SECURITIES AND EXCHANGE COMMISSION
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, 2004
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
Ohio
34-0183970
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)
5995 Mayfair Road, PO Box 3077, North Canton, Ohio
44720-8077
(Address of principal executive offices)
(Zip Code)
Registrants 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
|
Yes (X) | No ( ) |
Indicate the number of shares outstanding of each of the issuers classes of common shares, as of the latest practicable date.
Class
Outstanding at May 3, 2004
Common Shares $1.25 Par
Value
72,563,416 Shares
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
INDEX
2
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
ITEM 1. |
FINANCIAL
STATEMENT
|
(Unaudited) | December 31, | |||||||
March 31, 2004
|
2003
|
|||||||
ASSETS
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ | 146,614 | $ | 169,951 | ||||
Short-term investments
|
7,262 | 6,150 | ||||||
Trade receivables less allowances of $9,021 and $8,713, respectively
|
558,699 | 558,161 | ||||||
Inventories
|
290,941 | 262,039 | ||||||
Prepaid expenses
|
19,255 | 15,780 | ||||||
Other current assets
|
99,076 | 93,078 | ||||||
|
|
|
||||||
Total current assets
|
1,121,847 | 1,105,159 | ||||||
Securities and other investments
|
49,078 | 47,386 | ||||||
Property, plant and equipment, at cost
|
563,216 | 547,858 | ||||||
Less accumulated depreciation and amortization
|
306,718 | 294,703 | ||||||
|
|
|
||||||
|
256,498 | 253,155 | ||||||
Goodwill
|
331,946 | 331,646 | ||||||
Other assets
|
165,210 | 163,156 | ||||||
|
|
|
||||||
|
$ | 1,924,579 | $ | 1,900,502 | ||||
|
|
|
||||||
LIABILITIES AND SHAREHOLDERS EQUITY
|
||||||||
Current liabilities
|
||||||||
Notes payable
|
$ | 200,409 | $ | 190,172 | ||||
Accounts payable
|
96,372 | 115,133 | ||||||
Deferred income
|
155,574 | 87,881 | ||||||
Other current liabilities
|
189,303 | 225,467 | ||||||
|
|
|
||||||
Total current liabilities
|
641,658 | 618,653 | ||||||
Long-term liabilities
|
130,236 | 133,611 | ||||||
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 74,024,355 and 73,795,416 shares, respectively
outstanding 72,582,616 and 72,649,795 shares, respectively
|
92,530 | 92,244 | ||||||
Additional capital
|
170,146 | 159,610 | ||||||
Retained earnings
|
998,038 | 982,342 | ||||||
Treasury shares, at cost (1,441,739 and 1,145,621 shares, respectively)
|
(57,930 | ) | (42,562 | ) | ||||
Accumulated other comprehensive loss
|
(49,587 | ) | (43,055 | ) | ||||
Other
|
(512 | ) | (341 | ) | ||||
|
|
|
||||||
Total shareholders equity
|
1,152,685 | 1,148,238 | ||||||
|
|
|
||||||
|
$ | 1,924,579 | $ | 1,900,502 | ||||
|
|
|
See accompanying notes to condensed consolidated financial statements.
3
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
Three Months Ended | ||||||||
March 31,
|
||||||||
2004
|
2003
|
|||||||
Net Sales
|
||||||||
Products
|
$ | 219,592 | $ | 164,668 | ||||
Services
|
278,663 | 245,486 | ||||||
|
|
|
||||||
|
498,255 | 410,154 | ||||||
Cost of sales
|
||||||||
Products
|
148,296 | 104,009 | ||||||
Services
|
209,932 | 182,390 | ||||||
|
|
|
||||||
|
358,228 | 286,399 | ||||||
Gross Profit
|
140,027 | 123,755 | ||||||
Selling and administrative expense
|
80,659 | 68,368 | ||||||
Research, development and engineering expense
|
15,538 | 14,354 | ||||||
|
|
|
||||||
|
96,197 | 82,722 | ||||||
Operating Profit
|
43,830 | 41,033 | ||||||
Other income (expense)
|
||||||||
Investment income
|
2,719 | 3,001 | ||||||
Interest expense
|
(2,001 | ) | (2,836 | ) | ||||
Miscellaneous, net
|
(100 | ) | (1,411 | ) | ||||
Minority interest
|
(1,552 | ) | (1,699 | ) | ||||
|
|
|
||||||
Income before taxes
|
42,896 | 38,088 | ||||||
Taxes on income
|
13,727 | 12,188 | ||||||
|
|
|
||||||
Net income
|
$ | 29,169 | $ | 25,900 | ||||
|
|
|
||||||
Basic weighted-average shares outstanding
|
72,777 | 72,199 | ||||||
Diluted weighted-average shares outstanding
|
73,371 | 72,475 | ||||||
Basic earnings per share
|
$ | 0.40 | $ | 0.36 | ||||
Diluted earnings per share
|
$ | 0.40 | $ | 0.36 | ||||
|
|
|
||||||
Cash dividends paid per common share
|
$ | 0.185 | $ | 0.170 |
See accompanying notes to condensed consolidated financial statements.
4
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
Three Months Ended | ||||||||
March 31,
|
||||||||
2004
|
2003
|
|||||||
Cash flow from operating activities:
|
||||||||
Net income
|
$ | 29,169 | $ | 25,900 | ||||
Adjustments to reconcile net income to cash
provided by operating activities:
|
||||||||
Minority share of income
|
1,552 | 1,699 | ||||||
Depreciation and amortization
|
18,903 | 16,292 | ||||||
Deferred income taxes
|
547 | 100 | ||||||
Loss on sale of assets, net
|
24 | 883 | ||||||
Cash (used) provided by changes in certain assets and liabilities:
|
||||||||
Trade receivables
|
(1,208 | ) | (3,411 | ) | ||||
Inventories
|
(30,346 | ) | (7,192 | ) | ||||
Prepaid expenses
|
(3,473 | ) | (2,168 | ) | ||||
Other current assets
|
(10,371 | ) | 11,425 | |||||
Accounts payable
|
(18,560 | ) | (6,502 | ) | ||||
Certain other assets and liabilities
|
23,010 | 61,453 | ||||||
|
|
|
||||||
Net cash provided by operating activities
|
9,247 | 98,479 | ||||||
Cash flow from investing activities:
|
||||||||
Payments for acquisitions, net of cash acquired
|
(979 | ) | | |||||
Proceeds from maturities of investments
|
816 | 10,879 | ||||||
Proceeds from sales of investments
|
| 681 | ||||||
Payments for purchases of investments
|
(4,089 | ) | (10,163 | ) | ||||
Capital expenditures
|
(12,785 | ) | (14,022 | ) | ||||
Rotable spares expenditures
|
(4,506 | ) | (10,092 | ) | ||||
Increase in certain other assets
|
(177 | ) | (5,903 | ) | ||||
|
|
|
||||||
Net cash used by investing activities
|
(21,720 | ) | (28,620 | ) | ||||
Cash flow from financing activities:
|
||||||||
Dividends paid
|
(13,473 | ) | (12,285 | ) | ||||
Notes payable borrowings
|
167,504 | 11,398 | ||||||
Notes payable repayments
|
(151,465 | ) | (82,023 | ) | ||||
Net payments from securitization
|
(3,650 | ) | (3,705 | ) | ||||
Distribution of affiliates earnings to minority interest holder
|
(498 | ) | (213 | ) | ||||
Issuance of common shares
|
9,382 | 1,351 | ||||||
Repurchase of common shares
|
(18,495 | ) | (2,314 | ) | ||||
|
|
|
||||||
Net cash used by financing activities
|
(10,695 | ) | (87,791 | ) | ||||
Effect of exchange rate changes on cash
|
(169 | ) | 1,236 | |||||
|
|
|
||||||
Decrease in cash and cash equivalents
|
(23,337 | ) | (16,696 | ) | ||||
Cash and cash equivalents at the beginning of the period
|
169,951 | 155,446 | ||||||
|
|
|
||||||
Cash and cash equivalents at the end of the period
|
$ | 146,614 | $ | 138,750 | ||||
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
1. | CONSOLIDATED FINANCIAL STATEMENTS |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America; 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 managements discussion and analysis of financial condition and results of operations contained in the companys Annual Report on Form 10-K for the year ended December 31, 2003.
In addition, some of the companys 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 managements discussion and analysis of financial condition and results of operations in this Form 10-Q. The results of operations for the three-month period ended March 31, 2004 are not necessarily indicative of results to be expected for the full year.
The company has reclassified the presentation of certain prior-year information to conform to the current-year presentation.
