Tracy H. Krumme - Vice President of Investor Relations William R. Nuti - Chairman, Chief Executive Officer, President and Chairman of Executive Committee Robert P. Fishman - Chief Financial Officer, Chief Accounting Officer and Senior Vice President Michael Bayer - President of Retail Solutions Division and General Manager of Retail Solutions Division Jennifer M. Daniels - Senior Vice President, General Counsel and Corporate Secretary Andrew S. Heyman - President of Financial Services

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division Paul Coster - JP Morgan Chase & Co, Research Division Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division Meghna Ladha - Susquehanna Financial Group, LLLP, Research Division Natalia Kogay - Morgan Stanley, Research Division Matthew Lipton - Autonomous Research LLP Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division Kartik Mehta - Northcoast Research Siva Krishna Prasad Borra - Goldman Sachs Group Inc., Research Division Gil B. Luria - Wedbush Securities Inc., Research Division

Good day, and welcome to the NCR Corp. Third Quarter Fiscal Year 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Tracy Krumme, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you. Good afternoon, and thank you for joining our third quarter 2014 earnings call. Joining me on the call today and offering opening remarks are Bill Nuti, Chairman and Chief Executive Officer; and Bob Fishman, Chief Financial Officer. Additionally, available on the call today for Q&A are Andy Heyman, Senior Vice President and President, Financial Services; Michael Bayer, Senior Vice President and President, Retail Solutions; and Paul Langenbahn, Senior Vice President and President, Hospitality. Our presentations and discussions today include forecasts and statements that are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. While these statements reflect our current outlook, expectations and beliefs, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risks and uncertainties are described in our earnings release and in our periodic filings with the SEC, including our annual report to stockholders. On today's call, we will be referring to presentation materials posted on our website. We will also be discussing certain non-GAAP financial information such as free cash flow and results excluding the impact of pension and other items. Reconciliations of the non-GAAP financial measures through their most directly comparable GAAP measures and other information concerning such measures are included in the presentation materials and our earnings release. These are also available on the Investors section of NCR's website. A replay of the call will be available later today on our website, ncr.com. For those listening to the replay, please keep in mind that the information discussed is as of October 23, 2014, and NCR assumes no obligation to update or revise the information included in this call whether as a result of new information or future events. With that, I would now like to turn the call over to Bill.

Thank you, Tracy, and thank you, all, for joining us today. It is fair to say, I don't like getting or giving negative surprises. We are working hard to do what we need to do to make sure that this does not happen again. Our disappointing Q3 results and the necessity to reduce 2014 guidance, which we had preannounced, was driven by a worsening retail environment, FX headwinds and concerning macroeconomic indicators. As you will see during today's presentation, we were unable to withstand the sharp declines in orders, revenue and profit we experienced in retail during Q3. While I do not want to oversimplify Q3 results or 2014 guidance, it is very much a retail story combined with FX to a lesser degree. All of our other businesses performed largely as expected in Q3, with Financial Services continuing to sustain revenue growth and margin expansion momentum, much of it organic. Financial Services has a healthy legacy backlog entering Q4. I would also note that Digital Insight had another strong quarter. Before we dive into the overall results for the quarter, let me give you more details about what happened in Retail Solutions on Slide 3 and the actions we're taking to address the situation. Obviously, results were disappointing and below our expectations with revenue decreasing 1% year-over-year, operating margin decreasing 520 basis points year-over-year and orders down 27%. Backlog was up 9%, but further delays in solution rollouts were causing longer revenue conversion times. Software-related revenue increased 1%, which was also, again, disappointing. As we transform to a more software-driven business model with larger software deal sizes, we are focused on improving linearity within the quarter and execution in the space overall. The primary driver for bringing down our guidance was weaker performance in September. Order decline was higher…

Thank you, Bill. I'll start on Slide 8, which shows our Q3 operational results. Here, you can see the revenue growth up 9% as reported and 10% on a constant currency basis. As Bill mentioned, the operational gross margin rate was 28.9%, driven by more software-related revenue in the mix. Software-related revenue was up 34% and, excluding Digital Insight, core software-related revenue was up 7%. Expenses were slightly higher than prior year at 68.5% of revenue. NPOI margin was 12.4%. EPS was $0.67, down as compared to prior year due to higher interest expense and unfavorable foreign currency fluctuations. The effective tax rate in the quarter was 22%, lower than our guidance of 28% due to a favorable IRS settlement. Fluctuations in foreign currency negatively impacted Q3 results by approximately $14 million, which roughly half in NPOI and half in other income and expense. The next slide shows our Q3 GAAP results which include the impact of the restructuring plan announced in July. The Q3 charge was $130 million in total with $65 million related to severance, $55 million of inventory charges and $10 million of other restructuring related costs. The inventory charges are related to product lines, which we are end-of-life-ing sooner than expected and rationalizing the product portfolio away from those that are less profitable. The non-GAAP reconciliation on Slide 27 includes additional details on the $130 million charge. On Slides 10 and 11, you can see the revenue and operating margin by segment. Now we will go into more detail on the third quarter result. On Slide 12, you will see our Financial Services update. The team continued to deliver strong results. Revenue increased 17%, 5% coming from the core with the remainder coming from DI. Operating profit grew 55%, with half coming from the core and…

