NCR Voyix Corp (VYX) 2001 Q1 法說會逐字稿

Good morning and welcome to the NCR Investor Relations teleconference. At the request of NCR this conference is being recorded. Following today's presentation, we will conduct a question and answer session. At that time, simply press *1 if you have a question. At this time, I would like to turn the conference over to Mr. Gregg Swearingen, Vice President of the Investor Relations. Sir, you may begin.

Good morning everyone. Thank you for joining us as we discuss NCR's operating and financial results for the first quarter of 2001. Lars Nyberg, our Chairman and Chief Executive Officer, will lead the discussion today regarding NCR's operating performance during the quarter with David Bohnett, Senior Vice President and Chief Financial Officer providing additional commentary on the financial results for the quarter. Following our remarks, we invite you to participate in our Q&A session. Replay of today's conference call can be accessed from NCR's website. Our remarks in this conference may include forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that could cause the actual results to vary materially. These risks factors are described in NCR's SEC fillings as well as in our annual reports to stockholders. I would now like to turn the call over to Lars.

Thank you Gregg Swearingen and good morning everyone, thank you for joining us as we provide our commentary on the first quarter results. The total revenue growth of 10% for the quarter and operating income before special items are $22 million. We are clearly very pleased with our operating performance, especially given the current economic environment. While we anticipated good results for the quarter, as the economic environment seemed to deteriorate we worked very hard to execute and gain several revenue and cost initiatives that we had implemented to better position us for a slower economic environment. Each of our key solutions demonstrated revenue growth above our expectations. Teradata's revenue growth outpaced our targeted range of 15-20% despite a capital spending slow down. Financial results service exceeded its targeted revenue growth despite the absence of anticipated CCC revenues. And refill store dimension far exceeded our expectations for the quarter with substantial revenue from our new products. In addition, to our strong revenue growth our operating profit before non-recurring items increased significantly compared to the first quarter of last year up $26 million. As the increase would have been even higher excluding incremental Goodwill from acquisitions. Clearly, our concision is behind us that indicate that we have the problems of growth company. Our businesses are well positioned in the market place as evidenced by our performance in the quarter. We continue to see good order activity during the quarter which position us well to meet our targets for the second quarter. Although we were not significantly affected in the first quarter, we are not immune to a long-term economic slow down.

However, given the current environment we believe we can meet our targets. I would now like to briefly comment on the performance of each _____ 03:11 for the quarter. Our refill store dimension showed very good growth of 18% for the quarter. Growth during the quarter came primarily from our new products. So, check up terminals and web enabled PL. In particular, this quarter marks the first quarter that we have seen significant fraction for our self check out terminals including revenue from the payment order that we have mentioned on the fourth quarter conference call. The purchase by Kmart emphasizes the value for position of our stock solution, especially, when a retailer makes such investment in a slower economic environment. Profitability increased significantly on refill store dimension primarily as the result of cost reductions and better mix of new products, which have higher gross margins. Our financial self-service or ATM business had a very good quarter. No longer did our ATM revenues increased 8% or 13% on the constant currency basis, our increased boarder activity, these are backlog at very high levels. In the Americas region we saw good revenue growth and we have strong auto growth, which position us well for the second quarter. The AMEA regions saw growth in expanded functionality including bill payment, ticket purchase, and web enabled services. The emerging markets of China, India, and Asia, Pacific region in general continue to be very strong in terms of revenue growth and order activity. Profitability for Financial Self surged strongly in the quarter at more than 10% compared to 6% of last year's first quarter. The increase was aided by product and infrastructure cost reductions and improvements in the services markets.

