<PAGE> 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, 1998
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
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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, P.O. 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, 1998
Common Shares $1.25 Par Value 68,954,226 Shares
- ------------------------------ ----------
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<PAGE> 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, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 12
INDEX TO EXHIBITS 13
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<PAGE> 3
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
- -------
Current assets
Cash and cash equivalents $ 24,098 $ 20,296
Short-term investments 34,775 36,473
Trade receivables 268,324 302,885
Inventories 143,416 128,082
Prepaid expenses and other current assets 76,017 62,101
--------- ---------
Total current assets 546,630 549,837
Securities and other investments 139,753 137,862
Property, plant and equipment, at cost 273,072 259,634
Less accumulated depreciation and amortization 121,725 115,733
--------- ---------
151,347 143,901
Finance receivables 66,280 60,970
Other assets 84,444 98,480
--------- ---------
$ 988,454 $ 991,050
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Accounts payable and other current liabilities $ 147,091 $ 181,189
Deferred income 79,685 60,891
Accrued realignment liabilities 35,608 --
--------- ---------
Total current liabilities 262,384 242,080
Bonds payable 20,800 20,800
Pensions 22,134 20,615
Postretirement benefits 22,173 22,033
Minority interest 2,291 16,941
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 69,416,457 and
69,275,714 shares, respectively; outstanding 68,969,226
and 69,004,838 shares, respectively 86,771 86,595
Additional capital 40,370 38,247
Retained earnings 559,773 566,710
Treasury shares, at cost (447,231 and 270,876 shares, respectively) (18,052) (12,882)
Accumulated other comprehensive income (9,465) (9,706)
Other (725) (383)
--------- ---------
Total shareholders' equity 658,672 668,581
--------- ---------
$ 988,454 $ 991,050
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
Net sales 1998 1997 1998 1997
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Products $173,901 $203,721 $367,031 $375,481
Services 106,691 99,481 209,300 192,329
------- -------- ------- ---------
280,592 303,202 576,331 567,810
Cost of sales
Products 106,209 126,182 224,272 228,928
Services 74,498 70,817 150,039 140,320
------- -------- ------- ---------
180,707 196,999 374,311 369,248
Special charges 9,864 -- 9,864 --
Gross profit 90,021 106,203 192,156 198,562
Selling and administrative expense 49,006 46,848 98,752 90,401
Research, development and engineering expense 14,043 13,072 28,973 25,973
------- -------- ------- ---------
63,049 59,920 127,725 116,374
Realignment charges 51,253 -- 51,253 --
Operating profit (24,281) 46,283 13,178 82,188
Investment income 4,618 5,054 9,331 9,561
Miscellaneous, net (1,067) (2,334) (2,013) (4,004)
Minority interest (159) (2,473) (392) (5,256)
------- -------- ------- ---------
Income /(loss) before taxes (20,889) 46,530 20,104 82,489
(Taxes)/benefit on income 6,445 (15,840) (7,697) (28,066)
------- -------- ------- ---------
Net income/(loss) $(14,444) $ 30,690 $12,407 $ 54,423
========= ======== ======= =========
Basic weighted - average shares outstanding 69,079 68,935 69,062 68,908
Diluted weighted - average shares outstanding 69,448 69,406 69,526 69,421
Basic earnings per share ($0.21) $ 0.45 $ 0.18 $ 0.79
Diluted earnings per share ($0.21) $ 0.44 $ 0.18 $ 0.78
Cash dividends paid per Common Share $ 0.140 $ 0.125 $ 0.280 $ 0.250
======= ======== ======= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 12,407 $ 54,423
Adjustments to reconcile net income to cash
provided by operating activities:
Realignment and special charges 61,117 --
Minority share of income 392 5,256
Depreciation and amortization 9,136 8,076
Other charges and amortization 5,905 5,014
Cash used by changes in certain
current assets and liabilities (14,244) (48,633)
Changes in deferred income 18,794 24,303
Other (14,025) 3,468
-------- --------
Total adjustments 67,075 (2,516)
-------- --------
Net cash provided by operating activities 79,482 51,907
Cash flow from investing activities:
Proceeds from maturities and sales of investments 21,113 30,599
Payments for purchases of investments (23,180) (32,557)
Capital expenditures (18,586) (40,015)
Increase in certain other assets (6,779) (7,208)
Investment in customer financing (9,829) (4,514)
Other (63) (1)
-------- --------
Net cash used by investing activities (37,324) (53,696)
Cash flow from financing activities:
Dividends paid (19,344) (17,231)
Issuance and repurchase of Common Shares (2,871) 260
Distribution for purchase of IBM's minority interest in InterBold (16,141) --