Thanks, Bob. I'm on Slide #22. Clearly, these are not the results we expected or with which we believe we are capable of delivering. We are focused on driving shareholder value and are working with a sense of urgency to address the issues we saw in Q3. In addition, we continue to make good progress on the reinvention path overall, successfully growing our software-related revenues, as well as continuing to be at the forefront of consumer transaction technologies. Financial Services continued to deliver solid organic performance, and Digital Insight has been integrated successfully and is performing ahead of expectations. Customer interest in our solutions and software offerings remained high and we're having success with our synergies and cross-selling program. In Hospitality, we continue to execute our strategy and are expanding both our international and SMB footprints. From a free cash flow perspective, we had significant improvement year-over-year, but obviously we are focused on better results going forward. To that end, the restructuring plan that we've shared with you last quarter is underway and on track. With that, let's open up the line for questions. Operator?

[Operator Instructions] And we'll take our first question from Dan Perlin with RBC Capital Markets.

So I had a few questions in retail in particular. So in last quarter's results, you had a backlog of 32% and I thought we had visibility although you talked about pushing off some more still. I'm wondering what is it exactly that you're defining as your backlog these days. And really more specifically, were there customer losses that we need to be aware of, either large clients or a series of smaller ones? And were they related to any of these product sunsettings as well?

Thanks, Dan. Yes, let me answer both of your questions. Firstly, remember our backlog that we report is really the legacy NCR backlog. It's not Radiant Technologies or -- they are now in Retail or Retalix. So it's mainly a focus on understanding our organic growth and what could transpire as a result of conversion of that backlog. So the issue in Q3, by the way, in terms of backlog was not that it did not convert, the issue was lower order growth which did not allow us to show that backlog going into Q4 and Q3. So that's part one. And part two question was -- I missed that.

The question was around the severity of the decline would indicate -- and the timing of how quickly you guys had to reverse course suggest that there's client losses in the quarter. And so I figure I would just ask you that directly, either large clients or a series of small clients that would have resulted in this.

Yes, I'll answer the first part and then Michael can chime in. But let me say that what ended up happening was in September we began to see these issues more acutely. I think we've described this before, but about 40% to 50% of our solutions, orders and revenue flow through in the third month of a quarter and are forecasted in that month. And so we ended up starting to see this occur kind of early to mid-September. And the issues were not losses, at least that we are aware of. And we're fairly confident these are not losses to the competition, but rather a series of issues that our customers are facing where they're either delaying the order to Q4 or beyond, canceling for now and moving on to thinking through when they want to actually spend the capital for the project, or issues where they actually move the capital from one project to more of a data privacy-focused product during the quarter given the numerous other breaches that occurred in Q3. Michael, did you want to comment?

Yes, Bill. I'd like to add to what Bill outlined with a clear statement that there was not a series of losses, neither one big loss or big losses we should make you aware of. We've been hit by surprise by some M&A activities of our customers which delayed some of the projects which were indicated to close or to be awarded in September time frame, restructuring, transformational projects and a couple of our big clients being under severe pressure in their own performance on the stock market. All of that led, unfortunately, to a handful of bigger moves which made us to restate the Retail performance from a revenue and a margin point of view.

Okay. And if I could just sneak one more in. The -- so the shortfall in the quarter, you lowered the software guidance and that accounted for about 43% or 44% of the overall revenue reduction. You're pointing that, it sounds like, to Retail, and Retalix to me is kind of the biggest component of software in that division. But given the size of that shortfall, $75 million to $100 million, I mean, that would be an enormous cut to Retalix. And so can you just help us reconcile how we should be thinking about where that software loss was coming from? And are these orders that are pushed off, are they in self-checkout or are they in your legacy business?

