[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
Commission file number 1-4879
DIEBOLD, INCORPORATED
(Exact name of Registrant as specified in its charter)
Ohio 34-0183970
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State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
5995 Mayfair Road, P.O. Box 3077,
North Canton, Ohio 44720-8077
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(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class exchange on which registered:
Common Shares $1.25 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 2, 1999. The aggregate market value was computed by using the closing price on the New York Stock Exchange on March 2, 1999 of $29.563 per share.
Common Shares, Par Value $1.25 Per Share $2,016,878,297
Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at March 2, 1999
Common Shares $1.25 Par Value 68,949,664 Shares
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DOCUMENTS INCORPORATED BY REFERENCE
(1) PROXY STATEMENT FOR 1999 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 21, 1999
PART OF 10-K
INTO WHICH
CAPTION OR HEADING PAGE NO. INCORPORATED ITEM NO.
------------------ -------- ------------ --------
Information about Nominees for
Election as Directors 3-7 III 10
Executive Compensation 7-15 III 11
Annual Meeting of Shareholders;
Security Ownership of Directors
and Management 2-5 III 12
Compensation Committee Interlocks
and Insider Participation 7 III 13
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The Registrant was incorporated under the laws of the State of Ohio in August, 1876, succeeding a proprietorship established in 1859 and is engaged primarily in the sale, manufacture, installation and service of automated self-service transaction systems, electronic and physical security products, software and integrated systems. During 1998, no significant changes occurred in the manner of conducting the Registrant's business.
The Registrant defines its operating segments as follows: North American Sales and Service (NASS), International Sales and Service (ISS), Manufacturing and Development (M & D) and Corporate. The North American Sales and Service segment sells and services financial, retail, educational and medical systems in the United States and Canada. The International Sales and Service segment sells and services financial, retail, educational and medical systems over the remainder of the globe. The Manufacturing and Development segment manufactures the equipment sold to NASS and ISS and also sells to limited external customers, the largest of which is International Business Machines Corporation (IBM). The Corporate segment supports the other segments and eliminates all inter-segment revenues and costs. Detailed analysis of segment information can be found in Note 16 to the Consolidated Financial Statements.
The Registrant develops, manufactures, sells and services automated teller machines (ATMs), electronic and physical security systems, various products used to equip bank facilities, software and integrated systems for global financial and commercial markets. Sales of systems and equipment are made directly to customers by the Registrant's sales personnel and by manufacturer's representatives and distributors. The sales/support organization works closely with customers and their consultants to analyze and fulfill the customers' needs. Products are sold under contract for future delivery at agreed upon prices. In 1998, 1997, and 1996 the Registrant's sales and services of financial systems and equipment accounted for more than 90% of consolidated net sales.
The principal raw materials used by the Registrant are steel, copper, brass, lumber and plastics which are purchased from various major suppliers. Electronic parts and components are also procured from various suppliers. These materials and components are generally available in quantity at this time.
The Registrant had one customer, IBM, who was its partner in the InterBold joint venture, that accounted for $148,755,000 of the total net sales of $1,185,707,000 in 1998, $173,751,000 of the total net sales of $1,226,936,000 in 1997, and $146,103,000 of the total net sales of $1,030,191,000 in 1996. On January 27, 1998, the Registrant completed its purchase of IBM's 30 percent minority interest in InterBold for $16.1 million, IBM's tax capital account in InterBold.
Backlog as of December 31, 1998 was $299,739,000 which was an 8.2% increase from December 31, 1997 backlog of $276,986,000. While this increase in backlog can be considered positive, order backlog is not the sole indicator of future revenue streams. There are numerous other factors which influence the amount and timing of revenue in future periods.
All phases of the Registrant's business are highly competitive; some products being in competition directly with similar products and others competing with alternative products having similar uses or producing similar results. Registrant believes, based upon outside independent industry surveys, that it is a leading manufacturer of automated teller machines in the United States and is also a market leader internationally. In the area of automated transaction systems, the Registrant competes primarily with NCR Corporation, Triton, Siemens-Nixdorf, Dassault, Bull, Olivetti and Fujitsu. In serving the security products market for the financial services industry, the Registrant competes primarily with Mosler and Lefebure in the security equipment and systems field. Of these, some compete in only one or two product lines, while others sell a broader spectrum of products competing with the Registrant. However, the unavailability of comparative sales information and the large variety of individual products makes it impossible to give reasonable estimates of the Registrant's competitive ranking in or share of the market in its security product fields of activity. Many smaller manufacturers of safes, surveillance cameras, alarm systems and remote drive-up equipment are found in the market.
The Registrant charged to expense approximately $42.9 million in 1998, $45.1 million in 1997, and $41.8 million in 1996 for research and development costs.
Compliance by the Registrant with federal, state and local environmental protection laws during 1998 had no material effect upon capital expenditures, earnings or the competitive position of the Registrant and its subsidiaries.
The total number of employee associates employed by the Registrant at December 31, 1998 was 6,489 compared with 6,714 at the end of the preceding year.
Sales to customers outside the United States as a percent of total consolidated net sales approximated 25.1 percent in 1998, 26.1 percent in 1997, and 22.3 percent in 1996.
The Registrant's corporate offices are located in North Canton, Ohio. It owns facilities (approximately 1.5 million square feet) in Canton, Green and Newark, Ohio; Lynchburg, Staunton and Danville, Virginia; Lexington, North Carolina; Sumter, South Carolina; Melbourne, Australia; Mexico City, Mexico; and leases facilities (approximately .5 million square feet) in Akron, Canton, Canal Fulton, Massillon, Newark and Seville, Ohio; Rancho Dominguez, California; Caracas, Venezuela; London, England; Sydney, Australia; Buenos Aires, Argentina; Stuttgart, Germany; Paris, France and Shanghai, China. These facilities house manufacturing, production, associated engineering, warehousing, testing, administration and development and distribution for all product lines.
At December 31, 1998, the Registrant was a party to several lawsuits that were incurred in the normal course of business, none of which individually or in the aggregate is considered material in relation to the Registrant's financial position or results of operations.
No matters were submitted to a vote of security holders during the fourth quarter of 1998.
Refer to pages 6 through 8.
EXECUTIVE OFFICERS OF THE REGISTRANT
Other Positions
Year Elected Held Last
Name Age Title Present Office Five Years
----------------- --- ---------------------- -------------- ----------------
1996-98
-------
Robert W. Mahoney 62 Chairman of the Board, 1998 Chairman of the Board
President and Chief Executive and Chief Executive
Officer and Director Officer and Director
1993-96
-------
Chairman of the Board,
President and Chief
Executive Officer and
Director - Diebold
Gerald F. Morris 55 Executive Vice President 1993 --
and Chief Financial Officer
1994-96
-------
Alben W. Warf 60 Senior Vice President, 1996 Group Vice President,
Electronic Systems Self-Service Systems -
Development and Diebold
Manufacturing
1993-96
-------
David Bucci 47 Group Vice President, 1997 Vice President, North
North American American Sales and Service
Sales and Service Eastern Division - Diebold
Michael J. Hillock 47 Group Vice President, 1997 1993-97
International Sales -------
and Service Vice President and
General Manager,
Sales and Service,
Europe, Middle East
and Africa
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EXECUTIVE OFFICERS OF THE REGISTRANT - (continued)
Other Positions
Year Elected Held Last
Name Age Title Present Office Five Years
----------------- --- ---------------------- -------------- ----------------
Charles J. Bechtel 53 Vice President, 1998 1997-98
Global Support Services -------
Vice President,
Information Systems
1990-97
-------
Vice President, Marketing
and Sales Operations
James L.M. Chen 38 Vice President and 1998 1996-98
Managing Director, -------
Asia/Pacific Philips Electronics
China B.V.
General Manager,
Business Electronics
1994-96
-------
AT&T China Company
Limited
Managing Director,
Global Information
Solutions, China
Warren W. Dettinger 45 Vice President, 1989 --
General Counsel and
Assistant Secretary
1996-97
-------
Reinoud G. J. Drenth 35 Vice President and 1997 Vice President
Managing Director, Europe Worldwide Marketing
Middle East, and Africa - Diebold
1987-96
-------
NCR Corporation
1995 - Marketing Vice
President, Financial
Services Industry
1994 - Executive
Assistant, Worldwide
Industry Marketing
Donald E. Eagon, Jr. 56 Vice President, 1990 --
Corporate Communications
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EXECUTIVE OFFICERS OF THE REGISTRANT - (continued)
Other Positions
Year Elected Held Last
Name Age Title Present Office Five Years
----------------- --- ---------------------- -------------- ----------------
Charee Francis-Vogelsang 52 Vice President and 1983 --
Secretary
Bartholomew J. Frazzitta 56 Vice President and 1990 --
General Manager,
Security Products
Larry D. Ingram 52 Vice President, 1993 --
Procurement and Services
Charles B. Scheurer 57 Vice President, 1991 --
Human Resources
Robert L. Stockamp 55 Vice President and 1990 --
Corporate Controller
1984-97
-------
Ernesto R. Unanue 57 Vice President and 1997 Vice President of Sales,
Managing Director, Carribbean and South
Latin America American Division
Robert J. Warren 52 Vice President and 1990 --
Treasurer
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There is no family relationship, either by blood, marriage or adoption, between any of the executive officers of the Registrant.
PART II.
On January 30, 1997, the Board of Directors of the Registrant declared a three-for-two stock split which was effected in the form of a stock dividend, distributed on February 19, 1997, to shareholders of record on February 7, 1997. Accordingly, all numbers of Common Shares, except authorized shares and treasury shares, and all per share data have been restated to reflect this stock split.
