-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BCn+jbBzbWCEDTUNVycnXlLGY6IYH/0kyMZXGeXp8jYAcbG5+c7H7JsKSwnIGst0 vNPWbarmBXHnDVQEdE2kxw== 0000950152-99-006310.txt : 19990802 0000950152-99-006310.hdr.sgml : 19990802 ACCESSION NUMBER: 0000950152-99-006310 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIEBOLD INC CENTRAL INDEX KEY: 0000028823 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 340183970 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04879 FILM NUMBER: 99673459 BUSINESS ADDRESS: STREET 1: P.O. BOX 3077 STREET 2: 5995 MAYFAIR RD CITY: CANTON STATE: OH ZIP: 44720-8077 BUSINESS PHONE: 3304904000 MAIL ADDRESS: STREET 1: PO BOX 3077 CITY: CANTON STATE: OH ZIP: 44720-8077 10-Q 1 DIEBOLD, INCORPORATED 10-Q 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------------------------------ FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from .........to ......... Commission file number 1-4879 ------- DIEBOLD, INCORPORATED - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0183970 - ---------------------------------- ------------------------------------ (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 5995 Mayfair Road, PO Box 3077, North Canton, Ohio 44720-8077 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (330) 490-4000 - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ Indicate the number of shares outstanding of each of the issuer's classes of Common Shares, as of the latest practicable date. Class Outstanding at July 27, 1999 ----------------------------- ---------------------------- Common Shares $1.25 Par Value 68,952,985 Shares - ---------------------------------------- --------------------------------- 2 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q INDEX Page No. -------- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Income - Three Months and Six Months Ended June 30, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 16 INDEX TO EXHIBITS 17 -2- 3
DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Dollars in thousands except for per share amounts) (Unaudited) December 31, June 30, 1999 1998 ------------------- ---------------- ASSETS - ------ Current assets Cash and cash equivalents $ 21,796 $ 42,540 Short-term investments 40,670 37,433 Trade and notes receivable 301,723 266,891 Inventories 127,635 127,880 Prepaid expenses and other current assets 72,943 68,804 ----------- ----------- Total current assets 564,767 543,548 Securities and other investments 228,097 168,008 Property, plant and equipment, at cost 285,219 278,435 Less accumulated depreciation and amortization 142,193 131,304 ----------- ----------- 143,026 147,131 Finance receivables 61,399 65,573 Other assets 82,717 79,928 ----------- ----------- $ 1,080,006 $ 1,004,188 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities Accounts payable and other current liabilities $ 181,657 $ 177,548 Deferred income 88,253 57,985 ----------- ----------- Total current liabilities 269,910 235,533 Bonds payable 20,800 20,800 Pensions 24,466 22,745 Postretirement benefits 22,338 22,246 Minority interest 3,357 3,741 Shareholders' equity Preferred Shares, no par value, authorized 1,000,000 shares, none issued Common shares, par value $1.25, authorized 125,000,000, issued 69,599,435 and 69,494,483 shares, respectively; outstanding 68,949,455 and 68,880,761 shares, respectively 86,999 86,868 Additional capital 45,634 43,281 Retained earnings 644,230 604,227 Treasury shares, at cost (649,980 and 613,722 shares, respectively) (23,007) (21,902) Accumulated other comprehensive income (13,742) (12,802) Other (979) (549) ----------- ----------- Total shareholders' equity 739,135 699,123 ----------- ----------- $ 1,080,006 $ 1,004,188 =========== ===========
See accompanying notes to condensed consolidated financial statements. -3- 4
DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (Unaudited) (Dollars in thousands except for per share amounts) Three Months Ended Six Months Ended June 30 June 30 ---------------------------------- ---------------------------------- 1999 1998 1999 1998 ---------------- ---------------- ----------------- --------------- Net Sales Products $ 176,511 $ 173,901 $ 345,624 $ 367,031 Services 120,485 106,691 234,855 209,300 --------- --------- --------- --------- 296,996 280,592 580,479 576,331 Cost of sales Products 100,708 106,209 202,052 224,272 Special charges -- 9,864 -- 9,864 Services 85,282 74,498 166,333 150,039 --------- --------- --------- --------- 185,990 190,571 368,385 384,175 Gross Profit 111,006 90,021 212,094 192,156 Selling and administrative expense 50,711 49,006 98,168 98,752 Research, development and engineering expense 13,285 14,043 25,236 28,973 Realignment charges -- 51,253 -- 51,253 --------- --------- --------- --------- 63,996 114,302 123,404 178,978 Operating Profit 47,010 (24,281) 88,690 13,178 Investment income 5,373 4,618 10,166 9,331 Miscellaneous, net (2,175) (1,067) (3,146) (2,013) Minority interest (505) (159) (143) (392) --------- --------- --------- --------- Income/(loss) before taxes 49,703 (20,889) 95,567 20,104 (Taxes)/benefit on income (18,142) 6,445 (34,882) (7,697) --------- --------- --------- --------- Net income/(loss) $ 31,561 $ (14,444) $ 60,685 $ 12,407 ========= ========= ========= ========= Basic weighted-average shares outstanding 68,949 69,079 68,938 69,062 Diluted weighted-average shares outstanding 69,147 69,448 69,161 69,526 Basic earnings/(loss) per share $ 0.46 $ (0.21) $ 0.88 $ 0.18 Diluted earnings/(loss) per share $ 0.46 $ (0.21) $ 0.88 $ 0.18 Cash dividends paid per Common Share $ 0.15 $ 0.14 $ 0.30 $ 0.28 ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. -4- 5
DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Unaudited) (Dollars in thousands) Six Months Ended June 30, 1999 1998 -------------- ------------ Cash flow from operating activities: Net income $ 60,685 $ 12,407 Adjustments to reconcile net income to cash provided by operating activities Minority share of income 143 392 Depreciation 12,377 9,136 Other charges and amortization 7,598 (13,330) Goodwill written off under realignment plan -- 23,001 Cash provided (used) by changes in certain assets and liabilities (49,060) (14,244) Changes in deferred income 30,268 18,794 Other 16,681 41,470 -------- -------- Net cash provided by operating activities 78,692 77,626 Cash flow from investing activities: Proceeds from maturities and sale of investments 24,541 21,113 Payments for purchases of investments (91,135) (23,180) Capital expenditures (8,091) (16,730) Decrease/(increase) in net finance receivables 3,844 (9,829) Increase in certain other assets (8,765) (6,779) Other -- (63) -------- -------- Net cash used by investing activities (79,606) (35,468) Cash flow from financing activities: Dividends paid (20,682) (19,344) Distribution for purchase of IBM's share of minority interest in InterBold -- (16,141) Distribution of affiliate's earnings to minority interest holder (1,000) -- Issuance and repurchase of Common shares 1,379 (2,871) Other 473 -- -------- -------- Net cash used by financing activities (19,830) (38,356) -------- -------- Increase in cash and cash equivalents (20,744) 3,802 Cash and cash equivalents at the beginning of the period 42,540 20,296 -------- -------- Cash and cash equivalents at the end of the period $ 21,796 $ 24,098 ======== ========
See accompanying notes to condensed consolidated financial statements. -5- 6 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) (In thousands except for per share amounts) 1. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto together with management's discussion and analysis of financial condition and results of operations contained in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. In addition, the Registrant's statements in this Form 10-Q report may be considered forward-looking and involve risks and uncertainties that could significantly impact expected results. A discussion of these risks and uncertainties is contained in the management's discussion and analysis of financial condition and results of operations in this Form 10-Q. The results of operations for the six-month period ended June 30, 1999 are not necessarily indicative of results to be expected for the full year. 2. The basic and diluted earnings per share computations in the condensed consolidated statements of income are based on the weighted-average number of shares outstanding during each period reported. The following data show the amounts used in computing earnings per share and the effect on the weighted-average number of shares of dilutive potential common stock.
