1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION ------------------------------------------------------------ WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ..... to ...... ------------------------------------------------------------ Commission file number 1-4879 DIEBOLD, INCORPORATED (Exact name of Registrant as specified in its charter) Ohio 34-0183970 - ------------------------------------- ------------------------------------ (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 5995 Mayfair Road, P.O. Box 3077, North Canton, Ohio 44720-8077 - ------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (330) 489-4000 - -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered: Common Shares $1.25 Par Value New York Stock Exchange - ------------------------------------- ------------------------------------ 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. [X] State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 3, 1997. The aggregate market value was computed by using the closing price on the New York Stock Exchange on March 3, 1997 of $42.625 per share. Common Shares, Par Value $1.25 Per Share $2,886,604,300 Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 3, 1997 Common Shares $1.25 Par Value 68,912,472 Shares ----------------------------- ----------------------------
2 DOCUMENTS INCORPORATED BY REFERENCE (1) PROXY STATEMENT FOR 1997 ANNUAL MEETING --------------------------------------- OF SHAREHOLDERS TO BE HELD APRIL 16, 1997 ----------------------------------------- <TABLE> <CAPTION> PART OF 10-K INTO WHICH CAPTION OR HEADING PAGE NO. INCORPORATED ITEM NO. ---------------------- -------- ------------ -------- <S> <C> <C> <C> Information about Nominees for Election as Directors 4-8 III 10 Executive Compensation 9-18 III 11 Annual Meeting of Shareholders; Security Ownership of Directors and Management 2-7 III 12 Compensation Committee Interlocks and Insider Participation 8 III 13 </TABLE> 2
3 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. During 1996, no significant changes occurred in the manner of conducting the Registrant's business. (b) Financial Information about Industry Segments - ------------------------------------------------- The Registrant operates predominantly in one industry segment: financial systems and equipment. This segment accounts for more than 90% of the consolidated net sales, operating profit and identifiable assets. (c) Description of Business - --------------------------- The Registrant develops, manufactures, sells and services automated teller machines (ATMs), 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 1996, 1995, and 1994 the Registrant's sales and services of financial systems and equipment accounted for more than 90% 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 one customer, International Business Machines (IBM), who is its partner in the InterBold joint venture, that accounted for $157,639,000 of the total net sales of $1,030,191,000 in 1996 and $101,363,000 of the total net sales of $863,409,000 in 1995. Backlog as of December 31, 1996 was $233,586,000 which was a 38% increase from December 31, 1995 backlog of $168,754,000. While this increase in backlog can be considered positive, order backlog is not the sole indicator of future revenue streams. There are numerous other factors which influence the amount and timing of revenue in future periods. 3
4 ITEM 1. BUSINESS. - (continued) - ------- --------- 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. Registrant believes, based upon outside independent industry surveys, that it is the leading manufacturer of automated teller machines 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, Siemens-Nixdorf, Dassault, Bull, Olivetti and Fujitsu. In serving the security products market for the financial services industry, the Registrant competes primarily with Mosler and Lefebure in the security equipment and systems field. 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 makes 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 $41.8 million in 1996, $35.5 million in 1995, and $28.0 million in 1994 for research and development costs. Compliance by the Registrant with federal, state and local environmental protection laws during 1996 had no material effect upon capital expenditures, earnings or the competitive position of the Registrant and its subsidiaries. The total number of employee associates employed by the Registrant at December 31, 1996 was 5,980 compared with 5,178 at the end of the preceding year. (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 22.3 percent in 1996, and 19.8 percent in 1995 and 1994. ITEM 2. PROPERTIES. - ------- ----------- The Registrant's corporate offices are located in North Canton, Ohio. It owns facilities (approximately 1.6 million square feet) in Canton, Uniontown and Newark, Ohio; Lynchburg, Virginia; Sumter, South Carolina; and leases facilities (approximately .3 million square feet) in Akron, Canton, Canal Fulton, Massillon, Newark and Seville, Ohio; Mexico City, Mexico; Rancho Dominguez, California; and Shanghai, China. These facilities house manufacturing, production, associated engineering, warehousing, testing, administration and development and distribution for all product lines. To keep its facilities both suitable and adequate for operations, the Registrant has announced the addition of three new facilities in Staunton and Danville, Virginia and in Lexington, North Carolina. The Registrant is also expanding and upgrading its existing operations in Canton, Ohio and Sumter, South Carolina. ITEM 3. LEGAL PROCEEDINGS. - ------- ------------------ At December 31, 1996, 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 in relation to the Registrant's financial position or results of operations. 4
5 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 1996. ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT. - -------- ------------------------------------- Refer to pages 6 through 9. 5
6 EXECUTIVE OFFICERS OF THE REGISTRANT <TABLE> <CAPTION> Other Positions Year Elected Held Last Name Age Title Present Office Five Years - ----------------- --- --------------------- -------------- ---------------------- <S> <C> <C> <C> <C> 1993-96 ------- Robert W. Mahoney 60 Chairman of the Board 1996 Chairman of the Board, and Chief Executive President and Chief Officer and Director Executive Officer and Director - Diebold 1989-93 ------- Chairman of the Board and Chief Executive Officer and Director - Diebold 1993-96 ------- Gregg A. Searle 48 President and Chief 1996 Executive Vice Operating Officer President - Diebold and Director 1991-93 ------- Vice President - Diebold General Manager - InterBold 1990-91 ------- Vice President, U.S. Sales & Marketing - InterBold 1990-93 ------- William T. Blair 63 Executive Vice President 1993 Vice President and General Manager, North American Sales and Service - Diebold 1990-93 ------- Gerald F. Morris 53 Executive Vice President 1993 Senior Vice President and Chief Financial Officer and Chief Financial Officer - Diebold </TABLE> 6
7 EXECUTIVE OFFICERS OF THE REGISTRANT - (continued) <TABLE> <CAPTION> Other Positions Year Elected Held Last Name Age Title Present Office Five Years - ----------------- --- --------------------- -------------- ---------------------- <S> <C> <C> <C> <C> 1994-96 ------- Alben W. Warf 58 Senior Vice President, 1996 Group Vice President, Electronic Systems Self-Service Systems - Development and Diebold Manufacturing 1993 ---- Vice President - Diebold and General Manager - InterBold 1990-93 ------- Vice President Development and Manufacturing - Diebold and InterBold 1993-96 ------- David Bucci 45 Group Vice President 1997 Vice President, North American Sales and Service Eastern Division - Diebold 1992-93 ------- Vice President, Major Accounts - Diebold 1990-92 ------- Director, Marketing and Sales Support - InterBold 1993-95 ------- Frank G. D'Angelo 51 Vice President, 1995 Vice President - Diebold Information Systems and General Manager and Chief Executive Officer - Diebold Mexico S.A. de C.V. 1991-93 ------- Vice President, Customer Service/Systems Operations and Support - Diebold 1990-91 ------- Vice President, Software Development and Support-InterBold </TABLE> 7
8 EXECUTIVE OFFICERS OF THE REGISTRANT - (continued) <TABLE> <CAPTION> Other Positions Year Elected Held Last Name Age Title Present Office Five Years - ----------------- --- --------------------- -------------- ---------------------- <S> <C> <C> <C> <C> Warren W. Dettinger 43 Vice President, 1989 -- General Counsel and Assistant Secretary 1987-96 ------- Reinoud G. J. Drenth 33 Vice President, 1996 NCR Corporation: Worldwide Marketing 1995 - Marketing Vice President, Financial Services Industry 1994 - Executive Assistant, Worldwide Industry Marketing 1993 - Marketing Director, Northern Europe 1991-93 - District Manager, Financial and Retail Systems Division Donald E. Eagon, Jr. 54 Vice President, 1990 -- Corporate Communications 1983-93 ------- Charee Francis-Vogelsang 50 Vice President and 1993 Vice President Secretary - Diebold and Secretary - Diebold and Secretary - InterBold Bartholomew J. Frazzitta 54 Vice President and 1990 -- General Manager, Security Products 1990-92 ------- Michael J. Hillock 45 Vice President and General 1993 Vice President, Manager, Sales and Service North American Europe, Middle East, and Africa Sales and Service, Eastern Division - Diebold </TABLE> 8
9 EXECUTIVE OFFICERS OF THE REGISTRANT - (continued) <TABLE> <CAPTION> Other Positions Year Elected Held Last Name Age Title Present Office Five Years - ----------------- --- --------------------- -------------- ---------------------- <S> <C> <C> <C> <C> 1988-93 ------- Larry D. Ingram 50 Vice President, 1993 Divisional Vice President, Procurement and Services Materials Management - Diebold 1991-92 ------- Edgar N. Petersen 58 Vice President and General 1993 Vice President and General Manager, Sales and Service Manager, International Canada, Asia/Pacific, and Sales and Service - Diebold Latin America 1990-91 ------- Vice President, International Sales and Marketing - InterBold 1988-91 ------- Charles B. Scheurer 55 Vice President, 1991 Vice President, Human Resources Human Resources and Corporate Services - Diebold Robert L. Stockamp 53 Vice President and 1990 -- Corporate Controller Robert J. Warren 50 Vice President and 1990 -- Treasurer </TABLE> There is no family relationship, either by blood, marriage or adoption, between any of the executive officers of the Registrant. 9
