DIEBOLD INC, 10-Q, 2000-11-13

DIEBOLD INC
10-Q, 2000-11-13
CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS)

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PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
INDEX TO EXHIBITS
Exhibit 27

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 September 30, 2000

( ) 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 LOGO

Diebold, Incorporated

(Exact name of registrant as specified in its charter)


Ohio		34-0183970

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

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 November 8, 2000

Common Shares $1.25 Par Value		71,499,782 Shares

-1-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

INDEX


			Page No.

PART I. FINANCIAL INFORMATION
	ITEM 1. Financial Statements
		Condensed Consolidated Balance Sheets — September 30, 2000 and December 31, 1999		3
		Condensed Consolidated Statements of Income — Three Months and Nine Months Ended September 30, 2000 and 1999		4
		Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2000 and 1999		5
		Notes to Condensed Consolidated Financial Statements		6





	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			11





	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			15





PART II. OTHER INFORMATION

	ITEM 6. Exhibits and Reports on Form 8-K			16





SIGNATURES				18





INDEX TO EXHIBITS				19

-2-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


				(Unaudited)
				September 30,			December 31,
				2000			1999

ASSETS
Current assets




	Cash and cash equivalents			$	56,253		$	27,299




	Short-term investments				28,809			57,348




	Trade receivables				427,168			312,506




	Notes receivable				16,480			13,287




	Inventories				224,081			169,785




	Prepaid expenses and other current assets				100,806			67,711

			Total current assets		853,597			647,936





Securities and other investments					144,489			175,232





Property, plant and equipment, at cost					358,079			320,640




Less accumulated depreciation and amortization					186,364			159,916

					171,715			160,724




Finance receivables					88,296			83,804




Goodwill					293,185			160,073




Other assets					92,297			71,062

				$	1,643,579		$	1,298,831

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities




	Accounts payable			$	117,187		$	96,351




	Notes payable				294,274			117,450




	Estimated income taxes				24,855			13,558




	Accrued installation costs				23,535			17,420




	Deferred income				76,496			70,899




	Other current liabilities				110,229			66,729

			Total current liabilities		646,576			382,407





Bonds payable					20,800			20,800




Pensions					31,770			24,309




Postretirement benefits					27,561			22,497




Minority interest					6,097			4,423
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 71,908,486 and 71,482,997 shares, respectively; outstanding




		71,465,855 and 71,096,290 shares, respectively			89,886			89,354
	Additional capital				94,811			87,169




	Retained earnings				760,220			691,415




	Treasury shares, at cost (442,631 and 386,707 shares, respectively)				(14,995	)		(13,644	)




	Accumulated other comprehensive income				(11,384	)		(5,865	)




	Other				(7,763	)		(4,034	)

			Total shareholders’ equity		910,775			844,395

				$	1,643,579		$	1,298,831

See accompanying notes to condensed consolidated financial statements.

-3-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands except for per share amounts)



		Three Months Ended						Nine Months Ended
		September 30						September 30

		2000			1999			2000			1999

Net Sales




	Products	$	304,611		$	188,871		$	777,549		$	534,495




	Services		175,339			123,907			489,095			358,762

			479,950			312,778			1,266,644			893,257
Cost of sales




	Products		201,217			109,951			506,408			312,003




	Services		129,693			89,010			354,438			255,343

			330,910			198,961			860,846			567,346

Gross Profit			149,040			113,817			405,798			325,911





Selling and administrative expense			73,878			55,484			196,028			153,653




Research, development and engineering expense			14,713			10,296			38,436			35,532

			88,591			65,780			234,464			189,185

Operating Profit			60,449			48,037			171,334			136,726





Investment income			3,486			5,413			13,983			15,579




Interest expense			(5,364	)		(499	)		(12,585	)		(1,488	)




Miscellaneous, net			(5,284	)		(2,144	)		(17,244	)		(4,301	)




Minority interest			(862	)		(531	)		(2,114	)		(674	)

Income before taxes			52,425			50,276			153,374			145,842





Taxes on income			(17,524	)		(17,622	)		(51,380	)		(52,503	)

Net income		$	34,901		$	32,654		$	101,994		$	93,339

Basic weighted-average shares outstanding			71,325			68,954			71,226			68,943




Diluted weighted-average shares outstanding			71,510			69,157			71,411			69,160





Basic earnings per share		$	0.49		$	0.47		$	1.43		$	1.35




Diluted earnings per share		$	0.49		$	0.47		$	1.43		$	1.35





Cash dividends paid per Common Share		$	0.155		$	0.150		$	0.465		$	0.45

See accompanying notes to condensed consolidated financial statements.

