Welcome to the NCR investor relations conference call. Operator Instructions Now I will turn the meeting over to today's host, Mr. Gregg Swearingen, Vice President of Investor Relations. Sir, you may begin.

Thank you. And good morning. And thanks for joining us for our 2005 fourth quarter earnings call. Bill Nuti, NCR's CEO will lead off our conference call this morning. After Bill's opening remarks, Pete Bocian, NCR's CFO, will discuss our Q4 financial performance as well as our guidance for 2006. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are described in NCR's periodic filings with the SEC and our annual reports to stockholders. On today's call, we will also be discussing certain non-GAAP financial information, such as free cash flow and results excluding the impact of pension and other non-operational items. Reconciliations of the non-GAAP financial results to our reported and forecasted GAAP results and other information concerning such measures are included in our earnings release and are also available on the Investor Page of NCR's Website. A replay of this conference call will be available later today on NCR's Website, which can be accessed at ncr.com. Those listening to the replay of this call, please keep in mind that the information discussed is as of January 26, 2006 and NCR assumes no obligation to update or revise the information included in this conference call, whether as a result of new information or future results. I will now like to turn the call over to Bill.

Thank you, Gregg. Good morning to all of you and thank you for joining us. This morning I will quickly highlight NCR's fourth quarter results, review the progress we've made in 2005 and give you some perspective on our plans for 2006. I first want to congratulate our employees for delivering stronger than expected results and significant earnings expansion in our fourth quarter. A few of the highlights include stronger than anticipated Teradata data warehousing revenue and profitability. Even with the negative effect of currency fluctuations, Teradata and financial self-service revenues were only slightly lower than the record Q4 2004 revenue levels. Adjusting for currency, both were up slightly. Customer services saw meaningful improvement in profitability. And profitability in our retail store automation and financial self-service businesses was in line with our expectations. As a result, we achieved a 12% operating margin before the effect of pension expense. The bottom line is the positive earnings result for the fourth quarter of 2005 continues to demonstrate the success of our actions to expand earnings per share even without meaningful revenue growth. I'll now discuss each of our larger businesses beginning with our Teradata data warehousing business. Revenue of $408 million was down 1% from Teradata's revenue in the fourth quarter of 2004. Without 2 points of currency headwinds, revenue would have been up 1%. Even more significant, Teradata generated a 22% operating margin, an increase of 5 percentage points from the 17% operating margin generated in Q4 2004. The profit improvement was enabled by a favorable revenue mix shift, lower costs and an increasing contribution from support services. For the year, Teradata grew 9% and delivered a 21% operating margin, a 5 percentage point improvement from full year 2004. The enterprise analytics market remained strong. We continued to, we see continued…

Thanks, Bill and good morning everyone. Overall, NCR delivered stronger than expected performance in Q4. Total revenue declined 4%, roughly in line with what we anticipated, despite stronger headwind from currency fluctuations. In Q4 we saw a 3% negative impact from currency versus the 1 to 2 points of currency headwind expected when we began the quarter. Reported operating income was 171 million versus 129 million in Q4 of '04, up about 33%. We reported Q4 EPS of $0.81, which included $0.11 of benefit from the favorable settlement of prior year tax audits, as well as more of the Company's profit coming from foreign countries, which have lower effective tax rates. Excluding the favorable settlements in 2005, the effective tax rate for the year was 21% versus the 22% anticipated. For 2006, we expect a 22% rate. Reported EPS was up 19% over Q4 of 2004. Without the benefit from the tax adjustments, Q4 EPS would have been $0.70, which is about a 40% improvement from the fourth quarter of 2004. In the quarter, we have pension expense of $33 million, the same amount as in Q4 of last year. For the full year 2005, we had total pension expense of 150 million, including the 19 million of incremental pension expense related to the early retirement program offered in our customer services business in Q2. To analyze NCR's operational performance without the effect of pension and one-time items, please see the supplemental financial schedule on the Investor Page of our Website that reconciles GAAP to non-GAAP results. For the remainder of my comments during today's call, I'll exclude the impact of pension on our results. Our Q4 gross margin was 31.8%, an improvement of 2.4 points from Q4 of 2004. Resulting from continued improvement in our customer services business, cost…