10 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND - ------- --------------------------------------------- RELATED STOCKHOLDER MATTERS. ---------------------------- On January 30, 1997, the Board of Directors of the Registrant declared a three-for-two stock split which was effected in the form of a stock dividend, distributed on February 19, 1997, to shareholders of record on February 7, 1997. Accordingly, all numbers of Common Shares, except authorized shares and treasury shares, and all per share data have been restated to reflect this stock split in addition to the three-for-two stock split declared on January 26, 1996, distributed on February 23, 1996, to shareholders of record on February 9, 1996. 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: <TABLE> <CAPTION> 1996 1995 ---------------- --------------- High Low High Low ------ ------ ------ ------ <S> <C> <C> <C> <C> 1st Quarter $27.08 $22.44 $18.28 $14.67 2nd Quarter 32.17 24.17 19.67 15.45 3rd Quarter 39.08 27.75 21.95 19.22 4th Quarter 42.33 35.58 27.61 20.00 ------ ------ ------ ------ Full Year $42.33 $22.44 $27.61 $14.67 ====== ====== ====== ====== </TABLE> There were approximately 58,251 shareholders at December 31, 1996, 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 $0.45 in 1996 and $0.43 in 1995. ITEM 6. SELECTED FINANCIAL DATA. (Dollars in thousands) - ------- ------------------------ <TABLE> <CAPTION> 1996 1995 1994 1993 1992 ---------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> Net Sales $1,030,191 $863,409 $760,171 $623,277 $543,852 Net Income* 97,425 76,209 63,511 48,374 23,205 Net Income per share* 1.42 1.11 0.93 0.71 0.34 Total Assets 859,101 749,795 666,174 609,019 558,914 Cash dividends paid per Common Share 0.45 0.43 0.39 0.36 0.33 <FN> * 1992 amounts include a one-time charge of $17,932 ($0.27 per share) resulting from the adoption of SFAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." </TABLE> 10
11 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 1994 to 1996. Comments on significant year-to-year fluctuations follow the table. <TABLE> <CAPTION> 1996 1995 1994 ---------------------------------- ------------------------------ ------------------- Percent Percent Percent Percent Percent of Net Increase of Net Increase of Net (Dollars in thousands) Amount Sales (Decrease) Amount Sales (Decrease) Amount Sales =================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Net sales Products ....................... $ 688,519 66.8% 24.4% $ 553,622 64.1% 15.5% $ 479,314 63.1% Services ....................... 341,672 33.2 10.3 309,787 35.9 10.3 280,857 36.9 ------------------------------------------------------------------------------------------------- 1,030,191 100.0 19.3 863,409 100.0 13.6 760,171 100.0 Cost of sales Products ....................... 425,016 61.7 21.9 348,560 63.0 11.8 311,790 65.0 Services ....................... 247,237 72.4 12.2 220,418 71.2 14.4 192,699 68.6 ------------------------------------------------------------------------------------------------- 672,253 65.3 18.2 568,978 65.9 12.8 504,489 66.4 ------------------------------------------------------------------------------------------------- Gross profit ..................... 357,938 34.7 21.6 294,431 34.1 15.2 255,682 33.6 Selling and administrative expense 166,998 16.2 15.6 144,490 16.7 12.6 128,309 16.9 Research, development and engineering expense ............ 50,576 4.9 17.3 43,130 5.0 17.8 36,599 4.8 ------------------------------------------------------------------------------------------------- 217,574 21.1 16.0 187,620 21.7 13.8 164,908 21.7 ------------------------------------------------------------------------------------------------- Operating profit ................. 140,364 13.6 31.4 106,811 12.4 17.7 90,774 11.9 Other income, net ................ 10,533 1.0 59.3 6,612 0.8 28.3 5,152 0.7 Minority interest ................ (4,393) (0.4) 2,096.5 (200) 0.0 (89.7) (1,948) (0.3) ------------------------------------------------------------------------------------------------- Income before taxes .............. 146,504 14.2 29.4 113,223 13.1 20.5 93,978 12.4 Taxes on income .................. 49,079 4.7 32.6 37,014 4.3 21.5 30,467 4.0 ------------------------------------------------------------------------------------------------- Net income ....................... $ 97,425 9.5% 27.8% $ 76,209 8.8% 20.0% $ 63,511 8.4% =================================================================================================================================== </TABLE> 11
12 NET SALES Net sales for 1996 totaled $1,030,191, which represented growth of $166,782 or 19.3 percent from 1995 and $270,020 or 35.5 percent from 1994. This was the Registrant's seventh consecutive year of record sales as well as the first year in the Registrant's 138 - year history that sales have exceeded the $1 billion mark. Product net sales of $688,519 grew $134,897 or 24.4 percent from 1995 and $209,205 or 43.6 percent from 1994. During 1996, the Registrant experienced a significant growth in global sales of ATMs. Sales increased from all other major product lines, except in the electronic security products group. Total U.S. product revenue was up 23.7 percent from 1995. Sales of products outside the United States increased 38.3 percent from 1995 as compared with a 16.2 percent increase in 1995 from 1994. Service net sales of $341,672 increased $31,885 or 10.3 percent from 1995 and were up $60,815 or 21.7 percent from 1994. The major factors contributing to the service revenue gain in 1996 were the growth of the installed base of equipment resulting from new product installations and continued growth of service offerings such as first-line maintenance. Total product backlog of unfilled orders was $233,586 at December 31, 1996, compared with $168,754 at the end of 1995 and $152,511 at the end of 1994. While this increase in backlog can be considered positive, order backlog is not the sole indicator of future revenue streams. There are numerous other factors which influence the amount and timing of revenue in future periods. COST OF SALES AND EXPENSES Cost of sales for 1996 was $672,253, compared with $568,978 in 1995 and $504,489 in 1994. Gross profits on product sales increased $58,441 and $95,979 from 1995 and 1994, respectively, to a level of $263,503 in 1996. Product gross margins in 1996 were 38.3 percent of product sales, compared with 37.0 percent in 1995 and 35.0 percent in 1994. The continued increase in product gross profits was a result of increased sales volumes and cost reduction efforts. Service gross profits of $94,435 in 1996 increased from $89,369 in 1995 and $88,158 in 1994. Service gross margins as a percentage of service sales were 28.8 percent in 1995 and 31.4 percent in 1994, as compared with 27.6 percent in 1996. The reduction in service gross margins is due to a continued growth of new service offerings which have generated lower margins than traditional service offerings. Supporting the Registrant's volume growth and market expansion, operating expenses increased $29,954 or 16.0 percent from 1995 and were $52,666 or 31.9 percent above 1994. Total operating expenses of $217,574 or 21.1 percent of net sales in 1996 represented a decrease from the 1995 and 1994 level of 21.7 percent. However, research, development and engineering expense has increased proportionately to the growth in net sales reflecting the Company's commitment to ensure a continuing flow of new products in the future. Operating profit of $140,364 in 1996 represented an increase of $33,553 or 31.4 percent from 1995 and $49,590 or 54.6 percent from 1994. Operating profit again grew faster than net sales as manufacturing cost reductions and operating expense controls continue to cause the operating profit margin to widen from 12.4 percent and 11.9 percent in 1995 and 1994, respectively, up to 13.6 percent in 1996. OTHER INCOME, NET AND MINORITY INTEREST Other income, net increased $3,921 or 59.3 percent from 1995 and $5,381 or 104.4 percent from 1994. This increase is primarily due to higher investment income in 1996 as compared with 1995 as a result of continuing growth in Diebold Credit Corporation. Additionally, during 1996, the Registrant realized favorable returns on maturing investments that were previously considered uncertain. The increase in investment income was offset, however, by increases in certain expenses related to Company-owned insurance contracts and amortization related to certain assets. Minority interest of $4,393 increased from $200 in 1995 and $1,948 in 1994. Minority interest consisted primarily of income or losses allocated to the minority ownership of InterBold and Diebold Financial Equipment Company, Ltd. (China). Minority interests for both companies are calculated as a percentage of profits of the joint ventures based on formulas defined in the relevant agreements establishing each venture. INCOME Income before taxes amounted to $146,504 in 1996. This was an increase of $33,281 or 29.4 percent from 1995 and $52,526 or 55.9 percent from 1994. Income before taxes also improved as a percentage of net sales, representing 14.2 percent in 1996, compared with 13.1 percent in 1995 and 12.4 percent in 1994. 12
