UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
DIEBOLD, INCORPORATED(Exact name of Registrant as specified in its charter)
Registrant’s telephone number, including area code: (330) 490-4000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 5, 2001. The aggregate market value was computed by using the closing price on the New York Stock Exchange on March 5, 2001 of $30.08 per share.
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
(1) PROXY STATEMENT FOR 2001 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 26, 2001
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PART I.
ITEM 1. BUSINESS.
(a) General Development
The Registrant was incorporated under the laws of the State of Ohio in August, 1876, succeeding a proprietorship established in 1859 and is engaged primarily in the sale, manufacture, installation and service of automated self-service transaction systems, electronic and physical security products, software and integrated systems. 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 self-service transaction systems, other self-service terminals and related services primarily for the global banking industry. The acquisition was completed for approximately $90 million and 400,000 French francs (translation $58 million). The majority of subsidiaries of the European acquisition have been acquired and consolidated. The remaining subsidiaries, which are immaterial to the Registrant’s operations, will be consolidated upon completion of the legal closing.
(b) Financial Information about Operating Segments
The Registrant has defined its operating segments into its three main sales channels: North American Sales and Service (NASS), International Sales and Service (ISS) and a group of smaller sales channels which are combined in a category called Other. 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. The segment called Other, sells educational, medical, and other products and also services educational products in the United States. A reconciliation of segment customer revenues to Consolidated Net Sales and of segment operating contribution to Consolidated Operating Profit is contained in Note 16 to the Consolidated Financial Statements.
(c) Description of Business
The Registrant develops, manufactures, sells and services self-service transaction systems, electronic and physical security systems, various products used to equip bank facilities, software and integrated systems for global financial and commercial markets. Sales of systems and equipment are made directly to customers by the Registrant’s sales personnel and by manufacturer’s representatives and distributors. The sales/support organization works closely with customers and their consultants to analyze and fulfill the customers’ needs. Products are sold under contract for future delivery at agreed upon prices. In 2000, 1999, and 1998 the Registrant’s sales and services of financial systems and equipment accounted for more than 90 percent of consolidated net sales.
The principal raw materials used by the Registrant are steel, copper, brass, lumber and plastics which are purchased from various major suppliers. Electronic parts and components are also procured from various suppliers. These materials and components are generally available in quantity at this time.
The Registrant had no customers in 2000 and 1999 that accounted for more than 10 percent of total net sales. The Registrant had one customer, IBM, its former partner in the InterBold joint venture that accounted for $148.8 million of the total net sales of $1.2 billion in 1998. 2000 and 1999 sales to IBM were $12.8 and $51.6 million, respectively.
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ITEM 1. BUSINESS. — (continued)
The Registrant’s operating results and the amount and timing of revenue are affected by numerous factors including production schedules, customer priorities, sales volume, and sales mix. During the past several years, the Registrant has dramatically changed the focus of its self-service business to that of a total solutions approach. The value of unfilled orders is not as meaningful an indicator of future revenues due to the significant portion of revenues derived from the Registrant’s growing service-based business, for which order information is not available. Therefore, the Registrant believes that backlog information is not material to an understanding of its business and does not disclose backlog information.
All phases of the Registrant’s business are highly competitive; some products being in competition directly with similar products and others competing with alternative products having similar uses or producing similar results. The Registrant believes, based upon outside independent industry surveys, that it is a leading manufacturer of self service systems in the United States and is also a market leader internationally. In the area of automated transaction systems, the Registrant competes primarily with NCR Corporation, Triton, Wincor-Nixdorf, Dassault, Fujitsu, Itautec and Tidel. In serving the security products market for the financial services industry, the Registrant competes primarily with Mosler. Of these, some compete in only one or two product lines, while others sell a broader spectrum of products competing with the Registrant. However, the unavailability of comparative sales information and the large variety of individual products make it impossible to give reasonable estimates of the Registrant’s competitive ranking in or share of the market in its security product fields of activity. Many smaller manufacturers of safes, surveillance cameras, alarm systems and remote drive-up equipment are found in the market.
The Registrant charged to expense approximately $52.0 million in 2000, $43.0 million in 1999, and $42.9 million in 1998 for research and development costs.
Compliance by the Registrant with federal, state and local environmental protection laws during 2000 had no material effect upon capital expenditures, earnings or the competitive position of the Registrant and its subsidiaries.
The total number of employees employed by the Registrant at December 31, 2000 was 12,544 compared with 9,935 at the end of the preceding year. The increase in 2000 is primarily due to the acquisition of the financial self-service assets and related development activities of European-based Groupe Bull and Getronics NV.
(d) Financial Information about International and U.S. Operations and Export Sales
Sales to customers outside the United States as a percent of total consolidated net sales approximated 42.8 percent in 2000, 25.4 percent in 1999, and 25.1 percent in 1998.
ITEM 2. PROPERTIES.
The Registrant’s corporate offices are located in North Canton, Ohio. It owns manufacturing facilities in Canton and Newark, Ohio; Lynchburg, Staunton and Danville, Virginia; and Sumter, South Carolina, and leases a manufacturing facility in Rancho Dominguez, California. On January 5, 2001, the Registrant announced the closing of the Staunton, Virginia manufacturing facility. The Registrant also has manufacturing facilities in Argentina, Belgium, Brazil, China, France, India, and Mexico. The Registrant has selling, service and administrative offices in the following locations: throughout the United States, and in Argentina, Australia, Austria, Belgium, Brazil, China, Colombia, Denmark, Estonia, France, Germany, Hong Kong, Hungary, Indonesia, Paraguay, Portugal, Poland, Romania, Russia, Singapore, South Africa, Spain, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, and
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ITEM 2. PROPERTIES. – (continued)
Uruguay. The Registrant considers that its properties are generally in good condition, are well maintained, and are generally suitable and adequate to carry on the Registrant’s business.
ITEM 3. LEGAL PROCEEDINGS.
At December 31, 2000, the Registrant was a party to several lawsuits that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the Registrant’s financial position or results of operations. While in management’s opinion the financial statements would not be materially affected by the outcome of any present legal proceedings, commitments, or asserted claims, management is aware of a potential claim by the Internal Revenue Service 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 result of operations for the period in which such unfavorable resolution occurs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of 2000.
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT.
Refer to pages 6 through 9.
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EXECUTIVE OFFICERS OF THE REGISTRANT
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EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
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EXECUTIVE OFFICERS OF THE REGISTRANT — (continued)
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There is no family relationship, either by blood, marriage or adoption, between any of the executive officers of the Registrant.
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Shares of the Registrant are listed on the New York Stock Exchange with a symbol of DBD. The price ranges of Common Shares for the Registrant are as follows:
There were approximately 87,684 shareholders at December 31, 2000, which includes an estimated number of shareholders who have shares held for their accounts by banks, brokers, trustees for benefit plans and the agent for the dividend reinvestment plan.