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ------------------------- 1999 1998 1999 1998 ----------- ---------- ---------- ----------- Numerator: Income used in basic and diluted earnings per share $ 31,561 $(14,444) $ 60,685 $ 12,407 Denominator: Basic weighted-average shares 68,949 69,079 68,938 69,062 Effect of dilutive fixed stock options 198 369 223 464 -------- -------- -------- -------- Diluted weighted-average shares 69,147 69,448 69,161 69,526 -------- -------- -------- -------- Basic earnings/(loss) per share $ 0.46 $ (0.21) $ 0.88 $ 0.18 Diluted earnings/(loss) per share $ 0.46 $ (0.21) $ 0.88 $ 0.18 Anti-dilutive shares not used in calculating diluted weighted-average shares 1,408 1,221 1,356 208 3. Inventory detail at: June 30, 1999 December 31, 1998 --------------- ------------------ Finished goods and service parts $ 35,808 $ 43,835 Work in process 91,600 83,873 Raw materials 227 172 -------- -------- Total Inventory $127,635 $127,880 ======== ========
-6- 7 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ---------------------------------------------------------------- (Unaudited) (In thousands except for per share amounts) 4. The Registrant has reclassified the presentation of certain prior-year information to conform with the current presentation format. 5. The Registrant displays the accumulated balance of other comprehensive income separately from retained earnings and additional capital in the equity section of the Balance Sheet. Items considered to be other comprehensive income include adjustments made for foreign currency translation (under Statement 52), pensions (under Statement 87) and unrealized holding gains and losses on available-for-sale securities (under Statement 115). Comprehensive income for the three months ended June 30, 1999 and 1998 was $31,101 and ($14,455), respectively. Comprehensive income for the six months ended June 30, 1999 and 1998 was $59,745 and $ 12,647, respectively. 6. In the second quarter of 1998, the Registrant recognized realignment and special charges of $61,117 ($41,850 after-tax or $0.60 per diluted share) in connection with a corporate-wide realignment program. Exit costs were accounted for under EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." Long-lived asset impairments were accounted for under Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." Inventory related charges were taken when it was determined that the utility, as a result of the realignment decisions, was less than the cost for the affected inventory. Elements of the realignment and special charges were divided into three categories: facility closing and write down of assets, employee associate costs and other exit costs. Facility closing and write down of assets costs were estimated to be $40,343. Items included in this category were certain impaired intangible assets, mainly relating to the separation from IBM in the InterBold joint venture in 1998, manufacturing assets relating to exited businesses, redundant inventory of exited businesses and contractual costs to exit leased facilities. North American facilities were consolidated and several facilities were closed under the realignment program. Termination pay and separation costs were estimated to be $8,269. More than 600 employee associates were estimated to be terminated. At June 30, 1999, 560 jobs had been terminated. The estimated costs in this category included the termination pay, job outplacement and fringe benefit costs for each eliminated job. Terminations came from all areas of the corporation. Other exit costs under the realignment program were estimated to be $12,505. These costs included legal, insurance and communications costs and the write-off of accounts receivable relating to exited businesses. Assets relating to the realignment were written down or scrapped. Costs from the realignment will be paid from operating funds over the term of the realignment plan. The anticipated completion date for the majority of costs relating to the plan is expected to be by the end of 1999. -7- 8
DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ---------------------------------------------------------------- (Unaudited) (In thousands except for per share amounts) Facility Closing Employee and Write Down of Associate Other Exit Assets Costs Costs Total ----------------- ------------- ------------ ---------- Realignment accrual at December 31, 1998 $ 2,077 $ 4,576 $ 4,595 $ 11,248 1st quarter activity (307) (490) (1,100) (1,897) 2nd quarter activity (242) (217) (1,141) (1,600) -------- -------- -------- -------- Balance at June 30, 1999 $ 1,528 $ 3,869 $ 2,354 $ 7,751 ======== ======== ======== ========
7. The Registrant has defined its operating segments into four main areas: North American Sales and Service (NASS), International Sales and Service (ISS), Manufacturing and Development (M&D) and Corporate. These segments are organized under the supervision of the Diebold Executive Management Team and are evaluated based on the following information presented: revenues from customers, revenues from inter-segment transactions, and operating profit contribution to the total corporation. All inter-segment transactions are eliminated to arrive at the total corporation revenue and operating profit. All income and expense items below operating profit are not allocated to the segments and are not disclosed. NASS sells and services financial and retail systems in the United States and Canada. NASS also has customer revenues on the servicing of medical systems in the United States and Canada. ISS sells and services financial, retail, educational and medical systems over the remainder of the globe. M&D designs, develops and manufactures the equipment sold to NASS and ISS and also sells medical and educational systems to external North American customers. 1998 financial information has been restated to show all revenues from IBM reclassified to the ISS segment from the M&D segment. As permitted under Statement 131, certain information not routinely used in the management of these segments, information not allocated back to the segments or information that is impractical to report is not shown. Items not disclosed are as follows: interest revenue, interest expense, depreciation, amortization expense, equity in the net income of investees accounted for by the equity method, income tax expense or benefit, extraordinary items, significant non-cash items and long-lived assets.