13 The effective tax rate was 33.5 percent in 1996, compared with 32.7 percent in 1995 and 32.4 percent in 1994. The primary reason for the higher tax rate in 1996 was a reduction in tax-exempt interest as a percentage of pretax income and tax law changes that affected insurance contracts. Details of the reconciliation between the U.S. statutory rate and the effective tax rate are included in Note 12 of the 1996 Consolidated Financial Statements. Net income increased to $97,425 or 9.5 percent of net sales, compared with income of $76,209 or 8.8 percent of net sales in 1995 and $63,511 or 8.4 percent of net sales in 1994. MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION The Registrant continued to enhance its financial position during 1996. Total assets increased $109,306 or 14.6 percent to a 1996 year-end level of $859,101. Asset turnover (excluding cash, cash equivalents and short-term and long-term investment securities) was 1.70 and 1.71 in 1996 and 1995, respectively. Total current assets at December 31, 1996, of $479,592 represented an increase of $103,380 or 27.5 percent from the prior year-end. The increase in trade receivables and inventories comprised the majority of this increase and was a result of higher sales volumes and continued expansion of international operations and other new business operations in 1996. Trade receivables increased $59,427 or 30.1 percent to a level of $256,572 at December 31, 1996. As a percentage of net sales, trade receivables were 20.1 percent and 22.8 percent in 1994 and 1995, respectively, as compared with 24.9 percent in 1996. Inventories at year-end 1996 totaled $109,432 which represented an increase of $18,430 or 20.3 percent from 1995. This increase in inventory was caused by the growth of product sales of 24.4 percent in 1996. Long-term securities and other investments declined by $8,338 or 5.7 percent to a level of $138,403 at December 31, 1996, largely due to maturities of tax-exempt municipal bonds, which were reinvested into short-term investments. The Registrant anticipates being able to meet both short- and long-term operational funding requirements without liquidating individual securities prior to maturity by varying the timing of maturities within the portfolio. However, since most of these securities are marketable, they could readily be converted into cash and cash equivalents if needed. Total property, plant and equipment, net of accumulated depreciation, was $95,934 at the end of 1996, which represented a net increase of $11,862 or 14.1 percent over prior year-end. Capital expenditures were $33,581 in 1996, compared with $35,308 in 1995. The 1996 capital expenditures resulted primarily from the need to meet higher manufacturing capacity requirements; expansion of facilities for research, software development, management development and support services; and continued investment in internal applications hardware and software. In 1996, the Registrant announced the expansion of Diebold Credit Corporation to manage the growing business of financing to customers. Finance receivables increased from $44,614 in 1995 to $46,030 in 1996 due to shipment of additional equipment under lease agreements. Total current liabilities at December 31, 1996, were $228,220, which represented an increase of $39,142 or 20.7 percent from the prior year-end. The primary cause for the increase in current liabilities was an increase in accounts payable of $27,805 or 41.6 percent to a level of $94,709 from $66,904 in the prior year-end. The Registrant's current ratio was 2.1 at the end of 1996, compared with 2.0 at the end of 1995. At December 31, 1996, the Registrant had lines of credit totaling $40,000, all unrestricted as to use. Due to the strong liquidity position, the Registrant continued its practice of having no long-term debt. The Registrant's financial position provides it with sufficient resources to meet future capital expenditures, dividend and working capital requirements. However, if the need arises, the Registrant's strong financial position should ensure the availability of adequate additional financial resources. Pension liabilities were $20,308 at December 31, 1996, representing an increase of $2,785 or 15.9 percent over prior year-end. The net periodic pension costs of $4,669 charged to income in 1996 represented an increase of $1,141 from the prior year, primarily due to a continual increase in the Registrant's employee associates over the past several years resulting in an increase in service cost. Minority interests of $13,140 represented the minority interest in InterBold owned by IBM and the minority interests in Diebold Financial Equipment Company, Ltd. (China) owned by the Aircraft Industries of China and the Industrial and Commercial Bank of China, Shanghai Pudong Branch. Shareholders' equity increased $67,890 or 13.4 percent to $575,570 at December 31, 1996. Shareholders' equity per share was $8.36 at the end 13
14 of 1996, compared with $7.39 in 1995. The Common Shares of the Registrant are listed on the New York Stock Exchange with a symbol of DBD. There were approximately 58,251 shareholders as of December 31, 1996. On January 30, 1997, the Board of Directors declared a three-for-two stock split effected in the form of a stock dividend, distributed on February 19, 1997, to shareholders of record on February 7, 1997. Accordingly, all numbers of Common Shares, except authorized shares and treasury shares, and all per share data have been restated to reflect this stock split. In addition to the stock split, the Board of Directors declared a first-quarter 1997 cash dividend of $0.125 per share. This amount, which represents a 10.3 percent increase from the prior year's quarterly dividend rate, will be paid on March 28, 1997, to shareholders of record on March 7, 1997. Comparative quarterly cash dividends paid in 1996 and 1995 were $0.1133 and $0.1067, respectively. MANAGEMENT'S ANALYSIS OF CASH FLOWS During 1996, the Registrant generated $93,635 in cash from operating activities, compared with $71,152 in 1995 and $39,017 in 1994. In addition to net income of $97,425, adjusted for depreciation, amortization and other charges of $32,963, increases in accounts payable and other certain assets and liabilities of $45,291 also increased cash provided by operations. Cash was utilized in operations to fund long-term finance receivables and increases in inventory levels and trade receivables as a result of additional sales volumes and growth of international operations. Expressed as a percentage of total assets employed, the Registrant's cash yield from operations was 10.9 percent in 1996, compared with 9.5 percent in 1995 and 5.9 percent in 1994. Net cash generated from operating activities in 1996 was used to reinvest $52,478 in assets of the Registrant, compared with $43,173 in 1995 and $38,299 in 1994. The Registrant returned $31,190 to shareholders in the form of cash dividends paid during 1996, which was a 6.5 percent increase from 1995 and a 16.9 percent increase from 1994. OTHER BUSINESS INFORMATION In order to meet continuing worldwide demand, the Registrant has three new manufacturing facilities under construction located in Staunton and Danville, Virginia and in Lexington, North Carolina. In addition, the Registrant plans to expand and upgrade its existing operations in Canton, Ohio and Sumter, South Carolina. The new plants are expected to begin operations by the second half of 1997. 14
15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ------- -------------------------------------------- CONSOLIDATED BALANCE SHEETS DIEBOLD, INCORPORATED AND SUBSIDIARIES DECEMBER 31, 1996 AND 1995 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> 1996 1995 ================================================================================================= <S> <C> <C> ASSETS Current assets Cash and cash equivalents ........................................ $ 21,885 $ 15,698 Short-term investments (Note 3) .................................. 43,249 30,989 Trade receivables ................................................ 256,572 197,145 Inventories (Note 4) ............................................. 109,432 91,002 Deferred income taxes (Note 12) .................................. 34,801 31,746 Prepaid expense and other current assets ......................... 13,653 9,632 - ------------------------------------------------------------------------------------------------- Total current assets .......................................... 479,592 376,212 - ------------------------------------------------------------------------------------------------- Securities and other investments (Note 3) .......................... 138,403 146,741 Property, plant and equipment, at cost (Note 5) .................... 203,103 177,573 Less accumulated depreciation and amortization ................... 107,169 93,501 - ------------------------------------------------------------------------------------------------- 95,934 84,072 Deferred income taxes (Note 12) .................................... 7,426 5,096 Finance receivables (Note 6) ....................................... 46,030 44,614 Other assets ....................................................... 91,716 93,060 - ------------------------------------------------------------------------------------------------- $859,101 $749,795 ================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable ................................................. $ 94,709 $ 66,904 Estimated income taxes ........................................... 11,300 7,910 Accrued insurance ................................................ 17,274 16,844 Accrued installation costs ....................................... 10,066 9,253 Deferred income .................................................. 69,094 62,687 Other current liabilities ........................................ 25,777 25,480 - ------------------------------------------------------------------------------------------------- Total current liabilities ..................................... 228,220 189,078 - ------------------------------------------------------------------------------------------------- Pensions (Note 10) ................................................. 20,308 17,523 Postretirement benefits (Note 10) .................................. 21,863 21,739 Minority interest (Note 2) ......................................... 13,140 13,775 Commitments and contingencies (Note 13) ............................ -- -- Shareholders' equity (Note 8) Preferred Shares, no par value, authorized 1,000,000 shares, none issued .................................. -- -- Common Shares, par value $1.25; authorized 125,000,000 and 50,000,000 shares, respectively; issued 68,997,276 and 45,893,678 shares, respectively; outstanding 68,840,591 and 45,808,227 shares, respectively .... 86,246 57,367 Additional capital ............................................... 28,110 52,420 Retained earnings ................................................ 478,667 412,432 Treasury shares, at cost (156,685 and 85,451 shares, respectively) (7,170) (3,849) Other ............................................................ (10,283) (10,690) - ------------------------------------------------------------------------------------------------- Total shareholders' equity ..................................... 575,570 507,680 - ------------------------------------------------------------------------------------------------- $859,101 $749,795 ================================================================================================= <FN> See accompanying Notes to Consolidated Financial Statements. </TABLE> 15