On the basis of amounts paid and declared the annualized quarterly dividends per share were $0.62 in 2000, $0.60 in 1999, and $0.56 in 1998.
On October 15, 1999, 230,015 Common Shares were issued from treasury for the acquisition of Nexus Software, Inc. The fair market value of the shares on the date of issue was $7,023,072; these shares are considered unregistered.
On December 30, 1998, 30,060 Common Shares were issued from treasury to Gregg A. Searle, former President, who resigned on September 30, 1998. The shares represented the distribution of Mr. Searle’s deferred compensation account which had been allocated in Common Shares, and accordingly, no purchase price was paid by Mr. Searle. The fair market value of the shares on the date of issue was $1,043,653; these shares were considered unregistered.
ITEM 6. SELECTED FINANCIAL DATA.
(Dollars in thousands except per share amounts)
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Analysis of Results of Operations
The table below presents the changes in comparative financial data from 1998 to 2000. Comments on significant year-to-year fluctuations follow the table.
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Acquisitions
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 $90,000 and 400,000 French francs (translation $58,080). The majority of subsidiaries of the European acquisition have been acquired and consolidated. The remaining subsidiaries, which are immaterial to the Registrant’s operations, will be consolidated upon completion of the legal closing. The reported revenue from the European acquisition was $148,785 for the period of April 17, 2000 through December 31, 2000. The acquisition was accretive at the operating profit level and slightly dilutive on earnings per share. While the Registrant expects the European acquisition to be slightly accretive in 2001, given the seasonal nature of its business, it will likely be dilutive in the first quarter of 2001.
On October 21, 1999, the Registrant acquired Procomp Amazonia Industria Eletronica, S.A. (Procomp), a Brazilian manufacturer and marketer of innovative technical solutions, including personal computers, servers, software, professional services, retail and banking automation equipment and voting machines. The acquisition was effected in a combination of cash and stock for $222,310. Prior to the acquisition, Procomp was a major distributor for the Registrant in Latin America. Procomp results following the acquisition are consolidated with the results of the Registrant. Procomp reported revenue of $309,167 and $41,615 for the year ended December 31, 2000 and the period of October 22, 1999 through December 31, 1999, respectively. The acquisition was accretive on earnings per share and at the operating profit level.
The acquisitions have been accounted for as purchase business combinations and, accordingly, the purchase prices have 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 lives from the respective dates of acquisition. The amounts of goodwill and periods of amortization for the European acquisition and Procomp are $146,080 over 20 years and $135,219 over 17 years, respectively.
Net Sales
Net sales for 2000, which totaled $1,743,608 (including net sales from acquisitions of $457,952) grew $484,431 or 38.5 percent over 1999 and $557,901 or a 47.1 percent increase over 1998. While a slowing domestic market continues to affect U.S. product sales, the Registrant’s investment in global distribution channels and recent acquisitions continue to fuel substantial growth and increased market share. The Registrant’s 2000 sales were particularly enhanced by a single order received by Procomp (Brazil) of $106,000 for electronic voting machines for the Brazilian market. Recent U.S. election events could provide opportunities in the U.S. market for the Registrant’s technology.
Product sales for 2000 increased 41.2 percent over 1999 and 42.6 percent over 1998 sales. Excluding the acquisitions, product sales grew 6.3 percent over 1999 and remained flat from 1998 due to a slowing demand for self-service products. Service revenues for 2000 grew 34.3 percent and 54.8 percent over 1999 and 1998 respectively. Excluding acquisitions, service revenues grew 8.1 percent and 21.1 percent over 1999 and 1998, respectively. The Registrant’s global service revenue is supported by comprehensive service solutions in the self-service, security and firstline businesses in support of our customers.
Customer solutions continue to be the Registrant’s focus. The recent alignment of Diebold North America’s core operations to a single business unit positions the Registrant’s production and distribution organizations to focus on its customer requirements. From a global perspective, the recent European acquisition, which includes manufacturing and service capabilities, will significantly improve the Registrant’s ability to respond to customer demands.
Product Revenue by Geography
* Europe, Middle East and Africa
Product sales of $1,069,405 (including sales of $311,035 from acquisitions) grew 41.2 percent over 1999 and 42.6 percent over 1998 volumes. Product sales in the United States increased $34,595 or 6.7
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percent over 1999 and $54,783 or 11.1 percent over 1998. Growth in security solutions, Nexus and self-service solutions to original equipment manufacturers (OEM) accounted for the majority of the growth in 2000. Product sales in Asia Pacific (including sales from acquisitions of $9,301) grew 44.6 percent over 1999 and 65.8 percent over 1998 volumes. Excluding acquisitions, Asia Pacific experienced growth rates of 27.4 percent over 1999 and 46.1 percent over 1998. Also, product sales in EMEA (including sales from acquisitions of $81,915) grew 156.5 percent and 157.3 percent over 1999 and 1998 respectively. Excluding acquisitions, growth in EMEA was 22.9 percent and 23.3 percent above 1999 and 1998 volumes. Latin America product sales (including acquisitions of $219,817) grew 159.6 percent over 1999 and 133.2 percent over 1998 volumes. Excluding acquisitions, Latin America declined between 1999 and 1998 due to poor economic conditions. Also, product sales in Canada declined 26.7 percent and 46.4 percent as compared to 1999 and 1998, respectively due to establishing distribution operations to replace IBM as the Registrant’s primary distributor.
Service Revenue
Total service revenues for 2000 of $674,203 increased over 1999 and 1998 by $172,272 or 34.3 percent and $238,657 or 54.8 percent, respectively. Domestic revenues are up $24,049 or 5.7 percent over 1999 and up $54,378 or 13.8 percent over 1998. Domestic service revenues have maintained strong growth in the highly competitive service market. The Registrant expects its enhanced service offerings will continue to sustain solid growth. Including acquisitions, international service revenue was up $148,223 or 188.7 percent over 1999 and up $184,279 or 433.8 percent over 1998. Excluding acquisitions, international service revenue was up 24.6 percent over 1999 and 88.7 percent over 1998. International service revenue increased substantially in all geographies as the Registrant continues to establish a worldwide service support infrastructure to enhance total solutions capability.
Total Revenue by Product/Service Solution
Self-service solutions revenue (including acquisitions of $149,945) grew 25.4 percent and 22.3 percent as compared to the periods of 1999 and 1998, respectively. This growth is a result of the Registrant’s global acquisition strategy, which was executed in 2000 and 1999. Along with the acquisition strategy, the Registrant is focused on professional and special services to integrate a broad array of solutions to its customer base worldwide. The Registrant has experienced significant growth in professional service offerings over prior periods. Excluding the voting machine order in Brazil, these services increased 135.2 percent and 337.1 percent over 1999 and 1998, respectively.
