 0.64 $0.07- $0.65 $2.08 - $2.48
Transformation & Restructuring costs 0.34 0.04 0.50 - 0.75 0.50 - 0.75
Asset impairment charges 1.17 1.16
Acquisition-related amortization of intangibles 0.11 0.12 0.42 0.42
Acquisition-related costs 0.01 0.05 0.05
Impact of U.S. tax reform (0.01 )
Diluted Earnings Per Share (non-GAAP) (1) $ 0.65 $ 0.80 $2.55- $2.75 $3.30 - $3.45
(1) Non-GAAP diluted EPS is determined using the conversion of the
Series A Convertible Preferred Stock into common stock in the
calculation of weighted average diluted shares outstanding. GAAP EPS
is determined using the most dilutive measure, either including the
impact of dividends or deemed dividends on the Company's Series A
Convertible Preferred Stock in the calculation of net income or loss
available to common stockholders or including the impact of the
conversion of the Series A Convertible Preferred Stock into common
stock in the calculation of the weighted average diluted shares
outstanding. Therefore, GAAP diluted EPS and non-GAAP diluted EPS
may not mathematically reconcile.
(2) Except for the adjustments noted herein, this guidance does not
include the effects of any future acquisitions/divestitures, pension
mark-to-market adjustments, taxes or other events, which are
difficult to predict and may or may not be significant.
     

Reconciliation of Net Cash Provided by Operating Activities
(GAAP) to Free Cash Flow (non-GAAP)

 
$ in millions

Q2 2018
QTD

Q2 2017
QTD

Current 2018
Guidance

Net cash provided by operating activities $ 119 $ 95 $690 - $720
Total capital expenditures (85 ) (75 ) (330) - (350)
Net cash used in discontinued operations (7 ) (2 ) (40)
Free cash inflow $ 27   $ 18   $300 - $350
Note: Capital expenditures in Q2 2018 and Q2 2017 included $22
million and $16 million, respectively, related to our new world
headquarters. Net cash provided by operating activities in Q2 2018
and Q2 2017 included $14 million and $22 million, respectively, of
reimbursement from the landlord.
 
 

Reconciliation of Revenue Growth % (GAAP) to
Revenue
Growth Constant Currency % (non-GAAP)

 
Three months ended June 30, 2018

Revenue
Growth %
(GAAP)

 

Favorable
(unfavorable)
FX impact

 

Revenue
Growth
Constant
Currency %
(non-GAAP)

Software License (12)% 1% (13)%
Software Maintenance 2% 1% 1%
Cloud 7% —% 7%
Professional Services 2% 2% —%
Software 1% 1% —%
Services 4% 1% 3%
ATMs (21)% 1% (22)%
SCO 3% —% 3%
POS (16)% 2% (18)%
IPS (100)% —% (100)%
Hardware (16)% 1% (17)%
Total Revenue (4)% 1% (5)%
 
 

Schedule A

NCR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in
millions, except per share amounts)

  For the Periods Ended June 30
Three Months   Six Months
2018   2017 2018   2017
Revenue
Products $ 525 $ 618 $ 1,051 $ 1,172
Services 1,012   975   2,003   1,899  
Total Revenue 1,537 1,593 3,054 3,071
Cost of products 451 478 871 902
Cost of services 683   654   1,360   1,296  
Total gross margin 403 461 823 873
% of Revenue 26.2 % 28.9 % 26.9 % 28.4 %
Selling, general and administrative expenses 261 228 506 458
Research and development expenses 65 58 131 125
Asset impairment charges 183     183    
(Loss) Income from operations (106 ) 175 3 290
% of Revenue (6.9 )% 11.0 % 0.1 % 9.4 %
Interest expense (41 ) (41 ) (82 ) (80 )
Other (expense), net (9 ) (4 ) (14 ) (9 )
Total other (expense), net (50 ) (45 ) (96 ) (89 )
(Loss) Income before income taxes and discontinued operations (156 ) 130 (93 ) 201
% of Revenue (10.1 )% 8.2 % (3.0 )% 6.5 %
Income tax (benefit) expense (12 ) 33   (5 ) 47  
(Loss) Income from continuing operations (144 ) 97 (88 ) 154
(Loss) Income from discontinued operations, net of tax (2 ) 5   (37 ) 5  
Net (loss) income (146 ) 102 (125 ) 159
Net loss attributable to noncontrolling interests (1 )      
Net (loss) income attributable to NCR $ (145 ) $ 102   $ (125 ) $ 159  
Amounts attributable to NCR common stockholders:
(Loss) income from continuing operations $ (143 ) $ 97 $ (88 ) $ 154
Dividends on convertible preferred stock (12 ) (12 ) (24 ) (24 )
Deemed dividend on modification of convertible preferred stock (4 )
Deemed dividend on convertible preferred shares related to redemption       (58 )
Net (loss) income from continuing operations attributable to NCR
common stockholders
(155 ) 85 (112 ) 68
(Loss) income from discontinued operations, net of tax (2 ) 5   (37 ) 5  
Net (loss) income attributable to NCR common stockholders $ (157 ) $ 90 $ (149 ) $ 73
Net (loss) income per share attributable to NCR common
stockholders:
Net (loss) income per common share from continuing operations
Basic $ (1.31 ) $ 0.70   $ (0.94 ) $ 0.56  
Diluted $ (1.31 ) $ 0.64   $ (0.94 ) $ 0.53  
Net (loss) income per common share
Basic $ (1.33 ) $ 0.74   $ (1.26 ) $ 0.60  
Diluted $ (1.33 ) $ 0.67   $ (1.26 ) $ 0.57  
Weighted average common shares outstanding
Basic 117.9 121.4 118.6 122.1
Diluted 117.9 152.7 118.6 127.2
 