First, on the software piece. Interestingly, Dan, most of these are unattached NCR software deals, not Retalix. Retalix actually had a good quarter in terms of orders. The challenges we have on Retalix are not orders or acquiring business. It's more so aligned with the costs of driving many of the projects we have underway. So we've not -- where we've not done a good job is, in particular, is in managing the professional services costs associated with many of these large rollouts. Something we have to do a better job of. It's not demand. It's more so the demand associated with the core legacy NCR software platforms. Michael, did you want to take any more of that?

Yes. When we talk about some substantial moves related to the reasons I've outlined before, they had big software portions associated to legacy solutions. So in both sides, in the self-checkout as well as in the POS, some big rollouts have been moved due to the market conditions, M&A activities and restructuring activities of a handful of really big clients of ours.

Yes, the one -- Dan, I'd say one more thing. There was one very significant self-checkout rollout we did expect that was publicly announced to start now in 2015, but we did expect to start in 2014. So there was one significant movement, both out of the quarter and out of the year.

Our next question comes from Paul Coster with JPMorgan. Paul Coster - JP Morgan Chase & Co, Research Division: Yes. So just kind of focusing on Retail a bit longer. There's a lot of changes taking place over and above the weak environment. You've got Amazon sort of changing the rules and causing many of the bricks-and-mortar guys to think about their online strategy. You've got the data breaches. You've also got some really radical changes to the point-of-sales payment systems, whether it's Apple Pay or NFC in general or EMV or whatever. To what extent do think you're actually at the table in these discussions? Or are you sort of once removed from it? And is that one of the reasons why you are not -- gained the visibility into what's about to happen?

Well, where we are at the table, Paul, which is the place we've designed our company to be is at the table to address omni-commerce and the software to enable omni-commerce capability. I would say going into 2015 and beyond, whatever report you read or customers you speak with, that's a top of mind if not top priority going forward. No question that, in 2014, the continuing and excessive number of security breaches our customers have had to deal with are issues that hit their boardroom, refocused their CIOs, their other [ph] committees, their non-gov committees, their CEOs around enterprise risk, and budget follows that. And then that's occurred and continued to worsen in Q3. And by the way, Paul, I think that will be ongoing and that has been baked into our guidance. I think that goes on not just through Q4 but 2015 as well. However, while not at the table for those discussions, we're of course on the periphery of those discussions are working on solutions that enable our clients to deal with those issues. So for example, we have a Connected Payments application, secure Connected Payments application that we sell is gaining more and more momentum as a result of those issues. The disruption going on in Retail around the move from physical to e-commerce is both a negative in terms of hardware sales and a positive for us in terms of longer-term software sales. And of course, payments is also in the process of being disrupted. For us in payments, while we support all of the various providers, PayPal, Apple Pay, MCX, in many ways, we are a party to that end-to-end transaction. And as those technologies will allow, the win for us is really around professional services of integrating those capabilities into the front end of our customers' business. But all of those things you mentioned are -- when combined with the challenges retailers are faced with financially right now, the issues we described earlier around data privacy are also impacting their budgets, their focus and their resources. Paul Coster - JP Morgan Chase & Co, Research Division: Okay. Two quick housekeeping questions. One is, what was the organic growth rate for Digital Insight, please, on standalone basis, if you're able to share that? And Bob, what are your working cap expectations for the fourth quarter?

Yes, DI, I mean the business is growing. We, typically, haven't gone and given the prior year numbers because they had a different year end and it was too difficult to maybe pull together to get a comparable number. But the business continues to grow as referenced by the statistics that I outlined. And then what was the second question, Paul? Paul Coster - JP Morgan Chase & Co, Research Division: Working cap usage or whatever you expect in the fourth quarter. It doesn't look like it's a major -- has a major bearing on free cash flow, but I'd still like to hear how inventories and accounts receivables will change in the fourth quarter.

Yes, again, my goal is to try to improve the DSO by 1 to 2 days at the end of December, and we've been quite successful improving the inventory turns. So I expect we'll have a good news story from a working capital perspective.

Our next question comes from Ian Zaffino with Oppenheimer & Co. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Given that you started to see some of this weakness in September, and I know you announced your restructuring previously and prior to that, is there a need for additional restructuring given where the market is now? Or do you feel comfortable?

Perhaps, Ian, there may be. What we're going to do is we're going to continue with the program we have underway right now. We want to see how Q4 is turning out throughout the quarter, rolling up our 2015 growth plans, see what that looks like and then determine whether or not to achieve our goals for next year, whether or not we need to do something more around restructuring. So that call will be made in Q4 going into 2015. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. And then, also, can you talk in Hospitality and also Retail what you're basically seeing? I guess if you could as best as you could, maybe break it down from a pricing versus I guess volumes. And I know it's a little bit difficult, but I'm just trying to get a sense of where is your pricing going in Retail and Hospitality versus where your units are going.

