NCR Corporation Form 10-Q — Quarter Ended September 30, 2015
Business context and period: The filing is for NCR Corporation, not a registrant named NCR Voyix Corp. It covers the third quarter and first nine months of 2015. NCR sells financial-services, retail, hospitality, and emerging-industry technology, software, and services. Management’s strategy emphasized software and recurring services, profitable growth, innovation, and cost restructuring.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $1.613 billion | $1.647 billion | $4.693 billion | $4.823 billion |
| Gross margin | $457 million; 28.3% | $404 million; 24.5% | $993 million; 21.2% | $1.300 billion; 27.0% |
| Operating income (loss) | $168 million | $41 million | $(3) million | $318 million |
| Net income (loss) attributable to NCR | $98 million | $15 million | $(206) million | $158 million |
| Diluted EPS | $0.57 | $0.09 | $(1.22) | $0.92 |
Cash flow and liquidity: Nine-month operating cash flow was $416 million, versus $235 million a year earlier. NCR’s non-GAAP free cash flow was $225 million, versus $84 million. Cash declined to $303 million from $511 million at year-end 2014. At September 30, total debt was approximately $3.25 billion, including $3.243 billion of long-term debt; net debt was approximately $2.94 billion. Current assets were $2.898 billion and current liabilities $1.835 billion. The company reported about $850 million of undrawn revolving-credit capacity and up to $200 million under its receivables facility, with no balance outstanding on either facility at quarter-end.
Changes versus comparable periods
- Q3 revenue fell 2% reported, but grew 5% on a constant-currency basis; currency reduced the comparison by approximately 7%. For the first nine months, reported revenue fell 3%, while constant-currency revenue rose 4%.
- Q3 operating income improved to $168 million from $41 million, alongside lower restructuring charges and better reported gross margin. Q3 services margin benefited from favorable revenue mix, including cloud revenue; the prior-year quarter included a $46 million restructuring-related inventory charge.
- Nine-month operating results deteriorated to a $3 million loss from $318 million income. The principal unusual item was a $427 million UK London pension-plan settlement loss in Q2 2015, with no related tax benefit recorded. Excluding this and other pension effects, reported comparisons still reflect restructuring, acquisition-related amortization, and other items.
- Financial Services revenue declined 9% in Q3, including a 9% currency headwind. Retail Solutions grew 7%, Hospitality 5%, and Emerging Industries 2%. Financial Services remained the largest segment by revenue.
Outlook, commentary, risks, and contingencies
- Management expected approximately $105 million of annualized restructuring savings beginning in 2016. The restructuring program was expected to generate total charges of approximately $200–$225 million and cash payments of $100–$115 million through 2015; further opportunities and charges were possible.
- For 2015, NCR expected contributions of $35 million to international pension plans, $80 million to postemployment plans, and $4 million to postretirement plans. It expected about $35 million of net remediation and related payments for Fox River and Kalamazoo.
- Management stated it believed available cash, operating cash flows, and financing capacity would cover expected obligations and operating needs for the next 12 months. No numerical revenue or earnings guidance was provided in the filing text.
- Fox River: the net reserve was approximately $13 million, down from $40 million at year-end. On October 19, 2015, after quarter-end, the federal court set aside its May ruling that NCR’s share of liability for operable unit 4 was 28%; NCR was evaluating litigation options. The filing notes the reserve and ultimate liability remain uncertain.
- Kalamazoo River: a trial on allocation of liability was underway; past costs at issue were approximately $50 million, and future remediation costs had not been determined. NCR also disclosed an unaccrued Brazilian tax assessment, estimating potential exposure from zero to approximately $50 million.
- Other risks include foreign-exchange exposure, customer investment and economic conditions—particularly in Russia and China—competition and price erosion, customer adoption of new solutions, debt and covenant requirements, acquisition integration, and environmental matters. The SEC staff stated it did not intend to recommend an enforcement action regarding the company’s FCPA matters; OFAC’s Syria review remained ongoing. Management reported disclosure controls were effective and no material change in internal controls.
Most important facts for investors to verify
- Confirm the issuer identity: this source is an NCR Corporation 2015 filing, not a 10-Q under the name NCR Voyix Corp.
- Assess underlying operating performance separately from the $427 million pension settlement, currency impacts, restructuring costs, and acquisition-related amortization.
- Track debt reduction, cash conversion, covenant headroom, and the availability and conditions of revolving and receivables facilities.
- Follow subsequent Fox River rulings and the Kalamazoo allocation trial, including potential changes to reserves, reimbursements, and cash payments.
- Test whether the planned restructuring savings and expected 2015 payments were achieved, and monitor any additional restructuring charges.