NCR Q3 earnings soar

The 3 percent revenue increase from the third quarter of 2004 was benefited by 1 percentage point from currency fluctuations. Revenue comparisons for each of NCR's businesses were benefited by approximately 1 percentage point.

NCR reported third-quarter net income of $222 million, or $1.18 per share. This included the benefit of $137 million from the favorable settlement of prior-year tax audits. Excluding the tax item, NCR generated $85 million of net income, or $0.45 per share.

"I want to congratulate the NCR employees on their successful delivery of a very strong quarter which resulted in significant earnings expansion," said Bill Nuti, chief executive officer of NCR. "Key drivers of our performance included higher-than-expected revenue growth and profitability in our Teradata Data Warehousing business, substantial profit improvement from the second quarter in our Financial Self Service business, continued margin improvement in our Customer Services business, and ongoing success in delivering on our multi-year profit improvement plan."

Operating Segment Results

Balance Sheet

NCR ended the third quarter with $740 million in cash, cash equivalents and short-term investments, an increase from the $724 million cash balance on June 30, 2005. NCR's cash balance increased due to free cash flow generation and proceeds from employee stock plans exceeding net cash used for share repurchases.

NCR repurchased approximately 3 million shares of NCR common stock for approximately $102 million during the third quarter. The company's board of directors authorized an additional $500 million share-repurchase program at its regularly scheduled board meeting on Oct. 26, 2005. The company now has approximately $554 million authorized for future share repurchases.

As of Sept. 30, 2005, NCR had short- and long-term debt of $308 million, unchanged from June 30, 2005.

Outlook

For the full year, total revenue is expected to be flat compared to 2004. Including the net benefit of non-operational items, NCR expects its GAAP earnings per share to be $2.52 to $2.57. Excluding the net benefit of the non-operational items, NCR expects 2005 earnings per share in the $1.52 to $1.57 range.

Teradata Data Warehousing

NCR's Teradata Data Warehousing segment reported third-quarter revenue of $361 million, up 16 percent from the third quarter of 2004. Demand for Teradata's market-leading technology resulted in some customer purchases occurring earlier than previously expected.

Operating income of $72 million increased 71 percent from the prior-year period. Operating margin increased 7 percentage points to 20 percent. The increase in profitability was due to higher volume and increased profitability from support services.

Financial Self Service (ATMs)

The Financial Self Service segment generated third-quarter revenue of $349 million, up 3 percent from a very strong year-ago period.

Operating income of $60 million was down slightly from $63 million generated in the strong third quarter of 2004, primarily due to lower product margins caused by competitive pricing pressure.

Retail Store Automation

Retail Store Automation revenue of $209 million was down 4 percent from the third quarter of 2004.

Retail Store Automation operating profit of $9 million was down from $11 million in the third quarter of 2004, largely due to lower revenue.

Customer Services

Customer Services revenue was down 4 percent to $451 million due to the company's strategy to reduce revenues associated with third-party products. Structural changes being made to optimize efficiency resulted in a $17 million improvement in operating income from the third quarter of 2004.

Non-Operating Items

Other Expense was $2 million in the third quarter of 2005, unchanged from the $2 million reported in the prior-year period.

The company's third-quarter results included a non-cash $137 million tax benefit from the favorable settlement of prior-year tax audits. Excluding the tax benefit, the company's tax rate was 22 percent in the quarter.

Cash Flow

NCR's cash from operations increased to $162 million from $151 million in the third quarter of 2004. Capital expenditures in the third quarter of 2005 were $61 million, compared to $71 million of capital expenditures in the year-ago period. NCR generated $101 million of free cash flow (cash from operations less capital expenditures) in the third quarter of 2005 versus $80 million in the year-ago period.

Assuming approximately $235 million of capital expenditures, NCR is increasing its expectation for free cash flow to a range of $280 million to $300 million in 2005. This compares to the company's prior free cash flow expectation of $240 million to $250 million.