Thank you, Pete. Once again, I would like to thank the NCR team, in particular our employees and my management team, for their hard work in 2005. For the year, we outperformed our revenue and profitability expectations in the Teradata business and achieved more than a $100 million profit improvement in customer services. We were challenged to deliver revenue growth in our ATM and retail store automation businesses but did a good job managing costs. And our infrastructure groups, think G&A, made further progress in improving efficiency and reducing cost, which will give us greater flexibility in 2006 and beyond as we invest for future growth. Going forward, we are already in high gear, working key opportunities to improve our cost structure and productivity, specifically in the areas of supply chain, product development, manufacturing and customer services delivery. By managing our cost of goods sold, we'll have greater pricing flexibility, allowing NCR to expand our operating margin. At the same time, as we continue to make systemic changes, that deliver lasting operational and productivity improvements, we will invest for future top-line growth, especially in our enterprise analytics and self-service businesses. We are also looking at opportunities in managed services and our customer services business and at the lower end point of sale product line for our retail businesses. Enterprise analytics is a very attractive market for NCR. Teradata continues to be recognized as the undisputed technology leader in enterprise data warehousing. The market is large and continues to grow. Customers are loyal and increasing in number. The reasons for Teradata's success are found in its superior technology and the focus and passion of its people. To enable investors to increase their understanding of the Teradata technology and its competitive advantages, we are hosting an investor event on February 17 at…

Thank you, sir. Operator Instructions Our first question comes from Richard Farmer of Merrill Lynch.

Bill, you mentioned the investments in Teradata. I wonder if you might just elaborate a little bit more in how large in dollar terms you're planning on making those investments and over what time frame? And I guess when we should think about the growth picking up as a result of those? And also any color you can provide on what you are investing in. Is this mostly hiring new salespeople, are there technology investments? How should we understand the investments that you're making in Teradata? And I have a couple others, please.

Sure. First how large will depend upon how we perform each quarter throughout the year. We're going to gate our investments based on the performance of our Company and that of Teradata. But we are consciously going into the year, Richard, thinking it's very important for us to make investments in the areas of demand creation headcounts. It goes beyond just new salespeople on the street. We, our business model importantly understood is that we have industry consultants, we have technical consultants and we certainly have salespeople that work together towards a Teradata sale. So, that's one area where we're going to be making investments. R&D is the other area. I think, as you know, we have a fairly good technology lead today on our key competitors. But that's something that we need to continue to invest in to maintain that technology lead over time. And thirdly, there are just a few other areas in Teradata where we need to continue to invest in partnerships and otherwise. So, that would probably outline the areas for investment. Pete, any other comments?

Yes. Just Richard the way I think about it is; we've been successful over the last couple of years on kind of a 50 percentish Op margin flow through on the incremental revenue. As you look at the revenue guidance for the year, 5% to 7% with a 1 to 2 points of negative currency headwind, if you run the math on the 50 compared to the 21%, 22% NPOI margin expectations for the year, you can size the amount of incremental investment kind of in the 25 to 30 million range. That said, beneath the surface there are still a lot of efforts around costs per project hour in the R&D space, taking advantage of our global presence. So, we're working productivity improvement but then also you can say incrementally it's the size I just talked about relative to the pace we've been on. So, and we're also, to Bill's point, making sure we do it beginning of year. So that in their plan of record and which we'll track to is that we do make this investment, so that we're well positioned for 2007 and beyond by making the investment early in the year.

Okay. Thank you. Pete, on the ATM guidance that you gave for margins, if I heard you right, I think you said that the 15% to 16% operating margins assume a stabilizing or improving ATM pricing environment. Have you seen evidence thus far given some of the statements that your competitors have made and new management of people will be at a different compensation plan for '06 there. Are you seeing evidence that your competitors are raising or stabilizing ATM prices now?

