1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------------------------------------------- FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from .......... to .......... Commission file number 1-4879 ------ DIEBOLD, INCORPORATED -------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0183970 - ---------------------------------- ----------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 5995 Mayfair Road, P.O. Box 3077, North Canton, Ohio 44720-8077 - ------------------------------------------------------------ ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (330) 490-4000 - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Shares, as of the latest practicable date. Class Outstanding at April 28, 1998 ----- -------------------------------- Common Shares $1.25 Par Value 69,078,543 Shares -------------------------------- ----------
2 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders 9 ITEM 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 12 INDEX TO EXHIBITS 13 </TABLE> 2
3 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Dollars in thousands except per share amounts) <TABLE> <CAPTION> (Unaudited) March 31, December 31, 1998 1997 ----------- ------------ <S> <C> <C> ASSETS - ------ Current assets Cash and cash equivalents $ 30,607 $ 20,296 Short-term investments 29,169 36,473 Trade receivables 291,136 302,885 Inventories 141,533 128,082 Prepaid expenses and other current assets 68,272 62,101 ----------- ----------- Total current assets 560,717 549,837 Securities and other investments 145,804 137,862 Property, plant and equipment, at cost 269,317 259,634 Less accumulated depreciation and amortization 118,597 115,733 ----------- ----------- 150,720 143,901 Finance receivables 65,799 60,970 Other assets 96,885 98,480 ----------- ----------- $ 1,019,925 $ 991,050 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities Accounts payable and other current liabilities $ 170,050 $ 181,189 Deferred income 97,667 60,891 ----------- ----------- Total current liabilities 267,717 242,080 Bonds payable 20,800 20,800 Pensions 21,078 20,615 Postretirement benefits 22,141 22,033 Minority interest 2,131 16,941 Shareholders' equity Preferred Shares, no par value, authorized 1,000,000 shares, none issued Common Shares, par value $1.25, authorized 125,000,000 shares, issued 69,368,815 and 69,275,714 shares, respectively; outstanding 69,075,061 and 69,004,838 shares, respectively 86,711 86,595 Additional capital 39,774 38,247 Retained earnings 583,890 566,710 Treasury shares, at cost (293,754 and 270,876 shares, respectively) (14,047) (12,882) Accumulated other comprehensive income (9,454) (9,706) Other (816) (383) ----------- ----------- Total shareholders' equity 686,058 668,581 ----------- ----------- $ 1,019,925 $ 991,050 =========== =========== </TABLE> See accompanying notes to condensed consolidated financial statements. 3
4 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (Unaudited) (In thousands except per share amounts) <TABLE> <CAPTION> Three Months Ended March 31, Net sales 1998 1997 --------- --------- <S> <C> <C> Products $ 193,130 $ 171,760 Services 102,609 92,848 --------- --------- 295,739 264,608 Cost of sales Products 118,063 102,746 Services 75,541 69,503 --------- --------- 193,604 172,249 --------- --------- Gross profit 102,135 92,359 Selling and administrative expense 49,746 43,553 Research, development and engineering expense 14,930 12,901 --------- --------- 64,676 56,454 --------- --------- Operating profit 37,459 35,905 Investment income 4,713 4,507 Miscellaneous, net (946) (1,670) Minority interest (233) (2,783) --------- --------- Income before taxes 40,993 35,959 Taxes on income 14,143 12,226 --------- --------- Net income $ 26,850 $ 23,733 ========= ========= Weighted average number of Common Shares outstanding: Basic Shares 69,045 68,881 Diluted Shares 69,647 69,436 Basic earnings per share $ 0.39 $ 0.34 Diluted earnings per share $ 0.39 $ 0.34 Cash dividends paid per Common Share $ 0.1400 $ 0.1250 ========= ========= </TABLE> See accompanying notes to condensed consolidated financial statements. 4
5 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> Three Months Ended March 31, 1998 1997 -------- -------- <S> <C> <C> Cash flow from operating activities: Net income $ 26,850 $ 23,733 Adjustments to reconcile net income to cash provided by operating activities: Minority share of income 233 2,783 Depreciation and amortization 4,507 4,323 Other charges and amortization 2,961 3,362 Cash used by changes in certain current assets and liabilities (18,564) (41,729) Changes in deferred income 36,776 42,354 Other 3,990 7,798 -------- -------- Total adjustments 29,903 18,891 -------- -------- Net cash provided by operating activities 56,753 42,624 Cash flow from investing activities: Proceeds from maturities and sales of investments 16,450 11,697 Payments for purchases of investments (16,338) (19,022) Capital expenditures (11,361) (19,907) Increase in certain other assets (1,989) (1,178) Investment