16 <TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME DIEBOLD, INCORPORATED AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (In thousands except per share amounts) <CAPTION> 1996 1995 1994 ============================================================================================ <S> <C> <C> <C> Net sales Products .................................. $ 688,519 $553,622 $479,314 Services .................................. 341,672 309,787 280,857 - -------------------------------------------------------------------------------------------- 1,030,191 863,409 760,171 - -------------------------------------------------------------------------------------------- Cost of sales Products .................................. 425,016 348,560 311,790 Services .................................. 247,237 220,418 192,699 - -------------------------------------------------------------------------------------------- 672,253 568,978 504,489 - -------------------------------------------------------------------------------------------- Gross profit ................................ 357,938 294,431 255,682 Selling and administrative expense .......... 166,998 144,490 128,309 Research, development and engineering expense 50,576 43,130 36,599 - -------------------------------------------------------------------------------------------- 217,574 187,620 164,908 - -------------------------------------------------------------------------------------------- Operating profit ............................ 140,364 106,811 90,774 Other income (expense) Investment income ......................... 19,307 16,111 11,051 Miscellaneous, net ........................ (8,774) (9,499) (5,899) Minority interest (Note 2) .................. (4,393) (200) (1,948) - -------------------------------------------------------------------------------------------- Income before taxes ......................... 146,504 113,223 93,978 Taxes on income (Note 12) ................... 49,079 37,014 30,467 - -------------------------------------------------------------------------------------------- Net income .................................. $ 97,425 $ 76,209 $ 63,511 ============================================================================================ Average number of shares (Notes 8 and 9) .... 68,796 68,649 68,243 Net income per share (Notes 8 and 9) ........ $ 1.42 $ 1.11 $ 0.93 - -------------------------------------------------------------------------------------------- <FN> See accompanying Notes to Consolidated Financial Statements. </TABLE> 16
17 <TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY DIEBOLD, INCORPORATED AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in thousands) Common Shares ------------- Par Additional Retained Treasury Number* Value Capital Earnings Shares Other* Total ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Balance, January 1, 1994................................ 30,288,734 $37,861 $64,767 $328,684 $(1,744) $(2,177) $427,391 - ------------------------------------------------------------------------------------------------------------------------------------ Net income - 1994............................... 63,511 63,511 Stock options exercised......................... 36,184 46 819 865 Unearned compensation........................... 9,000 11 338 228 577 Performance shares (Note 8)..................... 50,553 63 2,809 2,872 Dividends declared (Note 8)..................... (26,682) (26,682) Translation adjustment.......................... (5,974) (5,974) Treasury shares................................. (1,442) (1,442) Unrealized loss on investment securities (Note 3)................ (1,649) (1,649) Issuance of shares for acquisitions............. 130,675 163 207 370 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1994............................. 30,515,146 $38,144 $68,940 $365,513 $(3,186) $ (9,572) $459,839 - ------------------------------------------------------------------------------------------------------------------------------------ Net income - 1995............................... 76,209 76,209 Stock options exercised......................... 46,149 58 961 1,019 Unearned compensation........................... 9,000 11 294 344 649 Performance shares (Note 8)..................... 55,050 69 1,755 1,824 Dividends declared (Note 8)..................... (29,290) (29,290) Pensions (Note 10).............................. (1,087) (1,087) Translation adjustment.......................... (2,982) (2,982) Treasury shares................................. (445) (663) (1,108) Unrealized gain on investment securities (Note 3)................ 2,607 2,607 Three-for-two stock split....................... 15,268,333 19,085 (19,085) --- - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1995............................. 45,893,678 $57,367 $52,420 $412,432 $(3,849) $(10,690) $507,680 - ------------------------------------------------------------------------------------------------------------------------------------ Net income - 1996............................... 97,425 97,425 Stock options exercised......................... 86,918 108 1,208 1,316 Unearned compensation........................... 3,000 4 104 414 522 Performance shares (Note 8)..................... 67,892 85 3,060 3,145 Dividends declared (Note 8)..................... (31,190) (31,190) Pensions (Note 10).............................. 185 185 Translation adjustment.......................... 240 240 Treasury shares................................. (3,321) (3,321) Unrealized loss on investment securities (Note 3)................ (432) (432) Three-for-two stock split....................... 22,945,788 28,682 (28,682) --- - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1996............................. 68,997,276 $86,246 $28,110 $478,667 $(7,170) $(10,283) $575,570 - ------------------------------------------------------------------------------------------------------------------------------------ <FN> *See Note 8 See accompanying Notes to Consolidated Financial Statements. </TABLE> 17
18 <TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS DIEBOLD, INCORPORATED AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in thousands) 1996 1995 1994 ================================================================================================================================== <S> <C> <C> <C> Cash flow from operating activities: Net income..................................................... $97,425 $76,209 $63,511 Adjustments to reconcile net income to cash provided by operating activities: Minority share of income..................................... 4,393 200 1,948 Depreciation and amortization................................ 20,984 14,174 13,240 Other charges and amortization............................... 11,979 15,284 16,774 Deferred income taxes........................................ (5,252) (4,527) (17,974) Loss on disposal of assets, net.............................. 610 1,786 1,150 Loss (gain) on sale of investments, net...................... 10 (810) (2,316) Cash provided (used) by changes in certain assets and liabilities: Trade receivables.......................................... (59,427) (44,038) (23,851) Inventories................................................ (18,430) (5,459) (10,560) Prepaid expenses and other current assets.................. (3,948) (2,450) 9,094 Accounts payable........................................... 27,805 5,942 16,370 Other certain assets and liabilities....................... 17,486 14,841 (28,369) - ------------------------------------------------------------------------------------------------------------------------------------ Total adjustments.............................................. (3,790) (5,057) (24,494) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities...................... 93,635 71,152 39,017 Cash flow from investing activities: Proceeds from maturities of investments........................ 55,023 64,008 72,460 Proceeds from sales of investments............................. 5,675 16,184 10,951 Payments for purchases of investments.......................... (69,498) (66,052) (73,290) Capital expenditures........................................... (33,581) (35,308) (22,641) Increase in other certain assets............................... (10,223) (22,131) (28,477) Other.......................................................... 126 126 2,698 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used by investing activities.......................... (52,478) (43,173) (38,299) Cash flow from financing activities: Dividends paid................................................. (31,190) (29,290) (26,682) Distribution of affiliate's earnings to minority interest holder....................................................... (5,719) (2,527) --- Proceeds from issuance of Common Shares........................ 1,248 1,177 2,291 Other.......................................................... 691 1,074 1,952 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used by financing activities.......................... (34,970) (29,566) (22,439) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in cash and cash equivalents................. 6,187 (1,587) (21,721) Cash and cash equivalents at the beginning of the year........... 15,698 17,285 39,006 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at the end of the year................. $21,885 $15,698 $17,285 - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying Notes to Consolidated Financial Statements. </TABLE> 18
19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIEBOLD, INCORPORATED AND SUBSIDIARIES (Dollars in thousands except per share amounts) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING 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. Cash paid during 1996, 1995 and 1994 for income taxes amounted to $47,293, $40,487 and $37,488, respectively. 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. The Registrant does not have any investment-type transactions or any unperformed forward exchange contracts. Sales to customers outside the United States approximated 22.3 percent of net sales in 1996, and 19.8 percent of net sales in 1995 and 1994. The investment used to generate this sales volume is considered minimal by management, due to heavy reliance on outside distributors worldwide. 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, 1996 and 1995, because of the relatively short maturity of these instruments. TRADE RECEIVABLES AND SALES Revenue, after provision for installation, is generally recognized based on the terms of the contracts which, for product sales, is usually when material to be installed for customer orders is shipped from the plants. 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. 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 Effective January 1, 1994, the Registrant adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." There was no cumulative effect on the Consolidated Income Statement resulting from the adoption of Statement 115. 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. 19