Yes. Pricing is relatively stable in Hardware today, but volume is down. So if you look across the hardware landscape, and we expect this to be the case, Retail's purpose-filled point-of-sale terminals will slowly decline, yet pricing in that environment, because there's fewer players in that space now, remains okay. So nothing that we haven't seen in prior years current courses [ph] feed price erosion and point-of-sale. Self-checkout has been stable as well. Now that's more of a growth space in hardware for us and will continue to be going forward. And again, we had about 75% market share in that space so we get to see pricing on a global basis like no other company. And I think that we are doing well there in terms of erosion. But in the case of 2014, I think we'd be flat in terms of volume in self-checkout versus '13 in terms of total number of units on that basis. And then in the Retail -- I'm sorry, in the Hospitality space, volumes again are in Hardware slightly up and that's driven mostly by our SMB business and pricing there seems to be relatively stable. But let me ask both Michael to go first and then Paul. You guys have a perspective that you can share with Ian as well?

Ian, what I'd say, now 3 months in the role and having touched personally 30 customers around the globe is that we, of course, and especially in the Hardware volumes which have an impact on our performance, we have the buying cycles of the customers and we've seen a lot of our customers not investing in Hardware -- in significant Hardware volumes this year. Having that said is, according to what Bill also outlined, that we see building strong demand in our self-checkout solutions, also in countries where self-checkout hasn't been a major driver so far, predominantly Eastern Europe and Russia where we have to understand where the macroeconomics are going to lead us to. So I personally expect hardware volumes from a device point of view to go up next year and pricing, as Bill said, going to stay pretty much steady. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. And then just one quick question. Bob, I know you mentioned you're not going to talk about 2015 until February. But I just wanted to drill down a little bit if I could and maybe I'll ask it this way. Roughly speaking, earnings should be about $450 million. These are rough numbers and free cash flow is roughly $130 million or so. So there's arguably a $300 million delta between those 2 numbers. What is that delta going to look like in 2015, maybe 2016? And do we ever see those 2 numbers converge?

Yes. I guess what I would do, Ian, is point you to Chart 17. And again, I'm not sure where you're getting the $130 million of free cash flow. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: That's Fox River.

Yes, and I guess what you've done is just backed out the $93 million recovery. Is that right? Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: That's right.

Yes, I mean, that would not be the right thing to do because included, and you could see in one of the footnotes, well, yes, we'll have the $93 million recovery but we'll also will have spent another $93 million as expense in there cleaning up the river. So this year, in 2014, for most of the year, we were added a loan of cleaning up Fox River and incurring those costs. So really, if you look at that $225 million to $275 million number, there's really a net 0 in there in terms of $93 million recovery offset by $93 million of expense. So the free cash flow is a little bit higher. We tend to look at it as we've done a reasonable job on some of these legacy items, and so if you look at the adjusted free cash flow, those are amounts that are coming down significantly in '15 and beyond. So our goal is to try to get that adjusted free cash flow number to as close to adjusted net income as quickly as possible. So again, I'm optimistic that we're dealing with some of these legacy items. CapEx is going to be 10% down next year. We're going to drive more software and NPOI, that will improve the free cash flow, and working capital has an opportunity to help as well. So again, my goal is to get that number to 100% of adjusted net income as quickly as we can.

Our next question comes from Meghna Ladha with SFG.

Bill, in your prepared remarks, you talked about execution issues in Retail. Can you elaborate on that?

Yes. I would say, first of all, Meghna, I'm a tough grader in general. And we've had a tough week because we're tough on ourselves this week. This is a week we're not used to having. But we're also quite introspective and when we have something like this, whether it's within our control or not, we go back and understand what happened. What could we have done better and how will we fix that and learn from that? Learn from it and then fix it going forward. It's hard to determine how much of what happened in Q3 is market forces versus execution, but let me give you a shot of what I believe the execution issues have been that we're working on and that Michael is determined to resolve. And I feel comfortable that we have -- this doesn't start with Q3. It only goes back to the end of Q1. We are, first and foremost, we have to make sure we sourced and put in place solid long-term leadership for this business. And I believe in Michael. I know Michael for 15 or 20 years now and feel comfortable he is not only the right guy but the right kind of leader we need for this business. Secondly, on a more broad basis, if you look at our solution portfolio, rationalizing that and simplifying that is something we could have done and need to do a better job of, meaning, with all of the assets we now have from NCR, from Retalix and from Radiant coming together, we have to make sure that we optimize those assets and simplify our go-to-market solutions. Secondly, sales go to market and how we go to market is also something we're working on. Do we have the optimal sales route to market for each geography we're working in? And that's not just Tier 1, but how do we package our solutions to go down, market more effectively to Tier 2 to a 6? And I'm not resting sober here but more or less our packaged Retail Solutions in that space. Thirdly, sales transformation. We're working hard to transform what was once mainly a hardware sales force into an end-to-end solutions sales force. And I think Michael and I would say that, that's one of our top goals and we just have not made the progress there that we want to make. And then, lastly, an area where we've done well but needs more work is in the area of customer services, and making sure that we're continuing to invest and deliver great service in that business where, by the way, we've made great strides this year and have won back some very significant customers, but need more work.