Yes. Let me do the front part of this and then I'll let Bill kind of talk about the market. We did 16% Op margins in 2004. I'd say in a very tough environment this year we delivered 15.2%, so on flat revenue. Not, I think we're being cautious around the environment going forward, therefore you see it in the revenue and you see it in the margin expectations. Maybe, Bill, you can talk a little bit about what we have seen or haven't seen in the marketplace.

Sure. Richard, we haven't seen any material change in behavior on the part of our competitors and the pricing environment. In fact, in some cases, particularly in Asia, it is actually gotten a bit worse in some countries. There have been a few instances, I would point to where I would say the pricing environment has stabilized somewhat but nothing meaningful yet. And I actually think it's a bit too early to tell but we keep a close eye on this and we'll continue to keep a close eye on it going forward. Our goal, Richard, is going to be still maintaining a focus on selling value in the market, maintaining our own profitability by selling our value in the market. And our teams have been doing a good job of that going forward. On our, internally, if you look at our house, what we need to continue to focus on, is really driving costs out in the areas particularly of supply chain and manufacturing, customer service delivery plant. And to a lesser extent, but equally as important, using our R&D dollars much more efficiently and productively. That, if we do those things well, we'll either unleash a bit of trapped margin that might be in those areas or be able to offset some of the pricing declines if they continue.

Okay. Thank you. You also made the comment about sort of throughout the year ATM's would be weaker in the first half and then stronger in the second half, particularly if Check 21 begins to help, it sounds like towards the end of the year. How bad might we expect things to materialize in ATM revenue growth in the beginning of the year?

Our working assumption, Richard, is that going into the year, that the environment's going to be flat. I just don't have the visibility for the full year right now or comfort that the full year is going to be any better than that. Now, that being said, certainly we're building a plan and we're forging ahead as a group to drive growth. But we can't make that assumption going into the year. Q1 last year was 8% growth over Q1 the year before, so it's going to be a tough compare for us in Q1, there's no doubt about it. And so the start to the year will be challenging but we do expect throughout the year to see some improvement on a quarter over quarter basis.

Okay. Thank you.

Our next question comes from Matt Summerville of Keybanc.

A couple questions. First, can you talk a little bit about just overall demand trends in Teradata? As we move into 2006, how, what have you seen in terms of deal velocity or implementation velocity, average deal size in the overall breadth of the funnel?

I think, hi, Matt. I think the way to characterize this would be to talk about the fact that in Q4 we saw fair to good new customer velocity in Q4. At the front end of last year we had fewer newer accounts than I think we would have liked. But at the back end of last year, the velocity on new accounts improved. That will hopefully, we'll see that trend continue here in Q1. I would characterize the market in general as still a relatively healthy market on a global basis. I don't think there's any fundamental changes in opportunity in the space. And the Teradata team is just extremely focused on the same, pretty much the same plan we have been, which is growing our Teradata Data warehouse systems business across the global 1,200 and 3,000 landscape. Opportunities around the world, particularly outside of the U.S. is where we're focusing a lot of our energies today. But in general I characterize the market as being a good market on an ongoing basis into 2006.

If you look at, just to get back to ATM pricing. I think you mentioned that it's, you don't yet have the visibility to make the call as to whether or not pricing, the pricing situation is getting, is more stable in the U.S. Is that an accurate characterization? And then based on early on in the year, a lot of big RFP's probably haven't gone out yet. When will you be able to more accurately judge whether in fact pricing's getting better?