2. | STOCK OPTION PLANS |
Under the 1991 Equity and Performance Incentive Plan, as amended and restated
(1991 Plan), the company has granted stock options which are outstanding as of
March 31, 2004. The company applies the recognition and measurement principles
of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to
Employees,
and related interpretations, in accounting for stock options granted
under the 1991 Plan. No stock-based compensation cost is reflected in net
income, as all options granted under the 1991 Plan had an exercise price equal
to the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if
the company had applied the fair value recognition provisions of SFAS 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 2004 and 2003, respectively: risk-free
interest rate of 3.0 and 2.8 percent; dividend yield of 1.6 and 1.8 percent;
volatility of 39 and 41 percent; and average expected lives of six years for
options granted to management and four years for options granted to executive
management and nonemployee directors.
Three Months Ended
March 31,
2004
2003
$
29,169
$
25,900
(1,110
)
(1,007
)
$
28,059
$
24,893
$
0.40
$
0.36
$
0.39
$
0.34
$
0.40
$
0.36
$
0.38
$
0.34
6
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In thousands, except per share amounts)
3. | EARNINGS PER SHARE |
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 potentially dilutive common stock.
Three Months Ended | ||||||||
March 31,
|
||||||||
2004
|
2003
|
|||||||
Numerator:
|
||||||||
Income used in basic and diluted
earnings per share
|
$ | 29,169 | $ | 25,900 | ||||
Denominator:
|
||||||||
Basic weighted-average shares
|
72,777 | 72,199 | ||||||
Effect of dilutive fixed stock options
|
594 | 276 | ||||||
|
|
|
||||||
Diluted weighted-average shares
|
73,371 | 72,475 | ||||||
|
|
|
||||||
Basic earnings per share
|
$ | 0.40 | $ | 0.36 | ||||
|
|
|
||||||
Diluted earnings per share
|
$ | 0.40 | $ | 0.36 | ||||
|
|
|
||||||
Anti-dilutive shares not used in
calculating diluted weighted-average shares
|
229 | 485 |
Domestic inventories are valued at the lower of cost or market. The company
regularly reviews the inventory quantities on hand, identifies any slow-moving
or obsolete inventories and writes inventory down to its net realizable value.
Major classes of inventories are summarized as follows:
Accumulated other comprehensive loss is reported separately from retained
earnings and additional capital in the condensed consolidated balance sheets.
Items considered to be other comprehensive loss include adjustments made for
foreign currency translation (under Statement of Financial Accounting Standards
(SFAS) No. 52), pensions (under SFAS No. 87) and unrealized holding gains and
losses on available-for-sale securities (under SFAS No. 115). Components of
other accumulated comprehensive loss consist of the following:
7
4.
INVENTORIES
March 31, 2004
December 31, 2003
$
71,153
$
41,163
192,086
191,320
27,702
29,556
$
290,941
$
262,039
5.
OTHER COMPREHENSIVE INCOME (LOSS)
March 31,
December 31,
2004
2003
$
(42,342
)
$
(35,810
)
(7,245
)
(7,245
)
$
(49,587
)
$
(43,055
)
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In thousands, except per share amounts)
5. | OTHER COMPREHENSIVE INCOME (LOSS) (continued) |
Components of comprehensive income consist of the following for the three months ended March 31:
2004
|
2003
|
|||||||
Net income
|
$ | 29,169 | $ | 25,900 | ||||
Other comprehensive income
:
|
||||||||
Translation adjustment
|
(6,532 | ) | 6,143 | |||||
Unrealized gain on
investment securities,
less accumulated taxes
of $142 in 2003
|
| 264 | ||||||
|
|
|
||||||
|
$ | 22,637 | $ | 32,307 | ||||
|
|
|
6. | BENEFIT PLANS |
The company has several pension plans covering substantially all United States employees. Plans covering salaried employees provide pension benefits that are based on the employees compensation during the 10 years before retirement. The companys funding policy for salaried plans is to contribute annually if required at an actuarially determined rate. Plans covering hourly employees and union members generally provide benefits of stated amounts for each year of service. The companys funding policy for hourly plans is to make at least the minimum annual contributions required by applicable regulations. Employees of the companys operations in countries outside of the United States participate to varying degrees in local pension plans, which in the aggregate are not significant.
In addition to providing pension benefits, the company provides healthcare and life insurance benefits (referred to as Other Benefits) for certain retired employees. Eligible employees may be entitled to these benefits based upon years of service with the company, age at retirement and collective bargaining agreements. Currently, the company has made no commitments to increase these benefits for existing retirees or for employees who may become eligible for these benefits in the future. Currently there are no plan assets and the company funds the benefits as the claims are paid.
Interest cost and recognized net actuarial loss for 2004 Other Benefits of $389 and $115, respectively, include a savings of $41 and $53 attributable to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). This Act also has the effect of reducing the accumulated postretirement benefit obligation by $2,609 or 8.9%. Authoritative guidance is currently pending related to the accounting for federal subsidies resulting from the Act that may require retroactive adjustments to the financial statements. Refer to Note 7 for further information.
8
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In thousands, except per share amounts)
6. | BENEFIT PLANS (continued) |
Employer Contributions
Previously, the company disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $1,513 to its pension plans and $3,313 to its other postretirement benefit plan in 2004. There have been no significant changes to the 2004 contribution amounts previously disclosed. As of March 31, 2004, no contributions have been made.
7. | RECENT ACCOUNTING PRONOUNCEMENTS |
In January 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) FAS No. 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 to provide temporary guidance concerning the recently enacted Act. The Act introduces a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP FAS No. 106-1 permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer recognizing the effects of the Act (1) in accounting for its plan under SFAS No. 106, and (2) in providing the plan disclosures required by SFAS No. 132, until authoritative guidance on accounting for the federal subsidy is issued or a significant event occurs that would call for remeasurement of the plans assets and liabilities. Regardless of whether the sponsor elects that deferral, the FSP requires certain disclosures pending further consideration of the underlying accounting issues. The company has not elected to defer and has included the required disclosures in Note 6.
8. | ACQUISITION |
In January 2004, a subsidiary of the company merged with Newell Communications, Inc. (NCI), based in Richmond, Virginia. NCI provides a full spectrum of security and communications solutions. The merger was effected in a combination of 80.5 percent stock and 19.5 percent cash with a total purchase price of $5,500. As a result of the merger, NCI became a wholly-owned subsidiary of the company. The merger was accounted for as a purchase business combination and, accordingly, the purchase price has been allocated to identifiable tangible and intangible assets acquired and liabilities assumed, based upon their respective fair values, with the excess allocated to goodwill.
9. | SEGMENT INFORMATION |
The companys segments are comprised of its three main sales channels: Diebold North America (DNA), Diebold International (DI) and Election Systems (ES). These sales channels are evaluated based on revenue from customers and operating profit contribution to the total corporation. The prior year segment data has been reformatted to show ES as a separate channel with corporate expense allocated to the sales channels. A reconciliation between segment information and the condensed consolidated financial statements is disclosed. Revenue summaries by geographic area and product and service solutions are also disclosed. All income and expense items below operating profit are not allocated to the segments and are not disclosed.
The DNA segment sells financial and retail systems and also services financial, retail and medical systems in the United States and Canada. The DI segment sells and services financial and retail systems over the remainder of the globe. The ES segment includes the operating results of Diebold Election Systems, Inc. Each of the sales channels buys the goods it sells from the companys manufacturing plants through intercompany sales that are eliminated in consolidation, and intersegment revenue is not significant. Each year, intercompany pricing is agreed upon which drives sales channel operating profit contribution. As permitted under SFAS 131, certain information not routinely used in the management of these segments, information not allocated back to the segments or information that is impractical to report is not shown. Items not allocated are as follows: interest income, interest expense, equity in the net income of investees accounted for by the equity method, income tax expense or benefit, extraordinary items, significant non-cash items and other non-current assets.
