NCR Q1 2010 Results & Pension Strategy April 22, 2010 Exhibit 99.2 |
2 NCR Confidential Note to Investors Certain non-GAAP financial information regarding NCR’s operating results may be discussed during this presentation. Reconciliation of the differences between GAAP and non-GAAP measures are included elsewhere in this presentation and are available on the Investor page of NCR’s website at www.ncr.com. Remarks and responses associated with this presentation include forward-looking statements that are based on current expectations and assumptions. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are detailed from time to time in NCR’s SEC reports, including, but not limited to, Forms 10Q, 10K, 8K and the Company’s annual report to shareholders. These charts and the associated remarks are integrally related and are intended to be presented and understood together. |
3 NCR Confidential Overview of Q1 Results/Announcements Q1 2010 Financial Results Above Expectations • A return to revenue growth • Gross margin improvement • Cost/expense program execution • Significant non-pension operating income (NPOI) (1) and non-pension EPS (1) growth 2010 Revenue & Non-GAAP Guidance Re-Affirmed Pension Strategy • Company announces plan to address pension funding status • Re-balancing pension assets to fixed income by end of 2012 will substantially reduce risk and volatility (1) See reconciliation of GAAP to non-GAAP measures at the end of this presentation |
4 NCR Confidential Q1 2010 vs. Q1 2009 Financial Highlights Revenue up 2% to $1.03B Gross margin up 120 bps, inclusive of negative 70 bps effect from Entertainment NPOI (1) up 54% to $43M Non-GAAP EPS ex pension expense (1) $0.15; up 150% from $0.06 in Q1-2009 Improved backlog driven by 18% increase in orders; Double digit order growth balanced; Financial & Retail (1) See reconciliation of GAAP to non-GAAP measures at the end of this presentation |
5 NCR Confidential Overview of NCR’s Business NCR core vs. competitors • Core produces more revenue • Core produces more profit • Core enterprise value is less than competitors Primary competitors • Trade at higher EBITDA and EPS multiples based on 2010 consensus Grow revenue • Low-mid single digit market growth in core • Select strategic acquisitions to grow faster than the secular market • New markets and new geographies, adjacencies Continue to manage costs and increase productivity • Cost savings of $200-$250 million from 2008 through 2011 (50% re-invested) Financials • Expect 2010 revenue of $125- $150 million and $30 million loss from operations • Goal to be breakeven by end of 2011 on run-rate basis • $1B+ revenue opportunity Largest competitor • Consensus $1B+ revenue in 2010 • EBIT margin mid-high teens for DVD rental-only business Brand • License to use Blockbuster brand in the kiosk channel Grow revenue • Build out kiosk network - up to 10k units by year-end 2010 • Continued domestic and international build-out in 2011 Create new category; higher growth and margins than core • Only multi-channel, multi- segment offer in industry GAAP impacts • $1 billion underfunded status as of 2009 year end • $215 million expected expense in 2010 • Majority of pension expense is amortization of prior losses (non- cash) Cash impacts • Pre-tax net cash liability of ~$1 billion (~$750 million after-tax) as of 2009 year end • Expect cash contributions of ~$110 million in 2010 Eliminate current underfunded liability • Rebalance asset portfolio to fixed income by end of 2012 • Interest rate increases and asset price improvement would reduce the underfunded position Eliminate future volatility of plan expense and funded status • Match assets and liabilities Overview: Strategy: Core Business Entertainment Pension |