in customer financing (7,809) (128) Other (63) (1) -------- -------- Net cash used by investing activities (21,110) (28,539) Cash flow from financing activities: Dividends paid (9,669) (8,613) Proceeds from issuance of Common Shares 478 450 Distribution for purchase of IBM's share of minority interest in InterBold (16,141) -- Proceeds from long-term borrowings -- 5,800 -------- -------- Net cash used by financing activities (25,332) (2,363) -------- -------- Increase in cash and cash equivalents 10,311 11,722 Cash and cash equivalents at the beginning of the period 20,296 21,885 -------- -------- Cash and cash equivalents at the end of the period $ 30,607 $ 33,607 ======== ======== </TABLE> See accompanying notes to condensed consolidated financial statements. 5
6 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) (Dollars in thousands) 1. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto together with management's discussion and analysis of financial condition and results of operations contained in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. In addition, the Registrant's statements in this Form 10-Q report may be considered forward-looking and involve risks and uncertainties that could significantly impact expected results. A discussion of these risks and uncertainties is contained in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. The results of operations for the three month period ended March 31, 1998 are not necessarily indicative of results to be expected for the full year. 2. The basic and diluted earnings per share computations in the condensed consolidated statements of income are based on the weighted-average number of shares outstanding during each period reported. The following data show the amounts used in computing earnings per share and the effect on the weighted-average number of shares of dilutive potential common stock. <TABLE> <CAPTION> Three Months Ended March 31, 1998 1997 ------- ------ <S> <C> <C> Numerator: Income used in basic and diluted earnings per share $26,850 $23,733 Denominator: Basic weighted-average shares 69,045 68,881 Effect of dilutive fixed stock options 602 555 ------- ------- Diluted weighted-average shares 69,647 69,436 ------- ------- Basic earnings per share $ 0.39 $ 0.34 Diluted earnings per share $ 0.39 $ 0.34 </TABLE> 6
7 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ---------------------------------------------------------------- (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> 3. Inventory detail at: March 31, 1998 December 31, 1997 -------------- ----------------- <S> <C> <C> Finished goods and service parts $ 56,045 $ 44,776 Work in process 85,283 82,985 Raw materials 205 321 --------- --------- Total inventory $ 141,533 $ 128,082 ========= ========= </TABLE> 4. The Registrant has reclassified the presentation of certain prior-year information to conform with the current presentation format. 5. The Registrant adopted Financial Accounting Standards No. 130, "Reporting Comprehensive Income," on January 1, 1998. As required by the Statement, the Registrant displays the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the Balance Sheet. Items considered to be other comprehensive income include adjustments made for foreign currency translation (under Statement 52), pensions (under Statement 87) and unrealized holding gains and losses on available-for-sale securities (under Statement 115). Comprehensive income for the three months ended March 31, 1998 and 1997 was $27,102 and $23,467, respectively. 7
8 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 1O-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As of March 31, 1998 (Unaudited) (Dollars in thousands except for per share data) Changes in Financial Condition - ------------------------------ The balance sheet of the Registrant continued to reflect a strong financial position at March 31, 1998. Cash, cash equivalents and short-term investments increased to $59,776 at March 31, 1998 compared to $56,769 at December 31, 1997. These assets along with securities and other investments accounted for 20% of total assets at March 31, 1998 and December 31, 1997, respectively. Securities and other investments consist principally of tax-free municipal bonds, preferred stock, and other investments. Future capital expenditures and increases in working capital are expected to be financed primarily through internally generated funds. The Registrant's investment portfolio is available for any funding needs if required. External financing is also available if needed through the Registrant's lines of credit. At March 31, 1998, the Registrant had unused lines of credit approximating $140,000 and the Registrant is not restricted as to the use of funds borrowed under these credit agreements. Therefore, such commitments represent an additional and immediate source of liquidity. During the first quarter of 1998, the Registrant had outstanding $20,800 in Industrial Development Revenue Bonds used to finance the construction