9
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In thousands, except per share amounts)
9. | SEGMENT INFORMATION (continued) |
DNA
|
DI
|
ES
|
Total
|
|||||||||||||
Segment Information by Channel as of and for the quarter ended March 31, 2004
|
||||||||||||||||
Customer Revenue
|
$ | 305,327 | $ | 178,055 | $ | 14,873 | $ | 498,255 | ||||||||
Operating profit/(loss)
|
39,603 | 8,355 | (4,128 | ) | 43,830 | |||||||||||
Capital and rotable expenditures
|
12,110 | 5,049 | 132 | 17,291 | ||||||||||||
Depreciation
|
7,642 | 5,545 | 202 | 13,389 | ||||||||||||
Long-lived assets
|
399,937 | 159,455 | 3,824 | 563,216 | ||||||||||||
Segment Information by Channel as of and for the quarter ended March 31, 2003
|
||||||||||||||||
Customer Revenue
|
$ | 261,915 | $ | 141,207 | $ | 7,032 | $ | 410,154 | ||||||||
Operating profit (loss)
|
29,972 | 10,585 | 476 | 41,033 | ||||||||||||
Capital and rotable expenditures
|
13,933 | 9,839 | 342 | 24,114 | ||||||||||||
Depreciation
|
7,856 | 4,324 | 157 | 12,337 | ||||||||||||
Long-lived assets
|
365,304 | 119,915 | 3,072 | 488,291 |
Revenue Summary by Geographic Area
For the quarter ended March 31:
|
||||||||
2004
|
2003
|
|||||||
The Americas:
|
||||||||
Financial self-service solutions
|
$ | 258,156 | $ | 208,087 | ||||
Security solutions
|
115,685 | 106,805 | ||||||
Election systems
|
14,873 | 7,032 | ||||||
|
|
|
||||||
|
388,714 | 321,924 | ||||||
Asia-Pacific:
|
||||||||
Financial self-service solutions
|
35,839 | 31,481 | ||||||
Security solutions
|
5,940 | 176 | ||||||
|
|
|
||||||
|
41,779 | 31,657 | ||||||
Europe, Middle East and Africa:
|
||||||||
Financial self-service solutions
|
67,760 | 56,549 | ||||||
Security solutions
|
2 | 24 | ||||||
|
|
|
||||||
|
67,762 | 56,573 | ||||||
|
|
|
||||||
Total Revenue
|
$ | 498,255 | $ | 410,154 | ||||
|
|
|
Revenue Summary by Product and Service Solutions
For the quarter ended March 31:
|
||||||||
2004
|
2003
|
|||||||
Financial self-service:
|
||||||||
Products
|
$ | 154,260 | $ | 111,588 | ||||
Services
|
207,495 | 184,529 | ||||||
|
|
|
||||||
Total financial self-service
|
361,755 | 296,117 | ||||||
Security:
|
||||||||
Products
|
57,417 | 48,411 | ||||||
Services
|
64,210 | 58,594 | ||||||
|
|
|
||||||
Total security
|
121,627 | 107,005 | ||||||
|
|
|
||||||
Total financial self-service & security
|
483,382 | 403,122 | ||||||
Election systems
|
14,873 | 7,032 | ||||||
|
|
|
||||||
Total Revenue
|
$ | 498,255 | $ | 410,154 | ||||
|
|
|
10
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In thousands, except per share amounts)
10. | GUARANTEES AND PRODUCT WARRANTIES |
The company has applied the provisions of FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others , to its agreements that contain guarantees or indemnification clauses. These requirements expand those required by FASB Statement No. 5, Accounting for Contingencies , by requiring a guarantor to disclose certain types of guarantees and recognized liabilities in certain instances, even if the likelihood of requiring the guarantors performance is remote. The following is a description of arrangements in effect as of March 31, 2004 in which the company is the guarantor.
In connection with the construction of two of its manufacturing facilities, the company guaranteed repayment of principal and interest on a total of $13,300 variable rate industrial development revenue bonds by obtaining letters of credit. The bonds were issued with a 20-year original term and are scheduled to mature in 2017. Any default, as defined in the agreements, would obligate the company for the full amount of the outstanding bonds through maturity. At March 31, 2004, the carrying value of the liability was $13,300 and is included in long term liabilities.
The company provides its global operations guarantees and standby letters of credit through various financial institutions to suppliers, regulatory agencies and insurance providers. If the company is not able to make payment, the suppliers, regulatory agencies and insurance providers may draw on the pertinent bank. As of March 31, 2004, the maximum future payment obligations relative to these various guarantees totaled $23,403, of which $12,641 represented standby letters of credit to insurance providers, and no associated liability was recorded.
The company provides its customers a standard manufacturers warranty and records, at the time of the sale, a corresponding estimated liability for potential warranty costs. Estimated future obligations due to warranty claims are based upon historical factors such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts. Changes in the companys warranty liability balance are illustrated in the following table:
11. | SUBSEQUENT EVENTS |
On April 30, 2004, the Secretary of State of California revoked the conditional certification of the AccuVote-TSX product, which was used in the March 2, 2004 primary elections in California, as well as the certifications of other electronic voting products. As part of the Secretary of States action, DESI will be permitted to seek recertification of its other electronic voting products for the upcoming November elections after making requested changes. Currently, DESI will not have the opportunity to seek recertification of the AccuVote-TSX product until it has been federally qualified and includes an Accessible Voter-Verified Paper Audit Trail complying with new standards the Secretary of State of California plans to have in place by May 30, 2004. Additionally, the Secretary of State has recommended that the California Attorney General pursue possible civil and criminal charges against DESI. Although the Company cannot predict the ultimate impact of the challenges to DESIs products and any civil or criminal charges, they are likely to increase DESIs costs of providing such products and services and may affect its relationships with its customers.
11
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
As of March 31, 2004
OVERVIEW
More than 140 years ago, Diebold went into the business of making strong,
reliable safes. Today, Diebold, Incorporated is a global leader in providing
integrated self-service delivery systems, security and services to customers
within the financial, government, education, and retail sectors. In 2003, the
company introduced Opteva, a new product line within the financial self-service
market that provides a higher level of security, convenience and reliability.
The new line is powered by Agilis, which is a software platform for financial
self-service equipment that was developed by the company in 2002. The
combination of Opteva and Agilis provides the ability for financial
institutions to customize solutions to meet their consumers demands and
positively affect equipment performance. The Agilis software platform gives
customers the ability to run the same software across their entire network,
which helps contain costs and improve financial self-service equipment
availability. Significant growth in 2003 and 2002 was attributable to
favorable reaction by the financial sector to this new generation of financial
self-service solutions, and this growth continued in the first quarter of 2004.
The company faces a variety of challenges and opportunities in responding to
customer needs, most notably with the election systems market. Diebold
Election Systems, Inc. (DESI) remains a leader in the election systems market.
However, a number of individuals and groups have raised challenges recently in
the media and elsewhere regarding the reliability and security of the automated
election system tabulation products and services provided by DESI. The parties
making these challenges oppose the use of technology in the electoral process
generally and, specifically, have taken actions to publicize what they view as
significant flaws in DESIs election management software and firmware. Among
other efforts, these parties have established web sites and web logs devoted to
disseminating information damaging to DESIs reputation and its products. They
have filed a number of open-records act requests in various states for copies
of contracts with DESI and/or for DESIs software. They have also posted on
the internet portions of DESIs software source code and private communications
among DESIs programmers, which were originally obtained by a hacker from an
internal File Transfer Protocol site maintained by DESI. These efforts have
affected DESIs customer relations. Also, the election systems market
continues to evolve. Funding is being provided by the federal government and
utilized by the states; however, the guidelines and rules governing the
election software and hardware have not yet been fully established. As a
result, various states and industry experts are interpreting the election
requirements differently. Recent changes in the laws under which
election-related products must be certified by a number of states have
lengthened the certification process and, in some cases, required changes to
DESIs products. For example, there has been a delay in fully implementing
electronic voting in Ohio, which has adversely impacted DESIs sales. Although
the Company cannot predict the ultimate impact of the challenges on DESIs cost
of providing such products and services or changes in the law will have on
DESI, they are likely to increase DESIs costs of providing such products and
services and may affect its relationship with its customers, which may also
adversely affect DESIs sales. The company has responded to these challenges
by upgrading its election products and services.
The company intends the discussion of its financial condition and results of
operation that follows to provide information that will assist in understanding
the financial statements, the changes in certain key items in those financial
statements from the first quarter of 2004 as compared to the first quarter of
2003, and the primary factors that accounted for those changes, as well as how
certain accounting principles, policies and estimates affected the financial
statements.
The business drivers of the companys future performance involve several
factors that include, but are not limited to:
12
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
the timing of a self-service upgrade and/or replacement cycle in mature markets such as the United States;
the high levels of deployment growth for new self-service products in emerging markets such as Asia-Pacific;
the demand for new service offerings including outsourcing or operating a network of ATMs;
the demand beyond expectations for security products and services for the financial, retail and government sectors;
the implementation and the timeline for new election systems in the United States; and,
the companys strong financial position and its ability to successfully integrate its acquisitions.
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
As of March 31, 2004
(Unaudited)
(Dollars in thousands, except per share amounts)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the condensed consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Management of the company uses historical information and all available information to make these estimates and assumptions. Actual amounts could differ from these estimates and different amounts could be reported using different assumptions and estimates.
Management believes that of its significant accounting policies, its policies concerning revenue recognition, allowance for bad debts, inventories, goodwill, and pensions and postretirement benefits are the most critical because they are affected significantly by judgments, assumptions and estimates. Additional information regarding these policies is included below.
