NCR Corporation Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017. The filing is for NCR Corporation, the historical issuer identified in the supplied filing, not a separate NCR Voyix 2017 filing. It reports full-year results and unaudited quarterly figures, including Q4.
Business context
NCR provided software, services and hardware for financial services, retail, hospitality, travel, and telecommunications and technology customers. Its strategy emphasized integrated omni-channel solutions, cloud and recurring revenue, and higher-margin software and services. Reportable segments were Software, Services and Hardware.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $6.516 billion | $6.543 billion |
| Gross margin | $1.864 billion; 28.6% | $1.782 billion; 27.2% |
| Operating income | $676 million | $599 million |
| Income attributable to NCR common stockholders | $123 million | $221 million |
| Diluted EPS | $0.97 | $1.71 |
| Cash from operating activities | $755 million | $894 million |
| Free cash flow (non-GAAP) | $453 million | $628 million |
| Cash and cash equivalents at year-end | $537 million | $498 million |
| Total debt, approximately | $3.0 billion | $3.1 billion |
Revenue was flat as reported, or up 1% adjusted for foreign currency and the IPS divestiture. Gross margin improved 140 basis points; management attributed about 70 basis points of adjusted improvement to Services productivity. Common-stockholder earnings and EPS declined despite higher operating income, reflecting higher tax expense and preferred-stock dividends and deemed dividends. The 2017 effective tax rate was 50%, including a provisional $130 million charge related to U.S. tax reform.
Year-end current assets were $2.830 billion and current liabilities were $1.889 billion. NCR reported $1.10 billion of available revolving credit capacity and up to $200 million under its receivables facility, with no borrowings under either facility at year-end. Management said liquidity was sufficient for expected needs over the next 12 months.
| Segment | 2017 revenue | 2017 operating income (margin) | Change versus 2016 |
|---|---|---|---|
| Software | $1.900 billion | $567 million (29.8%) | Revenue +3%; operating income down from $577 million |
| Services | $2.373 billion | $288 million (12.1%) | Revenue +3%; operating income up from $201 million |
| Hardware | $2.243 billion | $(2) million (-0.1%) | Revenue -6%; operating income down from $62 million |
Software cloud revenue grew 6%; net annual contract value, a company measure of cloud bookings, grew 46%. Services margin improved with productivity and efficiency efforts. Hardware results were pressured by a 17% decline in ATM revenue, including customer spending delays, and the prior-year IPS divestiture; self-checkout and POS revenue grew.
Q4 2017: Revenue was $1.782 billion versus $1.802 billion in Q4 2016; operating income was $181 million versus $146 million. NCR reported a $56 million loss attributable to common stockholders, compared with $45 million income in Q4 2016. The quarter included $28 million of pension actuarial losses that reduced operating income.
Material changes, outlook and risks
- Operating cash flow and free cash flow fell year over year, partly reflecting working-capital changes and higher capital spending. Capital expenditures were $128 million versus $73 million; software capitalization additions were $166 million versus $154 million.
- NCR repurchased $350 million of common stock in 2017. It also had $810 million of term-loan principal outstanding and $2.2 billion of senior notes; principal debt maturities included $1.485 billion in 2021.
- Management was evaluating transformation initiatives in software, services and hardware. It estimated pre-tax charges of $200–$250 million over two years, including $100–$150 million in 2018; expected cash impact was $150–$200 million, including about $100 million in 2018. The target was approximately $150 million of annual run-rate savings by 2020. No specific revenue or earnings guidance was provided in the supplied text.
- The pension plans were underfunded by $693 million at year-end; expected 2018 contributions across pension and other benefit plans were approximately $92 million.
- Environmental matters remain significant: the Fox River net reserve was approximately $35 million, with remediation expected to finish in 2019 or 2020. The Kalamazoo River liability allocation remained unresolved; the filing does not provide a clear final exposure value.
- Other risks include substantial indebtedness and covenant limits, variable-rate exposure, competition and execution of the software-and-services transition, cybersecurity and data privacy, dependence on key suppliers, foreign exchange, and uncertain tax matters. NCR recorded provisional tax reform amounts and expected to refine them during 2018.
- PwC issued an unqualified audit opinion and concluded internal control over financial reporting was effective as of December 31, 2017.
Important facts for investors to verify
- Whether the stated transformation charges, cash costs and $150 million annual savings target were achieved, and how they affected margins and cash flow.
- Progress in cloud bookings and recurring revenue, and whether Hardware profitability recovered from its 2017 loss.
- Debt reduction, refinancing and covenant headroom, alongside cash generation and capital allocation.
- Final tax reform accounting and the outcomes of tax audits or valuation-allowance changes.
- Changes in Fox River remediation costs and the outcome of Kalamazoo River proceedings and related indemnity recoveries.
- Preferred-stock dilution and dividend obligations, including conversion and repurchase provisions.