of new manufacturing facilities. The Company's strong financial position enhances its ability to obtain additional funds if required. Shareholders' equity per Common Share at March 31, 1998 improved to $9.93 from $9.69 at December 31, 1997. The first quarter cash dividend of $0.14 per share was paid on March 27, 1998 to shareholders of record on March 6, 1998. On April 15, 1998 the second quarter cash dividend of $0.14 per share was declared payable on June 5, 1998 to shareholders of record on May 15, 1998. Diebold, Incorporated shares are listed on the New York Stock Exchange under the symbol of DBD. The market price during the first three months of 1998 fluctuated within the range of $41.688 and $55.313. Results of Operations - --------------------- First Quarter 1998 Comparison to First Quarter 1997 - --------------------------------------------------- Net sales for the first quarter of 1998 increased from the same period in 1997 by $31,131 or 12%. Total gross profit increased $9,776 or 11% over the first quarter's performance in 1997. Product gross profit accounted for the majority of this increase as the result of increased sales volume of self-service terminals both domestically and internationally. Operating expenses increased $8,222 or 15% over the same period in 1997 largely due to higher selling expenses resulting from the increases in sales volumes, expanding global operations, expenditures from various new marketing programs and expenditures related to the continuing research and development of new products. Operating profit increased $1,554 or 4% over first quarter 1997's performance. 8
9 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 1O-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of March 31, 1998 (Unaudited / Dollars in thousands except for per share data) The Registrant's backlog of unfilled orders was $250,133 at March 31, 1998, compared to $232,558 at March 31, 1997, a $17,575 or 8% increase. The Registrant believes, however, that order backlog information is not, by itself, a meaningful indicator of future revenue streams. There are numerous factors which influence the amount and timing of revenue recognized in future periods. PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders The Registrant's annual meeting of shareholders was held on April 15, 1998. Each matter voted upon at such meeting and the number of shares cast for, against or withheld, and abstained are as follows: 1. Election of Directors --------------------- <TABLE> <CAPTION> For Withheld ---------- ------- <S> <C> <C> Louis V. Bockius III 61,861,000 304,524 Daniel T. Carroll 61,789,438 376,086 Richard L. Crandall 61,840,195 325,329 Donald R. Gant 61,810,646 354,878 L. Lindsey Halstead 61,846,214 319,310 Phillip B. Lassiter 61,857,438 308,086 John N. Lauer 61,860,181 305,343 Robert W. Mahoney 61,863,950 301,574 William F. Massy 61,858,572 306,952 Gregg A. Searle 61,833,763 331,761 W. R. Timken, Jr 61,840,590 324,934 </TABLE> 2. Ratification of Appointment of KPMG Peat Marwick LLP as ------------------------------------------------------- Independent Auditors for 1998 ----------------------------- <TABLE> <CAPTION> <S> <C> <C> For: 61,774,191 Against: 170,000 Abstain: 221,333 </TABLE> There were no broker non-votes. 9
10 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1(i) Amended and Restated Articles of Incorporation of Diebold, Incorporated -- incorporated by reference to Exhibit 3.1(i) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1(ii) Code of Regulations -- incorporated by reference to Exhibit 4(c) to Registrant's Post-Effective Amendment No. 1 to Form S-8 Registration Statement No. 33-32960. 3.2 Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated -incorporated by reference to Exhibit 3.2 to Registrant's Form 10-Q for the quarter ended March 31, 1996. 4. Rights Agreement dated as of February 10, 1989 between Diebold, Incorporated and The Bank of New York as successor Rights Agent to Key Bank, N.A. -- incorporated by reference to Exhibit 2.1 to Registrant's Registration Statement of 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 -incorporated by reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. * 10.3 (i) Supplemental Retirement Benefit Agreement with William T. Blair -- incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. * 10.3 (ii) Consulting Agreement with William T. Blair -- incorporated by reference to Exhibit 10.3(ii) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. * 10.5 (i) Supplemental Employee Retirement Plan (as amended January 1, 1994) -- incorporated by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. * 10.5 (ii) Amendment No. 1 to the Amended and Restated Supplemental Retirement Plan. 10.6 Amended and Restated Partnership Agreement dated as of September 12, 1990 -- incorporated by reference to Exhibit 10 to Registrant's Form 8-K dated September 26, 1990. * 10.7 (i) 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated -- incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. * 10.7 (ii) Amendment No. 1 to the Amended and Restated 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated. * Reflects management contract or other compensatory arrangement. 10