20 RESEARCH AND DEVELOPMENT Total research and development costs charged to expense were $41,797, $35,470 and $28,029 in 1996, 1995 and 1994, respectively. OTHER ASSETS Other assets primarily consist of the costs in excess of the net assets of acquired businesses (goodwill), pension assets and certain other assets. These assets are stated at cost and, if applicable, are amortized ratably over a period of three to 25 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. DEFERRED INCOME Deferred income is recognized for customer 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 Prior to January 1, 1996, the Registrant accounted for its stock option plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Registrant adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, Statement 123 also allows entities to continue to apply the provisions of APB Opinion 25 and provide pro forma net income and pro forma net income per share disclosures for employee stock option grants made in 1995 and future years as if the fair value based method defined in Statement 123 had been applied. The Registrant has elected to continue to apply the provisions of APB Opinion 25 and provide the pro forma disclosure provisions of Statement 123. 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. 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 include the accounts of InterBold, a joint venture between the Registrant and IBM, of which the Registrant owns 70 percent. The joint venture provides ATMs and other financial self-service systems worldwide. IBM's ownership interest in InterBold is reflected in "minority interest" on the Registrant's Consolidated Balance Sheets. Net profits of InterBold are allocated based upon a formula as specified in the partnership agreement. 20
21 NOTE 3: INVESTMENT SECURITIES At December 31, 1996 and 1995, the investment portfolio was classified as available-for-sale due to the potential needs for liquidity to fund future acquisitions, joint ventures and strategic alliances throughout the world as part of a continuing strategy to strengthen the Registrant's global competitiveness. The marketable debt and equity securities are stated at fair value, and the Registrant includes as a separate component of shareholders' equity until realized net unrealized holding gains of $526 (net of taxes of $283) and net unrealized holding gains of $958 (net of taxes of $516) at December 31, 1996 and 1995, respectively. 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: <TABLE> <CAPTION> Amortized Fair Cost Basis Value - -------------------------------------------------------------------------------- 1996: ================================================================================ <S> <C> <C> Short-term investments: Tax-exempt municipal bonds................. $ 39,944 $ 40,137 Certificates of deposit.................... 3,112 3,112 - -------------------------------------------------------------------------------- $ 43,056 $ 43,249 - -------------------------------------------------------------------------------- Securities and other investments: Tax-exempt municipal bonds................ $ 94,473 $ 95,280 Equity securities......................... 26,787 26,596 - -------------------------------------------------------------------------------- $121,260 $121,876 - -------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> Amortized Fair Cost Basis Value - -------------------------------------------------------------------------------- 1995: - -------------------------------------------------------------------------------- <S> <C> <C> Short-term investments: Tax-exempt municipal bonds ................ $ 25,609 $ 25,856 Certificates of deposit ................... 5,133 5,133 - -------------------------------------------------------------------------------- $ 30,742 $ 30,989 - -------------------------------------------------------------------------------- Securities and other investments: Tax-exempt municipal bonds ................ $115,634 $117,285 Equity securities ......................... 24,997 24,573 - -------------------------------------------------------------------------------- $140,631 $141,858 - -------------------------------------------------------------------------------- </TABLE> <TABLE> The contractual maturities of tax-exempt municipal bonds at December 31, 1996, are as follows: <CAPTION> Amortized Fair Cost Basis Value - -------------------------------------------------------------------------------- <S> <C> <C> Due within one year......................... $ 39,944 $ 40,137 Due after one year through five years......................... 93,488 94,298 Due after five years through 10 years........................... 985 982 - -------------------------------------------------------------------------------- $134,417 $135,417 - -------------------------------------------------------------------------------- </TABLE> <TABLE> NOTE 4: INVENTORIES Major classes of inventories at December 31, are summarized as follows: <CAPTION> 1996 1995 - -------------------------------------------------------------------------------- <S> <C> <C> Finished goods and service parts............................. $ 40,348 $ 22,683 Work in process............................. 68,967 68,209 Raw materials............................... 117 110 - -------------------------------------------------------------------------------- $109,432 $ 91,002 - -------------------------------------------------------------------------------- </TABLE> <TABLE> NOTE 5: PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, together with annual depreciation and amortization rates, consisted of the following: <CAPTION> Annual 1996 1995 Rates - -------------------------------------------------------------------------------- <S> <C> <C> <C> Land and land improvements........................... $ 4,805 $ 4,337 5-20% Buildings................................ 36,004 34,856 2-20% Machinery, equipment and rotatable spares................................. 134,398 125,404 5-40% Leasehold improvements........................... 2,278 2,198 Lease Term Construction in progress............................... 25,618 10,778 --- - -------------------------------------------------------------------------------- $203,103 $177,573 - -------------------------------------------------------------------------------- </TABLE> 21
22 NOTE 6: FINANCE RECEIVABLES The components of finance receivables for the net investment in sales-type leases are as follows: <TABLE> <CAPTION> 1996 1995 - -------------------------------------------------------------------------------- <S> <C> <C> Total minimum lease receivables.... $ 65,403 $ 68,313 Estimated unguaranteed residual values...... 254 -- - -------------------------------------------------------------------------------- 65,657 68,313 Less: Unearned interest income....... (19,543) (23,699) Unearned residuals (84) -- - -------------------------------------------------------------------------------- (19,627) (23,699) - -------------------------------------------------------------------------------- $ 46,030 $ 44,614 </TABLE> - -------------------------------------------------------------------------------- Future minimum lease receivables due from customers under sales-type leases as of December 31, 1996, are as follows: <TABLE> - -------------------------------------------------------------------------------- <S> <C> 1997................... $ 8,943 1998................... 9,482 1999................... 9,734 2000................... 9,755 2001................... 9,670 Thereafter............. 17,819 - -------------------------------------------------------------------------------- $65,403 - -------------------------------------------------------------------------------- </TABLE> NOTE 7: SHORT-TERM FINANCING At December 31, 1996, bank credit lines approximated $40,000 with various banks for short-term financing. The Registrant had no outstanding borrowings under these agreements at December 31, 1996 and 1995. The Registrant has informal understandings with certain banks to maintain compensating balances which are not legally restricted as to withdrawal. The lines of credit can be withdrawn at each bank's option. NOTE 8: SHAREHOLDERS' EQUITY On January 30, 1997, the Board of Directors declared a three-for-two stock split effected in the form of a stock dividend, distributed on February 19, 1997, to shareholders of record on February 7, 1997. Prior to the 1997 stock split, on January 26, 1996, the Board of Directors declared a three-for-two stock split effected in the form of a stock dividend, distributed on February 23, 1996, to shareholders of record on February 9, 1996. Accordingly, all numbers of Common Shares, except authorized shares and treasury shares, and all per share data have been restated to reflect these stock splits. On the basis of amounts declared and paid, the annualized quarterly dividends per share were $0.45 in 1996, $0.43 in 1995 and $0.39 in 1994. At December 31, 1996, the Registrant has three stock-based compensation plans, which are described below. The Registrant applies APB Opinion 25 and related interpretations in accounting for its plans. Under the guidelines of APB Opinion 25, compensation cost for fixed and variable stock-based awards is measured by the excess, if any, of the market price of the underlying stock over the exercise price of the option at the grant date. In the following chart, the Registrant provides net income and net income per share reduced by the pro forma amounts calculating compensation cost for the Registrant's fixed stock option plan consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". 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 1996 and 1995, respectively: risk-free interest rates of 5.5 and 6.5 percent; dividend yield of 2.2 and 3.0 percent; expected lives of seven, six and four years for options granted in both 1996 and 1995; and volatility of 21 and 20 percent. <TABLE> <CAPTION> 1996 1995 ---- ---- Net income <S> <C> <C> As reported............ $97,425 $76,209 Pro forma............... $97,030 $76,096 Net income per share As reported............ $1.42 $1.11 Pro forma............... $1.41 $1.11 </TABLE> Pro forma net income reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under Statement 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of five years and compensation cost for options granted prior to January 1, 1995, is not considered. 22
23 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 in 1996 and 1995 was equal to the market price at the grant date, and accordingly, no compensation 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 3,265,313, of which 2,365,052 shares were available for issuance at December 31, 1996. The 1991 Plan will expire on April 2, 2002. The 1991 Plan replaced the Amended and Extended 1972 Stock Option Plan (1972 Plan), which expired by its terms on April 2, 1992. Awards already outstanding under the 1972 Plan are unaffected by the adoption of the 1991 Plan. 23