The Common Shares of the Registrant are listed on the New York Stock Exchange with a symbol of DBD. The price ranges of Common Shares for the Registrant are as follows:
1998 1997 1996
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High Low High Low High Low
------ ----- ------ ----- ------ -----
1st Quarter $55.31 $41.69 $44.88 $36.38 $27.08 $22.44
2nd Quarter 44.44 23.63 43.63 28.00 32.17 24.17
3rd Quarter 31.44 20.00 50.63 39.75 39.08 27.75
4th Quarter 36.88 19.13 50.94 42.13 42.33 35.58
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Full Year $55.31 $19.13 $50.94 $28.00 $42.33 $22.44
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There were approximately 109,511 shareholders at December 31, 1998, which includes an estimated number of shareholders who have shares held for their accounts by banks, brokers, trustees for benefit plans and the agent for the dividend reinvestment plan.
On the basis of amounts paid and declared the annualized quarterly dividends per share were $0.56 in 1998, $0.50 in 1997, and $0.45 in 1996.
On December 30, 1998, 30,060 Common Shares were issued from treasury to Gregg A. Searle, former President, who resigned on September 30, 1998. The shares represented the distribution of Mr. Searle's deferred compensation account which had been allocated in Common Shares, and accordingly, no purchase price was paid by Mr. Searle. The fair market value of the shares on the date of issue was $1,043,653; these shares are considered unregistered.
ITEM 6. SELECTED FINANCIAL DATA.
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(Dollars in thousands)
1998 1997 1996 1995 1994
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Net Sales $1,185,707 $1,226,936 $1,030,191 $863,409 $760,171
Net Income 76,148 122,516 97,425 76,209 63,511
Basic earnings per share 1.10 1.78 1.42 1.11 0.93
Diluted earnings per share 1.10 1.76 1.40 1.10 0.93
Total Assets 1,004,188 991,050 859,101 749,795 666,174
Cash dividends paid per Common Share 0.56 0.50 0.45 0.43 0.39
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MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
The table below presents the changes in comparative financial data from 1996 to 1998. Comments on significant year-to-year fluctuations follow the table.
1998 1997 1996
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Percent Percent Percent Percent Percent
of Net Increase of Net Increase of Net
(Dollars in thousands) Amount Sales (Decrease) Amount Sales (Decrease) Amount Sales
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Net sales
Products ....................... $750,161 63.3% (9.1)% $825,125 67.3% 21.5% $679,053 65.9%
Services ....................... 435,546 36.7 8.4 401,811 32.7 14.4 351,138 34.1
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1,185,707 100.0 (3.4) 1,226,936 100.0 19.1 1,030,191 100.0
Cost of sales
Products ....................... 462,788 61.7 (8.8) 507,322 61.5 20.4 421,261 62.0
Special charges ................ 9,864 -- -- -- -- -- -- --
Services ....................... 306,805 70.4 6.0 289,514 72.1 15.2 251,418 71.6
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779,457 65.7 (2.2) 796,836 64.9 18.5 672,679 65.3
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Gross profit ..................... 406,250 34.3 (5.5) 430,100 35.1 20.3 357,512 34.7
Selling and administrative expense 194,535 16.4 1.4 191,842 15.7 15.2 166,572 16.2
Research, development and
engineering expense ............ 54,215 4.6 (0.3) 54,397 4.4 7.6 50,576 4.9
Realignment charges .............. 51,253 4.3 -- -- -- -- -- --
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300,003 25.3 21.8 246,239 20.1 13.4 217,148 21.1
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Operating profit ................. 106,247 9.0 (42.2) 183,861 15.0 31.0 140,364 13.6
Other income, net ................ 15,403 1.3 123.4 6,894 0.5 (34.5) 10,533 1.0
Minority interest ................ (1,843) (0.2) (63.8) (5,096) (0.4) 16.0 (4,393) (0.4)
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Income before taxes .............. 119,807 10.1 (35.5) 185,659 15.1 26.7 146,504 14.2
Taxes on income .................. 43,659 3.7 (30.9) 63,143 5.1 28.7 49,079 4.7
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Net income ....................... $ 76,148 6.4% (37.8)% $122,516 10.0% 25.8% $ 97,425 9.5%
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REALIGNMENT AND SPECIAL CHARGES
In the second quarter of 1998, the Registrant recorded realignment and special charges of $61,117 ($41,850 after-tax or $0.60 per diluted share). The majority of the realignment charge related to three areas: the ending of the InterBold joint venture with IBM, the exiting of the manufacturing and distribution channel for certain low-end self-service terminal products and the exiting of the proprietary electronic security business. The realignment charge was made up of two components: A special charge of $9,864 for the write-off of primarily inventory from exited lines of business and a realignment charge of $51,253 for all other realignment costs.
Industry-wide banking trends such as bank mega-mergers, as well as the transition from IBM to the Registrant's own international distribution channels, prompted the re-evaluation of the Registrant's business plans and organizational structure. North American facilities were consolidated and certain facilities were closed. More than 600 jobs were estimated to be eliminated. At December 31, 1998, 519 jobs had been terminated. The Registrant estimated savings of $22,000 annually from the realignment program. Details of the components and remaining realignment accrual can be found in Note 8 to the 1998 Consolidated Financial Statements.
OPERATING SEGMENTS
The Registrant adopted Statement of Financial Accounting Standards No. 131, "Operating Segments," for the 1998 Annual Report on Form 10-K. The Registrant reports the following operating segments: North American Sales and Service, International Sales and Service, Manufacturing and Development and Corporate.
North American Sales and Service operating profit in 1998, 1997 and 1996 was $149,231, $164,723 and $147,589, respectively. The decline in profit from 1997 to 1998 was due mainly to decreased shipments of ATMs. Operating profit for the International Sales and Service organization in 1998, 1997 and 1996 was $8,189, $18,170 and $7,936, respectively. The decline in 1998 operating profit internationally is attributed to expenses relating to the Registrant setting up its own international distribution systems. Details of revenue from customers, inter-segment revenues and operating profit contribution can be found in Note 16 to the 1998 Consolidated Financial Statements.
NET SALES
Net sales for 1998 totaled $1,185,707, which represented a decline of $41,229 or 3.4 percent from 1997 and growth of $155,516 or 15.1 percent from 1996. In 1998, sales exceed the $1 billion mark for the third consecutive year in the Registrant's 139 - year history.
Product net sales of $750,161 fell short of 1997 by $74,964 or 9.1 percent, while product net sales were up over 1996 by $71,108 or 10.5 percent. During 1998, the Registrant experienced a slow-down in global sales of ATMs. The decrease in sales volumes can be attributed to recent banking industry mega-mergers as well as banks channeling resources into remediating year 2000 issues, as opposed to making capital expenditures for ATMs. Sales to IBM dropped by 14.4 percent in 1998 versus 1997, when IBM was the Registrant's main international distribution channel. The Registrant is currently implementing plans for its own international sales and distribution channels. Total U.S. product revenue in 1998 fell 9.8 percent from 1997, and sales of products outside the United States fell 7.6 percent in 1998 from 1997.
1998 was a strong year for the Registrant's service business. Service net sales of $435,546 increased $33,735 or 8.4 percent from 1997 and were up $84,408 or 24.0 percent from 1996. The major factors contributing to the service revenue gain in 1998 were the growth of the installed base of equipment resulting from new product installations and continued growth of service offerings such as first-line maintenance.
Total product backlog of unfilled orders reached $299,739 at December 31, 1998, compared with $276,986 at the end of 1997 and $233,586 at the end of 1996. The December 31, 1998 backlog is the highest level attained in the Registrant's history. While this increase in backlog is considered favorable, backlog is not the sole indicator of future revenue streams. Production schedules, customer priorities and other such factors can affect the pace of converting backlog into revenue.
COST OF SALES AND EXPENSES
Cost of sales for 1998 was $779,457, compared with $796,836 in 1997 and $672,679 in 1996. The 1998 decline is mostly attributable to lower sales volumes on ATMs.
Gross profits on product sales decreased $30,430 from 1997 and increased $29,581 from 1996 to a level of $287,373 in 1998. Product gross margins in 1998 were 38.3 percent of product sales, compared with 38.5 percent in 1997 and 38.0 percent in 1996. The relative stability of product gross profits as a percentage of product sales is due to the Registrant's continued cost reduction efforts.
Service gross profits of $128,741 in 1998 increased from $112,297 in 1997 and $99,720 in 1996. Service gross margins as a percentage of service sales were 29.6 percent in 1998, 27.9 percent in 1997, and 28.4 percent in 1996. Gross margins on service sales improved in 1998 over previous years due mainly to increased profitability in North America.
Operating expenses in 1998 were $248,750 (excluding realignment charges) compared with $246,239 in 1997 and $217,148 in 1996. The stability of operating expenses in 1998 stems from the Registrant's efforts to contain operating costs on lower sales volumes. Operating expenses as a percentage of net sales were 21.0 percent in 1998 (excluding realignment charges), 20.1 percent in 1997 and 21.1 percent in 1996.
Operating profit of $167,364 in 1998 (excluding realignment charges) decreased 9.0 percent from $183,861 in 1997, and increased 19.2 percent over 1996 operating profits of $140,364. Operating profit margin of 14.1 percent in 1998 (excluding realignment charges) fell slightly over 1997 operating profit margin of 15.0 percent, but grew over the 13.6 margin in 1996.
OTHER INCOME, NET AND MINORITY INTEREST
Other income, net increased $8,509 from 1997 and $4,870 from 1996. The net increase is due in part to reduced amortization costs relating to intangible assets. Investment income decreased in 1998 as compared with 1997 due to lower interest rates achieved in the Registrant's municipal bond portfolio. The drop in municipal bond interest was partially offset by a continued growth in interest income from finance receivables.
