Diebold Nixdorf - 10-Q quarterly report FY

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

[DIEBOLD LOGO]

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.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

INDEX

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

See accompanying notes to condensed consolidated financial statements.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands except for per share amounts)

See accompanying notes to condensed consolidated financial statements.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

See accompanying notes to condensed consolidated financial statements.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except for per share amounts)

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DIEBOLD, INCORPORATED AND SUBSIDIARIES

FORM 10-Q

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In thousands except for per share amounts)

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In thousands except for per share amounts)

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In thousands except for per share amounts)

Total Revenue by Geography

For the period ending March 31:

Total Revenue by Product and Service Solutions

For the period ending March 31:

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

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

As of March 31, 2002
(Unaudited)
(Dollars in thousands except for per share amounts)

Material Changes in Financial Condition

Total assets for the first quarter ended March 31, 2002 were $1,639,304, representing an increase of $18,221, or 1.1 percent from December 31, 2001. Trade receivables less allowances increased by $9,520 or 2.5 percent due to increased international sales and the acquisition of Global Election Systems Inc. Inventories increased $21,164 or 9.0 percent, which was primarily driven by several large orders received at quarter end as well as including large orders associated with the recently acquired Global Election Systems Inc. The increase in prepaid expenses and other current assets of $13,612 or 13.9 percent was primarily due to the timing of payments for insurance and other premiums. Net short-term and long-term finance receivables decreased by $23,038 or 44.3 percent primarily due to additional securitizations of certain finance receivables during the first quarter of 2002, which resulted in gains on securitizations totaling $1,882 for the quarter. As a normal part of business, the Company expects to continue the practice of securitizing lease receivables. Goodwill increased by $35,400 or 12.8 percent primarily due to the January 2002 acquisition of the voting solutions provider, Global Election Systems Inc., now known as Diebold Election Systems Inc. Other assets decreased by $17,636 or 13.1 percent primarily due to a return of a portion of the Company’s investment in DCCF.

Total current liabilities were $610,444, representing a decrease of $16,744 or 2.7 percent from December 31, 2001. Notes payable decreased by $13,940 or 6.1 percent due to the paydown of the lines of credits through the use of cash generated from securitizations. Deferred income increased by $52,457 or 64.8 percent primarily due to an increase in the customer service base including the acquisition of the Bank of America service contract. Other current liabilities decreased by $17,533 or 13.9 percent primarily due to timing of payments.

At March 31, 2002, the Company had outstanding bank credit lines approximating $119,403, EUR 99,256 (translation $86,668), 8,887 Brazilian real (translation $3,825) and 11,000 Australian dollars (translation $5,867), with an additional $196,002 available under these agreements. Also, the Company has an outstanding revolving facility with a bank in place to fund the cash maintained in the Company’s owner-operated retail ATMs in the amount of $23,588, which is included in other current liabilities.

The Company has outstanding $20,800 of Industrial Development Revenue Bonds. The proceeds of the bonds issued in 1997 were used to finance the construction of three manufacturing facilities located in the United States.

The Company’s financial position provides it with sufficient resources to meet projected future capital expenditures, dividend and working capital requirements. However, if the need arises, the Company’s strong financial position should ensure the availability of adequate additional financial resources.

Minority interests of $10,302 represented the minority interest in Diebold Financial Equipment Company, Ltd (China), owned by the Aviation Industries of China and the Industrial and Commercial Bank of China, Shanghai Pudong Branch; in Diebold OLTP Systems, C.A (Venezuela), owned by five individual investors; in Diebold Colombia, owned by Richardson and Company Ltd; and in Diebold Services, S.A. (France), owned by Serse S.A and Solymatic S.A.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

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

As of March 31, 2002
(Unaudited)
(Dollars in thousands except for per share amounts)

Material Changes in Financial Condition (continued)

Shareholders’ equity was $935,876, representing an increase of $32,766 or 3.6 percent over December 31, 2001. Shareholders’ equity per Common Share at March 31, 2002 increased to $13.00 from $12.66 at December 31, 2001. The first quarter cash dividend of $0.165 per share was paid on March 8, 2002 to shareholders of record on February 15, 2002. On April 25, 2002, the second quarter cash dividend of $0.165 per share was declared payable on June 7, 2002 to shareholders of record on May 17, 2002. 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 2002 fluctuated within the range of $35.49 and $43.55.

Management’s Analysis of Cash Flows

During the quarter ended 2002, the Company generated $349 in cash from operating activities, compared with $108,777 for the comparable period in 2001. In addition to net income of $26,501 adjusted for depreciation, amortization and minority interest of $14,059, net cash provided by operating activities for the quarter was negatively impacted by the increase in accounts receivable, inventories and prepaid expenses and other current assets and decrease in accounts payable. The increase in certain other assets and liabilities positively impacted cash provided by operating activities primarily due to the increase in deferred income.

The change in certain other assets and liabilities year over year was primarily the result of the increase in deferred income, the use of the realignment reserve, the increase in the estimated income tax liability, as well as the positive impact of foreign currency translation. The increase in deferred income was driven by a larger customer service base, which included the acquisition of the Bank of America service contract. The realignment program was completed in 2001, resulting in the use of the reserve established in the first quarter of 2001. Finally, the estimated income tax liability increased as a result of higher pre-tax income.