Proceeds from long-term borrowings -- 20,800
-------- --------
Net cash provided by (used by) financing activities (38,356) 3,829
-------- --------
Increase in cash and cash equivalents 3,802 2,040
Cash and cash equivalents at the beginning of the period 20,296 21,885
-------- --------
Cash and cash equivalents at the end of the period $ 24,098 $ 23,925
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Dollars in thousands)
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, 1997. 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, 1998 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Numerator:
Income used in basic and diluted
earnings per share $ (14,444) $ 30,690 $ 12,407 $ 54,423
Denominator:
Basic weighted-average shares 69,079 68,935 69,062 68,908
Effect of dilutive fixed stock options 369 471 464 513
--------- --------- --------- ----------
Diluted weighted-average shares 69,448 69,406 69,526 69,421
--------- --------- --------- ----------
Basic earnings per share $ (0.21) $ 0.45 $ 0.18 $ 0.79
Diluted earnings per share $ (0.21) $ 0.44 $ 0.18 $ 0.78
Anti-dilutive shares not used in
calculating diluted weighted-average
shares 1,221 990 208 362
</TABLE>
3. Inventory detail at:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- ------------------
<S> <C> <C>
Finished goods and
service parts $ 54,756 $ 44,776
Work in process 88,485 82,985
Raw materials 175 321
--------- ---------
Total inventory $ 143,416 $ 128,082
========= =========
</TABLE>
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<PAGE> 7
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
----------------------------------------------------------------
(Unaudited)
(Dollars in thousands)
4. The Registrant has reclassified the presentation of certain prior-year
information to conform with the current presentation format.
5. The Registrant adopted Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," on January 1, 1998. As required by the Statement,
the Registrant displays the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in 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/(loss) for the three months
ended June 30, 1998 and 1997 was ($14,455) and $32,638, respectively.
Comprehensive income for the six months ended June 30, 1998 and 1997 was
$12,647 and $56,105, respectively.
6. In the second quarter of 1998, the Registrant recognized a $41,850
after-tax charge in connection with a corporate-wide realignment program.
The major components of the realignment charge are as follows: A special
charge of $9,864 for items relating to cost of sales, and a realignment
charge of $51,253 relating to write off of impaired assets, exiting of
product lines, staffing reductions, and other major components. A reserve
accrual of $36,260 was established for the realignment costs associated
with the program that were not paid in the second quarter. As of June 30,
1998, 369 jobs have been eliminated and costs totaling $652 representing
staffing reductions have been paid from the accrual. Savings from the
realignment program are estimated to be $22,000 annually.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As of June 30, 1998
(Unaudited)
(Dollars in thousands except for per share data)
Changes in Financial Condition
- ------------------------------
The Registrant continued to show a strong balance sheet at June 30, 1998. Cash,
cash equivalents and short-term investments increased to $58,873 at June 30,
1998 from $56,769 at December 31, 1997. These assets along with securities and
other investments accounted for 20% of total assets at June 30, 1998 and
December 31, 1997. Securities and other investments consist principally of
tax-free municipal bonds, preferred stock, and other investments.
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, 1998, 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.
Shareholders' equity per Common Share at June 30, 1998 decreased to $9.55 from
$9.69 at December 31, 1997 following the Registrant's posting a second quarter
loss of ($14,444) after realignment charges. The second quarter cash dividend of
$0.14 per share was paid on June 5, 1998 to shareholders of record on May 15,
1998. 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 1998
fluctuated within the range of $23.625 and $55.313.
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<PAGE> 8
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 1O-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
As of June 30, 1998
(Unaudited)
(Dollars in thousands except for per share data)
Results of Operations
- ---------------------
Second Quarter of 1998 Comparison to Second Quarter of 1997
- -----------------------------------------------------------
Net sales for the second quarter of 1998 decreased from the same period in 1997
by $22,610 or 7%, due mainly to decreased shipments of self-service terminals.