I think what we owe you Matt is a quarterly update on what we're seeing. We have just received some RFP's from China, which is, I characterize it as a good sign in light of the fact that last year certainly was a challenging year for us in that area. In the U.S. the RFP's, as you pointed out, will be coming out over the forthcoming months. And right now our visibility on the pricing environment is about the same as it was last quarter in that we haven't seen any material changes from our competitors. We hope it's going to improve but we're not going to count on it here at NCR. We're going to continue with our plan. And as I talked about it earlier, it's about selling value. We think we have the best product in the market. We think we have the best sales organization in the market. We think we have the best customer services team in the market. So, we think we can put a compelling value opposition in front of our customers. We're going to continue to, on the back end in our own shop, do the best we can this year on taking out as much cost in the supply chain, R&D and customer services to give ourselves some room. And we're going to go in with a healthy paranoia that this year's going to be a challenging year on the pricing front and on the growth front. But certainly get out of the box as strong as we can and work as hard as we can to grow the business.

As far as customer services, Pete, can you review what your deliberate revenue attrition was in 2005 and what you anticipate to be the deliberate revenue attrition in 2006?

Yes. We're concentrating on basically the third-party products when we talk about the attrition. We had, I think about 100 million year on year between '04 and '05 in terms of revenue, third-party revenue attrition and it was baked into our plan. And you can see from the profit improvement it did not, my view did not have a negative impact. There's probably, as you look at next year, we gave guidance of 3% to 4% down with 1 to 2 points of negative foreign exchange. So, the net on the third party is probably in the 30, 35 million range that could still attrit, we expect to still attrit in 2006. Again, against all that, revenue headwind we still expect to take margins up to 4% to 4.5% on our trajectory towards 5% to 7% in 2007.

What has to happen in terms of that '07 target of 5 to 7; number one, either to get pulled forward into 2006 or number two for you to surpass that in 2007?

Well, right now we're focused on the 4% to 4.5% and laying the foundation for '07. As we've talked about before, customer services complex business in terms of the number of things you got to go execute, which is why oddly it's taken us until '05 to have the big significant improvement into what I call relative profitability. But we need to continue to work on the G&A cost structures, which feed customer services. We need to work on what I call the plumbing of customer services, which is; How much it costs per call? How many calls per engineer per day? Does the engineer have the right part when they go on-site to fix it the first time? And then we need to work on the demand creation side, which is the attach rate. So, all of the above need to come together. I think we've been probably more successful ahead of plan on the G&A side and on the customer services plumbing side, which probably has reduced our reliance on the revenue picture to get to the 5 to 7. That said, we're aggressive on all three fronts. And we'll update you the beginning of next year on what we think '07's going to look like.

And the only thing I would add to that, Matt, is; as we're doing all of this and we're going to be as aggressive as we can be, we need to make sure the impact on customer satisfaction is something we measure. Because it is a key competitive advantage for NCR, it needs to continue to be the key competitive advantage. So, as we work towards this multidimensional and cost improvement plan in WCS, and believe me there's a lot of work going there. And I think if you talk to Jerry, Jerry feels good about his CS improvement. And we all feel good about the CS improvement, frankly. We've just got to make sure we keep a keen eye on how our customers feel we're doing there as well.

Going forward you mentioned a lot of things you're doing on the cost side. Should we, is there some of that that's going to fall through to the bottom line? Or are you kind of thinking that the magnitude of cost take out going forward basically is reinvested into incremental growth investments? And then do you anticipate accelerating the pace of buyback from 3 million shares to kind of, the rate you're on right now per quarter?

Yes. I think the way we look at the $350 million cost take out is ahead of plan. We will get the 350 and probably some more. But going forward, as we start looking at the supply chain manufacturing product development, it's going to end up more baked into the NPOI picture of each business. So we expect to talk to you more around the overall impact of the cost takeout versus the price versus the R&D versus the G&A and talk about the NPOI targets by business and how we take them forward. And so when we say that retail's going to improve from 3.5% to 4% to 5% next year, it's going to be a combination of pricing, a combination of cost, a combination of self-service mix, etc. And that's the way we'll talk through the business. So I think, first of all, you could take away that we delivered ahead of schedule relative to the cost takeout. We'll finish up the 350 and get beyond it this year. But the phase two will be more embedded in the NPOI components of our business. Your second question was around share repurchase.

Yes, whether or not you're going to accelerate the 3 million shares a quarter kind of pace that you're on, given that you doubled the buyback authorization.