24 The following is a summary with respect to options outstanding at December 31, 1996, 1995 and 1994, and activity during the years ending on those dates: <TABLE> <CAPTION> 1996 1995 1994 ------------------------- ----------------------- ---------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- <S> <C> <C> <C> <C> <C> <C> Outstanding at the beginning of year 1,180,283 $ 12 996,366 $ 11 883,475 $ 9 Options granted 500,438 29 308,476 16 195,525 17 Options exercised (130,377) 10 (103,836) 8 (81,414) 8 Options expired or forfeited (20,799) 17 (20,723) 14 (1,220) 7 - ----------------------------------------------------------------------------------------------------------------------------- Outstanding at the end of year 1,529,545 $ 18 1,180,283 $ 12 996,366 $ 11 - ----------------------------------------------------------------------------------------------------------------------------- Options exercisable at end of year 577,198 472,712 363,519 Weighted-average fair value of options granted during the year $ 29 $ 16 $ 17 </TABLE> The following table summarizes pertinent information regarding fixed stock options outstanding and options exercisable at December 31, 1996: <TABLE> <CAPTION> Options Outstanding Options Exercisable -------------------------------------- --------------------------- Weighted- Average Number Remaining Weighted- Number Weighted- of Contractual Average of Average options Life Exercise options Exercise Range of Exercise Prices outstanding (In years) Price exercisable Price - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> $ 9 - 9 28,476 0.25 $ 9 28,476 $ 9 6 - 15 54,320 1.25 10 41,027 9 6 - 18 75,686 2.25 11 57,962 9 7 - 16 104,054 3.25 10 73,670 8 6 - 38 241,865 4.25 25 83,802 6 9 - 9 126,593 5.00 9 94,395 9 13 - 13 169,493 6.00 13 93,758 13 17 - 18 136,935 7.00 17 49,590 17 15 - 19 254,475 8.00 16 54,518 16 24 - 38 337,648 9.00 27 -- -- --------- ---------- 1,529,545 6.08 18.03 577,198 10.44 --------- ---------- </TABLE> 24
25 RESTRICTED SHARE GRANTS The 1991 Plan also provides for the issuance of restricted shares without cost to certain employee associates. Outstanding shares granted at December 31, 1996, totaled 147,263 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-five-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 set in 1996 are based on a three-year performance period ending December 31, 1998. The management objectives for the period ended December 31, 1996, were set in April 1994. The objectives were exceeded and a payout was made in the form of a combination of cash and Common Shares in 1997. The compensation cost that has been charged against income for its performance-based share grant plan was $13,534, $7,201 and $5,169 in 1996, 1995 and 1994, respectively. In February 1989, the Board of Directors declared a dividend distribution of one right for each outstanding Common Share of the Registrant. Pursuant to the Rights Agreement covering the Shareholder Rights Plan, each right entitles the registered holder to purchase one one-hundredth of a share of Cumulative Redeemable Serial Preferred Shares, without par value, at a price of $130. The rights become exercisable 20 days after a person or group acquires 20 percent or more of the Registrant's shares. At that time, rights certificates would be issued and could be traded independently from the Registrant's shares. If the Registrant is involved in certain mergers or other business combination transactions at any time after the rights become exercisable, then the rights will be modified so as to entitle the holder to buy a number of an acquiring Registrant's shares having a market value of twice the exercise price of each right. In addition, if a holder of 20 percent or more acquires the Registrant by means of a reverse merger in which the Registrant and its shares survive, or engages in certain other self-dealing transactions with the Registrant, each right not owned by the acquirer will become exercisable for a number of Common Shares of the Registrant with a market value of two times the exercise price of the right. The rights are redeemable for $0.01 per right at any time before 20 percent or more of the Registrant's shares have been acquired, and will expire on February 10, 1999, unless redeemed earlier by the Registrant. As a result of the stock split effected on February 19, 1997, each Common Share is currently accompanied by one-fifth of a right. NOTE 9: NET INCOME PER SHARE The net income per share computations are based upon the weighted-average number of Common Shares outstanding during each year. The inclusion in the computation of incremental shares applicable to outstanding stock options and performance shares would have no material effect. NOTE 10: PENSION PLANS AND POSTRETIREMENT BENEFITS The Registrant has several pension plans covering substantially all employee associates. Plans covering salaried employee associates provide pension benefits that are based on the employee associate'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 employee associates 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. In 1996, the Registrant exercised its option to change the measurement date on which plan assets and obligations are determined from December 31 to September 30. The September 30 measurement date is intended to be used consistently from year to year. 25
26 Approximately 90 percent of the plan assets at September 30, 1996, and December 31, 1995, respectively, were invested in listed stocks and investment grade bonds. A summary of the components of net periodic pension costs follows: <TABLE> <CAPTION> 1996 1995 1994 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Benefit earned during the year..... $ 7,140 $ 6,360 $ 5,384 Interest accrued on projected benefit obligation.......... 13,405 12,268 10,327 Actual return on plan assets......... (21,546) (42,503) (14,209) Net amortization and deferral............ 5,670 27,403 (483) - -------------------------------------------------------------------------------- Net periodic pension costs............... $ 4,669 $ 3,528 $ 1,019 - -------------------------------------------------------------------------------- </TABLE> Assumptions used to measure the projected benefit obligation and the expected long-term rate of return on plan assets at September 30, 1996, December 31, 1995 and 1994 are as follows: <TABLE> <CAPTION> 1996 1995 1994 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Discount rate............ 7.25% 7.25% 7.25% Expected long-term rate of return on plan assets............ 9.00% 9.00% 9.00% Rate of increase in compensation levels .... 5.00% 5.00% 5.50% - -------------------------------------------------------------------------------- </TABLE> Minimum liabilities have been recorded in 1996, 1995 and 1994 for the plans whose total accumulated benefit obligation exceeded the fair value of the plan's assets. The Registrant offers an employee associate 401(k) Savings Plan (Savings Plan) to encourage eligible employee associates 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 in 1996, the Registrant matched 80 percent of a participating employee associate's first 4 percent of contributions and 40 percent of a participating employee associate's second 4 percent of contributions. 26
27 The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets at December 31, for the Registrant's defined benefit pension plans: <TABLE> <CAPTION> 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Plan assets Accumulated Plan assets Accumulated in excess of benefits in in excess of benefits in accumulated excess of accumulated excess of benefits plan assets benefits plan assets - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Fair value of plan assets......................... $205,962 $ 11,724 $188,872 $ 12,617 Less: Actuarial present value of projected benefit obligation: Vested employee associates.................... 117,974 24,399 111,082 23,717 Nonvested employee associates................. 6,405 4,843 6,732 4,318 - -------------------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation................ 124,379 29,242 117,814 28,035 Amounts related to future salary increases............................ 36,037 2,249 17,815 1,574 - -------------------------------------------------------------------------------------------------------------------------------- Total projected benefit obligation................ 160,416 31,491 135,629 29,609 - -------------------------------------------------------------------------------------------------------------------------------- Plan assets less projected benefits............... 45,546 (19,767) 53,243 (16,992) Unrecognized prior service costs, net........... 5,718 2,667 6,302 3,144 Unamortized net transition (asset) obligation.................................... (12,863) 240 (14,407) 299 Unrecognized net (gain) loss.................... (19,016) 4,597 (24,620) 4,207 Adjustment required to recognize minimum liability............................. --- (5,255) --- (6,076) - -------------------------------------------------------------------------------------------------------------------------------- Prepaid pension costs (accrued obligations)..... $19,385 $(17,518) $ 20,518 $(15,418) - -------------------------------------------------------------------------------------------------------------------------------- </TABLE> 27