- ------------------------------------------------------------------------------------------------------------------------------------ NORTH AMERICAN INTERNATIONAL MANUFACTURING & CORPORATE/ REALIGNMENT AND TOTAL SALES AND SERVICE SALES AND DEVELOPMENT ELIMINATION SPECIAL CHARGES SERVICE 2ND QUARTER 1999 SEGMENT INFORMATION BY GROUP Customer revenues $ 232,230 $ 55,499 $ 9,421 $ (154) $ -- $ 296,996 Inter-segment revenues 4,757 67 166,218 (171,042) -- -- Operating profit 36,209 5,472 16,446 (11,117) -- 47,010 - ------------------------------------------------------------------------------------------------------------------------------------ 2ND QUARTER 1998 SEGMENT INFORMATION BY GROUP Customer revenues $ 217,914 $ 51,818 $ 11,977 $ (1,117) $ -- $ 280,592 Inter-segment revenues 7,046 176 124,614 (131,836) -- -- Operating profit 37,607 7,345 1,853 (9,969) (61,117) (24,281) - ------------------------------------------------------------------------------------------------------------------------------------
-8- 9
DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ---------------------------------------------------------------- (Unaudited) (In thousands except for per share amounts) - ------------------------------------------------------------------------------------------------------------------------------------ NORTH AMERICAN INTERNATIONAL MANUFACTURING & CORPORATE/ REALIGNMENT AND TOTAL SALES AND SERVICE SALES AND DEVELOPMENT ELIMINATION SPECIAL CHARGES SERVICE 2ND QUARTER 1999 YTD SEGMENT INFORMATION BY GROUP Customer revenues $ 456,832 $ 107,363 $ 16,055 $ 229 $ -- $ 580,479 Inter-segment revenues 5,473 233 317,407 (323,113) -- -- Operating profit 74,285 5,517 31,131 (22,243) -- 88,690 - ----------------------------------------------------------------------------------------------------------------------------------- 2ND QUARTER 1998 YTD SEGMENT INFORMATION BY GROUP Customer revenues $ 439,706 $ 118,635 $ 18,429 $ (439) $ -- $ 576,331 Inter-segment revenues 13,902 176 286,052 (300,130) -- Operating profit 67,812 18,129 10,219 (21,865) (61,117) 13,178 - -----------------------------------------------------------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As of June 30, 1999 (Unaudited) (Dollars in thousands except for per share amounts) Changes in Financial Condition - ------------------------------ The Registrant continued to show a strong balance sheet at June 30, 1999. Total assets for the second quarter ended June 30, 1999 were $1,080,006, up $75,818, or 7.6 percent from December 31, 1998. Total current assets are up $21,219: notes receivable are up $12,732, trade receivables are up $22,100, and short-term investments are up $3,237 while inventories are down by $245. Marketable securities and other investments are up $60,089. Net property, plant and equipment is down $4,105 and other assets are up $2,789. Total liabilities of $340,871 are up $35,806 from December 31, 1998. Current liabilities are up $34,377, deferred income up $30,268, while accounts payable is down $10,767 and accrued realignment liability decreased $3,497. The current asset to current liability ratio is at 2.1. Future capital expenditures and increases in working capital are expected to be financed primarily through internally generated funds. The Registrant's investment portfolio is available for any funding needs if required. External financing is also available if needed through the Registrant's lines of credit. At June 30, 1999, the Registrant had unused lines of credit approximating $150,000, all unrestricted as to use. These lines of credit represent an additional and immediate source of liquidity. -9- 10 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of June 30, 1999 (Unaudited) (Dollars in thousands except for per share amounts) Changes in Financial Condition (continued) - ------------------------------------------ Shareholders' equity is up $40,012 over December 31, 1998, with retained earnings up $40,003, and net stock related activity was an increase to equity of $1,379, and accumulated other comprehensive income decreased by $940. Shareholders' equity per Common Share at June 30, 1999 increased to $10.72 from $10.15 at December 31, 1998. The second quarter cash dividend of $0.15 per share was paid on June 4, 1999 to shareholders of record on May 14, 1999. Diebold, Incorporated shares are listed on the New York Stock Exchange under the symbol of DBD. The market price during the first six months of 1999 fluctuated within the range of $20.75 and $39.88. Results of Operation - -------------------- Second Quarter 1999 Comparison to Second Quarter 1998 - ----------------------------------------------------- Overall, net sales for the second quarter of 1999 increased from the same period in 1998 by $16,404 or 5.8 percent due in part to substantial increases in Software and Professional Services sales, which includes year 2000 remediation sales to the Registrant's customers. Net service sales for the quarter were up from the prior year by $13,794 or 12.9 percent, driven by higher contract sales due to prior installations exiting warranty, and due to installation of year 2000 upgrades for the Registrant's customers. Gross profit margin, excluding realignment and