Total gross profit before special charges decreased $6,318 or 6% from the second
quarter's results in 1997. Total gross profit including special charges
decreased $16,182 or 15% from the second quarter's results in 1997. Operating
expenses increased $3,129 or 5% over the same period in 1997, largely due to
increased spending for Year 2000 remediation efforts. Operating profit before
realignment and special charges decreased $9,694 from second quarter 1997's
performance and decreased $70,564 after realignment and special charges from the
same period in 1997.
First Half 1998 Comparison to First Half 1997
- ---------------------------------------------
Consolidated net sales for the first half of 1998 exceeded the same period in
1997 by $8,521 or 2%. Total gross profit before special charges associated with
the Registrant's realignment program held steady to prior year's gross profit,
by posting a $5,063 or 1% increase over the same period in 1997. Operating
expenses increased $11,351 or 10% over the same period in 1997 largely due to
higher selling expenses in the first quarter of 1998 relating to the increase in
sales volume for that period. Operating profit for the first half of 1998,
exclusive of the realignment and special charge, was $74,295 versus $82,188 for
the same period in 1997.
The Registrant's backlog of unfilled orders was $240,963 at June 30, 1998,
compared to $253,305 at June 30, 1997, a decrease of $12,342 or 5%. The
Registrant believes that order backlog information is not, by itself, a
meaningful indicator of future revenue streams. Numerous factors influence the
amount and timing of revenue recognized in future periods.
Corporate Realignment Charge
- ----------------------------
On July 9, 1998, the Registrant announced the details of a corporate-wide
realignment program to enhance its competitive position and streamline its
operations for lower sales volumes. 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. The realignment
resulted in a one-time, after-tax charge of $41,850, or $0.60 per share, against
second quarter earnings.
Elements of the realignment and special charge include: Write-down of certain
impaired intangible assets, streamlining of product development and
manufacturing operations, elimination of non-core product lines, write-down of
certain impaired assets of discontinued product lines, consolidation of some
North American facilities, restructuring of specific international functions
related to ending the role of IBM as the Registrant's primary international
distributor, and the elimination of more than 600 jobs corporate-wide. The
Registrant estimates savings of $22,000 annually from the realignment program.
-8-
<PAGE> 9
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 1O-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
As of June 30, 1998
(Unaudited / Dollars in thousands except for per share data)
Year 2000 Disclosure
- --------------------
The Company has begun to modify its information systems to enable proper
processing of transactions relating to the year 2000 and beyond. Project
completion is planned for the first quarter of 1999. The Company is expensing as
incurred all costs associated with these system changes. These costs are not
expected to have a material effect on the Company's financial position or
results of operations.
Forward-Looking Statement Disclosure
- ------------------------------------
In the Registrant's written or oral statements, the use of the words "believes,"
"anticipates," "expects" and similar expressions 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. Although
the Registrant believes that its outlook is based upon reasonable assumptions
regarding the economy, its knowledge of its business, and on key performance
indicators which impact the Registrant, there can be no assurance that the
Registrant's goals will be realized. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. 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 the
Registrant's operations;
- - acceptance of the Registrant's product and technology introductions in the
marketplace;
- - unanticipated litigation, claims or assessments; and
- - the ability to implement the steps of the corporate realignment program.
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<PAGE> 10
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 1O-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.
4. Rights Agreement dated as of February 10, 1989 between Diebold,
Incorporated and the Bank of New York as successor Rights Agent to
Key Bank, N.A. -- incorporated by reference to Exhibit 2.1 to
Registrant's Registration Statement on Form 8-A dated February 10,
1989.
*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.
*10.3 (i) Supplemental Retirement Benefit Agreement with William T.
Blair -- incorporated by reference to Exhibit 10.3 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
*10.3(ii) Consulting Agreement with William T. Blair -- incorporated by
reference to Exhibit 10.3(ii) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
*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.
10.6 Amended and Restated Partnership Agreement dated as of September
12, 1990 -- incorporated by reference to Exhibit 10 to Registrant's
Form 8-K dated September 26, 1990.
-10-
<PAGE> 11
*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.