Minority interest of $1,843 decreased from $5,096 in 1997 and $4,393 in 1996 due to the Registrant purchasing IBM's 30 percent minority share in the InterBold joint venture in January 1998. Minority interest consisted primarily of income or losses allocated to the minority ownership of Diebold Financial Equipment Company, Ltd. (China) and Diebold OLTP Systems C.A. (Venezuela). Minority interests for all companies are calculated as a percentage of profits of the joint ventures based on formulas defined in the relevant agreements establishing each venture.
INCOME
1998 income before taxes amounted to $180,924 (excluding realignment charges). Although 1998 income before taxes decreased from 1997 results of $185,659, 1998 income before taxes as a percentage of net sales was 15.3 percent, an improvement over 1997's 15.1 percent of net sales. 1996 income before taxes was $146,504, or 14.2 percent of net sales.
The effective tax rate was 36.4 percent in 1998 compared with 34.0 percent in 1997 and 33.5 percent in 1996. The primary reason for the higher tax rate in 1998 was the write-off of intangible assets in connection with the Registrant's realignment program, which are non-deductible for tax purposes. The Registrant expects the effective tax rate to trend higher in the future due to a reduction in tax-exempt interest as a percentage of pretax income and tax law changes that have affected insurance contracts. Details of the reconciliation between the U.S. statutory rate and the effective tax rate are included in Note 14 of the 1998 Consolidated Financial Statements.
1998 net income of $117,998 (excluding realignment charges) fell short of 1997 results of $122,516. For both 1998 (excluding realignment charges) and 1997, net income as a percentage of net sales was 10.0 percent. Net income in 1996 was $97,425, or 9.5 percent of net sales.
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION
The Registrant continued to enhance its financial position during 1998. Total assets increased $13,138 or 1.3 percent to a 1998 year-end level of $1,004,188. Asset turnover (excluding cash, cash equivalents and short-term and long-term investment securities) fell in 1998 to 1.53 versus 1.69 in 1997.
Total current assets at December 31, 1998, of $543,548 represented a decrease of $6,289 or 1.1 percent from the prior year-end. The decrease in trade receivables and inventories was offset by an increase in cash, finance receivables and deferred income taxes. Trade receivables decreased $35,994 or 11.9 percent to a level of $266,891 at December 31, 1998. As a percentage of net sales, trade receivables were 22.5 percent in 1998, 24.7 percent in 1997 and 24.9 percent in 1996. Inventories at year-end 1998 totaled $127,880 which represented a decrease of $202 or 0.2 percent from 1997. The decrease in trade receivables and inventory was due to decreased sales volumes as well as the write-off of certain accounts receivable and inventory under the Registrant's realignment program.
Short-term investments and long-term securities and other investments increased by $31,106, or 17.8 percent to a level of $ 205,441 at December 31, 1998, largely due to additional cash flow from operating activities. The Registrant anticipates being able to meet both short- and long-term operational funding requirements without liquidating individual securities prior to maturity by varying the timing of maturities within the portfolio. However, since most of these
securities are marketable, they could readily be converted into cash and cash equivalents if needed to fund future acquisitions, joint ventures and strategic alliances throughout the world as part of a continuing strategy to strengthen the Registrant's global competitiveness.
Total property, plant and equipment, net of accumulated depreciation, was $147,131 at the end of 1998, which represented a net increase of $3,230, or 2.2 percent over prior year-end. Capital expenditures were $30,768 in 1998, compared with $67,722 in 1997. The drop in 1998 capital spending versus 1997 was expected in the light of the high level of capital expenditures in 1997 from the expansion of facilities for manufacturing, research, software development, management development, and support services. The accounting for the Registrant's investment in projects related to internal applications hardware and software has been done in accordance with EITF Issue 97-13, "Accounting for Business Process Reengineering Costs." Accordingly, the Registrant has expensed as incurred, when applicable, business process re-engineering costs as well as expenditures incurred for preliminary software project stage activities. The Registrant has capitalized costs related to application development stage activities, post-implementation/operation stage activities, as well as fixed asset acquisitions, such as new computer equipment, office furniture, and work stations related to these projects.
Total current liabilities at December 31, 1998, were $235,533, which represented a decrease of $6,547, or 2.7 percent from the prior year-end. The primary cause for the decrease in current liabilities was due to a 13.6 percent drop in accounts payable. The Registrant's current ratio was 2.3 at the end of 1998 as well as 1997.
At December 31, 1998, the Registrant had lines of credit totaling $150,000, all unrestricted as to use. In addition, the Registrant had outstanding $20,800 of Industrial Development Revenue Bonds. The proceeds of the bonds issued in 1997 were used to finance three manufacturing facilities located in Staunton and Danville, Virginia and in Lexington, North Carolina.
The Registrant's financial position provides it with sufficient resources to meet projected future capital expenditures, dividend and working capital requirements. However, if the need arises, the Registrant's strong financial position should ensure the availability of adequate additional financial resources.
Pension liabilities were $22,745 at December 31, 1998, representing an increase of $2,130 or 10.3 percent over prior year-end. The net periodic pension costs of $4,864 charged to income in 1998 represented an increase of $218 from the prior year.
Minority interests of $3,741 represented the minority interest in Diebold Financial Equipment Company, Ltd. (China) owned by the Aircraft Industries of China and the Industrial and Commercial Bank of China, Shanghai Pudong Branch and the minority interest in Diebold OLTP Systems, C.A (Venezuela), owned by five individual investors.
Shareholders' equity increased $30,542 or 4.6 percent to $699,123 at December 31, 1998. Shareholders' equity per share was $10.15 at the end of 1998, compared with $9.69 in 1997. The Common Shares of the Registrant are listed on the New York Stock Exchange with a symbol of DBD. There were approximately 7,782 registered shareholders of record as of December 31, 1998.
The Board of Directors declared a first-quarter 1999 cash dividend of $0.15 per share. This amount, which represents a 7.1 percent increase from the prior year's quarterly dividend rate, will be paid on March 12, 1999, to shareholders of record on February 19, 1999. Comparative quarterly cash dividends paid in 1998 and 1997 were $0.14 and $0.125 per share, respectively.
MANAGEMENT'S ANALYSIS OF CASH FLOWS
During 1998, the Registrant generated $177,238 in cash from operating activities, compared with $111,330 in 1997 and $96,456 in 1996. In addition to net income of $76,148 adjusted for depreciation, amortization and other charges of $39,540, decreases in accounts receivable also increased cash provided by operations. Cash was utilized in operations to reduce accounts payable and to maintain adequate inventory levels. Expressed as a percentage of total assets employed, the Registrant's cash yield from operations was 17.6 percent in 1998, and 11.2 percent in 1997 and 1996.
Net cash generated from operating activities in 1998 was used to reinvest $96,509 in assets of the Registrant, compared with $102,725 in 1997 and $55,299 in 1996. The Registrant returned $38,631 to shareholders in the form of cash dividends paid during 1998, which was a 12.1 percent increase from 1997 and a 23.9 percent increase from 1996.
OTHER BUSINESS INFORMATION
YEAR 2000 DISCLOSURE
The Registrant is firmly committed to providing products and systems that are ready to operate in the
year 2000 and beyond. Strategic initiatives have been under way to address the readiness of products delivered to our customers, corporate business systems, and the readiness of our suppliers. All of these initiatives are in place to assist in the continued delivery of products and services to our customers without interruption.
The Registrant is actively pursuing the year 2000 readiness of its corporate systems. The project was initiated in 1996 within the Global Support organization. Corporate applications have been inventoried and categorized as active, inactive, or year 2000 ready. To assist in this process and verify the results, the Registrant is pursuing the evaluation and remediation, if necessary, of all of the active applications including service invoicing, customer information systems, service systems, dispatch systems, and financial systems. A new enterprise system, verified to be year 2000 ready by the system provider, is being installed that addresses manufacturing, order entry, and links to the other corporate applications.
The Registrant's corporate information systems project completion is scheduled for the first quarter of 1999. Although the Registrant plans to meet its projected completion date, it can provide no assurances that all of its year 2000 efforts will be successful. As required by standard accounting practice, the Registrant is expensing as incurred all costs associated with these systems changes. The costs are not expected to have a material effect on the Registrant's financial position or results of operation.
A project is also under way to contact all Diebold suppliers to assess their level of readiness for operating in the year 2000 and beyond. The Registrant will evaluate the readiness of the suppliers and take appropriate steps to develop a confidence that they will continue to operate without interruption in business.
The Registrant has formed an Oversight Committee to continually review issues related to the year 2000 requirements. This Committee, consisting of senior management members, remains focused on the completion of all year 2000 related initiatives, and appropriation of sufficient resources to ensure timely completion of year 2000 activities. Contingency plans are currently being developed by the Oversight Committee. These efforts are to minimize any potential year 2000 compliance impact; however, it is not possible to guarantee compliance. Failure of the Registrant or any third party with whom the Registrant has a material relationship to achieve year 2000 compliance could have a material adverse effect on the Registrant's business, financial condition or results of operations. Additional year 2000 information on products and services can be found on the Registrant's Web site at "www.diebold.com."
The Registrant does not have material exposure to interest rate risk, foreign currency exchange rate risk or commodity price risk.