Operating Segment Revenue and Operating Profit
Customer Revenues by Segment
Operating Profit by Segment
North American Sales and Service (NASS) revenues for 2000 of $965,859 increased $38,884 or 4.2 percent over 1999 and 8.4 percent over 1998. NASS product revenues were flat year over year reflecting the current market pressures while service revenues were up $24,477 or 5.9 percent. Revenues from annual service contracts remain strong domestically. International Sales and Service (ISS) revenues of $728,828 (including revenues from acquisitions of $457,952) increased 148.5 percent over 1999 and 176.7 percent over 1998 volumes. ISS revenues
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excluding acquisitions were $270,876, up from 1999 by 15.2 percent and 2.8 percent over 1998. ISS product revenues, excluding acquisitions, were up slightly year over year, while service operations yielded increased service revenues of 31.0 percent. Other revenue of $48,921, which includes Nexus, OEM sales, MedSelect and sales to Campus Card, was an increase from 1999 of $10,035 or 25.8 percent.
Total 2000 operating profits (including acquisitions) of $182,057 grew 12.7 percent over 1999 and 27.1 percent above 1998 profits. NASS operating profit decreased 5.6 percent as compared to 1999 and increased 0.2 percent over 1998. NASS operating profits were affected by flat product revenues caused by a slowing demand for self-service terminals. ISS operating profits including acquisitions grew 107.2 percent and 393.9 percent over 1999 and 1998, respectively.
Cost of Sales and Expenses
Cost of sales for 2000 including acquisitions was 67.9 percent of sales compared to 63.7 percent of sales in 1999 and 65.7 percent of sales in 1998. Cost of sales as a percentage of sales increased year over year due mainly to a competitive self-service market globally, which includes acquisitions carrying a higher cost of sales, offset with lower operating expenses. Excluding acquisitions, product cost of sales as a percentage of revenue was up 1.6 percent over 1999 due mainly to pricing pressures in the domestic and international markets and was favorable to 1998. Service cost of sales including acquisitions as a percent of sales increased in 2000 to 72.2 percent up from 71.3 percent and 70.4 percent from 1999 and 1998, respectively. The 2000 increases are due primarily to lower realized gross profits on acquisitions. Excluding acquisitions, service cost of sales percentage improved from 70.9 percent of revenue in 1999 to 70.1 percent in 2000.
Product gross profits in 2000 including acquisitions declined to 34.8 percent from 41.3 percent in 1999 and from 38.3 percent in 1998 mainly due to the lower gross margins experienced in the acquisitions and the impact of foreign currency fluctuations. Excluding acquisitions, product gross profits were 40.6 percent compared to 42.2 percent in 1999. Service gross profits were 27.8 percent compared to 28.7 percent in 1999 and 29.6 percent in 1998. Service gross profits excluding acquisitions improved to 29.9 percent from 29.1 percent in 1999.
Operating expenses expressed as a percent of sales (including acquisitions) decreased by 2.6 percentage points over 1999 and 6.4 percentage points over 1998 expenses. The Registrant is leveraging its worldwide administrative infrastructure and improving productivity by investing in E-initiatives and other automation to improve customer support on a worldwide basis.
Excluding realignment and special charges, operating profit as a percentage of revenue, was 13.1 percent as compared to 1999 of 14.5 percent and 14.1 percent in 1998. Operating profit as a percent to sales excluding acquisitions improved over 1999 and 1998, respectively.
Other Income, Net and Minority Interest
Investment income declined in 2000 compared to 1999, as expected, by $4,719 and remained relatively flat compared to 1998’s results. The decline compared to 1999 was largely attributable to unfavorable performance in the Registrant’s preferred stock portfolio and use of both short- and long-term investments to purchase Procomp and the European acquisition. The Registrant continues to use finance receivables as an investment strategy, which yielded an improved return over 1999 and 1998, offsetting some of the decline in the above investments.
Interest expense is largely related to interest on borrowings obtained as additional funding for the Procomp and European acquisitions and has increased over 1999 and 1998 by $14,070 and $16,938, respectively. Interest expense is expected to decline as the Registrant continues to pay down the borrowings from investments. Miscellaneous expense, net, excluding interest expense, increased from 1999 by $19,153 and from 1998 by $19,678. These increases were in part related to additional goodwill amortization expense recognized in relation to both the Procomp and European acquisitions. Additional goodwill amortization accounted for $11,793 and $13,370 of the increases compared to 1999 and 1998, respectively.
The Registrant also incurred foreign exchange losses in 2000. Foreign exchange losses in total increased $9,442 over 1999 and $9,049 over 1998. The majority of the exchange losses were related to the Procomp operation in Latin America.
Minority interest of $3,040 increased over 1999 by $1,871 and 1998 by $1,197, due to improved results of joint venture operations and an additional joint venture added in 2000 related to the European acquisition. Minority interests for all companies are calculated as a percentage of profits of the joint ventures based on formulas defined in the relevant agreements establishing each venture.
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Income
Income before taxes in 2000 was $204,357 or 11.7 percent of revenue compared to $200,127 (excluding realignment charges and in-process research and development) or 15.9 percent of revenue from 1999 and $180,924, 15.3 percent (excluding realignment and special charges) in 1998. Income excluding acquisitions as a percent to sales remained constant as compared to 1999 and improved over 1998 (excluding realignment and special charges).
The effective tax rate was 33.0 percent in 2000 compared with 36.0 percent in 1999 and 36.4 percent in 1998. The lower tax rate in 2000 was favorably impacted by the Registrant's receipt of tax refunds associated with the Registrant’s export sales. The details of the reconciliation between the U.S. statutory rate and Registrant’s effective tax rate are included in Note 14 of the 2000 Consolidated Financial Statements.
Excluding realignment, special charges and in-process research and development, net income including acquisitions increased 7.3 percent from 1999 and remained flat as compared to 1998, respectively. Excluding acquisitions, net income increased 4.0 percent from 1999 and decreased 3.2 percent over 1998 (excluding realignment, special charges and in-process research and development).
Management’s Analysis of Financial Condition
The Registrant continued to enhance its financial position during 2000 through its strategic acquisitions and improved asset management strategies. Total assets increased $286,596 or 22.1 percent to a 2000 year-end level of $1,585,427. The European acquisition and Procomp accounted for $253,895 of the gain in assets in 2000. Inventory turnover has improved to 6.3 at December 31, 2000 as compared to 5.5 at December 31, 1999. Days sales outstanding has decreased from 77 days at December 31, 1999 to 69 days at December 31, 2000.
Total current assets at December 31, 2000, of $804,363 represented an increase of $156,427 or 24.1 percent from the prior year-end. Trade receivables decreased $35,327 from 1999 excluding the effects of the European acquisition and Procomp trade receivables of $65,169 and $36,219, respectively. Inventories increased $18,110 excluding the European acquisition and Procomp’s December 31, 2000 inventory of $24,268 and $29,718, respectively. Short-term notes receivable are primarily from Procomp’s financing to Brazilian customers.