And this is Bob. I'm going to throw one more in, that I know Michael is very focused on, and it's funnel management. In funnel management, the opportunities that the sales teams put into the pipeline is what gives NCR the headlights into the business. And if you think about Retail, back at the beginning of this quarter, we had done about $1 billion of revenue in the first half of the year and the headlight said we'd do about $1.1 billion in the back half of the year. We were optimistic because order growth was up roughly 11% in Q2. What we didn't see happening was the decline of orders of 27% overall in retail in Q3 and 47% in North America. So working with the sales teams, understanding the funnel, not just for the next quarter out, but the quarter after that and the quarter after that, and really giving us the headlights that then allows the team to manage the costs appropriately. I'd say it's the next phase that we're very focused on.

Got it. On a separate topic, Bill, what strategic moves might you come to do to increase shareholder value going forward? What businesses do consider non-core that you could monetize quickly and probably return capital to shareholders?

Well, I'd say the following, first of all, top of mind for me and our Board of Directors is improving our performance, improving our ability to drive what we believe is an undervalued share price back to an appropriate value. And in doing that, what we normally do in current course of speed and routinely is looking at strategic alternatives. And how can we do that? And of course in the context of that capital structure becomes a discussion and there are a variety of ways in which we believe we can return capital to shareholders. It's safe to say right now that, while we feel very comfortable with the assets we have, M&A is off the table. So we're looking at all of the appropriate things that you would think, Meghna, we would look at to improve value including what makes sense, divestitures of non-core businesses, which I won't get into details on the call today.

Our next question comes from Katy Huberty with Morgan Stanley.

This is Natalia Kogay for Katy Huberty. Bob, you've listed several factors that will help your cash generation in 2015, but I don't believe working capital needs was one of them. Can you maybe give us some details on how your free cash flow training program is progressing, and whether you expect working capital to be a use of or source of cash in 2015?

Yes. Again, just to be a little bit more specific on working capital, my goal would be to try to improve the DSO next year 2 to 3 days. That's the biggest focus area within working capital. I would say inventory and payables have improvements to be made, but I'm very focused on receivables. For every day of DSO that means $15 million to $20 million improvement next year. So that's the type of benefit I'm hoping to achieve.

We'll move on to Matt Lipton with Autonomous Research.

Just first, on the backlog, you've changed the retail guidance now twice and we're now looking for negative revenue growth in the year. So I mean does your guidance imply that the backlog turns negative as it end the year?

No. The guidance does not imply that. We are expecting to begin 2015 with positive backlog growth on the back of what would be a book-to-bill of greater than 1 in the quarter. We're not going to get into Q4 forecast for orders for Retail but, right now, I would say, given what we do know, I would fully expect us to come into next year with positive backlog growth.

Okay, that's helpful. And then, Bob, a question for you. Organic software growth has obviously trended from the mid-teens down to the single digits. When you think about that $650 million of software now, it's obviously $750 million for the year as of last quarter, how much of that is exactly NCR legacy software and Retail that obviously seem to be the biggest problem in the quarter?

Yes. Again, the drop in software from the overall goal was almost entirely Retail software. And again, that's primarily the legacy NCR software business.

Can you give us a sense of how big it is of that overall piece for the company?

Of the actual reduction in software, you're saying?

No, not the reduction. Just how much of NCR's overall software revenue of $650 million now expected for this year comes from the legacy NCR Retail software business?

Okay.

Again, I mean, if you think about NCR in total, about 26% of our overall revenues is software-related. Retail is actually a little bit higher than that, more towards 30%, and that's because they have a very robust software offering, both in software licenses, in professional services. And so the decline, and we brought the software number down by roughly $50 million in total, that's about the extent in terms of the size of their business.

Got it. And then the last one for me. I mean, it's nice to see the environmental liability get below $50 million. It's obviously been a free cash flow drag and was there around $45 million to $55 million before the settlement. When you think about next year and the year after, I mean, can we now assume that, that drag will be much more minimal than $45 million to $55 million? Meaning, you run that off in the next year or we still -- the stocks will really not end from a free cash flow headwind until 2017 still?