CONSOLIDATED BALANCE SHEETS
DIEBOLD, INCORPORATED AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1998 1997
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ASSETS
Current assets
Cash and cash equivalents........................................................ $ 42,540 $ 20,296
Short-term investments........................................................... 37,433 36,473
Trade receivables................................................................ 266,891 302,885
Inventories...................................................................... 127,880 128,082
Finance receivables ............................................................. 19,856 13,559
Deferred income taxes ........................................................... 34,038 32,159
Prepaid expense and other current assets......................................... 14,910 16,383
------------------------------------------------------------------------------------------------------------------------------------
Total current assets.......................................................... 543,548 549,837
------------------------------------------------------------------------------------------------------------------------------------
Securities and other investments................................................... 168,008 137,862
Property, plant and equipment, at cost............................................. 278,435 259,634
Less accumulated depreciation and amortization................................... 131,304 115,733
------------------------------------------------------------------------------------------------------------------------------------
147,131 143,901
Deferred income taxes ............................................................ 12,716 8,654
Finance receivables............................................................... 65,573 60,970
Other assets...................................................................... 67,212 89,826
------------------------------------------------------------------------------------------------------------------------------------
$ 1,004,188 $991,050
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................................................. $ 89,881 $104,043
Estimated income taxes........................................................... 13,582 12,721
Accrued insurance................................................................ 16,386 18,972
Accrued installation costs....................................................... 17,455 12,909
Deferred income.................................................................. 57,985 60,891
Other current liabilities........................................................ 40,244 32,544
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities..................................................... 235,533 242,080
------------------------------------------------------------------------------------------------------------------------------------
Bonds payable...................................................................... 20,800 20,800
Pensions........................................................................... 22,745 20,615
Postretirement benefits............................................................ 22,246 22,033
Minority interest.................................................................. 3,741 16,941
Commitments and contingencies...................................................... --- ---
Shareholders' equity
Preferred Shares, no par value, authorized
1,000,000 shares, none issued.................................................. --- ---
Common Shares, par value $1.25;
Authorized 125,000,000 shares;
issued 69,494,483 and 69,275,714 shares, respectively
outstanding 68,880,761 and 69,004,838 shares, respectively.................... 86,868 86,595
Additional capital............................................................... 43,281 38,247
Retained earnings................................................................ 604,227 566,710
Treasury shares, at cost (613,722 and 270,876 shares, respectively).............. (21,902) (12,882)
Accumulated other comprehensive income........................................... (12,802) (9,706)
Other............................................................................ (549) (383)
------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity..................................................... 699,123 668,581
------------------------------------------------------------------------------------------------------------------------------------
$ 1,004,188 $991,050
====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
|
CONSOLIDATED STATEMENTS OF INCOME
DIEBOLD, INCORPORATED AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1998,
1997 AND 1996
(In thousands except per share amounts)
1998 1997 1996
=============================================================================================================================
Net sales
Products............................................................... $750,161 $825,125 $679,053
Services............................................................... 435,546 401,811 351,138
-----------------------------------------------------------------------------------------------------------------------------
1,185,707 1,226,936 1,030,191
-----------------------------------------------------------------------------------------------------------------------------
Cost of sales
Products............................................................... 462,788 507,322 421,261
Special charges........................................................ 9,864 -- --
Services............................................................... 306,805 289,514 251,418
-----------------------------------------------------------------------------------------------------------------------------
779,457 796,836 672,679
-----------------------------------------------------------------------------------------------------------------------------
Gross profit............................................................. 406,250 430,100 357,512
Selling and administrative expense....................................... 194,535 191,842 166,572
Research, development and engineering expense............................ 54,215 54,397 50,576
Realignment charges...................................................... 51,253 -- --
-----------------------------------------------------------------------------------------------------------------------------
300,003 246,239 217,148
-----------------------------------------------------------------------------------------------------------------------------
Operating profit......................................................... 106,247 183,861 140,364
Other income (expense)
Investment income...................................................... 18,587 19,109 19,307
Miscellaneous, net..................................................... (3,184) (12,215) (8,774)
Minority interest........................................................ (1,843) (5,096) (4,393)
-----------------------------------------------------------------------------------------------------------------------------
Income before taxes...................................................... 119,807 185,659 146,504
Taxes on income.......................................................... 43,659 63,143 49,079
-----------------------------------------------------------------------------------------------------------------------------
Net income............................................................... $76,148 $122,516 $ 97,425
=============================================================================================================================
Basic weighted-average number of shares.................................. 68,960 68,939 68,796
Diluted weighted-average number of shares................................ 69,310 69,490 69,350
Basic earnings per share................................................. $ 1.10 $ 1.78 $ 1.42
Diluted earnings per share............................................... $ 1.10 $ 1.76 $ 1.40
-----------------------------------------------------------------------------------------------------------------------------
|
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
DIEBOLD, INCORPORATED AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands)
Common Shares
-------------
Accumulated
Compre- Other
Par Additional Retained Treasury hensive Comprehensive
Number Value Capital Earnings Shares Income Income Other Total
===================================================================================================================================
Balance,
December 31, 1995 45,893,678 $57,367 $52,420 $412,432 $(3,849) $(10,061) $(629) $507,680
-----------------------------------------------------------------------------------------------------------------------------------
Net income - 1996................ 97,425 $ 97,425 97,425
----------
Translation adjustment........... 240 240
Pensions......................... 185 185
Unrealized loss on
investment securities.......... (432) (432)
-----------
Other comprehensive income....... (7) (7)
-----------
Comprehensive income............. $ 97,418
==========
Stock options exercised.......... 86,918 108 1,208 1,316
Unearned compensation............ 3,000 4 104 414 522
Performance shares............... 67,892 85 3,060 3,145
Dividends declared............... (31,190) (31,190)
Treasury shares.................. (3,321) (3,321)
Three-for-two stock split........ 22,945,788 28,682 (28,682) --
------------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1996 68,997,276 $86,246 $28,110 $478,667 $(7,170) $(10,068) $(215) $575,570
------------------------------------------------------------------------------------------------------------------------------------
Net income - 1997................ 122,516 $ 122,516 122,516
---------
Translation adjustment........... (185) (185)
Pensions......................... 217 217
Unrealized gain on
investment securities.......... 333 333
---------
Other comprehensive income....... 365 365
---------
Comprehensive income............. $ 122,881
=========
Stock options exercised.......... 180,247 226 5,821 6,047
Unearned compensation............ 11,000 14 430 (171) 273
Performance shares............... 87,191 109 3,886 3,995
Dividends declared............... (34,473) (34,473)
Treasury shares.................. (5,712) (5,712)
------------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1997 69,275,714 $86,595 $38,247 $566,710 $(12,882) $(9,703) $(386) $668,581
------------------------------------------------------------------------------------------------------------------------------------
Net income - 1998................ 76,148 $ 76,148 76,148
---------
Translation adjustment........... 150 150
Pensions......................... (2,797) (2,797)
Unrealized loss on
investment securities.......... (452) (452)
----------
Other comprehensive income....... (3,099) (3,099)
---------
Comprehensive income............. $ 73,049
=========
Stock options exercised.......... 208,031 260 4,538 4,798
Unearned compensation............ 10,738 13 511 (163) 361
Dividends declared............... (38,631) (38,631)
Treasury shares.................. (15) (9,020) (9,035)
------------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1998 69,494,483 $86,868 $43,281 $604,227 $(21,902) $(12,802) $(549) $699,123
------------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
DIEBOLD, INCORPORATED AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands)
1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities:
Net income..................................................... $76,148 $122,516 $97,425
Adjustments to reconcile net income to cash
provided by operating activities:
Minority share of income..................................... 1,843 5,096 4,393
Depreciation and amortization................................ 25,649 18,701 20,984
Other charges and amortization............................... 13,891 9,749 11,979
Goodwill written off under realignment plan.................. 23,001 -- --
Deferred income taxes........................................ (4,192) 1,118 (5,252)
(Gain) loss on disposal of assets, net....................... 1,963 1,113 610
Loss (gain) on sale of investments, net...................... (232) -- 10
Cash provided (used) by changes in certain
assets and liabilities:
Trade receivables.......................................... 35,994 (46,313) (59,427)
Inventories................................................ 202 (18,650) (18,430)
Prepaid expenses and other current assets.................. 1,477 (2,730) (3,948)
Accounts payable........................................... (14,162) 9,334 27,805
Other certain assets and liabilities......................... 15,656 11,396 20,307
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities........................ 177,238 111,330 96,456
Cash flow from investing activities:
Proceeds from maturities of investments........................ 41,438 52,109 55,023
Proceeds from sales of investments............................. 599 -- 5,675
Payments for purchases of investments.......................... (78,348) (44,486) (69,498)
Capital expenditures........................................... (30,768) (67,722) (33,581)
Increase in net finance receivables............................ (10,900) (28,499) (2,821)
Increase in other certain assets............................... (18,456) (14,068) (10,223)
Other.......................................................... (74) (59) 126
-----------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities.......................... (96,509) (102,725) (55,299)
Cash flow from financing activities:
Dividends paid................................................. (38,631) (34,473) (31,190)
Distribution for purchase if IBM's share of minority
interest in InterBold.................................. (16,141) -- --
Distribution of affiliate's earnings to minority
interest holder........................................ -- (1,295) (5,719)
Issuance of Common Shares...................................... 4,612 5,572 1,248
Repurchase of Common Shares................................... (8,325) (798) --
Proceeds from long-term borrowings............................. -- 20,800 --
Other.......................................................... -- -- 691
-----------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities.......................... (58,485) (10,194) (34,970)
-----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents................. 22,244 (1,589) 6,187
Cash and cash equivalents at the beginning of the year........... 20,296 21,885 15,698
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year................. $42,540 $ 20,296 $21,885
============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(Dollars in thousands except per share amounts)
NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Registrant and its wholly and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
STATEMENTS OF CASH FLOWS
For the purposes of the Consolidated Statements of Cash Flows, the Registrant considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash paid during 1998, 1997 and 1996 for income taxes amounted to $37,994, $60,738 and $47,293 respectively.