(1) Diluted EPS is determined using the most dilutive measure, either
including the impact of the dividends and deemed dividends on NCR's
Series A Convertible Preferred Shares in the calculation of net
income or loss per common share from continuing operations and net
income or loss per common share or including the impact of the
conversion of such preferred stock into common stock in the
calculation of the weighted average diluted shares outstanding.
 

Schedule B

NCR CORPORATION
REVENUE AND OPERATING INCOME SUMMARY
(Unaudited)

(in millions)

 

 
  For the Periods Ended June 30
Three Months   Six Months
2018   2017   % Change  

%
Change
Constant
Currency

2018   2017   % Change  

%
Change
Constant
Currency

Revenue by segment

Software

$ 470 $ 464 1% —% $ 930 $ 916 2% —%
Software Gross Margin Rate 47.4 % 48.9 % 47.6 % 50.1 %
Services 610 588 4% 3% 1,211 1,145 6% 3%
Services Gross Margin Rate 25.9 % 25.2 % 24.9 % 23.5 %
Hardware 457 541 (16)% (17)% 913 1,010 (10)% (12)%
Hardware Gross Margin Rate 14.9 % 18.9 % 14.8 % 17.8 %
Total Revenue $ 1,537   $ 1,593   (4)% (5)% $ 3,054   $ 3,071   (1)% (3)%
Gross Margin Rate 29.2 % 29.9 % 28.8 % 29.6 %
Operating income by segment
Software $ 115 $ 127 $ 224 $ 251
% of Revenue 24.5 % 27.4 % 24.1 % 27.4 %
Services 77 74 139 118
% of Revenue 12.6 % 12.6 % 11.5 % 10.3 %
Hardware (27 ) 11 (50 ) 1
% of Revenue (5.9 )% 2.0 % (5.5 )% 0.1 %
Subtotal-segment operating income $ 165   $ 212   $ 313   $ 370  
% of Revenue 10.7 % 13.3 % 10.2 % 12.0 %
Other adjustments (1) 271   37   310   80  
Total income (loss) from operations $ (106 ) $ 175   $ 3   $ 290  
 
 

(1) The following table presents the other adjustments for NCR:

 
For the Periods Ended June 30
Three Months   Six Months
In millions 2018   2017 2018   2017
Transformation and restructuring costs $ 66 $ 8 $ 82 $ 21
Asset impairment charges 183 183
Acquisition-related amortization of intangible assets 21 28 44 57
Acquisition-related costs 1   1   1   2
Total other adjustments $ 271   $ 37   $ 310   $ 80
 

Schedule C

NCR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

(in millions, except per share amounts)