*10.8 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.
*10.9 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.
*10.11 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.
* Reflects management contract or other compensatory arrangement.
27. Financial Data Schedule.
99. Letter to Shareholders dated July 20, 1998 with News Release.
(b) Reports on Form 8-K.
A Form 8-K dated April 30, 1998 was filed for the Registrant's
restatement of its Financial Data Schedules for the fiscal years
ended December 31, 1995 and 1996 and for the quarterly periods
ended June 30, 1997 and September 30, 1997 in accordance with SFAS
128, "Earnings Per Share."
-11-
<PAGE> 12
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, 1998 By: /s/ Robert W. Mahoney
-------------- -------------------------------
Robert W. Mahoney
Chairman of the Board and
Chief Executive Officer
Date: July 29, 1998 By: /s/ Gerald F. Morris
-------------- -------------------------------
Gerald F. Morris
Executive Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
-12-
<PAGE> 13
DIEBOLD, INCORPORATED
FORM 10-Q
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE NO.
- ----------- --------
<S> <C> <C>
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. --
4. Rights Agreement dated as of February 10, 1989 between
Diebold, Incorporated and The Bank of New York as successor
Rights Agent to Key Bank, N.A.-- incorporated by reference to
Exhibit 2.1 to Registrant's Registration Statement on Form 8-A
dated February 10, 1989. --
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. 15
10.3(i) Supplemental Retirement Benefit Agreement with William T.
Blair -- incorporated by reference to Exhibit 10.3 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995. --
10.3(ii) Consulting Agreement with William T. Blair -- incorporated by reference
to Exhibit 10.3(ii) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996. --
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE NO.
- ----------- --------
<S> <C> <C>
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. --
10.6 Amended and Restated Partnership Agreement dated as of
September 12, 1990 -- incorporated by reference to Exhibit 10
to Registrant's Form 8-K dated September 26, 1990. --
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. --
10.8 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. --
10.9 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. --
10.11 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. --
27. Financial Data Schedule. 16
99. Letter to Shareholders dated July 20, 1998 with News Release. 17
</TABLE>
-14-
<PAGE> 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.
Charee Francis-Vogelsang
Bartholomew J. Frazzitta
Michael J. Hillock
Larry D. Ingram
Robert W. Mahoney
Gerald F. Morris
Charles B. Scheurer
Gregg A. Searle
Robert L. Stockamp
Alben W. Warf
Ernesto R. Unanue
Robert J. Warren
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND CONDENSED CONSOLIDATED
STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 24,098
<SECURITIES> 34,775
<RECEIVABLES> 268,324
<ALLOWANCES> 0
<INVENTORY> 143,416
<CURRENT-ASSETS> 546,630
<PP&E> 273,072
<DEPRECIATION> 121,725
<TOTAL-ASSETS> 988,454
<CURRENT-LIABILITIES> 262,384
<BONDS> 20,800
0
0
<COMMON> 86,771
<OTHER-SE> 571,901
<TOTAL-LIABILITY-AND-EQUITY> 988,454
<SALES> 367,031
<TOTAL-REVENUES> 576,331
<CGS> 224,272
<TOTAL-COSTS> 384,175
<OTHER-EXPENSES> 178,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20,104
<INCOME-TAX> 7,697
<INCOME-CONTINUING> 12,407
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,407
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
<PAGE> 1
Exhibit 99
July 20, 1998
Dear Fellow Shareholder,
As you are aware, there have been several announcements regarding Diebold
recently. Some have impacted the stock price. Now that we have made our plans
and earnings public, I am able to explain in more detail our current state of
business as well as review some of the changes we are making to better position
the company for future growth.
There are five major factors affecting our near-term business. Three of these
are beyond our control, while the other two are very much within our control.
The first factor is the recent wave of mega-mergers in the banking industry. We
have had to deal with mergers and acquisitions in the financial industry before,
but never to the extent that we are seeing today. As some of the largest
financial institutions in the United States merge, they are faced with a
staggering number of business and logistical issues that demand immediate
attention. This has distracted their attention from other business issues such
as ATM deployment. I want to stress that this doesn't mean we have lost their
business; it has just been delayed.