INTERNATIONAL OPERATIONS
The Registrant translates the assets and liabilities of its non-U.S. subsidiaries at the exchange rates in effect at year-end and the results of operations at the average rate throughout the year. The translation adjustments are recorded directly as a separate component of shareholders' equity, while transaction gains (losses) are included in net income. Sales to customers outside the United States approximated 25.1 percent of net sales in 1998, 26.1 percent in 1997, and 22.3 percent in 1996.
FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash and cash equivalents, trade receivables and accounts payable approximated fair value as of December 31, 1998 and 1997, because of the relatively short maturity of these instruments.
TRADE RECEIVABLES AND SALES
Revenue, after provision for installation, is generally recognized based on the terms of the sales contracts. The majority of sales contracts for product are written with selling terms "F.O.B. factory." However, certain sales contracts may have other terms such as "F.O.B. destination" or "upon installation." The Registrant recognizes revenue on these contracts when the appropriate event has occurred. The equipment that is sold is usually shipped and installed within one year. Installation that extends beyond one year is ordinarily attributable to causes not under the control of the Registrant. Service revenue is recognized in the period service is performed and subject to the individual terms of the service contracts.
The concentration of credit risk in the Registrant's trade receivables with respect to the banking and financial services industries is substantially mitigated by the Registrant's credit evaluation process, reasonably short collection terms and the geographical dispersion of sales transactions from a large number of individual customers. The Registrant maintains allowances for potential credit losses, and such losses have been within management's expectations.
INVENTORIES
Inventories are valued at the lower of cost or market applied on a first-in, first-out basis. Cost is determined on the basis of actual cost.
INVESTMENT SECURITIES
Investments in debt and equity securities with readily determinable fair values are accounted for at fair value. The Registrant's investment portfolio is classified as available-for-sale.
DEPRECIATION AND AMORTIZATION
Depreciation of property, plant and equipment is computed using the straight-line method for financial statement purposes. Accelerated methods of depreciation are used for federal income tax purposes. Amortization of leasehold improvements is based upon the shorter of original terms of the lease or life of the improvement.
RESEARCH AND DEVELOPMENT
Total research and development costs charged to expense were $42,946, $45,184, and $41,797 in 1998, 1997 and 1996, respectively.
OTHER ASSETS
Other assets primarily consist of the costs in excess of the net assets of acquired businesses (goodwill), pension assets and certain other assets. These assets are stated at cost and, if applicable, are amortized ratably over a period of three to 25 years. The Registrant periodically monitors the value of goodwill by assessing whether the asset can be recovered over
its remaining useful life through undiscounted cash flows generated by the underlying businesses.
DEFERRED INCOME
Deferred income is recognized for customer billings in advance of the period in which the service will be performed and is recognized in income on a straight-line basis over the contract period.
STOCK-BASED COMPENSATION
Compensation cost is measured on the date of grant only if the current market price of the underlying stock exceeds the exercise price. The Registrant provides pro forma net income and pro forma net earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair value based method had been applied.
TAXES ON INCOME
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
EARNINGS PER SHARE
Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if common stock equivalents were exercised and then shared in the earnings of the Registrant.
COMPREHENSIVE INCOME
The Registrant adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," on January 1, 1998. As permitted by the Statement, the Registrant displays comprehensive income in the Consolidated Statements of Shareholders' Equity and accumulated other comprehensive income separately from retained earnings and additional paid-in-capital in the Consolidated Balance Sheets and Statements of Shareholders' Equity. Items considered to be other comprehensive income include adjustments made for foreign currency translation (under Statement 52), pensions (under Statement 87) and unrealized holding gains and losses on available-for-sale securities (under Statement 115).
Accumulated other comprehensive income (loss) balances for 1998, 1997 and 1996 for foreign currency translations were ($9,094), ($9,244) and ($9,059), for pensions were ($4,116), ($1,319) and ($1,536), and for unrealized holding gains on investment securities were $408, $859 and $526, respectively. The related tax (expense) or benefit for adjustments to accumulated other comprehensive income for 1998, 1997 and 1996 for pensions were $1,506, ($117) and ($100) and for unrealized holding gains/(losses) on investment securities were $243, ($179) and $232, respectively. Translation adjustments are not booked net of tax. Those adjustments are accounted for under the indefinite reversal criterion of APB Opinion 23, "Accounting for Income Taxes--Special Areas."
USE OF ESTIMATES IN PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
The Registrant has reclassified the presentation of certain prior-year information to conform with the current presentation format.
NOTE 2: RELATED PARTY TRANSACTIONS
INTERBOLD JOINT VENTURE
The Consolidated Financial Statements for the periods of January 1 through January 27, 1998, and the years of 1997 and 1996 include the accounts of InterBold, a joint venture between the Registrant and IBM. The joint venture provided ATMs and other financial self-service systems worldwide. IBM's ownership interest in InterBold is reflected in "minority interest" on the Registrant's Consolidated Balance Sheets for the periods IBM was a partner in the joint venture.
On June 27, 1997, Diebold announced that InterBold would discontinue its international marketing and distribution agreement with IBM. On July 2, 1997,
IBM informed Diebold that it was exercising its option pursuant to the InterBold contractual arrangements to sell its 30 percent minority interest in InterBold to the Registrant. On January 27, 1998, Diebold completed its purchase of IBM's 30 percent minority interest in InterBold for $16,141 which represented IBM's tax capital account on July 2, 1997. The Registrant financed the purchase with its cash reserves.
NOTE 3: INVESTMENT SECURITIES
At December 31, 1998 and 1997, the investment portfolio was classified as available-for-sale. The marketable debt and equity securities are stated at fair value, and the Registrant includes as a separate component of shareholders' equity net unrealized holding gains of $408 (net of taxes of $219) and $859 (net of taxes of $464) at December 31, 1998 and 1997, respectively. The fair value of securities and other investments is estimated based on quoted market prices.
The Registrant's investment securities, excluding insurance contracts, at December 31, are summarized as follows:
Amortized Fair
Cost Basis Value
----------------------------------------------------------------
1998
================================================================
Short-term investments:
Tax-exempt municipal bonds ........... $ 37,151 $ 37,433
----------------------------------------------------------------
Securities and other investments:
Tax-exempt municipal bonds ........... $108,256 $109,234
Equity securities .................... 29,845 29,212
----------------------------------------------------------------
$138,101 $138,446
----------------------------------------------------------------
Amortized Fair
Cost Basis Value
----------------------------------------------------------------
1997
================================================================
Short-term investments:
Tax-exempt municipal bonds ........... $ 36,331 $ 36,473
----------------------------------------------------------------
Securities and other investments:
Tax-exempt municipal bonds ........... $ 85,245 $ 86,247
Equity securities .................... 28,668 28,847
----------------------------------------------------------------
$113,913 $115,094
----------------------------------------------------------------
|
The contractual maturities of tax-exempt municipal bonds at December 31, 1998 are as follows:
Amortized Fair
Cost Basis Value
================================================================
Due within one year .................... $ 37,151 $ 37,433
Due after one year
through five years .................... 108,256 109,234
----------------------------------------------------------------
$145,407 $146,667
----------------------------------------------------------------
|
NOTE 4: INVENTORIES
Major classes of inventories at December 31, are summarized as follows:
1998 1997
================================================================
Finished goods and
service parts ........................ $ 43,835 $ 44,776
Work in process ........................ 83,873 82,985
Raw materials .......................... 172 321
----------------------------------------------------------------
$127,880 $128,082
----------------------------------------------------------------
|
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, together with annual depreciation and amortization rates, consisted of the following:
Annual
1998 1997 Rates
==========================================================================
Land and land
improvements ......................... $ 8,028 $ 5,305 5-20%
Buildings .............................. 64,216 42,552 2-34%
Machinery, equipment
and rotatable
spares ............................... 187,362 150,972 5-40%
Leasehold
improvements ......................... 4,297 2,981 Lease
Term
Construction in
progress ............................. 14,532 57,824 --
-------------------------------------------------------------------------
$278,435 $259,634
-------------------------------------------------------------------------
|
NOTE 6: FINANCE RECEIVABLES
The components of finance receivables for the net investment in sales-type leases are as follows:
1998 1997
=========================================================
Total minimum
lease receivables ........... $ 103,929 $ 93,043
Estimated unguaranteed
residual values ............. 5,762 3,051
---------------------------------------------------------
109,691 96,094
Less: Unearned interest
income ........... (22,411) (20,469)
Unearned residuals...... (1,851) (1,096)
---------------------------------------------------------
(24,262) (21,565)
---------------------------------------------------------
$ 85,429 $ 74,529
---------------------------------------------------------
|
Future minimum lease receivables due from customers under sales-type leases as of December 31, 1998, are as follows:
-------------------------------------------
1999 .......................... $ 21,126
2000 .......................... 21,731
2001 .......................... 21,513
2002 .......................... 19,330
2003 .......................... 11,815
Thereafter .................... 8,414
-------------------------------------------
$ 103,929
-------------------------------------------
|
NOTE 7: SHORT-TERM FINANCING
At December 31, 1998, bank credit lines approximated $150,000 with various banks for short-term financing. The Registrant had no outstanding borrowings under these agreements at December 31, 1998 and 1997.
The Registrant has informal understandings with certain banks to maintain compensating balances which are not legally restricted as to withdrawal. The lines of credit can be withdrawn at each bank's option.