Short-term investments and long-term securities and other investments decreased by $48,028, or 20.7 percent to a level of $184,552 at December 31, 2000. The decrease was due to the liquidation of certain securities for the European acquisition. The Registrant anticipates being able to meet both short- and long-term operational funding requirements through the use of cash generated from operations. Certain securities may be liquidated in the future for strategic acquisitions or to pay down debt. The Registrant’s securities can be readily converted into cash and cash equivalents if needed.
Total property, plant and equipment, net of accumulated depreciation, was $174,946 at the end of 2000. The European acquisition and Procomp accounted for $9,447 and $17,210 of total property, plant and equipment, respectively. Capital expenditures were $42,694 in 2000, compared with $40,341 in 1999. The increase in 2000 capital spending versus 1999 was primarily due to setting up sales and service operations internationally. Capital expenditures are expected to increase as international expansion continues and as the Registrant invests in capital items, especially information technology, to support the future growth of its business.
Total current liabilities at December 31, 2000, were $566,792, which represented an increase of $184,385 over the prior year-end. The primary cause for the increase is due to an increase in short-term notes payable of $146,159 that were largely used to fund the European acquisition. The Registrant’s current ratio dropped to 1.4 at December 31, 2000 versus 1.7 at the end of 1999, due primarily to the short-term borrowings to fund the acquisitions.
At December 31, 2000, the Registrant had bank credit lines approximating $225,000 U.S. dollars, EUR 100,000 (translation $94,413) and $17,000 AUD (Australian dollars) (translation $9,504), with $263,609 of outstanding borrowings under these agreements. In addition, the Registrant had outstanding $20,800 of Industrial Development Revenue Bonds. The proceeds of the bonds issued in 1997 were used to finance three manufacturing facilities located in Staunton and Danville, Virginia and in Lexington, North Carolina.
The Registrant’s financial position provides it with sufficient resources to meet projected future capital expenditures, dividend and working capital requirements. However, if the need arises, the
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Registrant’s strong financial position should provide adequate access to capital markets.
Pension liabilities decreased by $2,054 from 1999 or 8.4 percent, excluding the effects of the European acquisition of $6,131. The net periodic pension income of $5,719, included in income in 2000, represented an increase of $10,785 from the prior year. Postretirement liabilities at December 31, 2000, were $28,123, an increase of $5,626 over the prior year end, with the European acquisition representing $5,357 of the increase. Net periodic health and life benefit expense charged to income in 2000 of $1,498 increased slightly over the prior year’s expense of $1,477. In addition, the Registrant matches employee contributions to its defined contribution 401(k) savings plan. The Registrant matched 60 percent of each employee’s first three percent on savings and 30 percent of each employee’s second three percent on savings. Net expense for 401(k) match was $7,155 in 2000, which was down from the prior year by $1,857.
Minority interests of $5,260 represented the minority interest in Diebold Financial Equipment Company, Ltd. (China) owned by the Aviation Industries of China and the Industrial and Commercial Bank of China, Shanghai Pudong Branch; in Diebold OLTP Systems, C.A. (Venezuela), owned by five individual investors; in Diebold Argentina, owned by Ciccone Calcografica S.A., in Diebold Colombia, owned by Richardson and Company Ltd and in Agences Bancaires Services & Securite, S.A., owned by Serse S.A. and Solymatic S.A.. On December 31, 2000, the Registrant purchased the remaining ownership interest in Diebold Argentina from Ciccone Calcografica S.A. for $4,875.
Shareholders’ equity increased $91,671 or 10.9 percent to $936,066 at December 31, 2000. Equity increased primarily due to current year earnings. Shareholders’ equity per share was $13.08 at the end of 2000, compared with $11.88 in 1999. The Common Shares of the Registrant are listed on the New York Stock Exchange with a symbol of DBD. There were approximately 4,278 registered shareholders of record as of December 31, 2000.
The Board of Directors declared a first quarter 2001 cash dividend of $0.16 per share. This amount, which represents a 3.2 percent increase from the prior year’s quarterly dividend rate, will be paid on March 9, 2001, to shareholders of record on February 16, 2001. Comparative quarterly cash dividends paid in 2000 and 1999 were $0.155 and $0.15 per share, respectively.
Management’s Analysis of Cash Flows
During 2000, the Registrant generated $146,195 in cash from operating activities, compared with $188,585 in 1999 and $177,238 in 1998. In addition to net income of $136,919 adjusted for depreciation, amortization and minority interest of $71,720, decreases in deferred income taxes, accounts payable (net of the European acquisition), deferred income and increases in other certain assets and liabilities decreased cash provided by operations. Cash was utilized in operations to reduce accounts payable, maintain adequate inventory levels and to organize the operations of the European acquisition. Expressed as a percentage of total assets employed, the Registrant’s cash yield from operations was 9.2 percent in 2000, 14.5 percent in 1999 and 17.6 percent in 1998.
Net cash generated from operating and financing activities in 2000 was used to reinvest $215,357 in assets of the Registrant, compared with $281,800 in 1999 and $96,509 in 1998. The Registrant returned $44,271 to shareholders in the form of cash dividends paid during 2000, which was a 6.2 percent increase from 1999 and a 14.6 percent increase from 1998.
Other Business Information
Subsequent Events
On January 5, 2001, the Registrant announced the closing of the Staunton, Virginia manufacturing facility. The closing is estimated to be completed by the end of the first quarter of 2001. The decision to close the facility coincides with the streamlining of the Registrant’s manufacturing operations in North America in order to balance capacity among global facilities. The facility was opened in 1997 for precision sheet metal processing for ATM components. The Lynchburg, Virginia facility will continue to perform this process for the Registrant. Some of the equipment used at the Staunton facility will replace older equipment at facilities in Lynchburg and Sumter, South Carolina.
Closing costs to be incurred during the first quarter of 2001 are estimated at $2,500 to $3,000 and include closure of the facility, transfer of equipment as well as separation packages and outplacement services offered to employees.
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New Accounting Pronouncement
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 has reviewed its revenue recognition practices in conjunction with SAB 101 and 101B requirements. The Registrant has adopted this bulletin in 2000, which has had no material effect on the Registrant’s results of operations or statement of financial position.
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 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 SFAS No. 133 as required for its first quarterly filing of fiscal year 2001. It is expected that the adoption will not have a material effect on the Registrant’s results of operation or statement of financial position.
Realignment and Special Charges
As of December 31, 1999, the Registrant completed its realignment plan originally announced in the second quarter of 1998. Under the realignment plan in 1998, the Registrant recorded realignment and special charges of $61,117 ($41,850 after-tax or $0.60 per diluted share). The majority of the realignment charge related to three areas: the ending of the InterBold joint venture with IBM, the exiting of the manufacturing and distribution channel for certain low-end self-service terminal products and the exiting of the proprietary electronic security business. The realignment charge was made up of two components: a special charge of $9,864 primarily for the write-off of inventory from exited lines of business and a realignment charge of $51,253 for all other realignment costs. In December 1999, the realignment plan concluded and the remaining accrual of $3,261, which primarily represented employee costs that were not utilized, was brought back through income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant does not have material exposure to interest rate risk, foreign currency exchange rate risk or commodity price risk. As the Registrant continues to expand internationally it expects market risks to have a greater impact on its financial position and results of operation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to pages 18 through 41.