Revenue Recognition
The company enters into contracts to sell its products and services. Revenue is recognized on financial self-service and security product sales in accordance with the terms of the contract, contingent upon customer acceptance and transferring risk of loss. Service revenue is recognized when earned, which is defined as when the work is completed or in the case of service contracts, ratably over the contract period. Election systems contracts contain multiple deliverable elements and custom terms and conditions. The company recognizes revenue for delivered elements only when the fair values of undelivered elements are known, uncertainties regarding customer acceptance are resolved and there are no customer-negotiated refund or return rights affecting the revenue recognized for delivered elements. Some contracts may contain discounts and, as such, revenue is recognized using the relative fair value method of allocation of revenue to the product and service components of contracts.
Allowance for Bad Debts and Credit Risk
The company evaluates the collectibility of accounts receivable based on a number of criteria. A percentage of sales are reserved for uncollectible accounts as sales occur throughout the year. This percentage is based on historical loss experience and current trends. This estimate is periodically adjusted for known events such as specific customer circumstances and changes in the aging of accounts receivable balances. Since the companys receivable balance is concentrated primarily in the financial and government sectors, an economic downturn in these sectors could result in higher than expected credit losses.
Inventories
Inventories are valued at lower of cost or market. The company regularly reviews the inventory quantities on hand, identifies any slow-moving or obsolete inventories and writes inventory down to its net realizable value. The companys inventories are not highly susceptible to obsolescence given the current product mix; however, new technologies and competition in certain product markets could change future assumptions relating to excess and obsolete inventory.
Goodwill
The company tests all existing goodwill at least annually for impairment using the fair value approach on a reporting unit basis in accordance with Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets . The companys reporting units are defined as Domestic and Canada, Brazil, Latin America, Asia Pacific, and Europe, Middle East and Africa (EMEA). Fair values of reporting units and the related implied fair values of their respective goodwill were established using discounted cash flows. When available and as appropriate, comparative market multiples were used to corroborate results of the discounted cash flows. The companys fair value model uses inputs such as estimated future segment performance and other significant estimates. The company uses the most current information available and performs the annual impairment analysis during the fourth quarter each year. However, actual circumstances could differ significantly from assumptions and estimates made and could result in future goodwill impairment.
Pensions and Postretirement Benefits
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. For 2004, medical cost trend rates were projected at 7.85 percent and prescription drug cost trend rates were projected at 12.45 percent, with both cost trend rate assumptions gradually declining to 4.75 percent by 2009 and remaining at that level thereafter.
13
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
As of March 31, 2004
(Unaudited)
(Dollars in thousands, except per share amounts)
Annually, the company analyzes its key assumptions related to its pension plans. Key assumptions include the long-term rate of return on plan assets, the discount rate and the compensation levels. Such factors as financial market performance and actual compensation levels are considered when analyzing the key assumptions. The companys key assumptions related to its pension plans for 2004 are as follows: long-term rate of return on plan assets of 8.50 percent; discount rate of 6.25 percent; and, compensation level increase of 3.00 percent.
Based on the above assumptions, the company expects pension expense to increase by approximately $4,000 in 2004, increasing from approximately $1,000 in 2003 to approximately $5,000 in 2004. Changes in any of the aforementioned assumptions could result in changes in the related retirement benefit cost and obligation.
Assumed healthcare cost trend rates have a significant effect on the amounts
reported for the healthcare plans. A one-percentage-point change in assumed
healthcare cost trend rates would have the following effects:
One-Percentage-
One-Percentage-
Point Increase
Point Decrease
$
125
$
(112
)
1,725
(1,543
)
The companys pension plans remain adequately funded and the company is not required to make any additional contributions in 2004. Pension expense excludes retiree medical expense, which is also included in operating expenses and was approximately $2,800 in 2003. Retiree medical expense is expected to be approximately $3,000 in 2004.
LIQUIDITY AND CAPITAL RESOURCES
Capital resources are obtained from income retained in the business, borrowings under the companys committed and uncommitted credit facilities, long-term industrial revenue bonds, and operating and capital leasing arrangements. At March 31, 2004, the company had U.S. dollar denominated outstanding bank credit lines approximating $102,926, euro denominated outstanding bank credit lines approximating 75,751 (translated at $92,210) and Australian dollar denominated outstanding bank credit lines approximating 7,000 (translated at $5,273). An additional $214,564 was available under committed credit line agreements and $29,000 was available under uncommitted lines of credit. Management expects that cash provided from operations, available credit, long-term debt and the use of operating leases will be sufficient to finance planned working capital needs, acquisitions, investments in facilities or equipment, and purchase of company stock.
During the first quarter 2004, the company generated $9,247 in cash from operating activities, a decrease of $89,232, or 90.6 percent compared to first quarter 2003. Cash flows from operating activities are generated primarily from operating income and changes in the components of working capital. First quarter 2004 cash flows from operations were negatively impacted by the increase in inventory levels as well as net changes in other components of working capital. Inventory increased by $30,346 in 2004 compared to $7,192 in 2003, primarily due to the growing demand of its Opteva and election systems products. Certain other assets and liabilities changed by $23,010 in 2004 compared to $61,453 in 2003. The primary component of this change from 2003 to 2004 pertained to a decrease in estimated income taxes due to the timing of federal tax payments for comparable periods. Other current assets increased by $10,371 in 2004 compared to a decrease of $11,425 in 2003 primarily due to the discontinuance of providing cash for the retail ATM program. The company began outsourcing the supply of cash for the retail ATM program late in 2003. Trade receivables increased by $1,208 in the first quarter of 2004 compared to $3,411 in 2003. Included in the March 31, 2004 trade receivables are amounts due from San Diego, Solano, and San Joaquin counties in California totaling approximately $38,000 related to election systems sales. While the company expects to collect these outstanding receivables, there is a risk of further delay or possible non-collection given the recent events surrounding the California Secretary of States action to revoke the conditional certification of AccuVote-TSX product used in the March 2, 2004 California primary election, as well as the certification of DESIs other electronic voting products . If these receivables are ultimately determined to be uncollectible, they would then be written off. Accounts payable decreased by $18,560 in 2004 compared to $6,502 in the first quarter of 2003 due to timing of purchases and payments to suppliers. The increase in operating income partially offset some of the changes in working capital to positively affect cash flows for the first quarter 2004.
14
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
As of March 31, 2004
(Unaudited)
(Dollars in thousands, except per share amounts)
The company used $21,720 for investing activities during the first quarter 2004, a decrease of $6,900, or 24.1 percent over first quarter 2003. The decrease over the prior year quarter was primarily the result of lower levels of capital and rotables expenditures, which decreased by $6,823.
The company used $10,695 for financing activities during the first quarter 2004, a decrease of $77,096 or 87.8 percent compared to first quarter 2003. The decrease was primarily due to the cash inflows from net borrowings of $16,039 in the first quarter 2004 compared with cash outflows from net debt repayments of $70,625 in the first quarter 2003. These changes were partially offset by a $16,181 increase quarter over quarter in cash payments for the repurchase of common shares. In lieu of granting stock options in 2004 to certain key associates, the company granted restricted stock units in an effort to more directly link associate rewards to corporate performance. Stock options currently do not result in any expense; however, restricted stock units granted are expensed ratably over their vesting period. Restricted share grants are expected to negatively affect earnings per share by approximately $.01 in 2004
Contractual cash obligations with initial and remaining terms in excess of one year and contingent liabilities remained generally unchanged at March 31, 2004 compared to December 31, 2003.
In 2001, the company entered into a securitization agreement, which involved the sale of a pool of its lease receivables to a wholly owned, unconsolidated, qualified special purpose subsidiary, DCC Funding LLC (DCCF). The securitized pool of lease receivables was $37,667 at March 31, 2004, which is not recorded on the companys condensed consolidated financial statements. The pool of receivables represents collateral for the 364-day facility agreement that funds the securitization. The balance of the 364-day facility agreement was $33,239 at March 31, 2004.
RESULTS OF OPERATIONS
First Quarter 2004 Comparisons with First Quarter 2003
Net Sales
Net sales for first quarter of 2004 totaled $498,255 and were $88,101 or 21.5 percent higher than net sales for first quarter of 2003. Financial self-service product revenue increased by $42,672 or 38.2 percent over the comparable period in 2003, primarily due to market and market share growth, and the benefits from the positive currency effects in EMEA and Brazil. Strong customer acceptance of the new Opteva product line during 2004 helped the company continue to gain global market share. Security product revenue increased by $9,006 or 18.6 percent over the first quarter of 2003, due primarily to increases in the retail, government and financial security markets as a result of growth in the market, complimented by growth resulting from strategic acquisitions and increased market share. Total service revenue for financial self-service and security solutions increased $28,582 or 11.8 percent over first quarter of 2003, as the company continued to expand its service customer base.