special charges, increased by 1.7% due to higher revenue combined with the improved gross margin percent (37.4 in 1999 versus 35.7 in the same quarter of 1998). Product gross margin of 42.9 percent was favorable to 1998 gross margin of 38.9 percent reflecting the increase in software and professional services (including year 2000), and less wholesale revenue in the Registrant's international operations. Total operating expenses (excluding realignment charges) of $63,996 are greater than 1998 by $947, or 1.5 percent, but are lower as a percent of revenue versus 1998 (21.5 in 1999 versus 22.5 in the same quarter 1998.) Net income was up by 15 percent over second quarter 1998 net income (excluding realignment), resulting in record second quarter diluted earnings per share of $0.46, 4.5 percent higher than the prior record of $0.44 set in the second quarter of 1997. First Half 1999 Comparison to First Half 1998 - --------------------------------------------- Consolidated net sales of $580,479 for the first half of 1999 was up by $4,148, or 0.7 percent from the same period in 1998. Product sales were down $21,407, or 5.8 percent, while service sales for the half were up from the prior year by $25,555 or 12.2 percent. Total gross profit margin, excluding realignment charges, increased by 3.2%. Product gross margin of 41.5 percent was an increase over first half 1998 gross margin of 38.9 percent, due in large part to increases in software and professional services, including year 2000, and less wholesale sales in the international operations. Service gross margin was 29.2 percent, up 0.9 percent from 1998, reflecting the improvements from the cost reductions implemented in the second half of 1998. Total operating expenses (excluding realignment charges) of $123,404 are less than 1998 by $4,321, or 3.4 percent, and are lower as a percent of revenue versus 1998 (21.3 in 1999 versus 22.2 in the same period 1998.) Net income of $60,685 was favorable by 12 percent over first half 1998 net income (excluding realignment), resulting in first half diluted earnings per share of $0.88, an increase of 11 percent over $0.79 in 1998. -10- 11 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of June 30, 1999 (Unaudited) (Dollars in thousands except for per share amounts) Results of Operation (continued) - -------------------------------- The Registrant's operating results and the amount and timing of revenue are affected by numerous factors including production schedules, customer priorities, sales volume, and sales mix. During the past several years, the Registrant has dramatically changed the focus of its self-service business to that of a total solutions approach. The value of unfilled orders is not a meaningful indicator of future revenues due to the significant portion of revenues derived from the Registrant's growing service-based business, for which order information is not recorded. Therefore, the Registrant believes that backlog information is not material to an understanding of its business and does not disclose backlog information. Corporate Realignment Charge - ---------------------------- In the second quarter of 1998, the Registrant recorded realignment and special charges of $61,117 ($41,850 after tax or $0.60 per diluted share). The majority of the realignment charge related to three areas: the ending of the InterBold joint venture with IBM, the exiting of the manufacturing and distribution channel for certain low-end self-service terminal products and the exiting of the proprietary electronic security business. The realignment charge was made up of two components: A special charge of $9,864 for the write-off of primarily inventory from exited lines of business and a realignment charge of $51,253 for all other realignment costs. Industry-wide banking trends such as bank mega-mergers, as well as the transition from IBM to the Registrant's own international distribution channels, prompted the re-evaluation of the Registrant's business plans and organizational structure. North American facilities were consolidated and certain facilities were closed. More than 600 jobs were estimated to be eliminated. At June 30, 1999, 560 jobs had been terminated. The Registrant estimated savings of $22,000 annually from the realignment program. Segment Information - ------------------- NASS customer revenues increased by $14,316, or 6.5 percent from the second quarter 1998 of $217,914 to $232,230 in the second quarter of 1999. For the first half of 1999 customer revenues were up by $17,126 or 3.8 percent overall. Operating profit for the first half was up by $6,473, or 9.5 percent. The Registrant continued in the first half to aggressively expand its international distribution channels to replace IBM. New subsidiaries for the first half of 1999 have been established in Argentina, Colombia, Poland, Thailand, France, Spain and Hungary. In addition sales support offices in Hong Kong and the United Kingdom have become full function direct sale channels in the first half of 1999. Sales through Diebold direct international channels increased substantially over the second quarter of 1998 by 67 percent. Overall, international revenue was slightly down. Europe, the Middle East, and Africa