11 * 10.8 1991 Equity and Performance Incentive Plan as Amended and Restated -- incorporated by reference to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended March 31, 1997. * 10.9 Long-Term Executive Incentive Plan -- incorporated by reference to Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. * 10.10 (i) 1992 Deferred Incentive Compensation Plan (as amended and restated as of July 1, 1993) -- incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. * 10.10 (ii) Amendment No. 1 to the Amended and Restated 1992 Deferred Incentive Compensation Plan. * 10.11 Annual Incentive Plan -- incorporated by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. * 10.13 (i) Forms of Deferred Compensation Agreement and Amendment No. 1 to Deferred Compensation Agreement -- incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. *10.13 (ii) Section 162(m) Deferred Compensation Agreement (as amended and restated January 29, 1998). 27. Financial Data Schedule. * Reflects management contract or other compensatory arrangement. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the first quarter of 1998. 11
12 DIEBOLD, INCORPORATED AND SUBSIDIARIES FORM 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DIEBOLD, INCORPORATED ---------------------------------------------- (Registrant) Date: April 30, 1998 By: /s/ Robert W. Mahoney --------------- -------------------------------------- Robert W. Mahoney Chairman of the Board and Chief Executive Officer Date: April 30, 1998 By: /s/ Gerald F. Morris --------------- -------------------------------------- Gerald F. Morris Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) 12
13 DIEBOLD, INCORPORATED FORM 10-Q INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT NO. PAGE NO. - ----------- -------- <S> <C> 3.1 (i) Amended and Restated Articles of Incorporation of Diebold, Incorporated -- incorporated by reference to Exhibit 3.1(i) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. -- 3.1 (ii) Code of Regulations -- incorporated by reference to Exhibit 4(c) to Registrant's Post-Effective Amendment No. 1 to Form S-8 Registration Statement No. 33-32960. -- 3.2 Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated -- incorporated by reference to Exhibit 3.2 to Registrant's Form 10-Q for the quarter ended March 31, 1996. -- 4. Rights Agreement dated as of February 10, 1989 between Diebold, Incorporated and The Bank of New York as successor Rights Agent to Key Bank, N.A. -- incorporated by reference to Exhibit 2.1 to Registrant's Registration Statement on Form 8-A dated February 10, 1989. -- 10.1 Form of Employment Agreement as amended and restated as of September 13, 1990 -- incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. -- 10.2 Schedule of Certain Officers who are Parties to Employment Agreements in the form of Exhibit 10.1 -- incorporated by reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. -- 10.3 (i) Supplemental Retirement Benefit Agreement with William T. Blair -- incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. -- 10.3 (ii) Consulting Agreement with William T. Blair -- incorporated by reference to Exhibit 10.3(ii) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. -- </TABLE> 13
14 <TABLE> <CAPTION> EXHIBIT NO. PAGE NO. - ----------- -------- <S> <C> 10.5(i) Supplemental Employee Retirement Plan (as amended January 1, 1994) -- incorporated by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. -- 10.5(ii) Amendment No. 1 to the Amended and Restated Supplemental Retirement Plan. 15 10.6 Amended and Restated Partnership Agreement dated as of September 12, 1990 -- incorporated by reference to Exhibit 10 to Registrant's Form 8-K dated September 26, 1990. -- 10.7(i) 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated -- incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. -- 10.7(ii) Amendment No. 1 to the Amended and Restated 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated. 16 10.8 1991 Equity and Performance Incentive Plan as Amended and Restated. -- 10.9 Long-Term Executive Incentive Plan -- incorporated by reference to Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. -- 10.10 (i) 1992 Deferred Incentive Compensation Plan (as amended and restated as of July 1, 1993) -- incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. -- 10.10(ii) Amendment No. 1 to the Amended and Restated 1992 Deferred Incentive Compensation Plan. 17 10.11 Annual Incentive Plan -- incorporated by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. -- 10.13(i) Forms of Deferred Compensation Agreement and Amendment No. 1 to Deferred Compensation Agreement -- incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. -- 10.13(ii) Section 162(m) Deferred Compensation Agreement (as amended and restated January 29, 1998). 18 27. Financial Data Schedule. 19 </TABLE> 14