Yes. As we said when we got the authorization from the Board, which was the incremental 500 million last quarter, is we'll do this in a systematic fashion. So, we went and purchased 3 million shares in the quarter, used 75 millionish or so of our own cash. We'll be systematic in those purchases as we move forward. And that's what we've agreed with the Board.

Okay. Thank you.

Our next question comes from Reik Reed of Robert Baird and Company.

Good morning. I just wanted to get back to the ATM pricing. Can you guys first, have you attempted to raise the prices yet in the market or had those conversations with your customers? And then, also, we've talked about you haven't seen any change in behavior from your competitors there. But are the banks going to be at this point in a mode where they're not going to be that accepting of price increases given the history plus they've just upgraded a lot of their equipment, there's no longer a real requirement out there? And would they be feeling free to push things back? If you could just talk about that with respect to pricing.

Yes. We haven't raised our prices Reik, on our side and we don't have an intention to going forward as we sit here today. The customer base, given that we haven't seen any tangible change on the part of our competitors, I don't have any data for you on how, in terms of how customers have reacted because we don't have any tangible evidence of that yet. As, I think it's intuitive, though, as you raised prices, certainly, in any market, customers will have a reaction. I just don't know right now what that reaction will be in the market and if it affords any further stability than we have seen in the past. So, given what I know today, I can only use intuition in that as you raise prices it certainly puts a little bit of pressure on you and I don't know what that's going to translate into for NCR.

Reik, my comments were around, considering we haven't seen the change and we assume today's environment continues, we're going to work the cost side and we're going to deliver between the 15% and 16% Op margins for the business.

Okay. And can you guys talk a little bit about, it's been, the last 18 to 24 months you've kind of reinvested in attacking the intermediate regional bank market. Can you just give us a progress report on, in terms of what kind of headway you're making in that marketplace?

Yes. I think in the U.S., in the community bank segment over the last few years given our investments there that the Company has done an outstanding job in gaining back share in that segment. I, a lot of that flushed through in 2004. And we had some success in 2005. Going forward, we're, we continued to actually invest more headcount in that segment and greater coverage in that particular area. But frankly, I think we still have more work to do there. It's only been about 18 months to 24 months of significant effort in that particular space. And although we've made good strides, I think there's more opportunity for us, not just in the area of selling ATM products and software but also in services. If you take a look at that market in particular, it's a wonderful market opportunity in the area of managed services. In larger banks of course where they have, they're able to in-house, they're able to do a lot of the work, community banks or mid-sized banks cannot do. We are looking towards managed services going forward in the, in that particular segment of banking as also a good opportunity for NCR.

And then just a quick question on the retail side of things. Bill, you had mentioned last quarter that you continued to see a fair bit of weakness in the retail environment, which we have seen for quite some time now. You guys are picking up that growth forecast now to 3% to 4% for the coming year. Can you just comment, have you seen a change in the marketplace? And can you tell us what that is, why it occurred and/or is this more related to some of the new product ramps you have going on?

Yes. In, when we talk about the retail automation solutions business here, it's important to remember it's both core POS and self-service. What we do see is the self-service side of that business picking up and growth there has been well into the double digits. In fact, I'll have Pete give you a little bit more color on that in a moment in terms of the self-service growth versus that of the core POS growth. I think in retail, as a segment of the market, I remain concerned about the market going into 2006 and the health of the market. In light of the fact that discretionary spending on the consumer side still has me a bit concerned. Clearly, there's less money in everyone's wallet year over year. And I think also retailers are a bit concerned about where the consumer goes. That being said, I do think that on a relative basis it won't be that much more of a challenging environment in 2006 than it was in 2005. But certainly not the kind of growth we saw in comps in 2003, 2000, particularly 2004 in that environment. Pete, why don't you give a little more color on self-service versus core POS?