revenue was down by 8 percent, Latin America by 15 percent, however Asia/Pacific was up by 26 percent, reflecting an improvement in the economic conditions in Asia. ISS operating profits were down in the first half due to international set up costs and lower volumes. -11- 12 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of June 30, 1999 (Unaudited) (Dollars in thousands except for per share amounts) Segment Information (continued) - ------------------------------- M&D operating profit was up by $20,912, or 204.6 percent, for the first half over 1998 primarily due to increased inter-company software sales to NASS, cost reduction efforts by the ATM manufacturing unit, and changes in inter-company pricing. Year 2000 Disclosure - -------------------- The Registrant is highly committed to providing products and systems that are ready to operate in the year 2000 and beyond. Strategic initiatives have been under way to address the readiness of products delivered to our customers, corporate business systems, and the readiness of our suppliers. All of these initiatives are in place to assist in the continued delivery of products and services to our customers without interruption. The Registrant is actively pursuing the year 2000 readiness of its corporate systems. The project was initiated in 1996 within the Global Support organization. Corporate applications have been inventoried and categorized as active, inactive, or year 2000 ready. To assist in this process and verify the results, the Registrant is pursuing the evaluation and remediation, if necessary, of all of the active applications including service invoicing, customer information systems, service systems, dispatch systems, and financial systems. A new enterprise system, verified to be year 2000 ready by the system provider, is being installed that addresses manufacturing, order entry, and links to the other corporate applications. The Registrant's corporate information systems project program changes were completed in the first quarter of 1999, while testing will continue throughout 1999. As required by standard accounting practice, the Registrant is expensing as incurred all costs associated with these systems changes. The costs are not expected to have a material effect on the Registrant's financial position or results of operations. A project is also under way to contact suppliers to assess their level of readiness for operating in the year 2000 and beyond. The Registrant will evaluate the readiness of the suppliers and take appropriate steps to develop a confidence that they will experience continued operation without interruption in business. The Registrant has formed an Oversight Committee to continually review issues related to the year 2000 requirements. This Committee, consisting of senior management members, remains focused on the completion of all year 2000 related initiatives, and appropriation of sufficient resources to ensure timely completion of year 2000 activities. Additional year 2000 information on products and services can be found on the Registrant's Web site at www.diebold.com. -12- 13 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of June 30, 1999 (Unaudited) (Dollars in thousands except for per share amounts) Forward-Looking Statement Disclosure - ------------------------------------ In the Registrant's written or oral statements, the use of the words "believes," "anticipates," "expects" and similar verbs is intended to identify forward-looking statements which have been made and may in the future be made by or on behalf of the Registrant, including statements concerning future operating performance, the Registrant's share of new and existing markets, and the Registrant's short- and long-term revenue and earnings growth rates. The Registrant gives no assurance that its goals will be realized, and it is under no obligation to report changes to its outlook. Readers are cautioned not to place undue reliance on these forward-looking statements. The Registrant's uncertainties could cause actual results to differ materially from those anticipated in forward-looking statements. These include, but are not limited to: - - competitive pressures, including pricing pressures and technological developments; - - changes in the Registrant's relationships with customers, suppliers, distributors, and/or partners in its business ventures; - - changes in political, economic, or other factors such as currency exchange rates, inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting the worldwide business in each of Registrant's operations; - - acceptance of the Registrant's product and technology introductions in the marketplace; - - unanticipated litigation, claims or assessments; - - the ability to replace revenues generated by IBM as its primary international distributor; and - - the ability to implement the steps of the corporate realignment program. -13- 14 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 (i) Amended and Restated Articles of Incorporation of Diebold, Incorporated -- incorporated by reference to Exhibit 3.1(i) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 3.1 (ii) Code of Regulations -- incorporated by reference to Exhibit 4(c) to Registrant's Post-Effective Amendment No. 1 to Form S-8 Registration Statement No. 33-32960. 