Our Teradata warehousing business had another strong quarter in terms of revenue growth and order activity, especially compared to the exceptionally strong revenue growth that Teradata delivered in the first quarter a year ago. At 21% or 25% on constant currency basis, revenue growth exceeded our expected range for the quarter. Increased sales of service and software were the primary drivers of our data warehousing revenue growth during the quarter. While the economic environment did not significantly impact our data warehousing resource during the first quarter, we did experience some customers delaying the decisions until late in the year. Some of our customers were hesitant to spend IT money given the abundant amount of Mega Fit economic news released in the first quarter. But, our results are clear. We still have strong growth. And although we did have some customers that delayed purchases until late in the year, we captured the majority of the transactions that has been postponed in the fourth quarter. We believe that such purchases will validate a company's shared data as an essential prohibitive rule and as a competitive leverage, especially, in an economically challenging environment. We had one of the best quarters ever in terms of adding new tirade of customers increasing the number of new customers by more than 20% over the first quarter of last year. In the first quarter new customer wins were again spread across multiple industries in all regions. We continue to strengthen our presence in the retail, telecom, e commerce, financial, travel, transportation, government, airline manufacturing, and supplier industries and an increased focus in the energy and insurance industries. Some of our new customers wins during the quarter included Sabre, The British Ministry Of Defense, Publics, Aero Mexico, Southwest Airlines, London _____ 07:00, Saint's Berry, a large retailer in the UK, Halora a largest retailer in Switzerland, Someera, a communications company in Finland, TVSE a retailer in India, Meritz Publishing, publisher of good housekeeping magazine on e businesses, such as befree.com in the U.S., Arena in Poland, Hexamine in Germany.

Also in the quarter, we released our new Teradata CRM 4.0 applications week. Our solution now covers analysis, modelling, personalization, and pain management, optimization, and field effects. These applications have begun to contribute to revenue and earnings this quarter and we except they will continue to provide meaningful contributions throughout the year. Operating market improved for the quarter by $9 million. We diluted the increased sales and marketing and R&D investment during the quarter to strengthen data's position for future growth. In addition, Teradata had incremental Goodwill related to acquisitions. Recently, there have been some questions in the industry regarding market conditions and competitive pressure on pricing. The strong revenue growth and improvement in the profit equation; I think you will agree our number speaks clearly for themselves. In fact, we improved gross margins by 3-4 points in Teradata. We have the solution for the companies that are telling us their needs, Teradata had a very good quarter despite the environment and the tightening of IP budgets. And we are pleased our customers services business had revenue growth of 7%, this marked the second consecutive quarter of revenue growth for this business. In addition, to the organic growth in self-service into the warehousing, revenues from our high availability services, few impart by the 4Front acquisition more than double. We continue to concentrate on margin improvement in our customer service business focussing our efforts on increasing utilization and continued penetration and expansion of the high availability segment through our strategic partnership programs. Our customer services business is a very important component of our total solutions offering. Customers value their reliability on high level of service we provide them in this area. In summary, these positive results demonstrate our strategies right. We have appropriately positioned each of our business to capitalize on the market opportunities. Our focus on execution is apparent from our first quarter with four months, as we exceeded expectations despite the challenging environment. Now I would like to turn the call over to David Bohnett to discuss our financial performance in more details.

Thank you Lars and good morning. I would like to review the income statement with particular reference to the supplemental exhibit, which is the second page in the reporting package that identifies the impacts of the tax adjustments, CCC related bad debts, and another onetime items. As I will continue my discussion, I will be reconciling results, before onetime items. In the first quarter 2001, we recorded the following non-recurring items. 1. Onetime cost related to the acquisition of 4Front technologies. As indicated previously we will have these non-recurring cost for a short period. And we have taken actions to ensure that they are relatively modest and do not occur beyond the first year of the transactions. These onetime costs were $2 million in the first quarter, one million was recorded in the gross margin, and one million was recorded in SG&A expense. 2. The ______ 10:48 and receivables related to a customer, credit cards sent to CCC announced and marked sick. The amount in SG&A expense totals $39 million and $1 million is in other income expense. In our records it is slightly less than the $42 million estimated earlier. 3. A favorable adjustment of $138 million through our tax provisions following the successful completion of a tax levied of 1993 and 1994 international operations. 4. The tax effect of the 4Front and CCC charge is $14 million. This with the $138 million results in the $152 million of special items on the tax line. 5. The adoption of financial accounting standard number 133 accounting for derivative investments and hedging activities, results in a cumulative adjustment of $4 million net of tax and these required to be recorded as an accounting change. A year ago in the first quarter 2000 we recorded $14 million of one-time charges related to our October 1999 restructuring program. The charge was $13 million in margin and $1 million in expense. This restructuring program was completed in the fourth quarter of last year. Total revenue in the first quarter was $1.38 billion are 10% from the year ago quarter. Our projections for currency impact revenues in the quarter were up 13%. In constant currency, each of our three key solutions have at least 4-point higher growth than reported. In addition to the broad based growth by solution each region delivered good growth. The mark is up 8% Europe, Middle East and Africa are 14% up 20% on a constant currency basis. And Asia Pacific including Japan up 18% on a constant currency basis. Gross margin in the first quarter was 29.9%, slightly higher than last year's 29.6%. The higher mix of retail sales in the quarter reduced overall margin slightly. But, these results set by margin expansion. We will continue to expand our gross margin with focus on production services, cost productivity, and growth in higher margins solutions with a greater mix of software and services including data warehousing. Expenses were $389 million in the quarter for 28.3% of revenue up $14 million. Expense reductions from successful productivity initiatives were offset by incremental expenses in Goodwill associated with recent acquisitions.

