NCR Corporation Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2011. The filing is for NCR Corporation, not NCR Voyix Corp; it is unaudited and reports under the company’s 2011 business structure.
Financial results
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $1.312 billion | $1.176 billion | $2.407 billion | $2.205 billion |
| Gross margin | $270 million; 20.6% | $241 million; 20.5% | $480 million; 19.9% | $432 million; 19.6% |
| Operating income | $47 million | $31 million | $53 million | $13 million |
| Income from continuing operations attributable to NCR common stockholders | $35 million; $0.22 diluted EPS | $20 million; $0.12 diluted EPS | $45 million; $0.28 diluted EPS | $1 million; $0.01 diluted EPS |
| Net income attributable to NCR | $33 million | $31 million | $46 million | $12 million |
| Operating cash flow | Not presented for the quarter | $108 million | $109 million | |
| Free cash flow (non-GAAP) | Not presented for the quarter | $4 million | $5 million |
Q2 revenue grew 12% year over year, including a favorable 6% currency effect; first-half growth was 9%, including a favorable 4% currency effect. Product revenue rose 11% in Q2 and services revenue rose 12%. Product gross margin fell to 19.1% from 21.1% in Q2, while service gross margin improved to 22.1% from 19.9%. For the first half, product gross margin was 18.7% versus 19.8%, and service gross margin was 21.1% versus 19.4%.
Segment results for Q2: Financial Services revenue $729 million and operating income $77 million; Retail and Hospitality $449 million and $22 million; Entertainment $38 million and a $17 million operating loss; Emerging Industries $96 million and $19 million. Segment operating income excludes pension expense and certain other items.
Liquidity, debt, and cash flow
At June 30, 2011, cash and cash equivalents were $457 million, total current assets $2.575 billion, and current liabilities $1.518 billion. Long-term debt was $10 million, with $1 million of short-term borrowings. NCR also had a $500 million unsecured revolving credit facility with no borrowings outstanding; $21 million of capacity was reserved for letters of credit. The company reported compliance with facility covenants.
First-half operating cash flow was $108 million. Capital expenditures were $67 million and capitalized software additions were $29 million; $8 million of cash was used by discontinued operations. NCR repurchased $70 million of stock, approximately 3.6 million shares. Cash declined by $39 million from year-end 2010. Management said available cash, operating cash flows, and financing were sufficient for expected needs over the next twelve months.
Changes, outlook, risks, and unusual items
- Operating income improved versus 2010, while Q2 gross margin was nearly flat. Management attributed services margin gains to lower labor and delivery costs and cost containment; product margin was pressured by mix and Entertainment losses.
- Entertainment revenue expanded with more DVD kiosks and kiosk redeployments, but its operating loss increased, primarily due to depreciation. Management said cost-reduction initiatives continued; it provided no quantified full-year revenue or earnings guidance.
- Pension expense was $104 million in the first half. NCR expected approximately $185 million of 2011 pension, postemployment, and postretirement contributions, including $115 million to international pension plans and $50 million to postemployment plans.
- The net Fox River environmental reserve was approximately $191 million at June 30, down from $199 million at year-end. NCR estimated total site cleanup costs at $930 million and natural-resource damages at $76 million; its potential share depends on allocation, litigation, cleanup costs, indemnities, and other uncertain factors. The company warned costs could materially affect earnings, cash flow, capital expenditures, or financial condition. The court denied two government requests for preliminary injunctions in July 2011.
- Other exposures include Kalamazoo River environmental claims and litigation, a government pricing investigation, tax audits, and patent litigation. NCR stated it could not determine probable liability for one aspect of the government investigation.
- Subsequent events: NCR agreed to acquire Radiant Systems for approximately $1.2 billion, financed in part by committed $1.4 billion senior secured credit facilities, with closing expected by the end of Q3 2011 subject to conditions. It also agreed to sell a 49% stake in its Brazilian manufacturing operation for approximately $50 million, alongside an ATM purchase agreement targeting 30,000 units over five years. Both transactions remained conditional.
- The company adopted updated revenue-recognition guidance prospectively in 2011; it reported no material financial-statement impact. Disclosure controls were deemed effective, and no material change in internal controls was reported.
Important facts for investors to verify
- Confirm the registrant and period: this supplied filing is NCR Corporation’s Q2 2011 10-Q, not a filing under the NCR Voyix name.
- Track whether the Radiant acquisition closed, its final financing and debt impact, and the outcome of related shareholder litigation.
- Monitor Fox River reserve assumptions, remediation spending, indemnity recoveries, and the results of pending environmental litigation; assess potential Kalamazoo exposure separately.
- Assess whether Entertainment kiosk growth can improve profitability and whether reported operating-income gains translate into sustained cash generation.
- Reconcile modest first-half free cash flow with planned benefit-plan contributions, share repurchases, and the proposed acquisition financing.