3.2 Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated --incorporated by reference to Exhibit 3.2 to Registrant's Form 10-Q for the quarter ended March 31, 1996. 3.3 Certificate of Amendment to Amended Articles of Incorporation of Diebold, Incorporated -- incorporated by reference to Exhibit 3.3 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. 4. Rights Agreement dated as of February 11, 1999 between Diebold, Incorporated and the Bank of New York --incorporated by reference to Exhibit 4.1 to Registrant's Registration Statement on Form 8-A dated February 11, 1999. *10.1 Form of Employment Agreement as amended and restated as of September 13, 1990 -- incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. *10.2 Schedule of Certain Officers who are Parties to Employment Agreements in the form of Exhibit 10.1. *10.5 (i) Supplemental Employee Retirement Plan (as amended January 1, 1994) -- incorporated by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. *10.5 (ii) Amendment No. 1 to the Amended and Restated Supplemental Retirement Plan -- incorporated by reference to Exhibit 10.5 (ii) to Registrant's Form 10-Q for the quarter ended March 31, 1998. *10.7 (i) 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated -- incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. *10.7 (ii) Amendment No. 1 to the Amended and Restated 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated -- incorporated by reference to Exhibit 10.7 (ii) to Registrant's Form 10-Q for the quarter ended March 31, 1998. * Reflects management contract or other compensatory arrangement. -14- 15 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (Continued) *10.8 (i) 1991 Equity and Performance Incentive Plan as Amended and Restated -- incorporated by reference to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended March 31, 1997. *10.8 (ii) Amendment No. 1 to the 1991 Equity and Performance Incentive Plan as Amended and Restated -- incorporated by reference to Exhibit 10.8 (ii) to the Registrant's Form 10-Q for the quarter ended September 30, 1998. *10.8 (iii) Amendment No. 2 to the 1991 Equity and Performance Incentive Plan as Amended and Restated. *10.9 Long-Term Executive Incentive Plan -- incorporated by reference to Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. *10.10 (i) 1992 Deferred Incentive Compensation Plan (as amended and restated as of July 1, 1993) -- incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. *10.10 (ii) Amendment No. 1 to the Amended and Restated 1992 Deferred Incentive Compensation Plan -- incorporated by reference to Exhibit 10.10 (ii) to Registrant's Form 10-Q for the quarter ended March 31, 1998. *10.10 (iii) Amendment No. 2 to the Amended and Restated 1992 Deferred Incentive Compensation Plan -- incorporated by reference to Exhibit 10.10 (iii) to Registrant's Form 10-Q for the quarter ended September 30, 1998. *10.11 Annual Incentive Plan -- incorporated by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. *10.13 (i) Forms of Deferred Compensation Agreement and Amendment No. 1 to Deferred Compensation Agreement -- incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. *10.13 (ii) Section 162(m) Deferred Compensation Agreement (as amended and restated January 29, 1998) -- incorporated by reference to Exhibit 10.13 (ii) to Registrant's Form 10-Q for the quarter ended March 31, 1998. *10.14 Deferral of Stock Option Gains Plan -- incorporated by reference to Exhibit 10.14 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. 27. Financial Data Schedule. * Reflects management contract or other compensatory arrangement. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the second quarter of 1999. -15- 16 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DIEBOLD, INCORPORATED -------------------------------------- (Registrant) Date : July 29, 1999 By: /s/ Robert W. Mahoney ------------- ------------------------------------------- Robert W. Mahoney Chairman of the Board, President and Chief Executive Officer Date : July 29, 1999 By: /s/ Gerald F. Morris ------------- ------------------------------------------- Gerald F. Morris Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) -16- 17 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q INDEX TO EXHIBITS ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT NO. PAGE NO. 3.1 (i) Amended and Restated Articles of Incorporation of Diebold, Incorporated -- incorporated by -- reference to Exhibit 3.1(i) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 -- 3.1 (ii) Code of Regulations -- incorporated by reference to Exhibit 4(c) to Registrant's Post-Effective Amendment No. 1 to Form S-8 Registration Statement No. 33-32960. -- 3.2 Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated -- incorporated by reference to Exhibit 3.2 to Registrant's Form 10-Q for the quarter ended March 31, 1996. -- 3.3 Certificate of Amendment to Amended Articles of Incorporation of Diebold, Incorporated -- incorporated by reference to Exhibit 3.3 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. -- 4. Rights Agreement dated as of February 11, 1999 between Diebold, Incorporated and the Bank of New York -- incorporated by reference to Exhibit 4.1 to Registrant's Registration Statement on Form 8-A dated February 11, 1999. -- *10.1 Form of Employment Agreement as amended and restated as of September 13, 1990 -- incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. -- *10.2 Schedule of Certain Officers who are Parties to Employment Agreements in the form of Exhibit 10.1. 