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Consolidated Balance SheetsDiebold, Incorporated and SubsidiariesDecember 31, 2000 and 1999(Dollars in thousands, except per share amounts)
See accompanying Notes to Consolidated Financial Statements.
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Consolidated Statements of IncomeDiebold, Incorporated and SubsidiariesYears Ended December 31, 2000, 1999 and 1998(Dollars in thousands, except per share amounts)
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Consolidated Statements of Shareholders’ EquityDiebold, Incorporated and SubsidiariesYears Ended December 31, 2000, 1999 and 1998(Dollars in thousands)
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Consolidated Statements of Cash FlowsDiebold, Incorporated and SubsidiariesYears ended December 31, 2000, 1999 and 1998(Dollars in thousands)
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Notes to Consolidated Financial Statements
Diebold, Incorporated and Subsidiaries(Dollars in thousands, except per share amounts)
Note 1: Summary of SignificantAccounting Policies
Principles of consolidation
The Consolidated Financial Statements include the accounts of the Registrant and its wholly and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Statements of Cash Flows
For the purposes of the Consolidated Statements of Cash Flows, the Registrant considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.
International operations
The Registrant translates the assets and liabilities of its non-U.S. subsidiaries at the exchange rates in effect at year-end and the results of operations at the average rate throughout the year. The translation adjustments are recorded directly as a separate component of shareholders’ equity, while transaction gains (losses) are included in net income. Sales to customers outside the United States approximated 42.8 percent of net sales in 2000, 25.4 percent in 1999, and 25.1 percent in 1998.
Financial instruments
The carrying amount of financial instruments including cash and cash equivalents, trade receivables and accounts payable approximated fair value as of December 31, 2000 and 1999, because of the relatively short maturity of these instruments.
Trade receivables and revenue recognition
Revenue is generally recognized based on the terms of the sales contracts. The majority of sales contracts for products are written with selling terms “F.O.B. factory.” However, certain sales contracts may have other terms such as “F.O.B. destination” or “upon installation.” The Registrant recognizes revenue on these contracts when the appropriate event has occurred. The equipment that is sold is usually shipped and installed within one year. Installation that extends beyond one year is ordinarily attributable to causes not under the control of the Registrant. Service revenue is recognized in the period service is performed and subject to the individual terms of the service contract.
The concentration of credit risk in the Registrant’s trade receivables with respect to the banking and financial services industries is substantially mitigated by the Registrant’s credit evaluation process, reasonably short collection terms and the geographical dispersion of sales transactions from a large number of individual customers. The Registrant maintains allowances for potential credit losses, and such losses have been minimal and within management’s expectations.
Inventories
Inventories are valued at the lower of cost or market applied on a first-in, first-out basis. Cost is determined on the basis of actual cost.
Investment securities
Investments in debt and equity securities with readily determinable fair values are accounted for at fair value. The Registrant’s investment portfolio is classified as available-for-sale.
Depreciation and amortization
Depreciation of property, plant and equipment is computed using the straight-line method for financial statement purposes. Accelerated methods of depreciation are used for federal income tax purposes. Amortization of leasehold improvements is based upon the shorter of original terms of the lease or life of the improvement.
Research and development
Total research and development costs charged to expense were $52,028, $42,975, and $42,946 in 2000, 1999 and 1998, respectively.
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In-process research and development
Associated with the acquisition of Nexus Software, Inc. in the last quarter of 1999, the Registrant wrote off $2,050 of in-process research and development.
Advertising costs
Advertising costs are expensed as incurred. Total advertising costs charged to expense was $13,913, $13,747 and $11,806 in 2000, 1999 and 1998, respectively.
Other assets
Other assets consist primarily of pension assets, computer software, customer demonstration equipment, deferred tooling and certain other assets. These assets are stated at cost and, if applicable, are amortized ratably over a period of three to five years.
Goodwill
Goodwill is the costs in excess of the net assets of acquired businesses. These assets are stated at cost and are amortized ratably over a period not exceeding 20 years. The Registrant periodically monitors the value of goodwill by assessing whether the asset can be recovered over its remaining useful life through undiscounted cash flows generated by the underlying businesses. If it is determined that the carrying value of goodwill will not be recovered from the undiscounted future cash flows of the acquired business, the carrying value would be considered impaired and reduced by a charge to operations in the amount of the impairment. An impairment charge is measured as any deficiency in the amount of estimated undiscounted future cash flows of the acquired business available to recover the carrying value related to goodwill.
Deferred income
Deferred income is largely related to service contracts and is recognized for customer service billings in advance of the period in which the service will be performed and is recognized in income on a straight-line basis over the contract period.
Stock-based compensation
Compensation cost is measured on the date of grant only if the current market price of the underlying stock exceeds the exercise price. The Registrant provides pro forma net income and pro forma net earnings per share disclosures for employee stock option grants made in 1995 and subsequent years as if the fair value based method had been applied.
Taxes on income
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Earnings per share
Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if common stock equivalents were exercised and then shared in the earnings of the Registrant.
Comprehensive income
The Registrant displays comprehensive income in the Consolidated Statements of Shareholders’ Equity and accumulated other comprehensive income separately from retained earnings and additional paid-in-capital in the Consolidated Balance Sheets and Statements of Shareholders’ Equity. Items considered to be other comprehensive income include adjustments made for foreign currency translation (under SFAS 52), pensions (under SFAS 87) and unrealized holding gains and losses on available-for-sale securities (under SFAS 115).
Accumulated other comprehensive income (loss) balances for 2000, 1999 and 1998 for foreign currency translations were ($7,440), $464 and ($9,094), for pensions were ($1,995), ($3,502) and ($4,116), and for unrealized holding gains/(losses) on investment securities were ($3,223), ($2,827) and $408, respectively. The related tax (expense) or benefit for adjustments to accumulated other comprehensive income for 2000, 1999 and 1998 for pensions were ($330), ($331), and $1,506 and for unrealized holding gains/(losses) on investment securities were ($269), $1,742, and $243, respectively. Translation adjustments are not booked net of tax. Those adjustments are accounted for under the indefinite reversal criterion of APB Opinion 23, “Accounting for Income Taxes—Special Areas.”
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Use of estimates in preparation of Consolidated Financial Statements
The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
The Registrant has reclassified the presentation of certain prior-year information to conform with the current presentation format.
Note 2: Related Party Transactions
InterBold joint venture
The Consolidated Financial Statements for the period of January 1 through January 27, 1998, include the accounts of InterBold, a joint venture between the Registrant and IBM. The joint venture provided ATMs and other financial self-service systems worldwide.