In fact $13 million of a $14 million expense increase results from the higher global charges. R&D spending in the first quarter was $76 million or 5.5% of revenues compared to $70 million or 5.6% in the quarter a year ago. To the first quarter the aggregate impact of pension, severance, and post retirement custom operating income was just over $1 million less favorable than the year ago quarter. Reported operating income for the first quarter was a loss of $19 million. However, excluding the special items operating income was $22 million up significantly from the $4 million operating loss last year. This is an excellent step up in operating performance, particularly given that the benefit cost was less favorable and Goodwill was higher. For the quarter we reported an expense of $6 million on the other income expense line compared to $13 million of income a year ago. Other income expense was lower in the first quarter due to a lower interest income as a result of the use of cash for acquisition and share repurchases as well as some interim period-unrealized foreign exchange losses. The level of other income expense can vary quarter to quarter. The primary elements are interest income, interest expense, net asset sales resulting from our strategy to significantly reduce capital deployed in facilities and certain foreign exchange gains and losses. During the remainder of 2001, we expect a part of the foreign exchange losses to reverse when related transactions are settled and for asset dispositions to return towards plan levels. We also expect to improve interest income as a result of an intense focus on receivables and operating cash flow. We are targeting other income for the year to total approximately $20 million, which will be lower than previous expectations. Excluding special items net income was $11 million in the quarter, an 83% increase over the prior year. This equates to 11 cents per diluted share for the quarter. The incremental after tax Goodwill expense impact on net earnings was $16 million. Excluding Goodwill, earnings per share would have been 28 cents versus 10 cents in the prior first quarter. Our effective tax rate for the first quarter 2001 was 33% as expected.

We expect our tax rate for the remainder of 2001 to be 33%. The weighted average of fully diluted outstanding shares increased to 99.3 million versus 96.5 million shares for the year ago quarter, primarily as a result of higher employee option exercise, and stock purchase activity. During the first quarter, we purchased approximately 450,000 shares for about $20 million as part of us companies systematic repurchase program. I want to conclude with the review of the cash flow equation. Operating cash flow of $23 million in the first quarter reflects the CCC loss, as well as high Goodwill amortization. The tax reserve adjustment did not generate any cash. Changes in payables and other asset liabilities reflect timing of disbursements. Our main focussing cash flow continues to be working capital. I want to comment on free items. Inventories are lean, but there is still room for improvement versus year ago when we were tightening inventories for lower sales and retail in self-service. Inventories increased in the 2001 first quarter to reflect higher backlog and pipelines. We do not expect inventories to be a major issue in managing cash flow. There have been some business changes that affect deferred revenue and customer deposits. Deferred revenue pertains primarily to the maintenance and Unity business where customers contract and pay for maintenance in advance and we record revenue and earnings ratably over the contractural period. This business continues to change as we move our way from a commodity hardware base. Customer deposits are common with some of our international orders and here there has been mixed change with Japan in particular having less advance deposits than a year ago. We expect these changes to have a continuing modest impact on cash flow going forward. However, the biggest driver of our operating cash flow apart from higher earnings is receivables. We have a very intense focus here and in the last few months have increased our efforts to bill earlier and collect quicker.