Yes. I mean, from my perspective, and Bill talked about the reserve that was on the books, $57 million. That to me is a reasonable approximation of the free cash flow over the next couple of years.

Our next question comes from Matt Summerville with KeyBanc.

Just a couple of questions here, just to go back to Retail. I guess I'm just surprised by the magnitude. Revenue is down $5 million year-over-year, operating profit is down $26 million, the worst margin performance since the first quarter of 2012. I guess I'm just trying to understand how this all snowballed in September?

Yes. Again, Matt, and again, I don't want to oversimplify this. But feeling reasonably good coming out of Q2 with 11% order growth and pretty solid backlog around 30%. But it shows you, down 27% in orders in Q3, 47% in North America and then the other regions as well were negative, and they were positive in Q2. So it shows you some of the Retail impact was not just North America base, but also some of our larger customers internationally as well. And then, when we saw the order forecast for Q4, that's what caused us to drop the revenue for the back half of the year by roughly $100 million.

And the big impact, Matt, in terms of profitability in the back half because, I mean, I'd say 2 things. One is, software deals were substantially lower than what we expected, both in terms of backlog conversion and then sell and bill of the new orders we expected to come in that did not come in. So that accounted for a significant number in terms of profitability. The other area I talked about earlier was PS costs were higher as we deploy some of these large Retalix projects. We're spending more on professional services costs than, frankly, in some cases we should be, and it was not well managed in the quarter. And then the last thing I'd say is, what really also hit us in Q3 in the last 2 weeks of September was the strengthening U.S. dollar. We saw a year-over-year $7 million negative profit impact as a result of September and the shifts alone in FX and almost all of that was the last few weeks of September. And that was above the line. Now below the line, we saw another approximately $7 million of impact and then higher OIE. So when you think about that, your tax suggests for that, it's about a $0.06 year-over-year hit just in FX and just in the last few weeks of September.

And then just sort of the last question. Just in terms of the turnover you've seen with senior management in the last 9 to 12 months with Peter, Jennifer, John, some voluntary, some involuntary. I guess, Bill, are you starting to see or are you comfortable that you're going to see relative stability in the senior ranks of the company? And I guess, are you still looking to backfill, in the case of Peter and John and kind of where you're at with that process?

Yes, I'm very comfortable with the team we have today, Matt. And Ken [ph] will be very proud of Jennifer. She's here today. Well, one of the things, as the CEO, you hope is that people who work for you can go on and achieve their career goals. Peter went on to be a CEO. I'm proud of him. He's doing well. Jen is going on to be a GC of a Fortune 100 company. Around there?

[indiscernible] Yes.

And in many cases, this year, we've made conscious decisions around others to change the structure of the organization. So in some cases, there wouldn't be places for some of those people anymore because we changed the way we're structured. I am very confident in the team we have today, some of which have been with us for a long time. Bob and I have been partners for forever, and I've got people on my team who have been here for 25 years, and some like Andy Heyman, who came to us from Radiant, who's doing a great job in Financial, and I'm proud of him and the work he's done. Paul Langenbahn from Radiant, now running Hospitality. And of course, my new hire, Michael Bayer, who worked for me, by the way, in 2 previous companies, who I'm greatly proud of as well. So it's a great team and unless we have -- I think we have a good stable group. And to your point, stability for us has been pretty good and actually could be even better going forward.

Our next question comes from Kartik Mehta with Northcoast Research.

Bill, as you take all these -- the restructuring initiatives, especially for the Retail business, at what point do you think the Retail margins might go back to what had been intended for 2014?

Bob, do you want to take that?

Yes, I mean I can -- obviously, it's been a disappointing year for operating margin for Retail. We finished the last year at 10% and we were very proud of that number because, again, Retail had always been low single-digits and the heavier mix of software, 30% plus and the revenue stream was driving that operating margin. We started this year slow at 7%, went up to 10% in Q2 but then dropped to 5% here in Q3. So our goal in Q4 is to recover back to that Q2 level and go up from there. So our goal is to be a double-digit operating margin business within Retail and continue to expand the margin rate every year. So we're not happy with how we performed in Q3.

And then, Bob, as you look at 2015, some potential drags on cash flow, would the acquisition-related costs and restructuring and pension be about the same for you in 2015 as they were in 2014? And obviously, you're going to get the benefit of Fox River basically going to 0.