6 NCR Confidential Addressing NCR’s Valuation Gap NCR trades at a material discount to the market and its peers, largely due to the current pension situation Pension assets invested in equities are not only volatile, but correlated with NCR’s operating businesses A significant portion of NCR’s capital is allocated to its “pension- management” business • This allocation has limited NCR’s ability to invest in our core operating businesses and to provide immediate shareholder returns • Under-utilization of NCR balance sheet To fix the valuation gap, NCR plans to: • Reduce risk and volatility by re-allocating our domestic pension portfolio to fixed-income securities by year-end 2012 • Direct freed-up risk-taking capacity to the highest value-added investment alternatives: organic investments, strategic acquisitions • Fund the pension plan according to regulatory requirements (i.e., do not pre-fund) |
NCR Confidential 7 Pension Management Strategy • Shift asset allocation of US Pension Plans to 100% fixed income by the end of 2012 – Target 60% by end of 2010, 80% by end of 2011, and 100% by end of 2012 – Mostly high grade corporate bonds with an overall duration that approximates the duration of the liability • For International Pension Plans, work with local pension trustee boards to make similar changes in asset allocation to the extent that it is appropriate to do so – Each plan operates in a unique environment which influences appropriate asset allocation – Local pension trustee boards have final authority in determining appropriate asset allocation Actions to Address Valuation Gap 7 NCR Confidential |
NCR Pension Update – Q1 2010 Funded Status of US Plans improved by $82 million due to asset returns & discount rate (2) Funded Status of International Plans has deteriorated slightly driven by discount rate decreases (2) Funding for 2011-2013 are rough estimates based on expected returns and current discount rate Cash Funding for Pension Plans 2008 2009 2010E 2011E 2012E 2013E International & Executive $ 83 $ 83 $ 110 $ 125 $ 125 $ 125 US Qualified Plan* 0 0 0 0 125 175 Total $ 83 $ 83 $ 110 $ 125 $ 250 $ 300 Pension Metrics & Funded Status Asset Return Discount rate Funded Status 3/31/10 YTD (2) 12/31/09 3/31/10 (2) 12/31/09 3/31/10 (2) US Plans 3.5% 5.75% 5.88% $ (822) $ (740) International 2% 4.9% 4.8% (226) (250) Global 2.9% 5.4% 5.45% $ (1,048) $ (990) ( $ Millions) ( $ Millions) *Assumes no funding relief legislation (2) Estimated based on data available at March 31, 2010; for accounting purposes the pension plans are not marked-to-market on a quarterly basis 8 NCR Confidential |
US Plans Only – Funded Status Bridge • Funded Status of US Plans improved ~$82 million in Q1 to ($740 million) (2) • Improvement was due to good asset returns and a 13bp increase in discount rate (2) Liabilities Assets Benefit Payments Asset Returns Fees & Expenses Asset Value, 12/31/09 $ (52) $ (6) $2,612 Asset Value, 3/31/10 (2) Benefit Payments Interest Liability Value, 12/31/09 $ (54) $ 46 $3,352 Liability Value, 3/31/10 (2) $ 88 $2,582 $3,404 $ (44) Discount Rate Movement ($Millions) Funded Status $ (822) $ (740) (2) +2 +38 +42 (2) Estimated based on data available at March 31, 2010; for accounting purposes the pension plans are not marked-to- market on a quarterly basis 9 NCR Confidential |
($ Millions) Pension Assets Plan 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 U.S. Plans $ 3,026 $ 2,686 $ 2,208 $ 2,797 $ 3,016 $ 3,098 $ 3,385 $ 3,423 $ 2,208 $ 2,582 International Plans 1,514 1,089 1,138 1,397 1,658 1,748 2,085 2,114 1,467 1,737 Total Plans $ 4,540 $ 3,775 $ 3,346 $ 4,194 $ 4,674 $ 4,846 $ 5,470 $ 5,537 $ 3,675 $ 4,319 Pension Liability Plan 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 U.S. Plans $ 2,408 $ 2,494 $ 2,700 $ 2,960 $ 3,194 $ 3,372 $ 3,290 $ 3,199 $ 3,227 $ 3,404 International Plans 1,185 1,127 1,380 1,635 1,939 1,932 2,046 2,020 1,645 1,963 Total Plans $ 3,593 $ 3,621 $ 4,080 $ 4,595 $ 5,133 $ 5,304 $ 5,336 $ 5,219 $ 4,872 $ 5,367 Funded Status Plan 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 U.S. Plans $ 618 $ 192 $ (492) $ (163) $ (178) $ (274) $ 95 $ 224 $ (1,019) $ (822) International Plans 329 (38) (242) (238) (281) (184) 39 94 (178) (226) Total Plans $ 947 $ 154 $ (734) $ (401) $ (459) $ (458) $ 134 $ 318 $ (1,197) $ (1,048) NCR Historical Pension Overview 10 NCR Confidential |