-4-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)



			Nine Months Ended
			September 30,

			2000			1999

Cash flow from operating activities:




		Net income	$	101,994		$	93,339
		Adjustments to reconcile net income to cash provided by operating activities




		Minority share of income		2,114			674




		Depreciation		24,649			19,872




		Other charges and amortization		22,679			14,759




		Cash used by changes in certain assets and liabilities




		Trade receivables		(69,878	)		(39,887	)




		Notes receivable		(2,428	)		(12,699	)




		Inventories		(25,517	)		62




		Prepaid expenses and other current assets		(18,715	)		(3,385	)




		Accounts payable		(14,353	)		(9,727	)




		Deferred income		(9,156	)		18,140




	Other			29,081			25,184

	Net cash provided by operating activities			40,470			106,332





Cash flow from investing activities:




		Payments for acquisitions, net of cash acquired		(143,137	)		—




		Proceeds from maturities and sale of investments		70,429			37,026




		Payments for purchases of investments		(15,337	)		(96,277	)




		Capital expenditures		(26,338	)		(21,003	)




		Increase in net finance receivables		(16,185	)		(6,397	)




		Increase in certain other assets		(29,616	)		(15,397	)

		Net cash used by investing activities		(160,184	)		(102,048	)





Cash flow from financing activities:




		Dividends paid		(33,189	)		(31,025	)




		Distribution of affiliate’s earnings to minority interest holder		(440	)		(1,000	)




		Proceeds from short-term borrowings		175,474			—




		Issuance and repurchase of Common shares		6,823			1,493




		Other		—			513

		Net cash provided/(used) by financing activities		148,668			(30,019	)

		Increase/(decrease) in cash and cash equivalents		28,954			(25,735	)




		Cash and cash equivalents at the beginning of the period		27,299			42,540

	Cash and cash equivalents at the end of the period		$	56,253		$	16,805

See accompanying notes to condensed consolidated financial statements.

-5-

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, 1999. 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 nine-month period ended September 30, 2000 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				Nine Months Ended
		September 30,				September 30,

		2000		1999		2000		1999

Numerator:




	Income used in basic and diluted earnings per share	$	34,901	$	32,654	$	101,994	$	93,339





	Denominator:




	Basic weighted-average shares		71,325		68,954		71,226		68,943




	Effect of dilutive fixed stock options		185		203		185		217


	Diluted weighted-average shares		71,510		69,157		71,411		69,160

	Basic earnings per share	$	0.49	$	0.47	$	1.43	$	1.35

	Diluted earnings per share	$	0.49	$	0.47	$	1.43	$	1.35

	Anti-dilutive shares not used in calculating diluted weighted-average shares		1,388		1,402		1,385		1,372

3. Inventory detail at:


	September 30, 2000		December 31, 1999

Finished goods and service parts	$	61,888	$	55,433




Work in process		162,141		114,300




Raw materials		52		52

Total Inventory	$	224,081	$	169,785

-6-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(In thousands)

4. The Registrant has reclassified the presentation of certain prior-year information to conform to 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 September 30, 2000 and 1999 was $28,504 and $31,139, respectively. Comprehensive income for the nine months ended September 30, 2000 and 1999 was $96,475 and $90,884, respectively.

6. The Registrant has defined its segments into its three main sales channels: North American Sales and Service (NASS), International Sales and Service (ISS) and Other, which combines several of the Registrant’s smaller sales channels. These sales channels are evaluated based on the following information presented: revenues from customers, revenues from inter-segment transactions, and operating profit contribution to the total corporation. A reconciliation between segment information and the Condensed Consolidated Financial Statements is also disclosed. All income and expense items below operating profit are not allocated to the segments and are not disclosed. Revenue by geography and revenue by product and service solution are also disclosed.

