Business context and reporting period
This is NCR Corporation’s Form 10-K for the fiscal year ended December 31, 2014, with quarterly supplemental data for Q4. The filing covers ATMs and financial technology, retail and hospitality systems, self-service kiosks, software, and related services. The request metadata names NCR Voyix, but the 2014 filing identifies the registrant as NCR Corporation.
Financial results and liquidity
Unless noted otherwise, amounts are in millions of dollars.
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue | $6,591 | $6,123 | +8% |
| Gross margin | $1,732; 26.3% | $1,740; 28.4% | Margin down 2.1 percentage points |
| Operating income | $353 | $666 | Down $313 |
| Net income attributable to NCR | $191 | $443 | Down $252 |
| Diluted EPS | $1.12 | $2.62 | Down $1.50 |
| Cash from operating activities | $524 | $281 | Up $243 |
| Free cash flow (non-GAAP) | $313 | $207 | Up $106 |
Services revenue grew 15% to $3,699, while product revenue declined 1% to $2,892. Services gross margin fell to 26.8% from 30.5%; product gross margin was 25.6% versus 26.1%. Management attributed much of the reported margin pressure to pension expense, acquisition amortization, and restructuring-related inventory write-downs.
Financial Services revenue rose 14% to $3,561 and segment operating income increased to $543 from $356, including Digital Insight’s $349 of revenue and $104 of segment operating income after its January 2014 acquisition. Retail Solutions revenue declined 1% to $2,008 and operating income fell to $155 from $205. Hospitality revenue rose 5% to $659, while operating income declined to $91 from $100. Emerging Industries revenue increased 4% to $363, but operating income fell to $31 from $56.
At year-end, cash and cash equivalents were $511, total debt was $3,659, and stockholders’ equity was $1,871. Current assets were $3,088 and current liabilities $2,070. NCR reported $850 of unused revolving-credit capacity and $104 available under its receivables securitization facility. The company said it expected to have sufficient liquidity for the next 12 months. Debt included $1,246 of long-term term-loan borrowings, $96 outstanding under the receivables facility, and $2,200 of senior unsecured notes.
Material changes and Q4 performance
- Revenue growth included Digital Insight, acquired for approximately $1.65 billion; the business contributed $349 of 2014 revenue. Foreign exchange reduced the year-over-year revenue comparison by 2%; growth was 10% on a constant-currency basis.
- Operating income was pressured by a swing from a $78 pension benefit in 2013 to $152 pension expense in 2014, $104 of restructuring-related charges in operating expenses, higher acquisition amortization, and higher interest expense ($181 versus $103).
- Q4 revenue was $1,768 versus $1,670 in Q4 2013. Q4 operating income was $35 versus $297; the 2014 quarter included $150 of actuarial pension losses, while Q4 2013 included $104 of actuarial pension gains. Q4 net income attributable to NCR was $33 versus $198.
- Cash from operations improved partly due to working-capital improvements and lower pension contributions. Capital expenditures were $118 and capitalized software additions were $140 in 2014.
Outlook, commentary, risks and contingencies
Management forecast 2015 revenue to be roughly flat compared with 2014, while continuing to pursue higher-margin software and recurring services, innovation, and cost reductions. The July 2014 restructuring plan was expected to cost $200–$225 in total, with $100–$115 of cash payments through 2015, and to produce approximately $105 of annual savings in 2016. NCR reported $161 of restructuring charges and $29 of related cash payments in 2014. Expected 2015 contributions to pension, postemployment, and postretirement plans were approximately $119.
- Leverage and covenants: Substantial indebtedness, variable-rate borrowings, scheduled repayments, and restrictive covenants could constrain financing and operations. Approximately 73% of borrowings were effectively fixed-rate at year-end; a 100-basis-point rise in variable rates was estimated to increase 2014 pretax interest expense by about $12.
- Pensions: The aggregate pension obligation was underfunded by $168 at year-end. NCR warned that transfer of an overfunded U.K. plan, expected in 2015 or early 2016, could increase the reported underfunded obligation by approximately $420 in the settlement period.
- Environmental matters: The net Fox River reserve was approximately $40, down from $112 in 2013, following court rulings and funding developments. Liability remains uncertain and depends on cleanup costs, allocation among responsible parties, and recoveries. Kalamazoo River litigation also remains unresolved; a trial on allocation was scheduled for September 2015.
- Other contingencies: NCR disclosed ongoing SEC and DOJ inquiries related to FCPA matters and OFAC-related Syria activity, while stating it was cooperating. A Brazilian federal tax assessment was approximately $63 including penalties and interest; no accrual was recorded, and the estimated exposure ranged from zero to approximately $66.
- Business risks: Management cited macroeconomic weakness, customer spending and rollout delays, foreign currency, competitive pricing, execution and integration of acquisitions, product and cybersecurity risks, and reliance on key suppliers. The company also reported $458 of cash held by foreign subsidiaries that could incur additional tax if repatriated.
Investor verification priorities
- Assess whether the flat-revenue 2015 outlook and planned restructuring savings were achieved, including the total cash cost and timing of savings.
- Separate underlying margin and segment trends from pension remeasurement, restructuring charges, acquisition effects, and other adjustments.
- Review debt maturities, covenant headroom, interest-rate exposure, and liquidity needs alongside pension contributions and the acquisition-funded debt burden.
- Track Digital Insight’s ongoing contribution, integration, and the development of software and recurring-services revenue.
- Monitor Fox River and Kalamazoo River outcomes, the Brazilian tax appeal, and the FCPA/OFAC matters for changes in reserves, cash obligations, or business restrictions.