NOTE 8: REALIGNMENT AND SPECIAL CHARGES
In the second quarter of 1998, the Registrant recognized realignment and special charges of $61,117 ($41,850 after-tax or $0.60 per diluted share) in connection with a corporate-wide realignment program. Exit costs were accounted for under EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." Long-lived asset impairments were accounted for under Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed of." Inventory related charges were taken when it was determined that the utility, as a result of the realignment decisions, was less than the cost for the affected inventory. Special charges of $9,864 mainly represent the write-off of inventory for exited businesses and all other realignment charges of $51,253 were recognized as a separate operating expense in the Consolidated Statements of Income.
Elements of the realignment and special charges were divided into three categories: facility closing and write down of assets, employee associate costs and other exit costs. Facility closing and write down of assets costs were estimated to be $40,343. Items included in this category were certain impaired intangible assets, mainly relating to the separation from IBM in the InterBold joint venture in 1998, manufacturing assets relating to exited businesses, redundant inventory of exited businesses and contractual costs to exit leased facilities. North American facilities were consolidated and several facilities were closed under the realignment program.
Termination pay and separation costs were estimated to be $8,269. More than 600 employee associates were estimated to be terminated, and at 12/31/1998, 519 jobs have been eliminated. The estimated costs in this category included the termination pay, job outplacement and fringe benefit costs for each eliminated job. Terminations came from all areas of the corporation .
Other exit costs under the realignment program were estimated to be $12,505. These costs included legal, insurance and communications costs and the write-off of accounts receivable relating to exited businesses.
Assets relating to the realignment were written down or scrapped. Costs from the realignment will be paid from operating funds over the term of the realignment plan. The anticipated completion date for the majority of costs relating to the plan is expected to be by the end of 1999.
The following table shows the realignment charge and accrual and all activity through December 31, 1998:
FACILITY
CLOSING AND EMPLOYEE OTHER
WRITE DOWN ASSOCIATE EXIT
OF ASSETS COSTS COSTS TOTAL
--------------- -------------- ------------ ------------
Original realignment charge at
commencement of plan $ 40,343 $8,269 $ 12,505 $ 61,117
Write off of intangibles and long-lived
assets under Statement 121 (24,857) -- -- (24,857)
------------ ------------ ------------ ------------
Beginning accrual at commencement of
plan 15,486 8,269 12,505 36,260
1998 activity (13,409) (3,693) (7,910) (25,012)
------------ ------------ ------------ ------------
Balance at December 31, 1998 $ 2,077 $ 4,576 $ 4,595 $ 11,248
============ ============ ============ ============
================================================================================================================
|
NOTE 9: BONDS PAYABLE
Bonds payable at December 31 consisted of the following:
1998 1997
-----------------------------------------------------
Industrial Development Revenue
Bond due January 1, 2017... $ 5,800 $5,800
Industrial Development Revenue
Bond due April 1, 2017...... 7,500 7,500
Industrial Development Revenue
Bond due June 1, 2017....... 7,500 7,500
-----------------------------------------------------
$20,800 $20,800
-----------------------------------------------------
|
In 1997, three Industrial Development Revenue Bonds were issued on behalf of the Registrant. The proceeds from the bond issuances were used to construct new manufacturing facilities in Danville and Staunton, Virginia and Lexington, North Carolina. The Registrant guaranteed the payments of principal and interest on the bonds by obtaining letters of credit. Each Industrial Development Revenue Bond carries a variable interest rate which is reset weekly by the remarketing agents. The bonds can be called at anytime. The Registrant is in compliance with the covenants of its loan agreements and believes that the covenants will not restrict its future operations.
Interest paid on these bonds charged to expense was $743 in 1998 and $176 in 1997.
NOTE 10: SHAREHOLDERS' EQUITY
On January 30, 1997, the Board of Directors declared a three-for-two stock split effected in the form of a stock dividend, distributed on February 19, 1997, to shareholders of record on February 7, 1997. Accordingly, all numbers of Common Shares, except authorized shares and treasury shares, and all per share data have been restated to reflect this stock split.
On the basis of amounts declared and paid, the annualized quarterly dividends per share were $0.56 in 1998, $0.50 in 1997, and $0.45 in 1996.
In the following chart, the Registrant provides net income and earnings per share reduced by the pro forma amounts calculating compensation cost for the Registrant's fixed stock option plan under the fair value method. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following average assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of 4.7, 5.7 and 5.5 percent; dividend yield of 1.8 percent in 1998 and 2.2 percent in 1997 and 1996, volatility of 24, 19 and 21 percent; and average expected lives of six years for management and four years for executive management and non-employee directors. Pro forma net income reflects only options granted since January 1, 1995.
1998 1997 1996
---------- --------- ---------
Net income
As reported.......... $76,148 $122,516 $97,425
Pro forma............... $73,822 $120,556 $97,030
Earnings per share
As reported
Basic $ 1.10 $ 1.78 $ 1.42
Diluted $ 1.10 $ 1.76 $ 1.40
Pro forma
Basic $ 1.07 $ 1.75 $ 1.41
Diluted $ 1.07 $ 1.74 $ 1.40
|
FIXED STOCK OPTIONS
Under the 1991 Equity and Performance Incentive Plan (1991 Plan), Common Shares are available for grant of options at a price not less than 85 percent of
the fair market value of the Common Shares on the date of grant. The exercise price of options granted since January 1, 1995, was equal to the market price at the grant date, and accordingly, no compensation cost has been recognized. In general, options are exercisable in cumulative annual installments over five years, beginning one year from the date of grant. The number of Common Shares that may be issued or delivered pursuant to the 1991 Plan is 6,265,313, of which 5,067,804 shares were available for issuance at December 31, 1998. The 1991 Plan will expire on April 2, 2002.
The 1991 Plan replaced the Amended and Extended 1972 Stock Option Plan (1972 Plan), which expired by its terms on April 2, 1992. Awards already outstanding under the 1972 Plan are unaffected by the adoption of the 1991 Plan.
Under the 1997 Milestone Stock Option Plan (Milestone Plan), options for 100 Common Shares were granted to all eligible salaried and hourly employee associates. The exercise price of the options granted under the Milestone Plan was equal to the market price at the grant date, and accordingly, no compensation cost has been recognized. In general, all options are exercisable beginning two years from the date of grant. The number of Common Shares that may be issued or delivered pursuant to the Milestone Plan is 600,000, of which 559,800 shares were available for issuance at December 31, 1998. The Milestone Plan will expire on March 2, 2002.
The following is a summary with respect to options outstanding at December 31, 1998, 1997 and 1996, and activity during the years ending on those dates:
1998 1997 1996
---------------------- ---------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- --------- ---------
Outstanding at the beginning of year 2,121,223 $ 27 1,529,545 $ 18 1,180,283 $ 12
Options granted 271,150 47 829,500 41 500,438 29
Options exercised (208,031) 13 (203,260) 10 (130,377) 10
Options expired or forfeited (195,310) 39 (34,562) 40 (20,799) 17
-----------------------------------------------------------------------------------------------------------------------------
Outstanding at the end of year 1,989,032 $ 30 2,121,223 $ 27 1,529,545 $ 18
-----------------------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 780,967 694,448 577,198
Weighted-average fair value
of options granted during the year $ 12 $ 7 $ 6
|
The following table summarizes pertinent information regarding fixed stock options outstanding and options exercisable at December 31, 1998:
-----------------------------------------------------------------------------------
Options Outstanding Options Exercisable
-----------------------------------------------------------------------------------
Weighted-
Average
Number Remaining Weighted- Number Weighted-
of Contractual Average of Average
options Life Exercise options Exercise
Range of Exercise Prices outstanding (In Years) Price exercisable Price
-----------------------------------------------------------------------------------------------------------------------
$ 7 - 42 9,763 0.22 $ 16 9,763 $ 16
7 - 16 59,151 1.00 10 49,023 9
6 - 36 88,515 2.00 16 65,727 12
9 - 42 686,384 3.00 37 125,692 20
13 - 40 138,869 4.00 17 116,369 13
17 - 18 111,695 5.00 17 83,930 17
15 - 19 215,600 6.00 16 146,547 16
24 - 34 244,575 7.00 24 116,774 24
33 - 38 222,130 8.00 38 66,342 38
29 - 48 212,350 9.00 47 800 48
--------- ----------
1,989,032 5.00 $30.16 780,967 $18.66
--------- ----------
|
RESTRICTED SHARE GRANTS
The 1991 Plan also provides for the issuance of restricted shares to certain employee associates. Outstanding shares granted at December 31, 1998, totaled 26,238 restricted shares. The shares are subject to forfeiture under certain circumstances. Unearned compensation representing the fair market value of the shares at the date of grant will be charged to income over the three-to-five-year vesting period.
PERFORMANCE SHARE GRANTS
The 1991 Plan also provides for the issuance of Common Shares based on certain management objectives achieved within a specified performance period of at least one year as determined by the Board of Directors. The management objectives set in 1998 are based on a three-year performance period ending December 31, 2000. The management objectives for the period ended December 31, 1998, were set in April 1996. The objectives were exceeded and a payout was made in the form of cash and/or Common Shares in 1999.
The compensation cost that has been charged against income for its performance-based share grant plan was $2,280, $10,400, and $13,534 in 1998, 1997 and 1996, respectively.