On January 27, 1998, the Registrant completed its purchase of IBM’s 30 percent minority interest in InterBold for $16,141.
Note 3: Investment Securities
At December 31, 2000 and 1999, the investment portfolio was classified as available-for-sale. The marketable debt and equity securities are stated at fair value. The fair value of securities and other investments is estimated based on quoted market prices.
The Registrant’s investment securities, excluding insurance contracts, at December 31, are summarized as follows:
Realized gains (losses) from sale of securities were ($3,183), $1,451 and $289 in 2000, 1999 and 1998, respectively. Proceeds from the sales of available-for-sale securities were $11,446, $60,427 and $599 in 2000, 1999 and 1998, respectively. Gains and losses are determined using the specific identification method.
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Note 4: Inventories
Major classes of inventories at December 31, are summarized as follows:
Note 5: Property, Plant and Equipment
Property, plant and equipment at December 31, together with annual depreciation and amortization rates, consisted of the following:
Note 6: Finance Receivables
The components of finance receivables for the net investment in sales-type leases are as follows:
Future minimum lease receivables due from customers under sales-type leases as of December 31, 2000, are as follows:
Note 7: Short-Term Financing
The Registrant’s short-term financing is as follows:
1 75,000 Euro (EUR) borrowing translated at the applicable 12/31/2000 spot rate.
2 12,900 Australian (AUD) dollar borrowing translated at the applicable 12/31/2000 spot rate.
The Registrant has available credit facilities with domestic and foreign banks for various purposes. The amount of available committed loans at December 31, 2000 was $14,400 and EUR 25,000 ($23,600 translated).
In addition, an uncommitted AUD 4,100 ($2,300 translated) line of credit remains available as well as an unused $25,000 line of credit.
The average short-term rate on the bank credit lines was 6.72 percent and 6.69 percent at December 31, 2000 and 1999, respectively. Interest on short-term financing charged to expense for the year ended December 31, 2000 was $12,530, EUR 2,683 (translation $2,533) and AUD 573 (translation $320) and for 1999 was $2,112.
The Registrant’s short-term financing agreements contain various restrictive covenants, including debt to capitalization and interest coverage ratios. As of December 31, 2000, the Registrant is in compliance with all restrictive covenants.
Note 8: Realignment and Special Charges
In the second quarter of 1998, the Registrant recognized realignment and special charges of
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$61,117 ($41,850 after-tax or $0.60 per diluted share) in connection with a corporate-wide realignment program. As expected, the realignment plan concluded as of December 31, 1999. At the conclusion of the plan, $3,261 of the original realignment accrual was brought back through income due to less than expected costs for lower than expected contractual lease obligations, and for lower than expected job eliminations.
Realignment exit costs were accounted for under EITF 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring.)” Long-lived asset impairments were accounted for under Statement of Financial Accounting Standards (SFAS) No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” Inventory charges were taken when it was determined that the utility, as a result of the realignment decisions, was less than the costs for the affected inventory. Special charges of $9,864 mainly represent the write-off of inventory for exited businesses and all other realignment charges of $51,253 were recognized as a separate operating expense in the Consolidated Statements of Income.
Elements of the realignment and special charges were divided into three categories: Facility closing and write down of assets, employee costs and other exit costs. Facility closing and write-down of assets costs were estimated to be $40,343. Items included in this category were certain impaired intangible assets, mainly relating to the separation from IBM in the InterBold joint venture in 1998, manufacturing assets relating to exited businesses, redundant inventory of exited businesses and contractual costs to exit leased facilities. North American facilities were consolidated and several facilities were closed under the realignment program.
Termination pay and separation costs were estimated to be $8,269. More than 600 employees were estimated to be terminated, and at the conclusion of the realignment plan as of December 31, 1999, 560 jobs had been eliminated. The estimated costs in this category included the termination pay, job outplacement and fringe benefit costs for each eliminated job. Terminations came from all areas of the Registrant.
Other exit costs under the realignment program were estimated to be $12,505. These costs included legal, insurance and communications costs and the write-off of accounts receivable relating to exited businesses.
Assets relating to the realignment were written down or scrapped. Costs from the realignment were paid from operating funds over the term of the realignment plan. The entire realignment plan was completed as of December 31, 1999.
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The following table shows the realignment charge and accrual and all activity through December 31, 2000:
Note 9: Bonds Payable
Bonds payable at December 31 consisted of the following:
In 1997, three industrial development revenue bonds were issued on behalf of the Registrant. The proceeds from the bond issuances were used to construct new manufacturing facilities in Danville and Staunton, Virginia and Lexington, North Carolina. The Registrant guaranteed the payments of principal and interest on the bonds by obtaining letters of credit. Each industrial development revenue bond carries a variable interest rate, which is reset weekly by the remarketing agents. The bonds can be called at anytime. The Registrant is in compliance with the covenants of its loan agreements and believes that the covenants will not restrict its future operations.
Interest paid on these bonds charged to expense was $877 in 2000, $682 in 1999 and $743 in 1998.
Note 10: Shareholders’ Equity
On the basis of amounts declared and paid, the annualized quarterly dividends per share were $0.62 in 2000, $0.60 in 1999 and $0.56 in 1998.
In the following chart, the Registrant provides net income and basic earnings per share reduced by the pro forma amounts calculating compensation cost for the Registrant’s fixed stock option plan under the fair value method. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of 6.4, 5.1 and 4.7 percent; dividend yield of 1.6, 1.4 and 1.8 percent; volatility of 31, 33 and 24 percent; and average expected lives of six years for management and four years for executive management and non-employee directors. Pro forma net income reflects only options granted since January 1, 1995.
Fixed stock options
Under the 1991 Equity and Performance Incentive Plan (1991 Plan), Common Shares are available for grant of options at a price not less than 85 percent of the fair market value of the Common Shares on the date of grant. The exercise price of options granted since January 1, 1995, was equal to the market price at the grant date, and accordingly, no compensation
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cost has been recognized. In general, options are exercisable in cumulative annual installments over five years, beginning one year from the date of grant. The number of Common Shares that may be issued or delivered pursuant to the 1991 Plan is 6,265,313, of which 4,406,839 shares were available for issuance at December 31, 2000. The 1991 Plan will expire on April 2, 2001. The 1991 Plan replaced the Amended and Extended 1972 Stock Option Plan (1972 Plan), which expired by its terms on April 2, 1992. All final options under the 1972 Plan were exercised in 2000 and the 1972 Plan was deregistered.
Under the 1997 Milestone Stock Option Plan (Milestone Plan), options for 100 Common Shares were granted to all eligible salaried and hourly employees. The exercise price of the options granted under the Milestone Plan was equal to the market price at the grant date, and accordingly, no compensation cost has been recognized. In general, all options are exercisable beginning two years from the date of grant. The number of Common Shares that may be issued or delivered pursuant to the Milestone Plan is 600,000 of which 533,300 shares were available for issuance at December 31, 2000. The Milestone Plan will expire on March 2, 2002.