The NASS segment sells financial and retail systems and also services financial, retail and medical systems in the United States and Canada. The ISS segment sells and services financial and retail systems over the remainder of the globe, including sales to IBM, which was the Registrant’s former partner in the InterBold joint venture that terminated in January 1998. The segment called Other sells products to educational and medical institutions and other customers. This segment also services educational customers in the United States. Each of the segments buys the goods it sells from the Registrant’s manufacturing plants through inter-company sales. Each year, inter-company pricing is agreed upon which drives segment operating profit contribution. These inter-company sales are eliminated in consolidation and largely constitute Adjustments on the Reconciliation of Segment Information to Condensed Consolidated Statements of Income. Certain other Corporate adjustments are not allocated to segments and are also a part of Adjustments in the above noted Reconciliation.

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, amortization, equity in the net income of investees accounted for by the equity method, income tax expense or benefit, extraordinary items, significant noncash items and long-lived assets.

-7-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(In thousands)


	NASS		ISS		Other		Total





Segment Information by Channel for the three month period ending September 30, 2000:
Customer revenues	$	251,859	$	213,013	$	13,416	$	478,288
Intersegment revenues		6,407		25		2,266		8,698
Operating profit		40,122		9,175		756		50,053






Segment Information by Channel for the three month period ending September 30, 1999:
Customer revenues	$	233,281	$	67,283	$	11,371	$	311,935
Intersegment revenues		4,356		—		3,959		8,315
Operating profit/(loss)		41,235		3,583		298		45,116


	NASS		ISS		Other		Total





Segment Information by Channel for the nine month period ending September 30, 2000:
Customer revenues	$	726,580	$	502,662	$	35,462	$	1,264,704
Intersegment revenues		16,681		25		5,511		22,217
Operating profit		112,483		24,147		890		137,520






Segment Information by Channel for the nine month period ending September 30, 1999:
Customer revenues	$	690,112	$	174,645		$	27,216		$	891,973
Intersegment revenues		9,829		(284	)		9,688			19,233
Operating profit/(loss)		115,518		9,094			(3,143	)		121,469

Reconciliation of Segment Information to Condensed Consolidated Statements of Income

For the three month period ending September 30:


				2000							1999
				Inter-							Inter-
		Customer		segment			Operating		Customer		segment			Operating
		Revenues		Revenues			Profit		Revenues		Revenues			Profit

Total segment information		$	478,288	$	8,698		$	50,053	$	311,935	$	8,315		$	45,116




	Adjustments		1,662		(8,698	)		10,396		843		(8,315	)		2,921

Consolidated Statements of Income		$	479,950	$	—		$	60,449	$	312,778	$	—		$	48,037

For the nine month period ending September 30:


				2000							1999
				Inter-							Inter-
		Customer		segment			Operating		Customer		segment			Operating
		Revenues		Revenues			Profit		Revenues		Revenues			Profit

Total segment information		$	1,264,704	$	22,217		$	137,520	$	891,973	$	19,233		$	121,469




	Adjustments		1,940		(22,217	)		33,814		1,284		(19,233	)		15,257

Consolidated Statements of Income		$	1,266,644	$	—		$	171,334	$	893,257	$	—		$	136,726

-8-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(In thousands)

Product Revenue by Geography



		For the three month period ending				For the nine month period ending
		September 30:				September 30:

		2000		1999		2000		1999

United States		$	146,704	$	134,783	$	424,789	$	385,812




Canada			4,884		2,839		6,589		17,852




Asia-Pacific			17,952		14,030		43,348		30,873




Europe, Middle East and Africa			33,600		16,251		94,278		38,583




Latin America			101,471		20,968		208,545		61,375

	Total product revenue	$	304,611	$	188,871	$	777,549	$	534,495

Total Revenue Domestic vs. International



			For the three month period ending						For the nine month period ending
			September 30:						September 30:

			2000			1999			2000			1999

Domestic			$	260,121		$	241,917		$	754,254		$	698,162




	Percentage of total revenue			54.2	%		77.3	%		59.5	%		78.2	%




International				219,829			70,861			512,390			195,095




	Percentage of total revenue			45.8	%		22.7	%		40.5	%		21.8	%

		Total revenue	$	479,950		$	312,778		$	1,266,644		$	893,257

Total Revenue by Product/Service Solution



		For the three month period ending				For the nine month period ending
		September 30:				September 30:

		2000		1999		2000		1999

Self-service solutions		$	167,242	$	128,952	$	462,420	$	373,833




Security solutions			57,191		50,897		148,811		135,557




Other hardware solutions			69,884		—		135,183		—




Professional and special services			10,294		9,022		31,135		25,105




Custom maintenance services			175,339		123,907		489,095		358,762

	Total revenue	$	479,950	$	312,778	$	1,266,644	$	893,257

-9-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(In thousands)

7. On April 17, 2000, the Registrant announced the successful completion of its acquisition of the financial self-service assets and related development activities of European-based Groupe Bull and Getronics NV (European acquisition.) The businesses acquired include ATMs, cash dispensers, other self-service terminals and related services primarily for the global banking industry. The acquisition was completed for approximately $148,080. The majority of subsidiaries of the European acquisition have been acquired and consolidated. The remaining subsidiaries will be consolidated upon completion of the legal closing.

   The acquisition has been accounted for as a purchase business combination and, accordingly, the purchase price has been allocated to identifiable tangible and intangible assets acquired and liabilities assumed, based upon their respective fair values, with the excess allocated to goodwill to be amortized over the estimated economic life from the date of acquisition.

8. As discussed in Note 15 of the Registrant’s Notes to Consolidated Financial Statements in the 1999 Annual Report, the Internal Revenue Service (IRS) has asserted a claim concerning the deductibility of interest related to loans from the Registrant’s corporate owned life insurance (COLI) programs.

   This claim represents an exposure for additional taxes of approximately $17.6 million, excluding interest. Management is aware that both the U.S. Tax Court and the United States District Court for the District of Delaware have recently reached decisions disallowing the deduction of interest on COLI loans of two similarly situated companies.

   Notwithstanding these adverse court decisions, management believes that the Registrant’s facts and circumstances are different from the above cited court cases. The Registrant has made no provision for any possible earnings impact from this matter because it believes it has a meritorious position and will vigorously contest the IRS’ claim. In the event the resolution of this matter is unfavorable, it may have a material adverse effect on the Registrant’s results of operations for the period in which such unfavorable resolution occurs.

-10-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of September 30, 2000

(Unaudited)

(Dollars in thousands except for per share amounts)

Acquisition

On April 17, 2000, the Registrant announced the successful completion of its acquisition of the financial self-service assets and related development activities of European-based Groupe Bull and Getronics NV (European acquisition.) The businesses acquired include ATMs, cash dispensers, other self-service terminals and related services primarily for the global banking industry. The acquisition was completed for approximately $148,080. The majority of subsidiaries of the European acquisition have been acquired and consolidated. The remaining subsidiaries will be consolidated upon completion of the legal closing.

The acquisition has been accounted for as a purchase business combination and, accordingly, the purchase price has been allocated to identifiable tangible and intangible assets acquired and liabilities assumed, based upon their respective fair values, with the excess allocated to goodwill to be amortized over the estimated economic life from the date of acquisition.

Changes in Financial Condition

Total assets for the third quarter ended September 30, 2000 were $1,643,579, up $344,748, or 26.5 percent from December 31, 1999. The increase in total assets is largely related to the assets acquired through the European acquisition (April, 2000) and related goodwill recorded as a result of this acquisition.

Trade receivables, inventories and goodwill have increased by $114,662, $54,296 and $133,112, respectively, of which $43,842, $31,585 and $140,245 are balances related to the European acquisition, respectively. An increase of $26,289 in the Brazil trade receivables has also attributed to the increase in total trade receivables.

Total liabilities of as of September 30, 2000 of $732,804 are up $278,368 or 61.3 percent from December 31, 1999. This increase is largely related to liabilities assumed and debt incurred in relation to the European acquisition.

Accounts payable, notes payable, and other current liabilities have increased by $20,836, $176,824 and $43,500, respectively of which $33,245, $157,760 and $34,198, respectively are balances related to the European acquisition.

The Registrant’s current asset to current liability ratio dropped to 1.3 at September 30, 2000 versus 1.7 at December 31, 1999.