Well, yes, a couple of things. On Fox, my comment was that the reserve roughly resembles the cash outflow, so 57 over the next 2 years. You decide how you want to split that, but that would be the Fox cash out the door until it's all done within 2 years. In terms of the M&A costs, I'm very confident that, that will come down to less than $10 million next year if it's that high. And then pension contributions, because of the work we've done this year, would be lower than $50 million. So again, all of those trending in the right direction.

And Bill, in the past, you've given 2016 free cash flow guidance. Obviously, what happened in this quarter kind of just messes up things for this quarter. Do you still feel comfortable kind of where you laid out 2016 that you can achieve that goal?

For 2016 cash flow?

Yes.

I mean, again, our goal on cash flow is to drive it to be as close to 100%. I think Bill's comments earlier that we'll use the month of November here and really understand what the impact is to the markets and give guidance based on that. It's 2016, Kartik, feels a long way away. We've got a lot of work to do here to execute for and give appropriate guidance for '15.

No, I understand, Bob. I just didn't know if you saw something in the business. In the past, you've given that guidance. That's only the reason I was asking. If you saw something in the business that makes you concerned.

I'd say this, Kartik -- I'd say there's a couple of things. It's important to say. One is that everyone on our team is focused on driving cash flow, both in terms of just all of us being aware it's important to perform in that area as a metric. And secondly in terms of how they're compensated. So it gets their attention fast. And by the way, I think if you look at this year, linearity has improved as a result of that given where we were last year. We're not happy with the reduction in free cash flow guidance, but we're doing a better job of driving cash flow by quarter on a linear basis. The thing that I would say is I do think that, and perhaps it's challenging to do, but to look out at the future cash flows of NCR. And of course, internally we model those things every week, if not more regularly. And I remain very optimistic about this company's ability to drive significantly improved cash flows in '15 and beyond.

Yes. I'll make one final comment is that when I look at the things that drives us to that number in '16, a lot of them are headed in the right direction. We continue to do a good job on cash taxes. That runs about 12%, 13% for the company in terms of cash taxes paid. Our CapEx came down roughly $10 million from Q2. So we've said we're going to reduce CapEx by 10% next year. That helps. Interest expense will come down as the company continues to delever a lot of these nonoperational items we've already talked about. Working capital will improve. So I'd say, we're on the right runway, Kartik, but the biggest driver to free cash flow is the operating income that the company drives. And the operating income, the best bang for your buck you get is when you drive more software as part of the mix. So again, we're very focused on those 2 pieces as well.

And then just one last question, Bill. If you look at the ATM business, you had a solid quarter, you had good growth and even the margins were fantastic. So as you look at that business, can you just talk about -- I know you've talked about regions where you've had strength. Can you get a little bit granular and just talk about countries where you're having some success that helps you drive the results you've been driving?

Yes, Kartik. Let me ask Andy Heyman, because I know he's on the line, he runs that business, to make some comments on your question. Andy?

Yes. Thanks, Bill. We've had a lot of success this year on margin expansion, and obviously it's a business that a 100 basis point improvement in gross margin in any given quarter drops $10 million to the bottom line. So in this particular quarter, we had an 800 basis point improvement in solution, in the solution margins and 500 basis point improvement in total. So it was a great margin quarter. And by the way, half of that was driven from the core and half of that from Digital Insight. So lots of goodness there. In terms of countries, the 2 I would point to would be really throughout Western Europe where, if you look at Europe and exclude Russia, we're up in the teens this year in terms of revenues and we're in the quarter as well. And that tends to be much higher margins for us. And the second one would be in the United States where we're up even more significantly than that. And when you look at that with the U.S., we've had a great mix shift towards more community financial institutions which tends to have higher margins as well. So those are big drivers for us from a regional perspective. And then of course, there's also a product mix shift that's going on as well. You didn't ask about that, but that's the other part of the margin expansion story.

Our next question comes from S.K. Prasad Borra with Goldman Sachs.

Bill, first on your pipeline for 2015. Typically, by this time of the year, what visibility do you have on the pipeline for 2015? And has that been impacted because of the issues in the Retail segment? And one for you, Bob. What is your nondollar exposure? And how much of the nondollar exposure is hedged?

The pipeline right now for 2015 and it's really what we call the front log. The front log is what's in your funnel, what's in your backlog and what does your order outlook look like for Q4. If I looked at that, all of that kind of translates to what would the backlog be going into Q1 and then modeling out Q1 orders. Let's say, right now, we'll go into Q1 of 2015 with a company backlog up higher than last year going into Q1 and that would be more so. Our Financial Services backlog, up slightly, higher than Retail going into the year. So think high single-digit backlog growth going into Q1 versus mid-single-digit going into Q1 in '14. So vis-à-vis the pipeline, I would say we're cautiously optimistic. But we really want to see how Q4 plays out, more so in Retail. And are some of these macro factors that affected us in September going to continue? We won't know that until the next time we talk. Bob?

