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Business Context and Reporting Period

This Form 10-K covers NCR Corporation for the fiscal year ended December 31, 2007. NCR is a global technology company providing solutions for customer interaction points, including ATMs, retail point-of-sale (POS) systems, and self-service kiosks. The reporting period is significantly impacted by the spin-off of the Teradata Data Warehousing business on September 30, 2007, which is now classified as a discontinued operation. Effective January 1, 2008, NCR reorganized its management structure from global business segments to a geographic basis.

Key Financial Metrics

Note: Net Income includes $103 million from discontinued operations (Teradata) in 2007. Continuing operations net income was $171 million.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenue from continuing operations increased 8% to $4.97 billion, driven by growth in Financial Self Service (ATMs), Retail Store Automation, and Customer Services. Currency fluctuations provided a 3% benefit.
• Profitability: Operating income from continuing operations rose 42% to $219 million, primarily due to increased sales volume and a favorable mix of higher-margin self-service technologies. This offset costs related to manufacturing realignment and the Teradata spin-off.
• Discontinued Operations: Income from discontinued operations dropped to $103 million in 2007 (nine months of operations) from $231 million in 2006, reflecting the Teradata spin-off and $55 million in non-recurring spin-related costs.
• Restructuring: The company incurred $73 million in restructuring costs in 2007, primarily for manufacturing realignment (shifting production to lower-cost regions) and a realignment program in Japan.
• Pension Expense: Pension expense decreased significantly to $38 million in 2007 from $122 million in 2006, largely due to the freezing of the U.S. pension plan effective January 1, 2007.

Guidance, Outlook, and Risks

Outlook: Management forecasts 2008 revenue to be 3-5% higher than 2007. Operating income is expected to increase due to a more favorable revenue mix and continued cost efficiencies. Pension expense is expected to remain at similar levels to 2007.

Key Risks and Contingencies:

• Environmental Liability (Fox River): NCR is a potentially responsible party for PCB contamination in the Fox River, Wisconsin. The reserve increased to approximately $85 million in 2007. Total cleanup costs are estimated at $613 million, with NCR's share subject to litigation and allocation disputes.
• Competition: Intense competition in the ATM and retail sectors from companies like Diebold, Wincor, and IBM poses risks of price erosion and market share loss.
• Economic Pressures: Global economic conditions, including sub-prime mortgage issues affecting financial services customers, could impact capital spending and demand.
• Supply Chain: Reliance on single-source suppliers for critical components (e.g., Intel chips, Microsoft OS) creates operational risks.

Investor Verification Checklist

• Teradata Spin-off Impact: Verify the separation of assets and liabilities and the classification of Teradata results as discontinued operations.
• Environmental Reserve Adequacy: Review the assumptions regarding the Fox River cleanup costs, specifically the total cost estimates and NCR's allocable share.
• Segment Performance: Analyze the shift in revenue mix toward higher-margin self-service technologies versus traditional hardware.
• Pension Plan Status: Confirm the funded status of U.S. and international pension plans and the impact of the U.S. plan freeze on future expenses.
• Restructuring Execution: Monitor the realization of cost savings from the manufacturing realignment and Japan restructuring initiatives in 2008.