It does appear that there is some stretch out by customers in paying on time in this period of economic slow down. However, I am confident that our efforts will pay off. The quality of our customer base is excellent and our _____ 18:48 profile, which is quite good in terms of days invested and percentages plans too were improved as the year progresses. In NCR every key manager spends time on cash and receivables management every day. As a final note on cash flow, we had also a very focussed on the investment and capital expenditures and have moved this down to a level of equal to or below depreciation. In summary, we expect our cash flow to improve as the year progresses. Now, I will return the call to Lars to comment on our future outlook.

Thank you David. We are so pleased with our results in this quarter especially the broad based revenue growth of 10% has gained from four key solutions across all regions, new products driving growth in our retail business, strong financial self service revenue growth in the Americas and Asia Pacific regions, the number of new customers in dataware housing increased by more than 20%, and a significant increase in high availability services. Going forward our businesses are well positioned in the market place. Our order activity is good. We have a good backlog and the opportunities in our funnel are encouraging. However, what is unknown is how the economy will affect the future opportunities. That being said, we continue to expect a good second quarter in terms of revenue growth and operating income and let me tell you what. First of all we have seen individual companies postpone capital spending decisions. Order activity for the recent financial group continued to be good in Q1. We saw strong amount for Teradata in the first quarter and anticipate, we will see good growth over a strong second quarter of 2000. In addition, mainly one-third of our revenue is from our _____ 20:41 based customer service businesses; although, we anticipate revenue growth at 5% for the second quarter and now let me share with you our guidance for each of our businesses in the second quarter. For retail stocks dimension, we remained cautious due to the weakness in the retail industry. We expect revenue growth in below single digits in the second quarter. For the full year we expect increased revenues from new products to be offset by declines in traditional retail products and lower revenues from the US postal service. As a result, we continue to expect marginal revenue growth of this business. Turning to the financial self-service we expect a good second quarter for our financial self-service business of broad based revenue growth across all regions and product segments. We feel 5% growth in the second quarter is achievable especially considering recent order trends and backlog. At Data Warehousing we expect a quarter revenue growth of about 15-20% against the tough comparison from last year's second quarter. For customer services, we look for about 5% revenue growth in the second quarter. This will continue a new trend as customer services revenues grow instead of decline. In total for the quarter we anticipate operating income to improve 20% over the 71 million general in the second quarter of 2000.

Other income is expected to be minimal. For the year we remain comfortable over our previous guidance of 5% revenue growth from the company. We also remain comfortable with our prior guidance for operating income of $380-385 million. Further more we have approximately of 20 million of other income. We expect earnings per share to be within the current range of the analyst forecast. As I conclude my remarks this morning, I would like to share my conviction and enthusiasm about the opportunity that lie ahead for NCR despite the slower US economy. This is an exciting time for NCR as we have completed our transformation to our growth oriented solutions based company. I wish you could experience the change in attitude and emotion that has occurred internally at NCR. Our people have shown we can deliver and execute against our plan. Operator we will now take the questions.

Our first question will come from John Jones from Salomon Smith Barney.

Greg, thanks. Can you talk about what the key is to the possibility might be for the retail systems group and the data warehousing groups, as the starter and Lars, can you talk about what you have done secondly regarding Bill Amelio's departure, how the organization changed, have you stepped in or you are going to put someone in his place?

Hi John this is Lars. Good morning. First of all the key drivers for our transformation, we have talked about this before I believe, is the change in the mix from what I would call PC on the cash store to the new product, we have a higher margins, so that is the main key driver. I also think the cost of the product is the key driver to profitability. Clearly in data warehousing, I hope you know this is my comment that the majority of the growth came out of software and services that traditionally have a higher margin than the hardware piece. I think the equation that you and I have not heard of or talked about many times that potentially half of the revenue growth falls to the bottom-line unless you want to use that part of that profit to invest like we did this quarter, is still absolutely valid. So the simple answer is continue to grow 20-25% on a annual basis and we are certain will be profitable this year as we already predicted. The third question about Bill Amelio, the decision to have two Chief Operating Officers, I think proved to be absolutely right one. I have no intention whatsoever to change that. I stepped in with a lot of help from the people in the retail and financial group and I am extremely pleased for their sake because the result of the first quarter is really the result of many quarters of work in those business units. So, we have an active search through B to find the new CEO. I feel actually pretty good about our attractiveness in the market place for people like that to come and work for us.