11 NCR Confidential Historical Funded Status, Funding and Expense ($ Millions) NCR has experienced significant volatility in the funded status of its pension plans over the years NCR’s focus moving forward will be to manage and reduce the risk of funded status volatility Funded Status Plan 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 U.S. Plans $ 618 $ 192 $ (492) $ (163) $ (178) $ (274) $ 95 $ 224 $ (1,019) $ (822) International Plans 329 (38) (242) (238) (281) (184) 39 94 (178) (226) Total Plans $ 947 $ 154 $ (734) $ (401) $ (459) $ (458) $ 134 $ 318 $ (1,197) $ (1,048) Funded Status % Plan 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 U.S. Plans 126% 108% 82% 94% 94% 92% 103% 107% 68% 76% International Plans 128% 97% 82% 85% 86% 90% 102% 105% 89% 88% Total Plans 126% 104% 82% 91% 91% 91% 103% 106% 75% 80% Pension Funding Plan 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 All Plans $ 62 $ 59 $ 55 $ 70 $ 111 $ 110 $ 112 $ 92 $ 83 $ 83 Pension Expense / (Income) Plan 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 All Plans $ (124) $ (124) $ (74) $ 105 $ 135 $ 150 $ 145 $ 44 $ 25 $ 159 11 NCR Confidential |
Sensitivity Analysis - US Plans ONLY ($ Millions) Historical Asset Returns and Discount Rates for US Plan 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 10 yr avg 20 yr avg Asset Returns -2% -6% -12% 36% 15% 10% 16% 7% -31% 28% 4% 10% Discount Rate 7.5% 7.3% 6.8% 6.3% 5.8% 5.5% 5.8% 6.3% 6.3% 5.8% 6.3% 7.0% (A) Assumes 6% at end 2010, 6.25% at end of 2011, and 6.5% at end of 2012 (B) Projected contribution required for US Qualified plan in 2012 (no required contribution expected in 2010 or 2011), also assumes no pension reform legislation (C) Includes the impact of contributions on funded status Projected Funded Status & Contributions - Sensitivity Analysis Discount Rate remains at 5.75% Discount Rate increases to 6.5% (A) Scenario Annual Equity Returns through 2012 Projected Contribution in 2012 (B) Projected Funded Status 12/31/2012 (C) Projected Contribution in 2012 (B) Projected Funded Status 12/31/2012 (C) 3 yr. shift to 100% fixed income 5% $145 ($880) $130 ($770) 3 yr. shift to 100% fixed income 10% $125 ($775) $115 ($670) 3 yr. shift to 100% fixed income 15% $115 ($670) $100 ($565) Funded Status as of 12/31/2009 = ($822) 12 NCR Confidential |
Shift pension asset allocation to 100% fixed income by end of 2012 • Risk of equity exposure in pension plan must be reduced – Size of NCR pension plan (and therefore the associated risk) is disproportionate to the size of NCR – Riskiness and volatility of pension plan increases stock price volatility and places a discount on the stock price – The US pension plan is closed and the duration of the liability is becoming shorter • Shifting over 3 years allows for some additional recovery from the recent market downturn – Potential additional upside in the equity markets and/or benefit from increase in the discount rate Pre-fund of US pension plan analyzed • Given NCR’s tax position, there is not a compelling financial benefit for NCR to fund early – NCR has minimal near-term U.S. tax liability, so cannot take advantage of accelerating tax deductions by funding earlier than required – Similarly, would not be able to take advantage of tax deductions for interest expense (if funded with debt) • Inefficient capital allocation – The underfunded pension liability is analogous to unsecured debt of NCR. NCR has no other outstanding debt. We believe we have better investment uses for our cash balances and operating cash flow than choosing to pre-pay debt at the present time • Cash flow deployed into business opportunities – No cash funding is projected to be required for the U.S. qualified pension plan in 2010 or 2011 – A pre-fund now does not materially change required funding in 2012 and 2013 Rationale – Analyzed Various Options 13 NCR Confidential |