The second factor also involves a near-term issue that demands immediate
attention in the financial industry -- Year 2000 readiness. The Federal Reserve
is currently auditing banks to gauge their readiness for the Year 2000. This
issue has become a top priority among bank CEOs and many are finding it will
take more resources than they had originally planned. While Diebold offers
services and product upgrades to help our customers with this issue, the end
result has been a reduction of ATM deployment as resources are channeled to
making other systems Year 2000 ready. We expect to see this impact continuing
through the first half of 1999.
The third and final issue which is beyond our control is the economic crisis in
Asia. Our business in the region is down considerably from 1997. While our
business from the Asia/Pacific region represents only about 5 percent of our
total revenues, it does impact unit count through our factories. Unfortunately,
this area is showing no signs of improvement for the near term.
The last two factors impacting our business are within our direct control.
Consequently, this is where we are concentrating efforts to improve our
business.
The first is Diebold's performance in the retail, off-premises ATM business,
which has not met our expectations. We recently introduced a new line of retail
cash dispensers -- the CSP 100, 200 and 400. These three cash dispensers offer
retailers the broadest spectrum of features available from any manufacturer at
very competitive prices. We have also packaged other services, many of which are
not even available from our competitors.
-17-
<PAGE> 2
These include installation and maintenance, cash replenishment, software
upgrades, help desk support and financing/leasing options. In addition, we
re-engineered the way we market to this segment by creating a new sales
organization to concentrate on the top resellers/deployers of retail ATMs.
The final major factor that has an impact on our business is our relationship
with IBM. We are continuing to explore a number of avenues with IBM regarding
international distribution of our ATMs. Meanwhile, we are working diligently on
expanding our own international operations, including discussions with others on
possible distribution agreements, joint ventures and acquisitions. Regardless of
the final outcome with IBM, let me assure you that we will control our own
destiny in the international marketplace. If IBM remains involved, it will be on
a non-exclusive basis and the product will carry the Diebold name.
As a result of all these factors, we are taking steps to reduce our costs and
better position the company for future growth. On July 9, we announced a
realignment initiative which will result in an after-tax charge of $42 million
against second quarter earnings. The purpose of the realignment is to accelerate
growth by focusing on strategic lines of business and markets, reduce costs and
improve productivity by streamlining corporate, U.S. and international
operations. The main components of the realignment include the elimination of
more than 600 jobs, consolidation of facilities and the write-down of certain
assets.
It is unfortunate that we were faced with job cuts. These decisions are not
taken lightly, but after careful consideration, we determined it was a necessary
step to protect our shareholders' investment by containing costs and focusing
resources on areas of our business with the highest growth potential. Other
major components of the realignment charge include:
- Streamlining the product development organizations to remove
cost from the products as well as increase speed to market.
For example, Diebold will no longer develop and manufacture
its own proprietary electronic security systems, but will
become a true systems integrator utilizing more off-the-shelf
OEM security products.
- Eliminating a number of non-core products including certain
self-service products, specific proprietary electronic
security systems, and some non-strategic product lines from
previous acquisitions.
- Streamlining manufacturing operations through increased
automation and consolidation of certain product lines.
- Consolidating facilities including some North American sales
offices as well as other certain leased facilities.
- Providing severance and termination benefits to associates
whose positions were eliminated.
- Writing down certain impaired assets of discontinued product
lines.
- Restructuring specific international functions related to
ending the role of IBM as the company's primary international
distributor and the further development of Diebold's own
global distribution organization.
- Ability to implement the steps of the realignment
<PAGE> 3
We expect to save about $22 million annually when this realignment is fully
implemented. We remain committed to serving our customers in the financial,
higher education, healthcare and retail industries and feel strongly that this
realignment better positions the company for long-term global growth.
Looking ahead, our long-term goals have not changed. We will continue to strive
for global leadership in the markets we serve. We also continue to drive our
business toward meeting two primary customer concerns -- increasing revenues and
reducing costs. We have a number of exciting new product and service solutions
scheduled to roll out in the coming months that are designed to help our
customers accomplish these goals. We are also proceeding with our MedSelect and
Campus Systems divisions as we continue to believe that given time to grow and
mature, they can meet our target return of 12 to 15 percent.
In closing, as I have always maintained, we are in this for the long haul. Our
focus has been and continues to be on the long-term success of the company.