-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 September 30, 2000

(Unaudited)

(Dollars in thousands except for per share amounts)

Changes in Financial Condition (continued)

Future capital expenditures, acquisitions and increases in working capital are expected to be financed through internally generated funds and external financing. 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 September 30, 2000, the Registrant’s bank credit lines approximated $235,000, and EUR 100,000 (translation $88,180) with various institutions. The Registrant had $224,793 and EUR 78,794 (translation $69,481) outstanding borrowings under these agreements, with an average short-term rate of 7.07 percent US dollar, and 5.16 percent EUR. The balance in these lines of credit represents an additional and immediate source of liquidity.

Shareholders’ equity is up $66,380 over December 31, 1999, with retained earnings up $68,805, and net stock related activity was an increase to equity of $6,823, and accumulated other comprehensive income increased by $5,519. Shareholders’ equity per Common Share at September 30, 2000 increased to $12.74 from $11.88 at December 31, 1999. The third quarter cash dividend of $0.155 per share was paid on September 8, 2000 to shareholders of record on August 18, 2000. On October 11, 2000 the fourth quarter cash dividend of $0.155 per share was declared payable on December 8, 2000 to shareholders of record on November 17, 2000. Diebold, Incorporated shares are listed on the New York Stock Exchange under the symbol of DBD. The market price during the first nine months of 2000 fluctuated within the range of $21.50 and $32.88.

Results of Operation

Third Quarter 2000 Comparison to Third Quarter 1999

Overall, net sales for the third quarter of 2000 increased from the same period in 1999 by $167,172 or 53.4 percent. Excluding the acquisitions in Europe (April 2000) and Brazil (November 1999) and prior year trade sales to Brazil, net sales increased $21,365 or 6.9 percent. Total product revenue showed an increase of $115,740, or 61.3 percent over the third quarter of 1999 of which $108,823 is related to the acquisitions. Total service revenue increased by $51,432 or 41.5% of which $40,611 is the combined impact of the acquisitions.

Gross profit of $149,040 was $35,223, or 30.9 percent higher than the same quarter last year. Excluding the effect of acquisitions, total gross profit was $7,108 or 6.2% higher than third quarter of 1999. Product gross margin, excluding the acquisitions, of 42.7 percent was up from 1999 third quarter gross margin of 41.8 percent, reflecting the current revenue mix. However, service gross margin of 27.7 percent, excluding the acquisitions, was down from 28.2 percent a year ago, offsetting the higher product gross margin.

Total operating expenses were 18.5 percent of revenue for the third quarter 2000. This was an improvement over the same period of 1999 when expenses were 21.0 percent of revenue. Excluding the acquisitions, expenses were 20.4 percent of revenue, which was a slight improvement over the same period in 1999.

Operating profit was 12.6 percent of revenue compared to 15.4 percent for the same period of 1999. Excluding the acquisitions, operating profit was 16.1 percent of revenue which was an improvement over the 15.4 percent in 1999.

Third quarter 2000 miscellaneous, net expense was up from the same quarter in the prior year by $3,140, primarily due to the amortization of goodwill from acquisitions. Interest expense is largely related to interest on borrowings to fund acquisitions and has increased $4,865 over the third quarter of 1999.

Net income of $34,901 was up by 6.9 percent over third quarter 2000 net income of $32,654 resulting in third quarter diluted earnings per share of $0.49. Excluding the effect of acquisitions, earnings per share for the third quarter of 2000 was $0.50.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

As of September 30, 2000

(Unaudited)

(Dollars in thousands except for per share amounts)

Results of Operation (continued)

Nine Month 2000 Comparison to Nine Month 1999

Consolidated net sales of $1,266,644 for the nine-month period ending September 30, 2000 were up by $373,387, or 41.8 percent from the same period in 1999. The acquisitions in Brazil and Europe accounted for $315,127 of the increase in net sales. Consolidated product sales were up $243,054 or 45.5 percent of which $217,485 is related to the acquisitions. Total service sales for the nine-month period were up from the prior year by $130,333 or 36.3 percent of which $97,642 is related to the acquisitions.

Total consolidated gross profit for the nine months ended September 30, 2000 increased $79,887 year over year. Total gross margin was 32.0 percent compared to 36.5 percent for the same period in 1999. Total gross margins excluding acquisitions increased slightly to 36.7 percent in 2000 from 36.5 percent in 1999.

