TOP CONTRIBUTORS

Steve Biggs

www.zacks.com

NCR AT A GLANCE

P/E ► 19.9 AVG EV/EBITDA ► 9.43 AVG ROA ► 2.3% AVG ROE ► 8.1% AVG Debt to Equity ► 7.68 VERY HIGH Current Ratio ► 1.69 AVG Interest Coverage Ratio ► 7.00 AVG

 

 

 

 

 

 

NCR Corporation (NCR) and its subsidiaries provide technology and solutions for the retail and financial industries. Through customer service business, the company also provides services for the telecommunications, transportation, insurance, utilities, and electronic commerce industries, as well as for consumer goods manufacturers and government entities. The company's solutions include consulting services, hardware technology, value-adding software, global customer support, and a complete line of business consumables and specialty media products. The company was founded in 1884 and is headquartered in Dayton, Ohio.

NCR's current segments include: Financial Self Service, Retail Store Automation, Customer Services, Systemedia, and Payment & Imaging and Other. The company s data warehousing business, Teradata, was spun off as to shareholders during the third quarter of 2007. Stockholders on record on the date of the distribution (September 14, 2007) received one share of Teradata Corporation for each share of NCR they owned. One hundred percent of the approximately 181 million shares of Teradata common stock were distributed. The new company, Teradata Corporation, now owns the assets and liabilities associated with the Teradata business, and began regular trading of its common stock on the New York Stock Exchange under the symbol "TDC" from October 1, 2007. Mike Koehler, who used to lead the Teradata division of NCR, has become Chief Executive Officer of the new company and serves on its board of directors. NCR has thus excluded the results of Teradata business, and has accounted it as a discontinued operation from the third quarter of 2007.

The Financial Self Service segment offers self service technologies, such as automated teller machines (ATMs), cash dispensers, and software solutions, including the APTRA application suite to financial institutions, retailers, and independent operators. The Retail Store Automation segment offers retail-oriented technologies, such as point-of-sale (POS) terminals, self-check-in/out systems, self-service kiosks, bar-code scanners, software, and services for general merchandise, food and drug, and hospitality markets. The Customer Services segment provides maintenance and support services for third-party companies. It also offers site assessment and preparation, staging, installation and implementation, and systems management services. The Systemedia segment develops produces, and markets printer consumables, including paper rolls for receipts in ATMs and POS solutions, inkjet and laser printer supplies, thermal transfer and ink ribbons, labels, laser documents, and business forms, as well as photo and presentation papers, and thermal paper. This segment serves retail, transportation, financial services, and manufacturing industries. The Payment & Imaging and Other segment provide solutions for paper-based and image-based check and item processing to financial services industry.

With the Teradata spin-off, the company has reorganized its operating segments from six to five, and has adjusted prior-year figures to reflect this fact. On an adjusted basis for 2007, NCR generated 32.9% of revenue from its Financial Self-Service, 19.8% from Retail Store Automation, 39.1% from Customer Services, 9.2% from Systemedia, and 3.1% from Payment & Imaging and Other. Each solution generally combines hardware, software, professional and installation-related services, and customer support services. Of this total 2007 revenue, 4.1% was eliminated with regard to installation-related services revenue included in both the Customer Services segment and other segments.

NCR's Financial Self-Service segment provides ATMs to banks, credit unions, and retailers. NCR believes that once all the banks upgrade their infrastructure, Check21 compliant ATM machines will also be able to cut costs by scanning checks directly into back office systems and eliminate the need for an employee to manually process deposits. Although this demand has yet to materialize in a large way, banks have found that customers are much more likely to make a deposit in a Check21 compliant ATM that scans in the deposits rather than the older teller machines that require the user to use an envelope. Should banks see a potential return on their investment by reducing the need for tellers, we believe a replacement cycle will develop. This lack of U.S. growth has been offset by growth in ATM demand from Europe, Middle East, Africa and Asia-Pacific, with overall revenue in the Financial Self-Service segment growing 15.0% in 2007 after years of flat revenue. To improve profitability in the division, NCR has been restructuring operations by shifting manufacturing operations from Dundee, Scotland, to a lower-cost facility in Budapest. During the second and third quarter of 2007, the majority of ATM production for the EMEA region was done in Budapest. Further, to meet its strong demand in Europe, Middle East, Africa, and Asia-Pacific, NCR will use lower-cost manufacturing facilities in Hungary, China, and India. NCR also continues to lead the sub-Saharan and African banking industry with its latest and largest ATM order to date within the region, including the recent contract with Intercontinental Bank, Plc, one of Nigeria's largest commercial banks, as well as with United Bank for Africa.