On January 28, 1999 the Board of Directors announced the adoption of a new Rights Agreement that provides for Rights to be issued to shareholders of record on February 11, 1999. The new Rights Agreement replaces the existing Rights Agreement that expired on February 10, 1999. The description and terms of the Rights are set forth in the Rights Agreement, dated as of February 11, 1999, between the Registrant and the Bank of New York, as Agent. Under the Rights Agreement, the Rights will initially trade together with the Common Shares and will not be exercisable. In the absence of further Board action, the Rights generally will become exercisable and allow the holder to acquire Common Shares at a discounted price if a person or group acquires twenty percent or more of the outstanding Common Shares. Rights held by persons who exceed the applicable threshold will be void. Under certain circumstances, the Rights will entitle the holder to buy shares in an acquiring entity at a discounted price. The Rights Agreement also includes an exchange option. In general, after the Rights become exercisable, the Board of Directors may, at its option, effect an exchange of part or all of the Rights (other than Rights that have become void) for Common Shares. Under this Option, the Registrant would issue one Common Share for each Right, subject to adjustment in certain circumstances. The Rights are redeemable at any time prior to the Rights becoming exercisable and will expire on February 11, 2009, unless redeemed or exchanged earlier by the Registrant.
NOTE 11: EARNINGS PER SHARE
(In thousands except per share amounts)
The following data show the amounts used in computing earnings per share and the
effect on the weighted-average number of shares of dilutive potential common
stock.
1998 1997 1996
----------------------------------------------------------------------
NUMERATOR
Income available to
Common shareholders
used in basic and diluted
earnings per share $76,148 $122,516 $97,425
DENOMINATOR
Weighted-average
number of Common
Shares used in basic
earnings per share 68,960 68,939 68,796
Effect of dilutive fixed
stock options and
performance shares 350 551 554
---------------------------------
Weighted-average
number of Common
Shares and dilutive
potential Common
Shares used in dil-
uted earnings per share 69,310 69,490 69,350
---------------------------------
BASIC EARNINGS
PER SHARE $ 1.10 $ 1.78 $ 1.42
DILUTED EARNINGS
PER SHARE $ 1.10 $ 1.76 $ 1.40
|
Fixed stock options on 1,161 Common Shares in 1998 and 179 Common Shares in 1996 were not included in computing diluted earnings per share, because their effects were antidilutive.
NOTE 12: PENSION PLANS AND
POSTRETIREMENT BENEFITS
The Registrant adopted Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" on January 1, 1998. Accordingly, all historical disclosures have been restated to comply with current reporting formats.
The Registrant has several pension plans covering substantially all employee associates. Plans covering salaried employee associates provide pension benefits that are based on the employee associate's
compensation during the 10 years before retirement. The Registrant's funding policy for those plans is to contribute annually at an actuarially determined rate. Plans covering hourly employee associates and union members generally provide benefits of stated amounts for each year of service. The Registrant's funding policy for those plans is to make at least the minimum annual contributions required by applicable regulations.
Approximately 90 percent of the plan assets at the valuation dates of September 30, 1998 and 1997 were invested in listed stocks and investment grade bonds.
Minimum liabilities have been recorded in 1998 and 1997 for the plans whose total accumulated benefit obligation exceeded the fair value of the plan's assets.
In addition to providing pension benefits, the Registrant provides healthcare and life insurance benefits for certain retired employee associates. Eligible associates may be entitled to these benefits based upon years of service with the Registrant, age at retirement and collective bargaining agreements. Presently, the Registrant has made no commitments to increase these benefits for existing retirees or for employee associates who may become eligible for these benefits in the future. Currently there are no plan assets, and the Registrant funds the benefits as the claims are paid.
The effect of a one percentage point annual increase in the assumed healthcare cost trend rate would increase the service and interest cost components of the healthcare benefits by $111, while a one percentage point decrease in the trend rate would decrease the service and interest components of the healthcare benefits by $98.
The postretirement benefit obligation was determined by application of the terms of medical and life insurance plans together with relevant actuarial assumptions and healthcare cost trend rates projected at annual rates declining from 8.0 percent in 1998 to 4.5 percent through the year of 2005 as well as the following years. The effect of a one percentage point annual increase in these assumed healthcare cost trend rates would increase the healthcare accumulated postretirement benefit obligation by $1,566, while a one percentage point decrease in the trend rate would decrease the accumulated postretirement benefit obligation by $1,388.
The following table sets forth the change in benefit obligation, change in plan assets, funded status, Consolidated Balance Sheets presentation, net periodic pension benefit cost and the relevant assumptions for the Registrant's defined benefit pension plans and health and life insurance post-retirement benefits at December 31:
------------------------------------------------------
PENSION BENEFITS HEALTH AND LIFE BENEFITS
------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
----------------------------
Benefit obligation at beginning of year $ 214,655 $ 193,596 $ 20,778 $ 25,595
Service cost 8,674 6,680 53 46
Interest cost 15,818 14,260 1,442 1,342
Assumption change 8,884 7,123 430 (4,693)
Liability (gain)/loss 5,233 -- 1,178 --
Benefits paid (7,962) (7,241) (2,037) (1,338)
Other -- 237 -- (174)
--------- --------- --------- ---------
Benefit obligation at end of year $ 245,302 $ 214,655 $ 21,844 $ 20,778
CHANGE IN PLAN ASSETS
---------------------
Fair value of plan assets at beginning of year $ 271,643 $ 217,686 $ -- $ --
Employer contributions 1,949 3,333 2,037 1,338
Benefits paid (7,962) (7,241) (2,037) (1,338)
Investment return (4,422) 57,865 -- --
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 261,208 $ 271,643 $ -- $ --
FUNDED STATUS
-------------
Funded status $ 15,906 $ 56,988 $ (21,844) $ (20,778)
Unrecognized net loss/(gain) (9,621) (47,366) (2,750) (4,551)
Prior service costs not yet recognized 6,263 7,324 -- --
Unrecognized net transition obligation (9,656) (11,139) -- --
--------- --------- --------- ---------
Prepaid/(accrued) pension cost $ 2,892 $ 5,807 $ (24,594) $ (25,329)
AMOUNTS RECOGNIZED IN CONSOLIDATED BALANCE SHEETS
-------------------------------------------------
Prepaid benefit cost $ 17,484 $ 22,140 $ -- $ --
Accrued benefit liability (22,745) (20,615) (24,594) (25,329)
Intangible asset 1,835 2,267 -- --
Accumulated other comprehensive income 6,318 2,015 -- --
--------- --------- --------- ---------
Net amount recognized $ 2,892 $ 5,807 $ (24,594) $ (25,329)
|
PENSION BENEFITS HEALTH AND LIFE BENEFITS
--------------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996
--------------------------------------- --------------------------------------
NET PERIODIC PENSION BENEFIT COST
---------------------------------
Service cost $ 8,673 $ 7,795 $ 7,140 $ 53 62 57
Interest cost 15,818 14,260 13,405 1,442 $ 1,788 $ 1,806
Expected return on assets (19,531) (17,295) (15,858) -- -- --
Transition (asset)/obligation recognition (1,484) (1,484) (1,484) -- -- --
Prior service cost amortization 1,062 1,061 1,061 -- -- --
Net (gain)/loss recognition 326 309 405 (192) -- --
-------- -------- -------- -------- -------- --------
Net periodic pension cost/(income) $ 4,864 $ 4,646 $ 4,669 $ 1,303 $ 1,850 $ 1,863
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
----------------------------------
SEPTEMBER 30 VALUATION DATE
---------------------------
Discount rate 7.00% 7.25% 7.25% 7.00% 7.25% 7.25%
Long term rate of return on plan assets 9.25% 9.00% 9.00% -- -- --
Rate of increase in compensation level 5.00% 5.00% 5.00% -- -- --
|
The aggregate benefit obligation for plans with benefit obligations in excess of plan assets was $39,051 in 1998 and $34,332 in 1997. The fair value of plan assets for plans with benefit obligations in excess of plan assets was $13,779 in 1998 and $15,217 in 1997. The amounts included within other comprehensive income arising from a change in the additional minimum pension liability, net of tax were ($2,797) and $217 in 1998 and 1997 respectively.
The Registrant offers an employee associate 401(k) Savings Plan (Savings Plan) to encourage eligible employee associates to save on a regular basis by payroll deductions, and to provide them with an opportunity to become shareholders of the Registrant. Under the Savings Plan from January 1 through March 31, 1998, the Registrant matched 100 percent of a participating employee associate's first 4 percent of contributions and 40 percent of a participating employee associate's second 4 percent of contributions. Under the Savings Plan from April 1 through December 31, 1998, the Registrant matched 80 percent of a participating employee associate's first 4 percent of contributions and 40 percent of a participating employee associate's second 4 percent of contributions. Total Registrant match in 1998, 1997 and 1996 was $9,338, $9,217 and $7,028, respectively.
NOTE 13: LEASES
The Registrant's future minimum lease payments due under operating leases for real and personal property in effect at December 31, 1998, are as follows:
Real Vehicles and
Expiring Total Estate Equipment
===================================================
1999 ........... $27,266 $ 9,066 $18,200
2000 ........... 21,692 7,433 14,259
2001 ........... 15,090 5,835 9,255
2002 ........... 7,954 4,664 3,290
2003 ........... 3,714 3,713 1
Thereafter...... 7,022 7,022 --
---------------------------------------------------
$82,738 $37,733 $45,005
---------------------------------------------------
|
Rental expense for 1998, 1997 and 1996 under all lease agreements amounted to approximately $34,158, $30,900, and $28,100, respectively.
NOTE 14: INCOME TAXES
Income tax expense attributable to income from continuing operations consists
of:
1998 1997 1996
====================================================
Federal and international
Current.......... $39,656 $54,348 $45,082
Deferred......... (272) (265) (2,696)
----------------------------------------------------
39,384 54,083 42,386
State and local
Current.......... 5,132 9,368 7,203
Deferred......... (857) (308) (510)
----------------------------------------------------
4,275 9,060 6,693
Total income tax
expense $43,659 $63,143 $49,079
----------------------------------------------------
|
In addition to the 1998 income tax expense of $43,659, certain deferred income tax benefits of $1,749 were allocated directly to shareholders' equity.