Total product gross margin was 34.9 percent or 41.4 percent excluding acquisitions, which compared to 41.6 percent for the same period of 1999. Total service gross margin is 27.5 percent or 29.9 percent excluding acquisitions, which compared to 28.8 percent for year to date 1999.

Year to date total operating expenses as a percent to revenue were 18.5 percent. Excluding acquisitions operating expenses were 20.3 percent. Both, including and excluding acquisitions year to date operating expenses were an improvement over prior year to date of 21.2 percent.

Year to date operating profit was 13.5 percent of revenue; excluding the acquisitions, operating profit was 16.3 percent of revenue; compared to 15.3 percent for the nine month period ending September 30, 1999.

Consolidated net income of $101,994 increased by $8,655 or 9.3 percent over 1999 net income, resulting in nine month period ending September 30, 2000 diluted earnings per share of $1.43, an increase of 5.9 percent over $1.35 for the same period in 1999.

Segment Information

NASS customer revenues of $251,859 for the three month period ending September 30, 2000 increased by $18,578, or 8.0 percent from the same period of 1999. U.S. product revenue increased 8.8 percent, and Canada increased by 72.0 percent. NASS operating profits for the same period were down by $1,113, or 2.7 percent.

ISS customer revenue was up for the third quarter of 2000 over the same quarter of 1999 by $145,730 or 216.6 percent. Asia-Pacific product revenue increased $3,922, or 27.9 percent; while Europe, the Middle East and Africa product revenue increased $17,349, or 106.7 percent, reflecting positive results generated by recently formed direct sales channels as a result of the European acquisition. Latin America increased by $80,503, or 383.9 percent, largely due to revenues resulting from the acquisitions.

The Other segment showed an increase in customer revenues of $2,045, or 18.0 percent for the third quarter 2000 over the same quarter 1999.

-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 September 30, 2000

(Unaudited)

Year 2000 Disclosure

The Registrant was well prepared for year 2000 and experienced no major problems with its internal systems or in products purchased from suppliers used in manufacturing and service of its customers. Registrant’s web page (www.Diebold.com) gave information to customers on year 2000 compliance of products and was a frequently used resource. As required, the Registrant expensed as incurred all costs associated with year 2000 issues. The costs did not have a material effect on the Registrant’s financial position or results of operations.

New Accounting Pronouncements

In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition.” SAB 101 does not change existing accounting literature on revenue recognition, but rather explains the SEC staff’s general framework for revenue recognition. SAB 101 states that changes in accounting to apply the guidance in SAB 101 may be accounted for as a change in accounting principle. Through issuance of SAB 101B, the change in accounting principle must be recorded by the fourth quarter 2000. The Registrant is currently recognizing revenue consistent with its contract terms and policies and is currently reviewing its recognition practices to determine the impact, if any, on the Registrant’s results of operations.

In June 1998, the FASB issued Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Registrant will adopt Statement No. 133 as required for its first quarterly filing of fiscal year 2001.

Outlook

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of any mergers, acquisitions or other business combinations that may be completed after September 30, 2000.

• The Registrant expects revenue growth rate for the fourth quarter of 2000 to be approximately in line with the third quarter 2000.

• Product and service gross margin percentage for the fourth quarter of 2000 is expected to be in line with the third quarter 2000.

• Depreciation, amortization and other acquisition-related intangibles and costs for the fourth quarter 2000 is expected to be in line with the third quarter 2000.

• The Registrant expects fourth quarter 2000 EPS to be in the range of $.52 to $.56.

Looking toward 2001, while forecasts have yet to be finalized, management is confident that through continued focus on speed, global efficiencies and creative solutions to customer needs, the Registrant will continue to gain market share on a revenue basis. Management expectations include:

• Core revenue growth of 8 to 10 percent, excluding currency and the effect of the non-recurring Brazil voting machine business.

• Depreciation, amortization and goodwill in the range of $67 to $70 million.

• Effective tax rate of 33 to 35 percent.

• Earnings per share in the range of $2.15 to $2.20, including a 15 percent increase in core business, partially offset by the effect of currency, non-recurring voting machine business in Brazil and first quarter 2001 dilution from the European acquisition.