Good trend, and David, could you give us a feel for how we deal with the other revenue stuff. We were under the impression that other solutions is going to be down some 35% or 40% for the year and it ended up in the quarter being up 3% points which is about a $15 million swing per quarter. What should we think about that line? Have we finally bottomed there, is that what this is?

No, John, I think, what this reflects is the success we have had in building the high availability of the business in CS that is not in the maintenance line, it is below and this business still is in and helps obviously by the 4Front acquisition. It is offsetting some of the decline that we are seeing both in the ___ 26:39 solutions and any maintenance associated with those solutions. So, we are having good success there on the revenues and now we want to focus on the earnings. 26:52

So, what does it mean for the next few quarters. What should we think about deadline on it, is this for one quarter? 26:58

I think we have more success in this first quarter. The ___27:04 businesses did not decline quite as sharply as we expected. We would expect to see declines in the future quarters very much in line with the guidance we have previously given you. 27:19

Okay. Thank you.

Next question comes from Merrill Lynch.

Hi. Good morning this is Tom ____. I just wanted to ask you a couple and I think Larry might have one. Lars, I did not hear you specifically or may be I just missed it, could you talk a little bit about the quality of the funnel 27:40 in your businesses in particular with data warehousing, you put some data out there that just went by pretty quickly. Also, I guess, these next two would be for you David. In terms of the $40 million writedown from receivables, can you talk about why we should not think about that as a sort of operating expense? Because, I am assuming you would have booked revenue and profit from it in past quarters. If you could also maybe talk a little bit about whether you think being able to keep your cap ex below your rate of depreciation is going to be sustainable that would be helpful? 28:16

Tom, I do not think of course any number is out there. Our order activity and Teradata, I think in the first quarter was very good, very encouraging, the final four orders in the second quarter and beyond perhaps even more encouraging. I feel very good about his business. In my opinion, we are beating our competitors hands down right now. The only problem with this guy is the issue of slowing down the IT expenditure and pushing a decision out. I was extremely pleased to see that we were able to catch and capture the majority of the customers, we delayed their decision to fourth quarters, and you might remember we talked about some customers delaying. We captured majority of those guys in the first quarter. They work up a lot of people who delayed in the first quarter and I am confidant that we will catch those people in the second and third quarter. I think we are living right now big time in the marketplace and not only in the US, across the world. 29:20

Like from the past, you know, you usually talked a little bit about new customers wins etc., and can you maybe give us characterize how your new customers wins etc., going versus last quarter year over year? 29:34

I will be delighted. First of all, I think there are some misunderstandings among some people. There are some people who think that Teradata are doing a quarter to a billion dollar basically on revenue in the quarter is based on a couple of transactions and particularly upgrades. Let me clarify that mistake. We have more than a 100 transaction in a quarter and a significant portion of that are new customers. We had 20% more new customers in this quarter, compared to a year ago and based on that, I am saying this is the real business, significant business, we have beaten the other guy hands down and I think this is a wonderful opportunity going forward. 30:15

Let me answer the other two questions. We absolutely agree with your observation that the CCC writedown should be part of ongoing operations. We portrayed it this way, because it reflected how investors were receiving it. Internally, we did not look upon it as one time item internally, for instance, in our business reporting for the self service business, they clearly have got it in their numbers and we look upon this as a something that we have to overcome and the self service business is working really hard overcoming this and making some progress. I agree it is not reflected in the estimate that we have given you for the year. But there is no confusion internally how this should be treated. Secondly, on cap ex below depreciation, we feel very confident that this is a discipline that we should absolutely follow. We had higher cap ex, then depreciation than the last two or three years with Y2K systems and Euro-systems investments, but now we do not really have major manufacturing investments. This is a discipline that we think we could move to and are absolutely sure given the economic environment. So, we originally had a plan here being slightly over the levels of depreciation and we moved that to come in under and we think that we can continue that continue that kind of relationship going forward. 31:52

David, in the financial business, I am sure, that you sort of gone through receivables other credits that are being extended etc. What kind of additional exposure is there given that you did take up reasonably large hit from this one customer? 32:06

We have gone through it very carefully and there is none. Larry, did you have another one? 32:11

Yes. Just one more followup on the CCC, David. Could you give us a brief update on this status on the relationship with CCC and I wonder there is any opportunity to recover some of that writedown in future quarters? 32:29

We have maintained relationship with them just in a monitoring kind of mode. We are not shipping any product to them at all. We have taken it out of our equation this year. I think CCC is still operating and is giving some indication that they will generate cash in some future periods. Our assessment is unchanged and so, we have not changed any thought that we will be ___ 33:03 have any recovery of this in the future. That does not mean to say we wont give up on recovery but our assessment at the present time is unchanged. 33:11

Thank you very much.