Election systems net sales of $14,873 increased by $7,841 or 111.5 percent over the first quarter of 2003. Despite the increase in election systems net sales quarter over quarter, purchasing delays resulting from ongoing political debates regarding electronic voting adversely affected the election systems business in the first quarter of 2004.
Gross Profit
Gross profit for the first quarter of 2004 totaled $140,027 and was $16,272 or 13.1 percent higher than gross profit in the first quarter of 2003. Product gross margin was 32.5 percent in the first quarter of 2004 compared to 36.8 percent in the comparable period of 2003. The decline in product gross margin was due to lower product margins in election systems, as well as pricing pressure on non-Opteva financial self-service product offerings and U.S. security products. This decline in product gross margin was partially offset by higher profit margins from Opteva financial self-service products. Service gross margin in the first quarter of 2004 decreased to 24.7 percent compared with 25.7 percent in the first quarter of 2003. Increased pricing pressure in Europe and Latin America, as well as a higher mix of installation and election systems service revenue, which carries lower margins, contributed to the decrease in service gross margin. This decrease in service gross margin was partially offset by improved service margins achieved in North America.
15
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
As of March 31, 2004
(Unaudited)
(Dollars in thousands, except per share amounts)
Operating Expenses
Total operating expenses were 19.3 percent of net sales, down from 20.2 percent in the first quarter of 2003. The improved leveraging of operating expenses as a percent of net sales was achieved due to aggressive cost controls on rapid sales growth.
Other Income (Expense)
Interest expense in the first quarter of 2004 decreased $835 or 29.4 percent compared with the first quarter of 2003 reflecting the decrease in interest rates quarter over quarter. First quarter 2004 miscellaneous, net decreased by $1,311 or 92.9 percent compared with the first quarter of 2003. The decrease was primarily due to improved foreign exchange results, mainly in Brazil and EMEA.
Net Income
Net income for the first quarter of 2004 was $29,169 and increased $3,269 or 12.6 percent over net income for the first quarter of 2003. The increase was primarily due to strong revenue performance and aggressive cost controls, partially offset by lower gross margins.
Segment Revenue and Operating Profit Summary
Diebold North America (DNA) first quarter 2004 net sales of $305,327 increased $43,412 or 16.6 percent over the first quarter 2003 net sales of $261,915. The increase in DNA net sales was due to increased product and service revenue from gains in market share and the continued favorable response to the Opteva financial self-service product line. Diebold International (DI) first quarter 2004 net sales of $178,055 increased by $36,848 or 26.1 percent compared with net sales in the comparable period of 2003 of $141,207. The increase in DI net sales was attributed to strong Asia-Pacific revenue growth of $10,122 or 32.0 percent, and higher revenue from Latin America and EMEA (the majority of the increase in revenue in Brazil and in EMEA was from positive currency impact). Election Systems (ES) first quarter 2004 net sales of $14,873 increased by $7,841 or 111.5 percent compared the first quarter of 2003 net sales of $7,032 due primarily to increased service revenue on existing contracts.
DNA operating profit in the first quarter of 2004 increased by $9,631 or 32.1 percent compared with the first quarter of 2003. The increase was primarily due to increased sales and efficiencies gained from various internal cost control initiatives. DI operating profit in the first quarter of 2004 decreased by $2,230 or 21.1 percent compared with the comparable period in 2003. The decrease was primarily due to lower gross margins. Operating profit in ES decreased by $4,604 or 967.2 percent, moving from an operating profit of $476 in the first quarter of 2003 to an operating loss of $4,128 in the first quarter of 2004. This decrease in ES operating income was a result of lower gross margins and higher operating expense levels in the election systems business.
Refer to Note 9 to the condensed consolidated financial statements for further details of segment revenue and operating profit.
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.
Expectations for the second quarter 2004 include:
| Second quarter revenue is expected to increase 13 to 16 percent on a fixed exchange rate basis. |
| Financial self-service revenue growth of 8 to 11 percent, fixed rate. | |||
| Security growth of 9 to 12 percent, fixed rate. | |||
| Election systems revenue is expected to be $25 to $30 million for the second quarter. |
| Currency exchange is anticipated to be neutral to slightly favorable versus prior year. |
| Depreciation and amortization to be approximately $18 million. |
| An effective tax rate of approximately 32.0 percent. |
| An increase in pension expense of approximately $.01 per share in the second quarter of 2004 as compared to the second quarter of 2003. |
| EPS in the range of $.58 to $.62. This compares to $.57 in the second quarter of 2003, which included approximately $.03 per share gain from the early buy-out of leased ATM equipment by a major customer. |
16
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
As of March 31, 2004
(Unaudited)
(Dollars in thousands, except per share amounts)
Expectations for the full year 2004 include:
| Revenue growth of 8 to 12 percent, on a fixed exchange rate basis. |
| Financial self-service revenue growth of 9 to 12 percent, fixed rate. | |||
| Security growth of 10 to 14 percent, fixed rate. | |||
| Election systems revenue is now anticipated to be in the range of $80 to $95 million. The company has reduced its revenue expectations as a result of delays in the implementation of electronic voting in Ohio. The total adjusted range includes $35.8 million for the voting contract in Brazil. |
| Positive currency impact of 1 to 2 percent versus prior year. |
| Depreciation and amortization of approximately $75 million. |
| An effective tax rate of approximately 32.0 percent. |
| Pension expense is expected to be $.04 per share higher in 2004, moving from $.01 per share in 2003 to $.05 per share in 2004. |
| EPS in the range of $2.58 to $2.66. |
| Research and development will be approximately 3.0 percent of revenue. |
FORWARD-LOOKING STATEMENT DISCLOSURE
In the companys 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 companys share of new and existing markets, and the companys 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 companys 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 companys 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 companys 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 companys operations, including Brazil, where a significant portion of the companys revenue is derived; |
| acceptance of the companys product and technology introductions in the marketplace; |
| unanticipated litigation, claims or assessments; |
| ability to reduce costs and expenses and improve internal operating efficiencies; |
| variations in consumer demand for self-service technologies, products and services; |
| challenges raised about the reliability and security of the companys election systems products, including the risk that such products will not be certified for use or will be decertified; and, |
| changes in laws regarding the companys election systems products and services. |
17
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
As of March 31, 2004
(Unaudited)
The company is exposed to foreign currency exchange rate risk inherent in its
international operations denominated in currencies other than the U.S. dollar.
A hypothetical 10 percent unfavorable movement in the applicable foreign
exchange rates would have resulted in a decrease in 2004 year-to-date operating
profit of approximately $684. The sensitivity model assumes an instantaneous,
parallel shift in the foreign currency exchange rates. Exchange rates rarely
move in the same direction. The assumption that exchange rates change in an
instantaneous or parallel fashion may overstate the impact of changing exchange
rates on amounts denominated in a foreign currency.
The companys 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 manages interest rate risk with the use of variable rate borrowings
under its committed and uncommitted credit facilities and interest rate swaps.
Variable rate borrowings under the credit facilities totaled $200,409 at March
31, 2004. A one percent increase or decrease in interest rates would have
resulted in an increase or decrease in year-to-date interest expense of
approximately $500. The company had no derivative contracts hedging interest
rate risk as of March 31, 2004.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Dollars in thousands)
The company evaluated the design and operation of its disclosure controls and
procedures to determine whether they are effective in ensuring that the
disclosure of required information is timely made in accordance with the
Exchange Act and the rules and forms of the Securities and Exchange Commission.
This evaluation was made under the supervision and with the participation of
management, including the companys principal executive officer and principal
financial officer for the quarter ended March 31, 2004. The principal executive
officer and principal financial officer have concluded, based on their review,
that the companys disclosure controls and procedures, as defined at Exchange
Act Rules 13a-15(e) and 15d-15(e), are effective to ensure that information
required to be disclosed by the company in reports that it files under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms. No
significant changes were made to the companys internal control over financial
reporting that occurred during the companys most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
companys internal control over financial reporting.
ITEM 4.
CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
At March 31, 2004, the company 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 companys
financial position or results of operations. In managements opinion, the
condensed consolidated financial statements would not be materially affected by
the outcome of any present legal proceedings, commitments, or asserted claims.
ITEM 1.
LEGAL PROCEEDINGS
ISSUER PURCHASES OF EQUITY SECURITIES
The Company Stock Repurchase Plan was approved by the Board of Directors of the
Company on April 24, 1997 and has no expiration date.
18
ITEM 2.
CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
(d). Maximum
(c). Total Shares
Number of Shares
(a). Total Number
(b). Average
Purchased as
that may yet be
of Shares
Price Paid per
part of Publicly
Purchased under
Period
Purchased
Share
Announced Plan
the Plan
0
N/A
694,400
1,305,600
0
N/A
694,400
1,305,600
342,181
$
48.18
1,036,581
963,419
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
PART II. OTHER INFORMATION (Continued)
The Registrants annual meeting of shareholders was held on April 22, 2004.
Each matter voted upon at such meeting and the number of shares cast for,
against or withheld, and abstained are as follows:
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1.
Election of Directors
For
Withheld
65,380,437
1,216,581
65,835,608
761,410
65,684,111
912,907
65,662,043
934,975
65,684,386
912,632
65,932,635
664,383
65,677,153
919,865
65,401,069
1,195,949
65,542,822
1,054,196
65,937,198
659,820
65,651,415
945,603
65,283,939
1,313,079
14,520
2.
Ratification of Appointment of KPMG LLP as Independent Auditors for 2004
For
Against
Abstained
64,437,928
1,573,306
585,784
There were no broker non-votes.
19
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
(i)
Amended and Restated Articles of Incorporation of Diebold, Incorporated incorporated by reference to Exhibit 3.1(i) of
Registrants Annual Report on Form 10-K for the year ended December 31, 1994. (Commission File No. 1-4879)
(ii)
Code of Regulations incorporated by reference to Exhibit 4(c) to Registrants Post-Effective Amendment No. 1 to Form S-8
Registration Statement No. 33-32960.
Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated incorporated by
reference to Exhibit 3.2 to Registrants Form 10-Q for the quarter ended March 31, 1996. (Commission File No. 1-4879)
Certificate of Amendment to Amended Articles of Incorporation of Diebold, Incorporated incorporated by reference to
Exhibit 3.3 to Registrants Form 10-K for the year ended December 31, 1998. (Commission File No. 1-4879)
Rights Agreement dated as of February 11, 1999 between Diebold, Incorporated and The Bank of New York incorporated by
reference to Exhibit 4.1 to Registrants Registration Statement on Form 8-A dated February 11, 1999.
Form of Employment Agreement as amended and restated as of September 13, 1990 incorporated by reference to Exhibit 10.1
to Registrants Annual Report on Form 10-K for the year ended December 31, 1990. (Commission File No. 1-4879)
Schedule of Certain Officers who are Parties to Employment Agreements in the form of Exhibit 10.1.
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
PART II. OTHER INFORMATION (Continued)
ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
(a)
|
Exhibits (Continued) | |||
|
||||
*10.5
|
(i) | Supplemental Employee Retirement Plan I as amended and restated July 1, 2002 incorporated by reference to Exhibit 10.5 (i) of Registrants Form 10-Q for the quarter ended September 30, 2002. (Commission File No. 1-4879). | ||
|
||||
*10.5
|
(ii) | Supplemental Employee Retirement Plan II as amended and restated July 1, 2002 incorporated by reference to Exhibit 10.5 (ii) of Registrants Form 10-Q for the quarter ended September 30, 2002. (Commission File No. 1-4879). | ||
|
||||
*10.7
|
(i) | 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated incorporated by reference to Exhibit 10.7 to Registrants Annual Report on Form 10-K for the year ended December 31, 1992. (Commission File No. 1-4879). | ||
|
||||
*10.7
|
(ii) | Amendment No. 1 to the Amended and Restated 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated incorporated by reference to Exhibit 10.7 (ii) to Registrants Form 10-Q for the quarter ended March 31, 1998. (Commission File No. 1-4879). | ||
|
||||
*10.7
|
(iii) | Amendment No. 2 to the Amended and Restated 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated incorporated by reference to Exhibit 10.7 (ii) to Registrants Form 10-Q for the quarter ended March 31, 2003. (Commission File No. 1-4879). | ||
|
||||
*10.8
|
(i) | 1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001 incorporated by reference to Exhibit 4 (a) to Form S-8 Registration Statement No. 333-60578. | ||
|
||||
*10.8
|
(ii) | Amendment No. 1 to the 1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001. | ||
|
||||
*10.8
|
(iii) | Amendment No. 2 to the 1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001. | ||
|
||||
*10.9
|
Long-Term Executive Incentive Plan incorporated by reference to Exhibit 10.9 of Registrants Annual Report on Form 10-K for the year ended December 31, 1993. (Commission File No. 1-4879) | |||
|
||||
*10.10
|
(i) | 1992 Deferred Incentive Compensation Plan (as amended and restated ) incorporated by reference to Exhibit 10.10 (i) of Registrants Form 10-Q for the quarter ended September 30, 2002. (Commission File No. 1-4879) | ||
|
||||
*10.11
|
Annual Incentive Plan incorporated by reference to Exhibit 10.11 to Registrants Annual Report on Form 10-K for the year ended December 31, 2000. (Commission File No. 1-4879) | |||
|
||||
*10.13
|
(i) | Forms of Deferred Compensation Agreement and Amendment No. 1 to Deferred Compensation Agreement incorporated by reference to Exhibit 10.13 to Registrants Annual Report on Form 10-K for the year ended December 31, 1996. (Commission File No. 1-4879) | ||
|
||||
*10.13
|
(ii) | Section 162(m) Deferred Compensation Agreement (as amended and restated January 29, 1998) incorporated by reference to Exhibit 10.13 (ii) to Registrants Form 10-Q for the quarter ended March 31, 1998. (Commission File No. 1-4879) | ||
|
||||
*10.14
|
Deferral of Stock Option Gains Plan incorporated by reference to Exhibit 10.14 of Registrants Annual Report on Form 10-K for the year ended December 31, 1998. (Commission File No. 1-4879) | |||
|
||||
*10.15
|
Employment Agreement with Walden W. ODell incorporated by reference to Exhibit 10.15 of Registrants Annual Report on Form 10-K for the year ended December 31, 1999. (Commission File No. 1-4879) | |||
|
||||
*10.17
|
Amended and Restated Loan Agreement dated as of April 30, 2003 among Diebold, Incorporated, the Subsidiary Borrowers, the Lenders and Bank One, N.A. incorporated by reference to Exhibit 10.17 to Registrants Form 10-Q for the quarter ended June 30, 2003. (Commission File No. 1-4879). |
20
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
(a)
|
Exhibits (Continued) | |||
|
||||
*10.18
|
(i) | Retirement and Consulting Agreement with Robert W. Mahoney incorporated by reference to Exhibit 10.18 of Registrants Annual Report on Form 10-K for the year ended December 31, 2000. | ||
|
||||
*10.18
|
(ii) | Extension of Retirement and Consulting Agreement with Robert W. Mahoney incorporated by reference to Exhibit 10.18 (ii) of Registrants Form 10-Q for the quarter ended September 30, 2002. (Commission File No. 1-4879) | ||
|
||||
*10.18
|
(iii) | Extension of Retirement and Consulting Agreement with Robert W. Mahoney incorporated by reference to Exhibit 10.18 (iii) to Registrants Form 10-Q for the quarter ended June 30, 2003. (Commission File No. 1-4879). | ||
|
||||
*10.18
|
(iv) | Extension of Retirement and Consulting Agreement with Robert W. Mahoney. | ||
|
||||
10.20
|
(i) | Transfer and Administration Agreement by and among DCC Funding LLC, Diebold Credit Corporation, Diebold, Incorporated, Receivables Capital Corporation and Bank of America, National Association incorporated by reference to Exhibit 10.20 (i) on Registrants Form 10-Q for the quarter ended March 31, 2001. (Commission File No. 1-4879) | ||
|
||||
10.20
|
(ii) | Amendment No. 1 to the Transfer and Administration Agreement by and among DCC Funding LLC, Diebold Credit Corporation, Diebold, Incorporated, Receivables Capital Corporation and Bank of America, National Association incorporated by reference to Exhibit 10.20 (ii) on Registrants Form 10-Q for the quarter ended March 31, 2001. (Commission File No. 1-4879) | ||
|
||||
*10.21
|
Employment Agreement with Eric C. Evans. | |||
|
||||
|
* | Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 6 (c) of this report. | ||
|
||||
31.1
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
|
||||
31.2
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
|
||||
32.1
|
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
|
||||
32.2
|
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
|
||||
(b)
|
Reports on Form 8-K | |||
|
||||
|
Registrant furnished a report on Form 8-K under Item 12 on January 28, 2004, in connection with its earnings release dated January 28, 2004. | |||
|
||||
(c)
|
Refer to page 23 of this Form 10-Q for an index of exhibits to this Form 10-Q. |
21
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
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 : May 7, 2004
|
By: | /s/ Walden W. ODell | ||
|
|
|||
|
Walden W. ODell | |||
|
Chairman of the Board and | |||
|
Chief Executive Officer | |||
|
(Principal Executive Officer) | |||
|
||||
Date : May 7, 2004
|
By: | /s/ Gregory T. Geswein | ||
|
|
|||
|
Gregory T. Geswein | |||
|
Senior Vice President and | |||
|
Chief Financial Officer | |||