-14-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

As of September 30, 2000

(Unaudited)

Forward-Looking Statement Disclosure

In the Registrant’s 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 the Registrant’s operations, including Brazil, where a significant portion of the Registrant’s revenue is derived;

• acceptance of the Registrant’s product and technology introductions in the marketplace;

• unanticipated litigation, claims or assessments; and

• successfully and quickly integrating the Bull and Getronics acquisitions into the Registrant’s operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2000

(Unaudited)

The Registrant is exposed to market risk from changes in interest rates, foreign currency exchange rates, and commodity prices. To manage the market risk exposures, the Registrant uses a combination of natural hedging techniques and various hedging transactions governed by corporate policies and procedures. The Registrant does not utilize financial instruments for trading purposes.

The Registrant’s market risk exposure relative to changes in interest and foreign currency exchange rates has changed recently due to increased debt to fund recent acquisitions and increased exposure to international markets as a result of these acquisitions.

The exposure to interest rate and foreign currency exchange rate risk has not been significant and is not expected to be in the short term.

-15-

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 — incorporated by reference to Exhibit 10.2 to Registrant’s Form 10-K for the year ended December 31, 1999.
*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.
*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 — incorporated by reference to Exhibit 10.8 (iii) to the Registrant’s Form 10-Q for the quarter ended June 30, 1999.
*		Reflects management contract or other compensatory arrangement.

-16-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K






(a)			Exhibits (Continued)
*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.
*10.1	0	(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.
*10.1	0	(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.
*10.1	0	(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.
*10.1	1		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.
*10.1	3	(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.
*10.1	3	(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.
*10.1	4		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.
*10.1	5		Employment Agreement with Walden W. O’Dell — incorporated by reference to Exhibit 10.15 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999
*10.1	6		Separation Agreement with Gerald F. Morris — incorporated by reference to Exhibit 10.16 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999.
10.1	7		Loan Agreement dated as of December 1, 1999 among Diebold, Incorporated, the Subsidiary Borrowers, the Lenders and Bank One, Michigan as Agent — incorporated by reference to Exhibit 10.17 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999.
*			Reflects management contract or other compensatory arrangement.
27.			Financial Data Schedule.
(b)			Reports on Form 8-K.
			No reports on Form 8-K were filed during the third quarter of 2000.

-17-

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: November 8, 2000		By: /s/ Walden W. O’Dell Walden W. O’Dell Chairman of the Board, President and Chief Executive Officer

Date: November 8, 2000		By: /s/ Gregory T. Geswein Gregory T. Geswein Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer)

-18-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

INDEX TO EXHIBITS

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.

—

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 — incorporated by reference to Exhibit 10.2 to Registrant’s Form 10-K for the year ended December 31, 1999.

—

*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 conpensatory arrangement.

-19-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

INDEX TO EXHIBITS (continued)

EXHIBIT

NO.

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 — incorporated by reference to Exhibit 10.8 (iii) to Registrant’s Form 10-Q for the quarter ended June 30, 1999.

—

*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.

—

*10.1

(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.

—

*10.1

(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.

—

*10.1

(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.

—

*10.1

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.

—

*10.1

(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.

—

*10.1

(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.

—

*10.1

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.

—

Reflects management contract or other conpensatory arrangement.

-20-

DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

INDEX TO EXHIBITS (continued)


EXHIBIT
NO.				PAGE NO.

	*10.1	5	Employment Agreement with Walden W. O’Dell — incorporated by reference to Exhibit 10.15 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999.		—
	*10.1	6	Separation Agreement with Gerald F. Morris — incorporated by reference to Exhibit 10.16 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999.		—
	10.1	7	Loan Agreement dated as of December 1, 1999 among Diebold, Incorporated, the Subsidiary Borrowers, the Lenders and Bank One, Michigan as Agent — incorporated by reference to Exhibit 10.17 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999.		—
	*		Reflects management contract or other conpensatory arrangement.
	27.		*Financial Data Schedule.		22

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	(X)	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


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, 1999. 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 nine-month period ended September 30, 2000 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.


4.	The Registrant has reclassified the presentation of certain prior-year information to conform to 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 September 30, 2000 and 1999 was $28,504 and $31,139, respectively. Comprehensive income for the nine months ended September 30, 2000 and 1999 was $96,475 and $90,884, respectively.