Our next call comes from Jim Brown of JP Morgan.

That is very good revenue growth and you had mentioned a 50% contribution margin from data warehousing and if you do the calculation for the first quarter, you don't come up with the 50% contribution margin. You really come up with something closer to 22%. Part of that might be goodwill, and so, I would like to understand what the goodwill dealt is? 34:10

I think I mentioned actually in my comments that the equation of potentially having half of our revenue growth fall to bottom-line is still valid, but we decided ___ 34:25 and I and a couple of other people decided that we want to invest some of that money into sales and marketing to position Teradata for future growth and it is true that there is also a number in the SG&A that relates to goodwill from acquisitions particularly in the acquisition of Ceres last year.

Next question comes from Jay Stevens of Buckingham Research.

Lars, I have a question for you about Europe and what you are seeing there relative to the economy, the central bank there did not cut rates, the Euro has weakened again and I am hearing some other things about Europe that make it sound not too good, also tied to Europe is the ATM situation where the Euro goes into circulation next year. Do you see any business activity related to that from your ATM space? 35:40

To start with your last question, clearly the Euro is a business opportunity for us as we are such a successful player in the Europe. Now with regard to European economy, we have not seen signs of a slowdown in Europe. I have listened to some European business leaders, thinking that they are unaffected by the economic slowdown in the US, which obviously will ___36:08,I think you might see value, and you will see that at a certain point in time. But, generally spoken, we have seen some signs of slowdown, but not to the extend that we don't think that we can meet our targets. That is the general statement across the globe clearly. But if you look at the revenue growth by region, I think you have to be quite impressed with the fact that we had a growth in the America, we had growth in Asia-Pacific obviously, and we had growth in Europe. It is a very broad-based growth pattern in the first quarter across the solutions and across the regions.

Well said. Thank you, Lars. I have a question for David about the cap ex forecast and the depreciation forecast. I understand the goal for keep cap ex below depreciation but David could you give us an estimate for 2001 for each item in dollars?

I can't Jay. I will try and give some detail on that offline and I will do it in such a way that I can share with all investors. I am not able to go through it in detail right now. But our response you will get it quick.

Right now, the first quarter cash flow statement does show cap ex well below depreciation and my question is really is that pattern with a large difference continuing for the rest of the year?

But in the depreciation line, it is also amortization of goodwill and you have to break it out and I will put something on our website that gives some further detail of that.

Okay. Thank you.

Our next quarter comes from Karthik Mehta of Midwest Research.

Can you give a little color on the customer base for data warehousing? Are you still seeing customer basis in the fortune 500 companies or is that moving down further down the line where you are seeing small companies that are still realizing the benefits of data warehousing and receiving orders from those people also.

We will speak both fortune 500 but also clearly customers that are not fortune 500 not only in the US, but also mid-size companies in Europe and Asia-Pacific. I gave a couple of names as an example of my customers. This issue, Karthik, I think you and I talked about before. This issue about number of transactions that I answered on another question is very important one. The $235 million revenue is not a couple of customers, a couple of expansion of customer-based is more than 100 transactions, and a significant number of that 100 transaction is new customers we never dealt with before, which is extremely important to fuel future expansions of this data warehouse. I think the quality of the growth that we have made, if you may allow me to use those words, was excellent in the first quarter and we are looking at the second quarter as somebody asked me the final looks very promising based on uncertainty here, and obviously they are calling me. What we have seen so far we can manage that and that is the assumption all we have to go forward.

Our next question comes from Louis ___ from Boston Partners.

Peoples, what was the deferred revenues for the quarter.

I don't have that number. It is up my head. All we reported in the cash flows was the change, but, I will get back to you on that.

Okay. Do you know if it was down or up or what. Do you have an example?

____40:12 down.

Now as we indicated in the cash flow statement, customer deposits, deferred service revenues, it is the change thereof $46 million versus a year ago.