|
(Principal Financial Officer) |
22
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
EXHIBIT NO. | PAGE NO. | |||||
10.2
|
Schedule of Certain Officers who are Parties to Employment Agreements in the form of Exhibit 10.1. | 24 | ||||
|
||||||
10.8 (ii)
|
Amendment No. 1 to the 1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001. | 25 | ||||
|
||||||
10.8 (iii)
|
Amendment No. 2 to the 1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001. | 26 | ||||
|
||||||
10.18 (iv)
|
Extension of Retirement and Consulting Agreement with Robert W. Mahoney. | 27 | ||||
|
||||||
10.21
|
Employment Agreement with Eric C. Evans. | 28 | ||||
|
||||||
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | 29 | ||||
|
||||||
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | 30 | ||||
|
||||||
32.1
|
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. | 31 | ||||
|
||||||
32.2
|
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. | 32 |
23
EXHIBIT 10.2
SCHEDULE OF CERTAIN OFFICERS WHO ARE
PARTIES TO EMPLOYMENT AGREEMENTS
Walden W. O'Dell
Eric C. Evans
Gregory T. Geswein
Michael J. Hillock
David Bucci
Thomas W. Swidarski
James L. M. Chen
Warren W. Dettinger
Jack E. Finefrock
Bartholomew J. Frazzitta
Charee Francis-Vogelsang
Larry D. Ingram
Kevin J. Krakora
Dennis M. Moriarty
Anthony J. Rusciano
Charles B. Scheurer
Robert J. Warren
EXHIBIT 10.8 (ii)
[DIEBOLD LOGO]
AMENDMENT NO. 1 TO THE 1991 EQUITY AND PERFORMANCE
INCENTIVE PLAN (AS AMENDED AND RESTATED AS OF FEBRUARY 7, 2001)
Pursuant to Section 20 of the Diebold, Incorporated Equity and Performance Incentive Plan (As Amended and Restated as of February 7, 2001) (the "Plan"), the Board of Directors of Diebold, Incorporated hereby amends the Plan as follows:
Section 9(a)(iii) shall be amended to read in its entirety as follows:
"(iii) Each such Option Right shall become exercisable to the extent of one-fourth of the number of shares covered thereby 1 year after the Date of Grant and to the extent of an additional one-fourth of such shares after each of the next 3 successive years thereafter. Such Option Rights shall become exercisable in full immediately in the event of a Change in Control. Each such Option Right granted under the Plan shall expire 5 years from the Date of Grant and shall be subject to earlier termination as hereinafter provided. Notwithstanding the foregoing, the Board may provide that Option Rights granted (A) after August 4, 1998 may become exercisable at an earlier time, but not earlier than one year from the Date of Grant, if the Optionee elects to defer gain on the exercise of such Option Rights, and (B) after October 9, 2001 shall expire not more than 10 years from the Date of Grant."
The Plan shall not otherwise be supplemented or amended by virtue of this Amendment No. 1 to the Plan, and shall remain in full force and effect.
EXHIBIT 10.8 (iii)
[DIEBOLD LOGO]
AMENDMENT NO. 2 TO THE 1991 EQUITY AND PERFORMANCE
INCENTIVE PLAN (AS AMENDED AND RESTATED AS OF FEBRUARY 7, 2001)
Pursuant to Sections 17 and 20 of the Diebold, Incorporated Equity and Performance Incentive Plan (As Amended and Restated as of February 7, 2001), as amended by Amendment No 1 (the "Plan"), the Compensation Committee of the Board of Directors of Diebold, Incorporated hereby amends the Plan as follows effective as of February 11, 2004:
1. The definition of "Detrimental Activity" in Section 2 of the Plan is amended in its entirety to read as follows:
(i) Engaging in any activity, as an employee, principal, agent or consultant for another entity, and in a capacity, that directly competes with the Corporation or any Subsidiary in any actual product, service, or business activity (or in any product, service, or business activity which was under active development while the Participant was employed by the Corporation if such development is being actively pursued by the Corporation during the one-year period following the termination of Participant's employment by the Corporation or a Subsidiary) for which the Participant has had any direct responsibility and direct involvement during the last two years of his or her employment with the Corporation or a Subsidiary, in any territory in which the Corporation or a Subsidiary manufactures, sells, markets, services, or installs such product or service or engages in such business activity.
(ii) Soliciting any employee of the Corporation or a Subsidiary to terminate his or her employment with the Corporation or a Subsidiary.
(iii) The disclosure to anyone outside the Corporation or a Subsidiary, or the use in other than the Corporation or a Subsidiary's business, without prior written authorization from the Corporation, of any confidential, proprietary or trade secret information or material relating to the business of the Corporation and its Subsidiaries, acquired by the Participant during his or her employment with the Corporation or its Subsidiaries or while acting as a consultant for the Corporation or its Subsidiaries thereafter.
(iv) The failure or refusal to disclose promptly and to assign to the Corporation upon request all right, title and interest in any invention or idea, patentable or not, made or conceived by the Participant during employment by the Corporation and any Subsidiary, relating in any manner to the actual or anticipated business, research or development work of the Corporation or any Subsidiary or the failure or refusal to do anything reasonably necessary to enable the Corporation or any Subsidiary to secure a patent where appropriate in the United States and in other countries.
(v) Activity that results in Termination for Cause. For purposes of this Section, "Termination for Cause" shall mean a termination:
(A) due to the Participant's willful and continuous gross neglect of his or her duties for which he or she is employed, or
(B) due to an act of dishonesty on the part of the Participant constituting a felony resulting or intended to result, directly or indirectly, in his or her gain for personal enrichment at the expense of the Corporation or a Subsidiary
2. The following definition is added to Section 2 of the Plan:
"Restricted Stock Unit" means a bookkeeping entry reflecting an award of Deferred Shares.
3. The Plan shall not otherwise be supplemented or amended by virtue of this Amendment No. 2 to the Plan, and shall remain in full force and effect.
EXHIBIT 10.18 (iv)
February 12, 2004
Mr. Robert W. Mahoney
Diebold, Incorporated
3800 TABS Drive
Uniontown, Ohio 44685
Dear Bob:
This will confirm our recent conversation regarding your consulting services. Effective January 1, 2004, Diebold, Incorporated and you agree that your Retirement and Consulting Agreement is amended by extending the "Consulting Period," as defined in section 2a of that Agreement, such that the "Consulting Period" now will terminate on December 31, 2004.
We very much appreciate your past consulting services and look forward to working with you during the upcoming year.
If this letter accurately reflects our understanding, please indicate your agreement by signing where designated below. I am including two signed originals of this letter so please sign both, return one to me and keep one for your records. Again, thank you very much.
Sincerely yours,
DIEBOLD, INCORPORATED
Walden W. O'Dell Chairman of the Board President & Chief Executive Officer WWO/ma Accepted and Agreed by: ____________________________ _________________ Robert W. Mahoney Date |
Approved by Board of Directors 2/11/04
EXHIBIT 10.21
January 6, 2004
Mr. Eric C. Evans
1545 Ridgeway Road
Oakwood, Ohio 45419
Dear Eric:
This letter sets forth the terms of our offer to you of employment by Diebold, Incorporated (the "Company"). If our offer is acceptable to you, please so indicate by signing and returning this letter to me.
1. Position and Term. You will serve as President and Chief Operating Officer of the Company, reporting to the Chief Executive Officer. Your first day of employment in this position (the "Start Date") shall be mutually-agreed upon provided you are able to begin your employment within a reasonable time as determined by the Company. You will be considered for membership on the Diebold, Incorporated Board of Directors (the "Board") during its February 2004 meeting, and membership shall be subject to Board approval. The term of your employment will continue for a period of two years from the Start Date, with automatic one-year renewals thereafter unless either you or the Company notifies the other in writing at least 90 days before a scheduled expiration date that the term is not to be renewed.
2. Compensation. Your initial base salary will be at an annual rate of $450,000 ("Base Salary"). You also will be eligible to participate in the Company's Annual Incentive Plan with a potential payment for 2004 of 35%, 90% or 150% of Base Salary at the threshold, target or maximum levels, respectively, subject to achievement of applicable performance measures and the terms and conditions of the plan as may be amended by the Company in its sole discretion.