Results of Operations

Net sales for the first quarter of 2002 totaled $401,046 and was $17,192 higher than the comparable period in 2001. The increase in net sales occurred primarily in the Asia-Pacific region and in The Americas. Total product revenue decreased by $7,159 or 3.8 percent primarily due to tightened IT spending by customers early in the quarter. Service revenue increased by $24,351 or 12.5 percent due to an increase in our core service customer base and additional revenues as a result of the Bank of America service contract.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

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

As of March 31, 2002
(Unaudited)
(Dollars in thousands except for per share amounts)

Results of Operations (continued)

The total gross margin was 30.2 percent, down from 31.1 percent in the first quarter 2001. Excluding special charges, the first quarter 2001 total gross margin was 32.2 percent. Product gross margin decreased to 35.5 percent from 39.7 percent in the first quarter 2001 due to product mix, the loss of high-margin InnoVentry business and the strong dollar. The service gross margin was 25.8 percent, up from 24.8 percent from the first quarter 2001, due to improved performance in the North America service operations.

Total operating expenses were 20.2 percent, down from 27.5 percent from the first quarter 2001. Excluding realignment and MedSelect, first quarter 2001 operating expenses were 21.2 percent. This improvement was due to the streamlining of operations undertaken in 2001.

Net income was 6.6 percent of revenue compared to 2.0 percent in the first quarter 2001. Excluding realignment, special charges and MedSelect, first quarter 2001 net income was 6.9 percent of revenue.

Included in first quarter 2001 net income was goodwill amortization of $4,491. Had SFAS 142 been in effect as of January 1, 2001 and goodwill was not amortized, earnings per share in the first quarter of 2001 would have increased from the $.11 reported to $.15.

Segment Information

Diebold North America (“DNA”) customer revenues of $241,211 for the first quarter ended March 31, 2002 increased by $11,802, or 5.1 percent from the same period in 2001. The higher revenue levels were due to an increase in the service contract base as well as an increase in the security business which has benefited, in part, from the Mosler bankruptcy. DNA operating profits for the same period were largely unchanged year over year.

Diebold International (“DI”) customer revenues were $144,880 for the first quarter of 2002 representing a decrease of $6,203 or 4.1 percent from the same period in 2001. Asia-Pacific revenue increased by $2,780, or 13.1 percent from the same period in 2001 due to growing demands in the Asia-Pacific market. The offsetting decrease occurred in Europe, Middle East and Africa (“EMEA”) and Latin American (“LA”) markets. Despite lower current quarter revenues in EMEA and LA, total orders for product and service have increased in these areas versus the same period in 2001.

Other revenues were $14,955 for the first quarter of 2002 representing an increase of $11,593. This increase was primarily due to the acquisition of the voting solutions provider Global Election Systems Inc., now known as Diebold Election Systems Inc.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

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

As of March 31, 2002
(Unaudited)
(Dollars in thousands except for per share amounts)

Outlook

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of any future mergers, acquisitions, disposals or other business combinations that may be completed after March 31, 2002.

The global efficiencies that the Company has experienced by balancing manufacturing, product rationalization, organizational alignment and process improvements will continue to benefit the Company into the second quarter and the remainder of 2002. In addition, non-recurring second quarter 2001 business from now defunct InnoVentry will negatively impact the year-over-year earnings per share comparison by $.01.

Taking these factors into consideration, expectations for the second quarter and year include:

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

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

As of March 31, 2002
(Unaudited)
(Dollars in thousands except for per share amounts)

Forward-Looking Statement Disclosure

In the Company’s written or oral statements, the use of the words “believes,” “anticipates,” “expects” and similar expressions is intended to identify forward-looking statements that have been made and may in the future be made by or on behalf of the Company, including statements concerning future operating performance, the Company’s share of new and existing markets, and the Company’s short- and long-term revenue and earnings growth rates. Although the Company 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 Company, there can be no assurance that the Company’s goals will be realized. The Company is not obligated to report changes to its outlook. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company’s uncertainties could cause actual results to differ materially from those anticipated in forward-looking statements. These include, but are not limited to:

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to foreign currency exchange rate risk inherent in our international operations denominated in currencies other than the U.S. Dollar. The Company’s risk management strategy uses derivative financial instruments such as forwards to hedge certain foreign currency exposures. The intent is to offset gains and losses that occur on the underlying exposures, with gains and losses on the derivative contracts hedging these exposures. The Company does not enter into derivatives for trading purposes.

The Company performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign exchange rates applied to the hedging contracts and underlying exposures describe above. As of March 31, 2002, the analysis indicated that these hypothetical market movements would not materially affect the results of operations. Actual gains and losses in the future may differ materially from that analysis based on changes in the timing and amount of foreign currency exchange rate movements and our actual exposures and hedges.

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FORM 10-Q
DIEBOLD, INCORPORATED AND SUBSIDIARIES

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Registrant’s annual meeting of shareholders was held on April 25, 2002. 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

2. Ratification of Appointment of KPMG LLP as Independent Auditors for 2002

     There were no broker non-votes.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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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.

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q

INDEX TO EXHIBITS

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
INDEX TO EXHIBITS (continued)

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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
INDEX TO EXHIBITS (continued)

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