Okay. What was that primary driver for that change?

As I say on my early comments, deferred revenue pertains generally to a maintenance business where customers contract and pay an advance for the maintenance and then we record the revenue and earnings ___ 41:04 over the contractual period. And customer deposits generally occur in our international operations, and the level there has changed as the business makes this change and in particular there has been a change in Japan.

Okay. Is there any seasonality to those to the way it goes?

You will see the customer deposits occur in the fourth quarter, first quarter and then that balance comes down over the year as the contractual period is executed.

Okay. How much of the revenue were from acquisitions in the quarter.

We don't actually disclose that specifically, but as you know the 4Front acquisition occurred in the beginning of the fourth quarter last year and that revenue base was approximately $250 million and the 4Front acquisitions in the quarter were about $60 million.

Okay. The other question I had was there have been a couple of comments in the last couple of weeks about potential income and what it represents. I think in the year 2000 it was 60% your operating income. Two questions relating to that. First of all, the $22 million a year for operating income, what is the impact of pension on that number.

I think the more important issue is as our operating earnings grow, how much of that growth is coming from the pension and not retirement benefits and severance costs. And the net of all of that, as I said in my commentary, the impact is a lot favorable this year by $1 million and will be a lot favorable for whole year long. And so, all of that operating earnings growth this year is coming from operations and is not coming from pension and severance costs.

Okay. So, the growth is not coming from there. But it still represents approximately 60%.

No, with the level of operating earnings that we expected to deliver this year and over a period of time, this will become a minor piece of our operating earnings as the corporation continues to expand in growth.

Is there any over the four quarters of the year, is that number spread evenly or is there any ...

It has spread out evenly.

Okay. Thank you.

Our next question comes from Alanz Lequard. First Manhattan.

Good morning. A very good quarter and a tough environment.

Thank you.

You were kind enough breakout in the financial self-service, what looks like I am presuming solutions offering you say and then by customer service maintenance, which is the first time I see you doing that unless I am mistaken. They both up the same amount. Could you since you are breaking it out, could you may be talk a little bit more about what is going on specifically in those two obviously the first one is more lumpy, but could we get some kind of trend on how that is going and what you are expecting?

Let me just clarify so that you understand. First of all, we have been doing this for a couple of quarters. What we do is we show you the revenue number for products and solutions and so on and they show you a separate line for the maintenance business or the service related to a ATMs. That will show you the operating income for the combined. What you see here is an 8% growth actually involved in the customer service maintenance business for financial self-service as well as it is called the revenue by solutions offering financial self-service. I think that is a very encouraging revenue growth both for our services product and as I said, it is really driven both in the US as well as in the other regions particularly Asia Pacific. I think region, where we have a lot of prospects for going forwards, and we are the only actually player in this space who is as global as we are. I feel very encouraged by the service revenue because, we have worked very hard on what we call capture rates when we sell an ATM we want to capture that ATM the maintenance for that ATM and we have clearly increased our capture rates in the last quarter and I think that is one of the drivers for our growth in the maintenance business. I hope I have answered your question.

Okay. When you talk about the 5% growth of the second quarter, whatever you do for the year, are you referring to the category as a whole or ATM placement just to clarify?

I gave you a growth number for the solutions and I referred to the number of solutions and then I gave you a growth number for customer service and this refers to all customer services business across the whole company.

Okay. Could one make an assumption just in general whether the service is more profitable than the solutions or do you want to correct the ___ 46:50? 46:52?

We don't break that out.

Okay. Where would you say the best order activity is these days in terms of backlog? Is there any, is the US sort of still on a funk or how did you start to categorize the world in general.

ATMs?

Yes.

I don't think US is that bad at all. I think we proved that with the first quarter on our statements about _____ 00:47:13 going forward. I think Asia-Pacific medium term is the biggest growth potential, because, just out of the market condition or the size of the market and the penetration, but I think in the near term, you guys will help in order to be a challenge.

Thank you very much.

That is all at this time we have this morning for questions. We would like to thank everyone for listening in. If you have any further questions, please feel free to call me Cricks ___, at 937-445-4700. Thank you very much.

This concludes today's presentation. Thank you for participating and have a nice day.