14 NCR Confidential Possible Impact of Pension Funding Relief Legislation on NCR Pension Legislation Could Provide Relief Two relief options; 2+7 and 15-year vs. current law Two options potentially subject to “cash flow rules” (e.g., limits on employee compensation, dividends, and stock redemption) Balanced legislation passed in Senate – provides relief; currently bill in House Ways and Means Committee; anticipated closure by Q3 2010 Key Provisions Impact on NCR Conditions Status 2+7 vs. Current Law Provides marginal relief. NCR not likely to use. Senate: 2 yrs of cash flow rules House: 3 yrs TBD Senate: passed House: TBD 15-Year vs. Current Law Likely provides meaningful relief for NCR. Senate: 5 yrs of cash flow rules House: 3-5 yrs of cash flow rules and “active plan” requirement Senate: passed House: active plan issue Investment Expenses not Included in Normal Cost Helpful to NCR. N/A Senate: not addressed House: TBD NCR Leading Industry Coalition to Secure Passage of Pension Relief Possible Impact of Pension Funding Relief Legislation on NCR |
15 NCR Confidential 3-Year Vision for NCR Leading Financial Solutions provider Leading Retail Solutions provider Leader in Hospitality, Travel, Gaming and Healthcare Solutions Multi-Channel leadership Leader in Managed Services; 50% recurring revenue stream Sustainable, industry leading cost structure Continued significant cash flow production #1 or #2 market share leader in DVD Kiosk Market (US & Intl) Physical DVD rental & sell-through; digital download leadership “Automated Retail” Market leader in multi- channel distribution of digital media High growth; Significant EBITDA; Positive cash flow Brand leadership Under-funded pension position significantly reduced Volatility and risk of current pension asset allocation eliminated Core Business Entertainment Pension |
16 NCR Confidential Reconciliation of GAAP to non-GAAP Measures (1) NCR reports its results in accordance with Generally Accepted Accounting Principles in the United States, or GAAP. However, the Company believes that certain non-GAAP measures found in this presentation are useful for investors. NCR’s management evaluates the Company’s results excluding certain items, such as pension expense, to assess the financial performance of the Company and believes this information is useful for investors because it provides a more complete understanding of NCR’s underlying operational performance, as well as consistency and comparability with past reports of financial results. In addition, management uses earnings per share excluding these items to manage and determine effectiveness of its business managers and as a basis for incentive compensation. These non-GAAP measures should not be considered as substitutes for or superior to results determined in accordance with GAAP. Q1 Q1 Q1 Q1 2010 2009 2010 2009 Loss from Operations (GAAP) (18) $ (10) $ Diluted Loss Per Share (GAAP) (0.12) $ (0.09) $ Fox River Environmental Matter, Net - 5 Fox River Environmental Matter, Net - 0.03 Impairment of Equity Investment - (5) Impairment of Equity Investment - (0.03) Global Headquarters Relocation 5 - Global Headquarters Relocation (0.02) - Pension Expense 56 38 Pension Expense (0.25) (0.15) Non-Pension Operating Income (non-GAAP) (1) 43 $ 28 $ Diluted Earnings Per Share (non-GAAP) (1) 0.15 $ 0.06 $ Loss from Operations (GAAP) to Non-Pension Operating Income (non-GAAP) Diluted Loss Per Share (GAAP) to Diluted Earnings Per Share (non-GAAP) |