In the mature U.S. market, NCR has outsourced manufacturing to Solectron in order to give it greater flexibility. This move was executed in the third quarter of 2007, and with full production under way, Solectron has shipped over 2,000 ATMs year-to-date. Indicating that an ATM replacement cycle in the U.S. may be developing, NCR has had two wins with major U.S. banks, including a renewed and expanded contract win with Commerce Bancorp, one of U.S.'s fastest-growing financial services retailers, and two new contracts win with M&T Bank Corporation, one of U.S.'s 20 largest commercial banks. Most recently, NCR announced an agreement with BECU, Washington State's largest credit union and the nation's fourth-largest credit union, which purchased 50 newly introduced NCR ATMs, adding to its existing network of approximately 150 NCR ATMs. In order to better position itself in the market for third-party ATM machines that are typically located indoors in retail, restaurant, and other locations, NCR acquired ATM assets of Tidel Technologies, Inc., a manufacturer of cash security equipment designed for specialty retail marketers. As a result of this acquisition, NCR was able to land a contract with TRM Corporation, a global provider of ATMs for the convenience sector and operator of one of the largest non-bank ATM networks in the United States. NCR continues to be successful in increasing the mix of revenues, while reducing lower-margin revenues associated with servicing third-party products. Revenues from the maintenance of ATMs increased 11.7% in 2007, while revenues from the maintenance of third-party products declined by 9.7%.

Offering further incentive to upgrade, NCR collaborated with Intel to offer Intel dual-core processor technology at its ATMs and POS solutions, which will provide up to 40% faster processing capacity with enhanced power savings. NCR also recently introduced NCR SelfServ, a family of ATMs with a "self-healing" technology, which can address critical banking issues and improve the level of service provided to banking consumers. NCR has also entered into a global reseller agreement with MShift, a leading provider of customizable wireless solutions. Under this agreement, NCR will offer its Mobile Banking Solution, enabling financial institutions to offer customers access to online banking service over mobile phones and PDAs. NCR also entered into a reseller agreement with Toronto based NRT Technology Corporation, a leading provider of hardware and applications for the gaming industry. Under the agreement, NCR's Personas 77 ATM platform will be integrated with NRT's QuickJack and QuickJack Plus systems. NCR has introduced an enhanced technology platform called NCR Shared Branch Kiosk, which is powered by a web-based engine from Ensenta, a California-based leader in self-service network solutions to credit unions. This enhanced platform, built on NCR's easypoint ATM 3800 Shared Branch Kiosk, enables credit union members and guest shared branching members to conduct a wide range of financial transactions. The company had 800,000 customer Kiosks, not including ATMs installed in North America by the end of 2007, which will increase by 50% to 1.2 million in 2009. IHL Consulting Group expects $1 trillion to be spent by consumers through self-service Kiosks in 2011.

NCR is leveraging its strong technology base to combat ATM fraud. In this regard, the company has introduced its Intelligent Fraud Detection solution and has integrated technology from Solidcore Systems, Inc., a leading developer of IT control solutions, into its APTRA software to address matters relating to software regulatory compliance. In a move to enable image-based fraud detection earlier into the payment processing cycle, the company has entered into an alliance with Advanced Software Design (ASD) Corporation to integrate ASD's SAND technology into NCR's ImageMark Transaction Manager System. Further, NCR's alliance with Pay By Touch provides complete biometric services to merchants and enables them to fight against fraud. In addition, NCR introduced fingerprint recognition solutions in its POS systems to check security threats.

In Retail Store Automation, we believe that the company's self-checkout segment will grow in popularity among consumers over the long-term. In 2007, approximately 30% of retail store automation came from self-checkout technologies, very close to NCR's target of one-third. As acceptance of self-service grows, NCR is targeting new industry verticals such as manufacturing, capital market of financial services, healthcare, insurance, and government, to expand its market reach.

NCR has entered into the healthcare industry with the acquisition of Galvanon, Inc., a privately-held company and leading provider of self-service solutions for the healthcare industry. With the acquisition, the company had numerous customer wins for MediKiosk, a patient check-in solution provided by Galvanon. This solution enables each clinic streamline the patient registration process, shorten wait times for patients, and reduce administrative costs, thus helping to minimize the risk of error. Recently, Galvanon introduced an electronic document management solution called eSignature, which allows healthcare organizations to digitally capture, authenticate and store documents that require a patient's signature. With the success of this acquisition, the company is looking to tap into new markets including healthcare, travel and hospitality through smaller acquisitions.

Historically, NCR has done an excellent job of controlling cost, which allowed it to grow earnings on relatively flat revenues. The company achieved this through several cost savings plans that eliminated inefficiencies in operations. The company also scaled back the unprofitable Customer Service business, which is now generating an operating profit. During the third quarter, NCR began a realignment initiative mostly centered on its Customer Services division in Japan. This is expected to deliver an annualized $10 million to $12 million of cost savings, starting in 2008. NCR has also come off the peak of severance expenses, which should continue to decline, boosting reported earnings. With strength in one of its largest divisions, Financial Self-Services, it now appears that the company can produce sustainable growth as earnings are driven by an improving top-line.

NCR generated $151.0 million cash from operations for fiscal 2007. NCR ended the fourth quarter with $952.0 million in cash and equivalents and $307.0 million in long-term debt. The company has repurchased 4.2 million shares in the fourth quarter of 2007, and has approximately $485.0 million of board authorized funds available for share repurchase.

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