I'd say, from a foreign currency perspective, if you think about roughly 30% to 35% of our revenues in the U.S., you've got a lot of international flows. But we've done a good job over the last 3 to 5 years to match those flows. So we're naturally hedged. So when I think about the euro, for example, and there's a lot of revenue that flows through Europe in euros, the net exposure is only around $200 million and then we hedge roughly half of that, as an example. So we try to protect ourselves by buying in local currency and creating natural hedges. And it's helped by the fact that we have the 5 manufacturing plants. Something from the timing of the FX rate movement in Q3 is what really hurt us. And because we have more revenue in the last month of the quarter and our expenses are more linear, evenly spread out through the quarter, we got hurt more on the revenue piece due to the late changing exchange rates, but we did not get the benefit from the lower spend because, call it, 2/3 of that have already been spent in the quarter. So my impact of FX was much more significant. I also saw a lot of currencies move against me, frankly, that we can't hedge, whether it's Russia, India, Brazil. Those are the more challenging ones. When I look at Q4 right now at the current exchange rates, I'm kind of back to my kind of normalized FX, where I've got about 10% to 15% above the revenue flow through. So right now, when I look at Q4, I had about a $15 million revenue impact and about a $2 million impact to the profit for the company. And that's because I'm benefiting in Q4 from the lower expenses because of FX. The issue in Q3 was I just couldn't react quick enough because the rates changed very late in the quarter. So overall, we're hedged from a natural perspective, and it appears to be moderating in Q4.

Just one follow-up on the professional services comment you made. Are there any one-off factors related to any customers or projects which, to an extent, will explain the weakness in operating profit and free cash flow performance?

Yes. I think in the quarter, the lower gross margin rate in PS and Retail is really focused on our top largest software rollouts where the PS content is significant and complex. And you could probably point to probably 5 to 6 customers who are rolling out very substantial projects with us where we're investing an enormous amount in PS. And if you don't run that business in a very disciplined way around billable utilization, around costs, around scoping and savings of work being done appropriately, you can get leakage. And we had too much of that in Q3.

Our next question comes from Gil Luria with Wedbush Securities.

Can you tell us how much of a contributor the upgrades from Windows XP as it gets closer to a sunset was to your ATM business? And then when do you expect that to roll off?

Andy, why don't you take that?

Yes. We definitely had some goodness this year specifically in a couple of regions, a little bit in the Middle East and a little bit in the U.S. with upgrades to Windows 7. I would say those have been -- kind of think of it as a 1% kind of factor for the business at a global level. I think that'll continue into the first half of next year and then we're already talking with many of those customers about just once they're complete with that, how budgets will then move towards other programs around things like security where we also expect some pretty nice tailwinds over the coming months and quarters.

Got it. And then would you mind breaking out Retalix revenue growth? It seems like you're still keeping track of orders. Do you also have a sense for what the revenue growth was in the quarter?

I don't think we do. I don't think we do, Gil. And again, the difficulties for that is the mix now with Retalix between core solution and Retalix. We're making -- I think, I've said before, as we simplify the product line, we're making tradeoffs now between what was an NCR application. Is it better than what was a Retalix application for the same purpose? And which one do we sell? So as far as the lines have blurred quite significantly -- and by the way, over time, as we do more of that rationalization of the portfolio, it will be impossible to tear that apart. Now on the order side, we can see clear order growth for PS and other attributes of Retalix that is still easier for us to track, but that's also beginning to blow as well.

Got it. And then in terms of cash flow, what was your insurance recovery this year for Fox River and the other environmental matters? And how does that compare to last year?

[indiscernible]

Not material.

Not material, pretty low.

Got it. Last question. Other income this year -- this quarter was a little higher than usual, the loss there. What attribute -- what is that attributable to?

Yes. That's the FX piece that we talked about. It was roughly $9 million. And when we said that was up about 7, it was 2 in the prior year. So that's a big swing.

Thank you. This concludes today's question-and-answer session. Mr. Nuti, I'd like to turn the conference back to you for any additional or closing remarks.

Well, I think I'll close with where we started the call and just say that it was disappointing for us to have to deliver the news we did on Monday. We don't like getting surprises or giving them and we're dedicated as a team to improving in that area. I will look forward to coming to you in February on our next call with a better report. Thanks for the time.

This does conclude today's presentation. We thank you for your participation.