Diebold has a history of strong performance and our long-term strategies remain
very exciting and promising.
Sincerely,
DIEBOLD, INCORPORATED
/s/ Robert W. Mahoney
Robert W. Mahoney
Chairman of the Board
Chief Executive Officer
<PAGE> 4
[DIEBOLD LOGO] DIEBOLD, INCORPORATED NEWS release
Public Affairs
5995 Mayfair Road
P.O. Box 3077
North Canton, Ohio 44720-8077
www diebold.com
MEDIA CONTACT: INVESTOR CONTACT:
John Kristoff Sandy Upperman
+1 330 490 5900 +1 330 490 3736
[email protected] [email protected]
FOR IMMEDIATE RELEASE:
July 16, 1998
DIEBOLD ANNOUNCES SECOND QUARTER RESULTS
NORTH CANTON, Ohio -- Diebold, Incorporated (NYSE:DBD) today reported
second quarter net income of $27,406,000, or $.39 per share on revenues of
$280,592,000, excluding an after-tax charge associated with a previously
disclosed realignment plan. Including the charge, the company posted a net loss
of $14,444,000, or $.21 per share. For the same period in 1997 the company
reported net income of $30,690,000, or $.44 per share, on revenues of
$303,202,000 in the 1997 second quarter.
For the six months ended June 30, Diebold had net income of
$54,257,000, or $.78 per share, excluding the charge, on revenues of
$576,331,000. Including the charge, net income was $12,407,000, or $.18 per
share. This compares with net income of $54,423,000, or $.78 per share, on
revenues of $567,810,000 for the 1997 six-month period.
Diebold, Incorporated headquartered in Canton, Ohio, is a global leader
in providing card-based transaction systems, security and service solutions to
the financial, education and healthcare industries. Founded in 1859, the company
develops, manufactures, sells and services automated teller machines, campus
systems, smart card systems, electronic and physical security equipment,
automated medication dispensing systems, software and integrated systems
solutions.
###
<PAGE> 5
DIEBOLD, INCORPORATED
(IN THOUSANDS EXCEPT EARNINGS PER SHARE )
NEWSWIRE
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
1998 1997 1998 1997
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Net Sales
Product............................................. $173,901 $203,721 $367,031 $375,481
Service............................................. 106,691 99,481 209,300 192,329
------- -------- ------- ---------
Total............................................... 280,592 303,202 576,331 567,810
Cost of Goods............................................... 180,707 196,999 374,311 369,248
Special charges............................................. 9,864 -- 9,864 --
------- -------- ------- ---------
Gross
Profit...................................................... 90,021 106,203 192,156 198,562
Percent of Net Sales......................................... 32.1% 35.0% 33.3% 35.0%
Operating Expenses
Selling, General and
Administrative...................................... 49,006 46,848 98,752 90,401
Research, Development and
Engineering......................................... 14,043 13,072 28,973 25,973
------- -------- ------- ---------
Total............................................... 63,049 59,920 127,725 116,374
------- -------- ------- ---------
Percent of Net Sales................................ 22.5% 19.8% 22.2% 20.5%
Realignment Expenses........................................ 51,253 -- 51,253 --
Income Before Taxes......................................... (20,889) 46,530 20,104 82,489
Percent of Net Sales................................ -7.4% 15.3% 3.5% 14.5%
Taxes on
Income...................................................... 6,445 (15,840) (7,697) (28,066)
------- -------- ------- ---------
Effective Tax Rate.................................. 30.9% 34.0% 38.3% 34.0%
Net Income.................................................. $(14,444) $ 30,690 $12,407 $ 54,423
========= ======== ======= =========
Percent of Net
Sales............................................... -5.1% 10.1% 2.2% 9.6%
Basic Weighted-Average Shares
Outstanding........................................... 69,079 68,935 69,062 68,908
Diluted Weighted - Average Shares
Outstanding........................................... 69,448 69,406 69,526 69,421
Basic Earnings Per Share.............................. ($0.21) $ 0.45 $ 0.18 $ 0.79
Diluted Earnings Per Share............................ ($0.21) $ 0.44 $ 0.18 $ 0.78
======= ======== ======= =========
</TABLE>