Yes. If you break down $850 million of revenue in retail store automation, we are now above 20% in terms of the self-service content. Part of that's driven by our acquisitions, Kinetics, recent Galvanon, which we hope will impact in the future. We had double digit growth, more than double digit growth in 2005. So when you kind of think of retail declining 1% for the year, it really was double digit growth with a self-service component marching to over 20% and then the point of sale declining. So, really we'll start to talk about those separately because they are moving with different dimensions. The other interesting dynamic is we actually had a very good performance in Teradata in the retail space. So I think it, when you look at retail, it's not one umbrella. I think it's the relative technologies where they stand on the priority list in importance. So, we did pretty well in the self-service space of retail and also in the data warehouse space. I think the traditional POS was softer.

And the only thing I would just finish off with here, Reik, there is a very robust market in retail in tier three through six, if I use Microsoft nomenclature. Generally think about it as the SMB business, the small and medium segment. It is a market we have not traditionally played in. I don't think this will feature prominently at all in our 2006 picture. But it is market we are very interested in and hopefully the investments we make this year and we make, and we execute very well will position us well to be a more full-service provider of point of sale in all tiers of the retail market going into 2007 and beyond. So, we're hopeful that even though the secular market, the market secularly isn't growing, that we can go in and recapture some lost market share in tiers, in other tiers in that space in the future.

Great. Thank you guys for the comments.

Our next question comes from Katy Huberty of Morgan Stanley.

Yes, thanks, guys. You walked through some of the seasonal trends for ATM's but I want to make sure that I understand the same for Teradata this year. Is there enough momentum to get back to mid-single-digit growth this quarter? Or should we expect similar accelerating revenue growth through the year given the tough compare in the first quarter and some of the investments that you're making for the new verticals?

I think Pete and I will probably tag team this because he has such a great understanding of the Company's history. But I'll just give you my points of view on Teradata. I would hope that we could achieve year-on-year growth this year in at least two to three out of the four quarters. There will be some tough compares. If you look at Q3, this past year we had an outstanding Q3. I think that's going to be a tough compare. Q1 is always a tough compare for us and a tough start. But I would think about Teradata in a more smooth fashion than I would think about that of FSD in terms of growth on a year on year basis. Pete, any other comments?

Well, a couple of points. One is that when we described the currency headwind of 1 to 2 for the year, it's going to be bigger in the first half and then normalize towards the Q4 kind of equilibrium type rate. So, there's going to be more currency headwind in Q1, which is going to change the optics of the numbers. I think part of the challenge with Teradata is you move one or two deals between quarters, and we've had that discussion before, percentages can change dramatically. So, we're focused on delivering the 5 to 7 for the year. Whether the whistle goes off at the end of March and one deal is in April versus March is not that important to us. That said, we're driving hard for consistency across quarters but as Bill said, there is some lumpiness there based on big deals. So it's the, it's our one business that is less annuity like of all our businesses in terms of the flow of revenue. So we're focused on the year. We will have some currency headwind in Q1. And then we're looking to drive consistency through the year as much as possible.

Great. Thanks for the clarity. And just quickly, where will the increased CapEx investments go this year?

As you know, our CapEx is across three buckets capitalized software, reworkable service parts as well as PP&E and roughly a third each. We only spent 241 million. I've always said that somewhere in the 250 million range is the right thing for the Company. We only spent 240 so in '05 some of it slipped. So, you can look for an uptick in PP&E, some of the investments around equipment, some in the data warehouse space, some around real estate as we're doing some restructuring to optimize the cost structure. And then also capitalized software, again, in typically our self-service Teradata, or IT productivity space. But it's really just, I look at it as kind of a flow in between years at the noise level.

Okay. Great. Thanks so much, guys.

Let me just wrap up the call today. I hope to see many of you in Rancho Bernardo in a few weeks time. Gregg and the team are putting together a really terrific agenda and schedule at Teradata's headquarters. So I look forward to seeing you there. I'll be there as well. And I just wanted to just briefly say thank you to all of you for joining us today and we'll be speaking to you in the April time frame. Take care.

Thank you for participating in today's teleconference and have a nice day.