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The following is a summary with respect to options outstanding at December 31, 2000, 1999 and 1998, and activity during the years ending on those dates:
The following table summarizes pertinent information regarding fixed stock options outstanding and options exercisable at December 31, 2000:
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Restricted share grants
The 1991 Plan also provides for the issuance of restricted shares to certain employees. Outstanding shares granted at December 31, 2000, totaled 389,182 restricted shares. The shares are subject to forfeiture under certain circumstances. Unearned compensation representing the fair market value of the shares at the date of grant will be charged to income over the three-to-seven-year vesting period.
Performance share grants
The 1991 Plan also provides for the issuance of Common Shares based on certain management objectives achieved within a specified performance period of at least one year as determined by the Board of Directors. The management objectives for the period ended December 31, 2000, were set in January 1998. Based on performance, no payout was made in 2001. No performance share grants were made in 2000 because the executive compensation program was reevaluated. Interim awards of restricted shares with performance measures were made.
The compensation cost that has been charged against income for its performance-based share grant plan was $116, ($1,712) and $2,280 in 2000, 1999 and 1998, respectively.
Rights Agreement
On January 28, 1999 the Board of Directors announced the adoption of a new Rights Agreement that provided for Rights to be issued to shareholders of record on February 11, 1999. The description and terms of the Rights were set forth in the Rights Agreement, dated as of February 11, 1999, between the Registrant and the Bank of New York, as Agent. Under the Rights Agreement, the Rights trade together with the Common Shares and are not exercisable. In the absence of further Board action, the Rights generally will become exercisable and allow the holder to acquire Common Shares at a discounted price if a person or group acquires 20 percent or more of the outstanding Common Shares. Rights held by persons who exceed the applicable threshold will be void. Under certain circumstances, the Rights will entitle the holder to buy shares in an acquiring entity at a discounted price. The Rights Agreement also includes an exchange option. In general, after the Rights become exercisable, the Board of Directors may, at its option, effect an exchange of part or all of the Rights (other than Rights that have become void) for Common Shares. Under this Option, the Registrant would issue one Common Share for each Right, subject to adjustment in certain circumstances. The Rights are redeemable at any time prior to the Rights becoming exercisable and will expire on February 11, 2009, unless redeemed or exchanged earlier by the Registrant.
Note 11: Earnings Per Share(In thousands except per share amounts)
The following data show the amounts used in computing earnings per share and the effect on the weighted-averaged number of shares of dilutive potential common stock.
Fixed stock options on 1,383 Common Shares in 2000 and 1,377 Common Shares in 1999 were not included in computing diluted earnings per share, because their effects were antidilutive.
Note 12: Pension Plans and Postretirement Benefits
The Registrant has several pension plans covering substantially all domestic employees. Plans covering salaried employees provide pension benefits that are based on the employee’s compensation during the 10 years before retirement. The Registrant’s funding policy for those plans is to contribute annually at an actuarially determined rate. Plans covering hourly
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employees and union members generally provide benefits of stated amounts for each year of service. The Registrant’s funding policy for those plans is to make at least the minimum annual contributions required by applicable regulations.
Employees of the Registrant’s operations in foreign countries participate to varying degrees in local pension plans, which in the aggregate are not significant.
Approximately 90 percent of the plan assets at September 30, 2000 and 1999 were invested in listed stocks and investment grade bonds.
Minimum liabilities have been recorded in 2000 and 1999 for the plans whose total accumulated benefit obligation exceeded the fair value of the plan’s assets.
In addition to providing pension benefits, the Registrant provides healthcare and life insurance benefits for certain retired employees. Eligible employees may be entitled to these benefits based upon years of service with the Registrant, age at retirement and collective bargaining agreements. Presently, the Registrant has made no commitments to increase these benefits for existing retirees or for employees who may become eligible for these benefits in the future. Currently there are no plan assets and the Registrant funds the benefits as the claims are paid.
The effect of a one-percentage-point annual increase in the assumed healthcare cost trend rate would increase the service and interest cost components of the healthcare benefits by $108, while a one-percentage-point decrease in the trend rate would decrease the service and interest components of the healthcare benefits by $96.
The postretirement benefit obligation was determined by application of the terms of medical and life insurance plans together with relevant actuarial assumptions and healthcare cost trend rates projected at annual rates declining from 7.0 percent in 2000 to 4.5 percent through the year of 2005 and remain at that level thereafter. The effect of a one- percentage-point annual increase in these assumed healthcare cost trend rates would increase the healthcare accumulated postretirement benefit obligation by $1,994, while a one-percent decrease in the trend rate would decrease the accumulated postretirement benefit obligation by $1,768.
The following table sets forth the change in benefit obligation, change in plan assets, the funded status, the Consolidated Balance Sheet presentation and the relevant assumptions for the Registrant’s defined benefit pension plans and health and life insurance post-retirement benefits at December 31:
31
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The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were ($46,018), ($42,934), and $0, respectively, as of December 31, 2000, and ($39,398), ($37,087) and $14,866, respectively, as of December 31, 1999. The amounts included within other comprehensive income arising from a change in the additional minimum pension liability, net of tax were $1,507 and $614 in 2000 and 1999, respectively.
The Registrant offers an employee 401(k) Savings Plan (Savings Plan) to encourage eligible employees to save on a regular basis by payroll deductions, and to provide them with an opportunity to become shareholders of the Registrant. Under the Savings Plan for the year ended December 31, 2000 the Registrant matched 60 percent of a participating employee’s first three percent of contributions and 30 percent of a participating employee’s second three percent of contributions. Total Registrant match in 2000, 1999 and 1998 was $7,155, $9,012, and $9,338, respectively.
Note 13: Leases
The Registrant’s future minimum lease payments due under operating leases for real and personal property in effect at December 31, 2000 are as follows:
Rental expense for 2000, 1999 and 1998 under all lease agreements amounted to approximately $36,361, $32,281, and $34,158, respectively.
Note 14: Income Taxes
Income tax expense attributable to income from continuing operations consists of:
In addition to the 2000 income tax expense of $67,438, certain deferred income tax benefits of ($60) were allocated directly to shareholders’ equity.
A reconciliation of the difference between the U.S. statutory tax rate and the effective tax rate is as follows:
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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Registrant’s deferred tax assets and liabilities are as follows:
At December 31, 2000, the Registrant’s international subsidiaries had deferred tax assets relating to net operating loss carryforwards of $3,305, $1,974 of which expires in years 2001 through 2010, and $1,331 of which has an indefinite carryforward period. The Registrant recorded a valuation allowance to reflect the estimated amount of deferred tax assets, which, more likely than not, will not be realized. The valuation allowance relates to certain international net operating losses and other international deferred tax assets.
Note 15: Commitments and Contingencies
At December 31, 2000, the Registrant was a party to several lawsuits that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the Registrant’s financial position or results of operations. While in management’s opinion the financial statements would not be materially affected by the outcome of any present legal proceedings, commitments, or asserted claims, management is aware of a claim by the Internal Revenue Service 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 $17,600, 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.