28 In addition to providing pension benefits, the Registrant provides healthcare and life insurance benefits for certain retired employee associates. Eligible employee associates 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 employee associates 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. A summary of the components of net periodic postretirement (life and healthcare) benefit costs follows: <TABLE> <CAPTION> 1996 1995 1994 ========================================================================= <S> <C> <C> <C> Interest cost...................... $1,806 $2,104 $1,925 Service cost ...................... 57 61 59 Amortization ...................... -- 207 93 - -------------------------------------------------------------------------- Net periodic postretirement benefit cost...................... $1,863 $2,372 $2,077 - -------------------------------------------------------------------------- </TABLE> 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 from $1,645 to $1,787, an 8.6 percent increase. Measurement of the accumulated postretirement benefit obligation at September 30, 1996, and December 31, 1995, was based on a discount rate of 7.25 percent in 1996 and 1995. The following table sets forth the components of the accumulated postretirement benefit obligation at December 31: <TABLE> <CAPTION> 1996 1995 - -------------------------------------------------------------------------- <S> <C> <C> Retirees $24,545 $24,857 Fully eligible active plan participants............... 209 447 Other active plan participants...... 841 768 - -------------------------------------------------------------------------- Accumulated postretirement benefit obligation.............. 25,595 26,072 Unrecognized net loss............... (778) (1,373) - -------------------------------------------------------------------------- Accrued postretirement benefit obligation.............. $24,817 $24,699 - -------------------------------------------------------------------------- </TABLE> 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 9.0 percent in 1996 to 4.5 percent through the year 2005 as well as the following years. The effect of a one percentage point annual increase in these assumed healthcare cost trend rates would increase the healthcare accumulated postretirement benefit obligation from $23,185 to $25,265, a 9.0 percent increase. NOTE 11: LEASES The Registrant's future minimum lease payments due under operating leases for real and personal property in effect at December 31, 1996, are as follows: <TABLE> <CAPTION> Real Vehicles and Expiring Total Estate Equipment - -------------------------------------------------------------------------------- <S> <C> <C> <C> 1997 ................... $23,668 $ 7,179 $16,489 1998 ................... 20,199 6,160 14,039 1999 ................... 12,531 4,933 7,598 2000 ................... 6,346 4,108 2,238 2001 ................... 3,361 3,346 15 Thereafter ............. 9,595 9,595 -- - -------------------------------------------------------------------------------- $75,700 $35,321 $40,379 - -------------------------------------------------------------------------------- </TABLE> Rental expense for 1996, 1995 and 1994 under all lease agreements amounted to approximately $28,100, $22,000 and $18,100, respectively. NOTE 12: INCOME TAXES Income tax expense attributable to income from continuing operations consists of: <TABLE> <CAPTION> 1996 1995 1994 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Federal and international Current............ $45,082 $33,127 $39,115 Deferred........... (2,696) (1,113) (12,795) - -------------------------------------------------------------------------------- 42,386 32,014 26,320 State and local Current.......... 7,203 5,339 5,211 Deferred......... (510) (339) (1,064) - -------------------------------------------------------------------------------- 6,693 5,000 4,147 - -------------------------------------------------------------------------------- $49,079 $37,014 $30,467 - -------------------------------------------------------------------------------- </TABLE> In addition to the 1996 income tax expense of $49,079, certain deferred income tax expenses of $(133) were allocated directly to shareholders' equity. 28
29 A reconciliation of the difference between the U.S. statutory tax rate and the effective tax rate is as follows: <TABLE> <CAPTION> 1996 1995 1994 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Statutory tax rate.... 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefit......... 3.0 2.9 2.9 Exempt income......... (2.7) (3.2) (3.9) Insurance contracts... (2.3) (3.9) (4.3) Other................. .5 1.9 2.7 - -------------------------------------------------------------------------------- Effective tax rate 33.5% 32.7% 32.4% - -------------------------------------------------------------------------------- </TABLE> 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: <TABLE> <CAPTION> 1996 1995 - -------------------------------------------------------------------------------- DEFERRED TAX ASSETS: <S> <C> <C> Postretirement benefits.... $13,194 $12,486 Accrued expenses........... 16,686 14,661 Inventory.................. 6,396 5,822 Partnership income......... 4,079 2,664 Deferred revenue........... 6,566 7,757 Net operating loss carryforwards...... 1,362 2,405 State deferred taxes....... 6,316 5,155 Other...................... 8,639 7,496 - -------------------------------------------------------------------------------- 63,238 58,446 Valuation allowance....... (1,441) (2,457) - -------------------------------------------------------------------------------- Net deferred tax assets... 61,797 55,989 - -------------------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Pension................... 7,021 7,591 Amortization.............. 3,973 3,820 Depreciation.............. 2,483 2,251 Other..................... 6,093 5,485 - -------------------------------------------------------------------------------- Net deferred tax liabilities............. 19,570 19,147 - -------------------------------------------------------------------------------- Net deferred tax asset.... $42,227 $36,842 - -------------------------------------------------------------------------------- </TABLE> At December 31, 1996, the Registrant's international subsidiaries had deferred tax assets relating to net operating loss carryforwards of $1,441, that expire in years 1997 through 2003. For financial reporting purposes, a valuation allowance of $1,441 has been recognized to offset the deferred tax assets relating to the net operating loss carryforwards. NOTE 13: COMMITMENTS AND CONTINGENCIES At December 31, 1996, 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. NOTE 14: SEGMENT INFORMATION The Registrant operates predominantly in one industry segment, financial systems and equipment. This industry segment accounts for more than 90 percent of the consolidated revenues, operating profit and identifiable assets. The Registrant had one customer, IBM, its partner in the InterBold joint venture, that accounted for $157,639 of the total net sales of $1,030,191 in 1996 and $101,363 of the total net sales of $863,409 in 1995. NOTE 15: QUARTERLY FINANCIAL INFORMATION (UNAUDITED) See "Comparison of Selected Quarterly Financial Data (Unaudited)" on page 31 of this Annual Report on Form 10-K. FORWARD-LOOKING STATEMENT DISCLOSURE In the Registrant's written or oral statements, the use of the words "believes", "anticipates", "expects" and similar expressions is intended to identify forward-looking statements which have been made and may in the future be made by or on behalf of the Registrant, including statements concerning future operating performance, the Registrant's share of new and existing markets, and the Registrant's short- and long-term revenue and earnings growth rates. Although the Registrant believes that its outlook is based upon reasonable assumptions regarding the economy, its knowledge of its business, and on key performance indicators which impact the Registrant, there can be no assurance that the Registrant's goals will be realized. Readers are cautioned not to place 29
30 undue reliance on these forward-looking statements, which speak only as of the date hereof. The Registrant undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Numerous risks and uncertainties could cause actual results to differ materially from those anticipated in forward-looking statements. These include, but are not limited to: - -competitive pressures, including pricing pressures and technological developments; - -changes in the Registrant's relationships with customers, suppliers, distributors and/or partners in its business ventures; - -changes in political, economic or other factors such as currency exchange rates, inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting the worldwide business in each of the Registrant's operations; - -acceptance of the Registrant's product and technology introductions in the marketplace; and - -unanticipated litigation, claims or assessments. 30
31 <TABLE> <CAPTION> COMPARISON OF SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER (Dollars in thousands 1996 1995 1996 1995 1996 1995 1996 1995 except per share amounts) - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Net sales ............... $215,886 $197,047 $248,337 $206,900 $271,796 $216,000 $294,172 $243,462 Gross profit ........... 73,922 64,509 87,635 72,983 94,386 74,290 101,995 82,649 Net income .......... 18,039 15,189 24,427 18,944 26,673 20,543 28,286 21,533 Net income per share .......... 0.26 0.22 0.36 0.28 0.39 0.30 0.41 0.31 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> See Note 15 to Consolidated Financial Statements and 5-Year Summary 1996-1992. 31
32 REPORT OF MANAGEMENT The management of the Registrant 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 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 Peat Marwick 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 Peat Marwick 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 Peat Marwick LLP and the Internal Audit organization have full and independent access to the Audit Committee. Gerald F. Morris Executive Vice President and Chief Financial Officer 32