19 *10.5 (i) Supplemental Employee Retirement Plan (as amended January 1, 1994) -- incorporated by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. -- *10.5 (ii) Amendment No. 1 to the Amended and Restated Supplemental Retirement Plan -- incorporated by reference to Exhibit 10.5 (ii) to Registrant's Form 10-Q for the quarter ended March 31, 1998. -- *10.7 (i) 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated -- incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. -- *10.7 (ii) Amendment No. 1 to the Amended and Restated 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated -- incorporated by reference to Exhibit 10.7 (ii) to Registrant's Form 10-Q for the quarter ended March 31, 1998. -- -17- 18 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT NO. Exhibits (Continued) PAGE NO. - ------------ ---------- *10.8 (i) 1991 Equity and Performance Incentive Plan as Amended and Restated -- incorporated by reference to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended March 31, 1997. -- *10.8 (ii) Amendment No. 1 to the 1991 Equity and Performance Incentive Plan as Amended and Restated -- incorporated by reference to Exhibit 10.8 (ii) to the Registrant's Form 10-Q for the quarter ended September 30, 1998. -- *10.8 (iii) Amendment No. 2 to the 1991 Equity and Performance Incentive Plan as Amended and Restated. 20 *10.9 Long-Term Executive Incentive Plan -- incorporated by reference to Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. -- *10.10 (i) 1992 Deferred Incentive Compensation Plan (as amended and restated as of July 1, 1993) -- incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. -- *10.10 (ii) Amendment No. 1 to the Amended and Restated 1992 Deferred Incentive Compensation Plan -- incorporated by reference to Exhibit 10.10 (ii) to Registrant's Form 10-Q for the quarter ended March 31, 1998. -- *10.10 (iii) Amendment No. 2 to the Amended and Restated 1992 Deferred Incentive Compensation Plan -- incorporated by reference to Exhibit 10.10 (iii) to Registrant's Form 10-Q for the quarter ended September 30, 1998. -- *10.11 Annual Incentive Plan -- incorporated by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. -- *10.13 (i) Forms of Deferred Compensation Agreement and Amendment No. 1 to Deferred Compensation Agreement -- incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. -- *10.13 (ii) Section 162(m) Deferred Compensation Agreement (as amended and restated January 29, 1998) -- incorporated by reference to Exhibit 10.13 (ii) to Registrant's Form 10-Q for the quarter ended March 31, 1998. -- *10.14 Deferral of Stock Option Gains Plan -- incorporated by reference to Exhibit 10.14 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. -- 27. Financial Data Schedule. 21 -18- EX-10.2 2 EXHIBIT 10.2 1 EXHIBIT 10.2 SCHEDULE OF CERTAIN OFFICERS WHO ARE PARTIES TO EMPLOYMENT AGREEMENTS Charles J. Bechtel David Bucci James L. M. Chen Warren W. Dettinger Reinoud G. J. Drenth Donald E. Eagon, Jr. Jack E. Finefrock Charee Francis-Vogelsang Bartholomew J. Frazzitta Michael J. Hillock Larry D. Ingram Robert W. Mahoney Dennis M. Moriarty Gerald F. Morris Toni J. Portmann Anthony J. Rusciano Charles B. Scheurer Robert L. Stockamp Alben W. Warf Ernesto R. Unanue Robert J. Warren -19- EX-10.8.III 3 EXHIBIT 10.8III 1 EXHIBIT 10.8(iii) DIEBOLD, INCORPORATED AMENDMENT NO. 2 TO THE 1991 EQUITY AND PERFORMANCE INCENTIVE PLAN (AS AMENDED AND RESTATED AS OF JANUARY 30, 1997) Pursuant to Section 18 of the Diebold, Incorporated Equity and Performance Incentive Plan (as Amended and Restated as of January 30, 1997), as heretofore amended (the "Plan"), the Board of Directors of Diebold, Incorporated hereby amends the Plan as follows: The period at the end of Section 9(a)(iv) shall be changed to a semicolon, and the following proviso shall be added to such Section: provided, however, that any Option Rights may provide that a Director who has completed a specified period of service on the Board or attained a specified age will be entitled to exercise any such Option Rights immediately in full at any time after any such termination until their stated expiration date. The Plan shall not otherwise be supplemented or amended by virtue of this Amendment No. 2 to the Plan, and shall remain in full force and effect. Executed at Canton, Ohio as of this 21st day of April, 1999. DIEBOLD, INCORPORATED By: /s/Gerald F. Morris ---------------------------------- Gerald F. Morris Executive Vice President and Chief Financial Officer 20 EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999 AND CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 21,796 40,670 301,723 0 127,635 564,767 285,219 142,193 1,080,006 269,910 20,800 0 0 86,999 652,136 1,080,006 345,624 580,479 202,052 368,385 123,404 0 0 95,567 34,882 60,685 0 0 0 60,685 0.88 0.88
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