Note 16: Segment Information
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 intersegment transactions, and operating profit contribution to the total corporation. A reconciliation between segment information and the 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. 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 sales channels buys the goods it sells from the Registrant’s manufacturing plants through intercompany sales that are eliminated on consolidation. Each year, inter-company pricing is agreed upon, which drives sales channel operating profit contribution. As permitted under SFAS 131, certain information not routinely
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used in the management of these segments, information not allocated back to the segments or information that is impractical to report is not shown. Items not disclosed are as follows: Interest revenue, interest expense, depreciation, amortization, 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.
More than 90 percent of the Registrant’s customer revenues are derived from the sales and service of financial systems and equipment. The Registrant had no customers in 2000 and 1999 that accounted for more than 10 percent of total net sales. The Registrant had one customer, IBM, its former partner in the InterBold joint venture that accounted for $148,755 of the total net sales of $1,185,707 in 1998. 2000 and 1999 sales to IBM were $12,799 and $51,552, respectively.
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Reconciliation of Segment Information to Consolidated Statements of Income
Total Revenue Domestic vs. International
Total Revenue by Product /Service Solution
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Note 17: Acquisitions
On April 17, 2000, the Registrant acquired 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 $90,000 and 400,000 French francs (translation $58,080), including professional and legal fees. The majority of subsidiaries of the European acquisition have been acquired and the results of operations, which are not material to the Registrant, consolidated. The remaining subsidiaries will be consolidated upon completion of the legal closing. The acquisition has been accounted for under the purchase method of accounting. Accordingly, the purchase price has been allocated to identifiable tangible and intangible assets acquired and liabilities assumed, based upon their respective fair values, with an estimated $146,080 allocated to goodwill, subject to change once all subsidiaries have been consolidated, which is being amortized over a 20 year economic life from the date of acquisition.
Unaudited pro forma financial information assuming the European acquisition was effected on January 1, 2000 is as follows: revenues $1,818,292, net income $136,153 and diluted earnings per share $1.90.
On December 31, 2000, the Registrant purchased the remaining ownership interest in Diebold Agrentina from Ciccone Calcografica S.A. for $4,875.
During 1999, the following acquisition occurred and was accounted for under the purchase method of accounting. The results have been included in the Consolidated Financial Statements since the date of acquisition.
On October 21, 1999, the Registrant acquired Procomp Amazonia Industria Eletronica, S.A. (Procomp), a Brazilian manufacturer and marketer of innovative technical solutions, including personal computers, servers, software, professional services and retail and banking automation equipment. The acquisition was effected in a combination of cash and stock for $222,310, which included goodwill of $135,219 to be amortized over 17 years. The value of shares issued was $41,953.
Yearly unaudited pro forma financial information assuming the acquisition of Procomp was effected on January 1, 1999 and 1998, respectively, is as follows: revenue $1,502,505 and $1,518,977, net income $118,346 and $79,434, and diluted earnings per share $1.67 and $1.12. In 1999, unaudited pro forma results were severely impacted by the devaluation of the Brazilian real.
Note 18: Subsequent Events (Unaudited)
On January 5, 2001, the Registrant announced the closing of the Staunton, Virginia manufacturing facility. The closing is estimated to be completed by the end of the first quarter of 2001. The facility was opened in 1997 for precision sheet metal processing for ATM components. Some of the equipment used at the Staunton facility will replace older equipment at facilities in Lynchburg, Virginia and Sumter, South Carolina.
Note 19: Quarterly Financial Information (Unaudited)
See “Comparison of Selected Quarterly Financial Data (Unaudited)” on page 39 of this Annual Report onForm 10-K.
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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 that 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. The Registrant is not obligated to report changes to its outlook. 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:
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Comparison of Selected Quarterly Financial Data (Unaudited)(Dollars in thousands, except per share amounts)
See Note 19 to Consolidated Financial Statements and 5-Year Summary 2000-1996
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Report of Management
The management of Diebold, Incorporated is responsible for the contents of the consolidated financial statements, which are prepared in conformity with generally accepted accounting principles. The consolidated financial statements necessarily include amounts based on judgments and estimates. Financial information elsewhere in the Annual Report on Form 10-K is consistent with that in the consolidated financial statements.
The Registrant maintains a comprehensive accounting system which includes controls designed to provide reasonable assurance as to the integrity and reliability of the financial records and the protection of assets. An internal audit staff is employed to regularly test and evaluate both internal accounting controls and operating procedures, including compliance with the Registrant’s statement of policy regarding ethical and lawful conduct. The role of KPMG LLP, the independent auditors, is to provide an objective examination of the consolidated financial statements and the underlying transactions in accordance with generally accepted auditing standards. The report of KPMG LLP accompanies the consolidated financial statements.
The Audit Committee of the Board of Directors, composed of directors who are not members of management, meets regularly with management, the independent auditors and the internal auditors to ensure that their respective responsibilities are properly discharged. KPMG LLP and the Managing Director of Internal Audit have full and free access to the Audit Committee.
/s/Gregory T. GesweinGregory T. GesweinSenior Vice President and ChiefFinancial Officer
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5-Year Summary 2000-1996Diebold, Incorporated and SubsidiariesSelected Financial Data(In thousands, except per share amounts and ratios)
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in accountants or disagreements with accountants on accounting and financial disclosures.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to directors of the Registrant is included on pages 3 through 8 of the Registrant’s proxy statement for the 2001 Annual Meeting of Shareholders (“2001 Annual Meeting”) and is incorporated herein by reference. Refer to pages 6 through 9 of this Form 10-K for information with respect to executive officers. Information with respect to Section 16(a) Beneficial Ownership Reporting Compliance” is included on page 6 of the Registrant’s proxy statement for the 2001 Annual Meeting and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation is included on pages 8 through 17 of the Registrant’s proxy statement for the 2001 Annual Meeting and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners and management is included on pages 2 through 6 of the Registrant’s proxy statement for the 2001 Annual Meeting and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information with respect to certain relationships and related transactions set forth under the caption “Compensation Committee Interlocks and Insider Participation” on page 8 of the Registrant’s proxy statement for the 2001 Annual Meeting is incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. (continued)
2. Exhibits
43
44
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by Registrant during the fourth quarter of 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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INDEPENDENT AUDITORS’ REPORT ONFINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The Board of Directors and ShareholdersDiebold, Incorporated
We have audited the accompanying consolidated balance sheets of Diebold, Incorporated and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in Item 14 (a)(1) of Form 10-K of Diebold, Incorporated for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements and financial statement schedule are the responsibility of the Registrant’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Diebold, Incorporated and subsidiaries as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/KPMG LLP
KPMG LLPCleveland, OhioJanuary 23, 2001
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DIEBOLD, INCORPORATED AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
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EXHIBIT INDEX
50