3. Benefits. You will be entitled to participate in the employee benefit programs that are offered by the Company to its personnel generally including, without limitation, the Company's health care (medical, vision and dental), medical and dependent reimbursement accounts, short and long-term disability and basic life, supplemental life, accidental death and dismemberment and dependent life insurance plans. You will be able to participate in the Company's 401(k) Savings Plan in accordance with the Plan's provisions in effect as of June 30, 2003. Your participation will be subject to the terms and conditions of the applicable plans, including their eligibility rules, as may be amended by the Company in its sole discretion.
Mr. Eric C. Evans
January 6, 2004
4. Vacation, Holidays and Additional Benefits. You will be entitled to twenty days of paid vacation and ten paid holidays annually upon your employment, and will be entitled to reimbursement for reasonable business expenses. You also will be provided a senior executive level car, dues and initiation fees at one country club, and reimbursement for the costs of financial counseling up to $8,500 per year, and an annual physical examination at the Cleveland Clinic, all subject to applicable Company policies regarding senior executives.
5. Relocation. You will be entitled to relocation benefits, including without limitation, a temporary housing allowance, in accordance with the Company's relocation policy applicable to senior executives, and the Company will gross-up the amount of those relocation benefit payments to compensate you for any tax payments you otherwise would have to make on such benefit payments. The Company also will purchase or, subject to applicable legal requirements, arrange to have purchased your existing home at a price equal to the average of the fair market values as reported in two appraisals submitted by appraisers jointly agreed to by you and the Company. As an additional relocation benefit, the Company shall pay you a lump sum amount equal to one month's base salary; provided, however, that this payment will not be subject to a gross-up for taxes.
6. Sign-on Equity Award. As soon as practicable following the Start Date, you will be granted under the Company's 1991 Equity and Performance Incentive Plan, as amended and restated as of February 7, 2001 (the "Equity Incentive Plan"), a nonqualified stock option for that number of shares of the Company's common stock having a fair market value at the time of grant equal to $1,500,000, which will become exercisable in equal installments on the first, second, third and fourth anniversaries of the Start Date. The exercise price will be equal to that fair market value. For example, if the fair market value of the company's common stock on the date of grant is $50 per share, you will receive an option to purchase 30,000 shares at $50 per share. This award shall be subject to the terms and conditions of the Equity Incentive Plan and the applicable standard grant agreement in use thereunder.
7. LTIP. You will be eligible to participate in the Company's Long-Term Incentive Plan ("LTIP") under the Equity Incentive Plan for the 2002-2004, 2003-2005, and 2004-2006 plan periods. For each period, you shall be eligible to receive an award of 15,000 performance shares provided that the LTIP target level performance measures are achieved and that you otherwise satisfy the LTIP compensation requirements. The amount of shares for the 2002-2004 and the 2003-2005 plan periods, however, shall be prorated based on the number of months worked, with full credit for partial months, from your Start Date through the end of the given three year plan period. For example, if the Start Date is March 1, 2004 and target level performance measures are achieved, you will receive an award of 4,167 performance shares (10/36ths x 15,000) for the 2002-2004 plan period, subject to the applicable form of award agreement. The amount of shares for the 2004-2006 plan period will not be subject to such proration. Your ultimate LTIP incentive compensation, if any, shall be subject to the terms and conditions of the LTIP and the Equity Incentive Plan as amended by the Company in its sole discretion.
8. Supplemental Employee Retirement Plan. As of the Start Date, you will be eligible to participate in the Supplemental Employee Retirement Plan II ("SERP II"), pursuant to the terms and
Mr. Eric C. Evans
January 6, 2004
conditions of SERP II as it may be amended by the Company in its sole discretion. Solely for purposes of determining your vesting status and for eligibility to receive a benefit under SERP II, you will be deemed to have ten years of vesting service as of your Start Date.
9. Change in Control. You will be entitled to enter into an Employment Agreement providing for certain terms and conditions of your employment following a "Change in Control" of the Company as defined therein. After entering into such agreement, if there is an occurrence of a "Change in Control" as so defined, the terms of that agreement will control the terms and conditions of your employment rather than this letter. Your "Change in Control" Employment Agreement will be at the two year benefit level as described therein.
10. Stock Ownership Guidelines. You agree to comply during your employment with the Company's stock ownership guidelines, as amended from time to time, applicable to executives of the Company.
11. Severance Benefits. You agree that your employment is on an at-will basis. If the Company terminates your employment including, without limitation, by reason of the Company's nonrenewal of this Agreement under paragraph 1, but other than by reason of death, disability or cause (meaning an intentional act of fraud, embezzlement, theft, damage to property, disclosure of confidential information or engagement in competitive activity, violation of the Company Business Ethics Policy, or your gross negligence or misconduct, any of which is materially harmful to the Company, or your intentional and repeated failure to carry out your duties and responsibilities) prior to the end of your employment term, you will as your sole severance payment be entitled to continue to receive your Base Salary for 24 months following your termination and will be provided with health care benefits (including medical/hospital and dental) and the basic company-paid life insurance benefit for 24 months following your termination, subject to the terms of those benefit plans including, but not limited to, your timely payment of any employee contributions necessary to maintain participation. Such health care and life insurance benefits, however, will be reduced by any comparable benefits you receive from another employer, including self-employment, during such period. You will also be entitled to receive up to one year of outplacement services.
12. Non-Competition and Nonsolicitation. You agree that during your employment and for a period of two years thereafter you will not, without prior written consent of the Company, engage, directly or indirectly, either personally or as an employee, agent, representative or consultant for another in any activity that competes directly or indirectly with the Company or any of its subsidiaries or affiliates in any products, services, systems, or other business activities (or in any product, service, system or business activity which was under either active development or consideration while you were employed by the Company). You acknowledge and agree that the Company competes worldwide in the sale of products, services, systems and business activities and that the market for technology related to its products, services, systems and business activities is worldwide. You also agree that during your term of employment and for a period of two years thereafter not to induce or assist others in inducing any employee of the Company or its affiliates to give up employment with the Company or its affiliates. In the event that the scope of these
Mr. Eric C. Evans
January 6, 2004
restrictions on you in this paragraph are found overly broad, you agree that a court should reform the restrictions by limiting them to the maximum reasonable scope.
13. Proprietary Information and Inventions. You realize that as an employee of the Company, you may create or have access to information, trade secrets, substances and inventions including confidential information relating to the business or interests of persons with whom the Company or its affiliated companies may have commercial, technical or scientific relationships ("Information") which is valuable to the Company or its affiliated companies and may lose its value if disclosed to third parties. Therefore, you agree to treat all such Information as confidential and belonging to the Company and will take all actions reasonably requested to confirm such ownership. You will not, without the prior written consent of the Company, disclose or use the same otherwise than in the course of your employment with the Company; this obligation shall continue until such Information becomes public knowledge through no fault on your part, regardless of whether you continue to be employed by the Company.
14. Governing Law. You agree that this letter agreement will be governed by the substantive laws of Ohio, without regard to conflict of laws principles. This letter agreement is intended to be the entire agreement of the parties and supercedes any prior agreement, written or oral representation, or other understanding concerning the terms and conditions of your employment. This letter agreement can only be modified by a writing signed by both parties.
15. Required Approvals. Your employment as President and Chief Operating Officer, and the compensation, incentives and other benefits described in this letter agreement are subject to the approval of the Board and its Compensation Committee.
Sincerely, Diebold, Incorporated By: ___________________________________ Its: ______________________________ Accepted and Agreed: _______________________________ _______________________________ Eric C. Evans Date |
EXHIBIT 31.1
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Walden W. O'Dell, Chairman of the Board and Chief Executive Officer, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Diebold, Incorporated;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 7, 2004
DIEBOLD, INCORPORATED
(Registrant)
By: /s/ Walden W. O'Dell -------------------------------------- Walden W. O'Dell Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 31.2
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gregory T. Geswein, Senior Vice President and Chief Financial Officer, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Diebold, Incorporated;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 7, 2004
DIEBOLD, INCORPORATED
(Registrant)
By: /s/ Gregory T. Geswein -------------------------------------- Gregory T. Geswein Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
EXHIBIT 32.1
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q of Diebold, Incorporated
(the "Company") for the quarter ended March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Walden
W. O'Dell, Chairman of the Board and Chief Executive Officer of the Company,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350, that, to my knowledge:
1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
/s/ Walden W. O'Dell --------------------------- Walden W. O'Dell Chairman of the Board and Chief Executive Officer May 7, 2004 |
EXHIBIT 32.2
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q of Diebold, Incorporated
(the "Company") for the quarter ended March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Gregory
T. Geswein, Senior Vice President and Chief Financial Officer of the Company,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350, that, to my knowledge:
1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
/s/ Gregory T. Geswein ---------------------------- Gregory T. Geswein Senior Vice President and Chief Financial Officer May 7, 2004 |