  June 30,
2018
 

March 31,
2018

  December 31,
2017
Assets
Current assets
Cash and cash equivalents $ 343 $ 348 $ 537
Accounts receivable, net 1,272 1,338 1,270
Inventories 842 822 780
Other current assets 282   283   243  
Total current assets 2,739   2,791   2,830  
Property, plant and equipment, net 326 338 341
Goodwill 2,590 2,746 2,741
Intangibles, net 517 556 578
Prepaid pension cost 127 129 118
Deferred income taxes 472 474 460
Other assets 593   607   586  
Total assets $ 7,364   $ 7,641   $ 7,654  
Liabilities and stockholders' equity
Current liabilities
Short-term borrowings $ 160 $ 34 $ 52
Accounts payable 711 697 762
Payroll and benefits liabilities 229 190 219
Contract liabilities 469 538 458
Other current liabilities 310   385   398  
Total current liabilities 1,879   1,844   1,889  
Long-term debt 2,952 3,038 2,939
Pension and indemnity plan liabilities 796 810 798
Postretirement and postemployment benefits liabilities 132 133 133
Income tax accruals 127 131 148
Other liabilities 258   245   200  
Total liabilities 6,144   6,201   6,107  
Redeemable noncontrolling interests 12 16 15
Series A convertible preferred stock: par value $0.01 per share, 3.0
shares authorized, 0.8 shares issued and outstanding as of June 30,
2018, March 31, 2018 and December 31, 2017
834 822 810
Stockholders' equity
NCR stockholders' equity:
Preferred stock: par value $0.01 per share, 100.0 shares authorized,
no shares issued and outstanding as of June 30, 2018, March 31, 2018
and December 31, 2017
Common stock: par value $0.01 per share, 500.0 shares authorized,
117.7, 118.3 and 122.0 shares issued and outstanding as of June 30,
2018, March 31, 2018 and December 31, 2017
1 1 1
Paid-in capital 60
Retained earnings 594 782 857
Accumulated other comprehensive loss (224 ) (184 ) (199 )
Total NCR stockholders' equity 371 599 719
Noncontrolling interests in subsidiaries 3   3   3  
Total stockholders' equity 374   602   722  
Total liabilities and stockholders' equity $ 7,364   $ 7,641   $ 7,654  
 
 

Schedule D

NCR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(in millions)

 

  For the Periods Ended June 30
Three Months   Six Months
2018   2017 2018   2017
Operating activities
Net (loss) income $ (146 ) $ 102 $ (125 ) $ 159
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Loss (income) from discontinued operations 2 (5 ) 37 (5 )
Depreciation and amortization 85 87 171 172
Stock-based compensation expense 26 22 40 41
Deferred income taxes (3 ) 7 1 4
Gain on sale of property, plant and equipment and other assets (1 ) (1 )
Impairment of long-lived and other assets 193 193
Changes in assets and liabilities:
Receivables 73 (11 ) (41 ) (28 )
Inventories (46 ) (25 ) (88 ) (126 )
Current payables and accrued expenses 20 (11 ) (57 ) (93 )
Contract liabilities (75 ) (46 ) 50
Employee benefit plans (5 ) (9 ) (8 ) (6 )
Other assets and liabilities (5 ) (15 ) (28 ) (33 )
Net cash provided by operating activities 119   95   95   134  
Investing activities
Expenditures for property, plant and equipment (41 ) (32 ) (70 ) (43 )
Additions to capitalized software (44 ) (43 ) (86 ) (84 )
Other investing activities, net   1   (3 )  
Net cash used in investing activities (85 ) (74 ) (159 ) (127 )
Financing activities
Short term borrowings, net 3 10 2 13
Payments on term credit facilities (14 ) (34 ) (25 )
Payments on revolving credit facilities (515 ) (420 ) (1,013 ) (615 )
Borrowings on revolving credit facilities 550 375 1,163 855
Repurchases of Company common stock (45 ) (210 ) (350 )
Proceeds from employee stock plans 6 5 11 8
Tax withholding payments on behalf of employees (18 ) (2 ) (29 ) (24 )
Other financing activities   (1 )   (1 )
Net cash used in financing activities (19 ) (47 ) (110 ) (139 )
Cash flows from discontinued operations
Net cash used in discontinued operations (7 ) (2 ) (11 ) (5 )
Effect of exchange rate changes on cash and cash equivalents (13 ) 4   (8 ) 12  
Decrease in cash, cash equivalents, and restricted cash (5 ) (24 ) (193 ) (125 )
Cash, cash equivalents and restricted cash at beginning of period 355   406   543   507  
Cash, cash equivalents, and restricted cash at end of period $ 350   $ 382   $ 350   $ 382  
 

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