6.	The Registrant has defined its segments into its three main sales channels: North American Sales and Service (NASS), International Sales and Service (ISS) and Other, which combines several of the Registrant’s smaller sales channels. These sales channels are evaluated based on the following information presented: revenues from customers, revenues from inter-segment transactions, and operating profit contribution to the total corporation. A reconciliation between segment information and the Condensed Consolidated Financial Statements is also disclosed. All income and expense items below operating profit are not allocated to the segments and are not disclosed. Revenue by geography and revenue by product and service solution are also disclosed.

	The NASS segment sells financial and retail systems and also services financial, retail and medical systems in the United States and Canada. The ISS segment sells and services financial and retail systems over the remainder of the globe, including sales to IBM, which was the Registrant’s former partner in the InterBold joint venture that terminated in January 1998. The segment called Other sells products to educational and medical institutions and other customers. This segment also services educational customers in the United States. Each of the segments buys the goods it sells from the Registrant’s manufacturing plants through inter-company sales. Each year, inter-company pricing is agreed upon which drives segment operating profit contribution. These inter-company sales are eliminated in consolidation and largely constitute Adjustments on the Reconciliation of Segment Information to Condensed Consolidated Statements of Income. Certain other Corporate adjustments are not allocated to segments and are also a part of Adjustments in the above noted Reconciliation.

	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, amortization, equity in the net income of investees accounted for by the equity method, income tax expense or benefit, extraordinary items, significant noncash items and long-lived assets.


7.	On April 17, 2000, the Registrant announced the successful completion of its acquisition of the financial self-service assets and related development activities of European-based Groupe Bull and Getronics NV (European acquisition.) The businesses acquired include ATMs, cash dispensers, other self-service terminals and related services primarily for the global banking industry. The acquisition was completed for approximately $148,080. The majority of subsidiaries of the European acquisition have been acquired and consolidated. The remaining subsidiaries will be consolidated upon completion of the legal closing.

	The acquisition has been accounted for as a purchase business combination and, accordingly, the purchase price has been allocated to identifiable tangible and intangible assets acquired and liabilities assumed, based upon their respective fair values, with the excess allocated to goodwill to be amortized over the estimated economic life from the date of acquisition.

8.	As discussed in Note 15 of the Registrant’s Notes to Consolidated Financial Statements in the 1999 Annual Report, the Internal Revenue Service (IRS) has asserted a claim concerning the deductibility of interest related to loans from the Registrant’s corporate owned life insurance (COLI) programs.

	This claim represents an exposure for additional taxes of approximately $17.6 million, excluding interest. Management is aware that both the U.S. Tax Court and the United States District Court for the District of Delaware have recently reached decisions disallowing the deduction of interest on COLI loans of two similarly situated companies.

	Notwithstanding these adverse court decisions, management believes that the Registrant’s facts and circumstances are different from the above cited court cases. The Registrant has made no provision for any possible earnings impact from this matter because it believes it has a meritorious position and will vigorously contest the IRS’ claim. In the event the resolution of this matter is unfavorable, it may have a material adverse effect on the Registrant’s results of operations for the period in which such unfavorable resolution occurs.


	•	The Registrant expects revenue growth rate for the fourth quarter of 2000 to be approximately in line with the third quarter 2000.

	•	Product and service gross margin percentage for the fourth quarter of 2000 is expected to be in line with the third quarter 2000.

	•	Depreciation, amortization and other acquisition-related intangibles and costs for the fourth quarter 2000 is expected to be in line with the third quarter 2000.

	•	The Registrant expects fourth quarter 2000 EPS to be in the range of $.52 to $.56.


	•	Core revenue growth of 8 to 10 percent, excluding currency and the effect of the non-recurring Brazil voting machine business.

	•	Depreciation, amortization and goodwill in the range of $67 to $70 million.

	•	Effective tax rate of 33 to 35 percent.

	•	Earnings per share in the range of $2.15 to $2.20, including a 15 percent increase in core business, partially offset by the effect of currency, non-recurring voting machine business in Brazil and first quarter 2001 dilution from the European acquisition.


	•	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, including Brazil, where a significant portion of the Registrant’s revenue is derived;

	•	acceptance of the Registrant’s product and technology introductions in the marketplace;

	•	unanticipated litigation, claims or assessments; and

	•	successfully and quickly integrating the Bull and Getronics acquisitions into the Registrant’s operations.