33 <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------------------------- 5-YEAR SUMMARY 1996-1992 - ----------------------------------------------------------------------------------------------------------------------------------- DIEBOLD, INCORPORATED AND SUBSIDIARIES SELECTED FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS) 1996 1995 1994 1993 1992 =============================================================================================================================== OPERATING RESULTS <S> <C> <C> <C> <C> <C> Net sales ..................................................... $ 1,030,191 $ 863,409 $ 760,171 $ 623,277 $ 543,852 Cost of sales ................................................. 672,253 568,978 504,489 413,239 358,031 Gross profit .................................................. 357,938 294,431 255,682 210,038 185,821 Selling and administrative expense ............................ 166,998 144,490 128,309 106,110 96,100 Research, development and engineering expense ................. 50,576 43,130 36,599 34,838 35,920 Operating profit .............................................. 140,364 106,811 90,774 69,090 53,801 Other income, net ............................................. 10,533 6,612 5,152 5,664 3,519 Minority interest ............................................. (4,393) (200) (1,948) (4,239) (2,484) Income before taxes and cumulative effect ..................... 146,504 113,223 93,978 70,515 54,836 Taxes on income ............................................... 49,079 37,014 30,467 22,141 13,699 Net income (Note A) ........................................... 97,425 76,209 63,511 48,374 23,205 Income per share before cumulative effect (Note B) ............ 1.42 1.11 0.93 0.71 0.61 Net income per share (Note A and Note B) ...................... 1.42 1.11 0.93 0.71 0.34 - -------------------------------------------------------------------------------------------------------------------------------- DIVIDEND AND COMMON SHARE DATA Average shares outstanding (Note B) ........................... 68,796 68,649 68,243 68,020 67,669 Common dividends paid ......................................... $ 31,190 $ 29,290 $ 26,682 $ 24,191 $ 22,463 Common dividends paid per share (Note B) ...................... 0.45 0.43 0.39 0.36 0.33 - -------------------------------------------------------------------------------------------------------------------------------- YEAR-END FINANCIAL POSITION Current assets ................................................ $ 479,592 $ 376,212 $ 329,658 $ 311,500 $ 290,729 Current liabilities ........................................... 228,220 189,078 159,755 138,571 117,612 Net working capital ........................................... 251,372 187,134 169,903 172,929 173,117 Property, plant and equipment, net ............................ 95,934 84,072 64,713 60,660 60,601 Total assets .................................................. 859,101 749,795 666,174 609,019 558,914 Long-term debt, less current maturities ....................... -- -- -- -- -- Shareholders' equity .......................................... 575,570 507,680 459,839 427,391 399,674 Shareholders' equity per share (Note C) ....................... 8.36 7.39 6.70 6.27 5.90 - -------------------------------------------------------------------------------------------------------------------------------- RATIOS Pretax profit on net sales (%) ................................ 14.2% 13.1% 12.4% 11.3% 10.1% Current ratio ................................................. 2.1 to 1 2.0 to 1 2.1 to 1 2.3 to 1 2.5 to 1 - -------------------------------------------------------------------------------------------------------------------------------- OTHER DATA Capital expenditures .............................................$ 33,581 $ 35,308 $ 22,641 $ 18,343 $ 11,977 Depreciation and amortization .................................... 20,984 14,174 13,240 12,231 12,502 - ----------------------------------------------------------------------------------------------------------------------------------- Note A -- 1992 amounts include a one-time charge of $17,932 ($0.27 per share) resulting from the adoption of Statement 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." Note B -- After adjustment for stock splits. Note C -- Based on shares outstanding at year-end adjusted for stock splits. </TABLE> 33
34 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 4 through 8 of the Registrant's proxy statement for the 1997 Annual Meeting of Shareholders ("1997 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. ITEM 11. EXECUTIVE COMPENSATION. - -------- ----------------------- Information with respect to executive compensation is included on pages 9 through 18 of the Registrant's proxy statement for the 1997 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 7 of the Registrant's proxy statement for the 1997 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 1997 Annual Meeting is incorporated herein by reference. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. - -------- ---------------------------------------------------------------- (a) Documents filed as a part of this report. 1. The following additional information for the years 1996, 1995 and 1994 is submitted herewith: Independent Auditors' Report on Financial Statements and Financial Statement Schedule SCHEDULE II. Valuation and Qualifying Accounts All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. 34
35 - ------------------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. - -------- ---------------------------------------------------------------- (continued) ----------- 2. Exhibits 3.1 (i) Amended and Restated Articles of Incorporation of Diebold, Incorporated -- incorporated by reference to Exhibit 3.1 (i) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1 (ii) Code of Regulations -- incorporated by reference to Exhibit 4(c) to Registrant's Post-Effective Amendment No. 1 to Form S-8 Registration Statement No. 33-32960. 3.2 Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated -incorporated by reference to Exhibit 3.2 to Registrant's Form 10-Q for the quarter ended March 31, 1996. 4. Rights Agreement dated as of February 10, 1989 between Diebold, Incorporated and Ameritrust Company National Association -- incorporated by reference to Exhibit 2.1 to Registrant's Registration Statement on Form 8-A dated February 10, 1989. * 10.1 Form of Employment Agreement as amended and restated as of September 13, 1990 -- incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. * 10.2 Schedule of Certain Officers who are Parties to Employment Agreements in the form of Exhibit 10.1. * 10.3 (i) Supplemental Retirement Benefit Agreement with William T. Blair -- incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. * 10.3 (ii) Consulting Agreement with William T. Blair. * 10.5 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. 10.6 Amended and Restated Partnership Agreement dated as of September 12, 1990 -- incorporated by reference to Exhibit 10 to Registrant's Form 8-K dated September 26, 1990. * 10.7 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. * 10.8 1991 Equity and Performance Incentive Plan -- incorporated by reference to Exhibit 4(a) to Registrant's Form S-8 Registration Statement No. 33-39988. * Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report. 35
36 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. - ------------------------------------------------------------------------- (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. * 10.10 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. * 10.11 Annual Incentive Plan -- incorporated by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. * 10.12 Employment Agreement with Robert P. Barone -- incorporated by reference to Exhibit 10.12 to Registrant's Form 10-Q for the quarter ended September 30, 1994. * 10.13 Forms of Deferred Compensation Agreement and Amendment No. 1 to Deferred Compensation Agreement. 21. Subsidiaries of the Registrant. 23. Consent of Independent Auditors. 24. Power of Attorney. 27. Financial Data Schedule. * Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of 1996. 36
37 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. DIEBOLD, INCORPORATED March 7, 1997 By: /s/Robert W. Mahoney - ----------------- ------------------------------- Date Robert W. Mahoney Chairman of the Board and Chief Executive Officer 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. Signature Title Date --------- ----- ---- /s/Robert W. Mahoney Chairman of the Board and March 7, 1997 - ---------------------- Chief Executive Officer -------------- Robert W. Mahoney (Principal Executive Officer) /s/Gerald F. Morris Executive Vice President March 7, 1997 - ------------------- and Chief Financial Officer ------------- Gerald F. Morris (Principal Accounting and Financial Officer) /s/Louis V. Bockius III Director March 7, 1997 - ----------------------- ------------- Louis V. Bockius III /s/Daniel T. Carroll Director March 7, 1997 - ----------------------- ------------- Daniel T. Carroll * Director March 7, 1997 - ----------------------- ------------- Richard L. Crandall * Director March 7, 1997 - ----------------------- ------------- Donald R. Gant /s/L. Lindsey Halstead Director March 7, 1997 - ----------------------- ------------- L. Lindsey Halstead * Director March 7, 1997 - ----------------------- ------------- Phillip B. Lassiter 37
38 Signature Title Date --------- ----- ---- * Director March 7, 1997 - --------------------- ------------- John N. Lauer * Director March 7, 1997 - --------------------- ------------- William F. Massy * Director March 7, 1997 - -------------------- ------------- Gregg A. Searle /s/W. R. Timken, Jr. Director March 7, 1997 - ----------------------- ------------- W. R. Timken, Jr. * The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to the Powers of Attorney executed by the above-named officers and directors of the Registrant and filed with the Securities and Exchange Commissions on behalf of such officers and directors. Dated: March 7, 1997 *By: /s/Gerald F. Morris --------------- ---------------------------------- Gerald F. Morris, Attorney-in-Fact 38
39 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The Board of Directors and Shareholders Diebold, Incorporated We have audited the accompanying consolidated balance sheets of Diebold, Incorporated and subsidiaries as of December 31, 1996 and 1995, 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, 1996. 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, 1996. 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 generally accepted auditing standards. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. 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 Peat Marwick LLP KPMG PEAT MARWICK LLP Cleveland, Ohio January 16, 1997, except for the first paragraph of Note 8, which is as of January 30, 1997 39
40 <TABLE> <CAPTION> DIEBOLD, INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Balance at Balance beginning at end of period Additions Deductions of period --------- --------- ---------- --------- <S> <C> <C> <C> <C> Year ended December 31, 1996 - ----------------------------- Allowance for doubtful accounts $5,541,954 $2,273,553 $1,898,452 $5,917,055 Year ended December 31, 1995 - ----------------------------- Allowance for doubtful accounts $4,053,864 $1,733,449 $245,359 $5,541,954 Year ended December 31, 1994 - ----------------------------- Allowance for doubtful accounts $1,082,506 $3,000,000 $28,642 $4,053,864 40 </TABLE>
41 <TABLE> <CAPTION> EXHIBIT INDEX ------------- EXHIBIT NO. DOCUMENT DESCRIPTION PAGE NO. - ----------- -------------------- -------- <S> <C> <C> 10.2 Schedule of Certain Officers who 42 are Parties to Employment Agreements 10.3 (ii) Consulting Agreement with William T. Blair 43 10.13 Forms of Deferred Compensation Agreement and 44 Amendment No. 1 to Deferred Compensation Agreement 21 Subsidiaries of the Registrant 45 23 Consent of Independent Auditors 46 24 Power of Attorney 47 27 Financial Data Schedule 48 </TABLE> 41