A reconciliation of the difference between the U.S. statutory tax rate and the effective tax rate is as follows:
1998 1997 1996
=====================================================
Statutory tax rate.... 35.0% 35.0% 35.0%
State and local income
taxes, net of federal
tax benefit......... 2.3 3.2 3.0
Realignment charges... 3.3 0.0 0.0
Exempt income......... (4.2) (2.5) (2.7)
Insurance contracts... (2.4) (2.1) (2.3)
Other................. 2.4 0.4 0.5
----------------------------------------------------
Effective tax rate 36.4% 34.0% 33.5%
----------------------------------------------------
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Registrant's deferred tax assets and liabilities are as follows:
1998 1997
==================================================
DEFERRED TAX ASSETS
Postretirement benefits.... $ 16,655 $13,882
Accrued expenses........... 18,053 18,852
Inventory.................. 7,084 6,711
Partnership income......... 2,131 4,861
Realignment charges........ 6,408 --
Deferred revenue........... 5,951 3,353
Net operating
loss carryforwards...... 1,692 1,685
State deferred taxes....... 9,197 6,841
Other...................... 7,753 10,218
--------------------------------------------------
74,924 66,403
Valuation allowance....... (1,579) (1,777)
--------------------------------------------------
Net deferred tax assets... $ 73,345 $ 64,626
--------------------------------------------------
DEFERRED TAX LIABILITIES
Pension................... $ 7,645 $ 7,728
Amortization.............. 441 4,093
Depreciation.............. 3,800 3,186
Finance receivables....... 7,520 1,693
Other..................... 7,185 7,113
--------------------------------------------------
Net deferred tax
liabilities............. 26,591 23,813
--------------------------------------------------
Net deferred tax asset.... $46,754 $ 40,813
--------------------------------------------------
|
At December 31, 1998, the Registrant's international subsidiaries had deferred tax assets relating to net operating loss carryforwards of $1,692, $599 of which expires in years 1999 through 2003, and $1,093 of which has an indefinite carryforward period. The Registrant recorded a valuation allowance to reflect the estimated amount of deferred tax assets, which, more likely than not, will not be realized. The valuation allowance relates to certain international net operating losses and other international deferred tax assets.
NOTE 15: COMMITMENTS AND
CONTINGENCIES
At December 31, 1998, the Registrant was a party to several lawsuits that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the Registrant's financial position or results of operations.
NOTE 16: SEGMENT INFORMATION
The Registrant adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", as required for this Annual Report on Form 10-K. Statement 131 requires companies to report information about the revenues derived from the enterprise's segments, about the geographical divisions in which the enterprise earns revenues and holds assets, and about major customers.
The Registrant has defined its segments into four main areas: North American Sales and Service (NASS), International Sales and Service (ISS), Manufacturing and Development (M & D) and Corporate. These segments are organized under the supervision of the Diebold Executive Management Team and are evaluated based on the following information presented: revenues from customers, revenues from inter-segment transactions, and operating profit contribution to the total corporation. All inter-segment transactions are eliminated to arrive at the total corporation revenue and operating profit. All income and expense items below operating profit are not allocated to the segments and are not disclosed. Also, the realignment and special charges taken by the Registrant in the second quarter of 1998 are not allocated to the segments and are presented separately.
The North American Sales and Service segment sells and services financial, retail, educational and medical systems in the United States and Canada. The International Sales and Service segment sells and services financial, retail, educational and medical systems over the remainder of the globe. The Manufacturing and Development segment manufactures the equipment sold to NASS and ISS and also sells to limited external customers, the largest of which is IBM. The Corporate segment supports the other segments and eliminates all inter-segment revenues and costs. As permitted under Statement 131, certain information not used routinely in the management of these segments, information not allocated back to the segments or information that is impractical to report is not shown. Items not disclosed are as follows: interest revenue, interest expense, depreciation, amortization expense, equity in the net income of investees accounted for by the equity method, income tax expense or benefit, extraordinary items, significant noncash items and long-lived assets.
More than 90 percent of the Registrant's customer revenues are derived from the sales and service of financial systems and equipment. The Registrant had one customer, IBM, its former partner in the InterBold joint venture, that accounted for $148,755 of the total net sales of $1,185,707 in 1998, $173,751 of the total net sales of $1,226,936 in 1997, and $146,103 of the total net sales of $1,030,191 in 1996. Sales to IBM are made from both the ISS and M & D segments.
Domestic revenues were $888,500, $906,491 and $800,150 in 1998, 1997 and 1996 respectively. International revenues were $297,207, $320,448 and $230,039 in 1998, 1997, and 1996, respectively.
Financial information by segment for the years ended December 31, 1998, 1997 and 1996 is as follows:
------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL REALIGNMENT
NORTH AMERICAN SALES & MANUFACTURING CORPORATE/ AND SPECIAL
SALES & SERVICE SERVICE & DEVELOPMENT ELIMINATIONS CHARGES TOTAL
------------------------------------------------------------------------------------------------------------------------------------
1998 SEGMENT INFORMATION BY GROUP
Customer revenues $ 887,548 $ 121,509 $ 173,286 $ 3,364 $ -- $ 1,185,707
Inter-segment revenues 6 278 582,843 (583,127) -- --
Operating profit 149,231 8,189 53,325 (43,381) (61,117) 106,247
1997 SEGMENT INFORMATION BY GROUP
Customer revenues 904,188 131,775 197,970 (6,997) -- 1,226,936
Inter-segment revenues -- -- 687,296 (687,296) -- --
Operating profit 164,723 18,170 45,893 (44,925) -- 183,861
1996 SEGMENT INFORMATION BY GROUP
Customer revenues 818,443 81,586 145,962 (15,800) -- 1,030,191
Inter-segment revenues -- -- 591,931 (591,931) -- --
Operating profit 147,589 7,936 43,035 (58,196) -- 140,364
|
NOTE 17: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
See "Comparison of Selected Quarterly Financial Data (Unaudited)" on page 33 of this Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENT DISCLOSURE
In the Registrant's written or oral statements, the use of the words "believes," "anticipates," "expects" and similar verbs is intended to identify forward-looking statements that have been made and may in the future be made by or on behalf of the Registrant, including statements concerning future operating performance, the Registrant's share of new and existing markets, and the Registrant's short- and long-term revenue and earnings growth rates. The Registrant gives no assurance that its goals will be realized, and it is under no obligation to report changes to its outlook. Readers are cautioned not to place undue reliance on these forward-looking statements. The Registrant's uncertainties could cause actual results to differ materially from those anticipated in forward-looking statements. These include, but are not limited to:
- competitiveness pressures, including pricing pressures and technological developments;
- changes in the Registrant's relationships with customers, suppliers, distributors and/or partners in its business ventures;
- changes in political, economic or other factors such as currency exchange rates, inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting the worldwide business in each of the Registrant's operations;
- acceptance of the Registrant's product and technology introductions in the marketplace;
- unanticipated litigation, claims or assessments;
- the ability to replace revenues generated by IBM as its primary international distributor; and
- the ability to implement the steps of the corporate realignment program.
COMPARISON OF SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
(Dollars in thousands 1998 1997 1998 1997 1998 1997 1998 1997
except per share amounts)
====================================================================================================================================
Net sales................ $295,739 $264,608 $280,592 $303,202 $287,291 $317,778 $322,085 $341,348
Gross profit............. 102,135 92,359 90,021 106,203 100,039 108,522 114,055 123,016
Net income*.............. 26,850 23,733 (14,444) 30,690 29,391 33,056 34,350 35,037
Basic earnings
per share*............. 0.39 0.34 (0.21) 0.45 0.43 0.48 0.50 0.51
Diluted earnings
per share*............. 0.39 0.34 (0.21) 0.44 0.43 0.47 0.50 0.50
====================================================================================================================================
|
See Note 17 to Consolidated Financial Statements and 5-Year Summary 1998-1994.
* The sum of quarterly figures does not equal annual figures due to rounding or differences in the weighted-average number of shares outstanding during the respective periods.
REPORT OF MANAGEMENT
The management of Diebold, Incorporated is responsible for the contents of the consolidated financial statements, which are prepared in conformity with generally accepted accounting principles. The consolidated financial statements necessarily include amounts based on judgments and estimates. Financial information elsewhere in the Annual Report on Form 10-K is consistent with that in the consolidated financial statements.
The Registrant maintains a comprehensive accounting system which includes controls designed to provide reasonable assurance as to the integrity and reliability of the financial records and the protection of assets. An internal audit staff is employed to regularly test and evaluate both internal accounting controls and operating procedures, including compliance with the Registrant's statement of policy regarding ethical and lawful conduct. The role of KPMG LLP, the independent auditors, is to provide an objective examination of the consolidated financial statements and the underlying transactions in accordance with generally accepted auditing standards. The report of KPMG LLP accompanies the consolidated financial statements.
The Audit Committee of the Board of Directors, composed of directors who are not members of management, meets regularly with management, the independent auditors and the internal auditors to ensure that their respective responsibilities are properly discharged. KPMG LLP and the Managing Director of Internal Audit have full and free access to the Audit Committee.
/s/Gerald F. Morris Gerald F. Morris Executive Vice President and Chief Financial Officer |
5-YEAR SUMMARY 1998-1994
DIEBOLD, INCORPORATED AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
1998 1997 1996 1995 1994
====================================================================================================================================
OPERATING RESULTS
Net sales ........................................... $1,185,707 $1,226,936 $1,030,191 $863,409 $760,171
Cost of sales........................................ 779,457 796,836 672,679 568,978 504,489
Gross profit......................................... 406,250 430,100 357,512 294,431 255,682
Selling and administrative expense................... 194,535 191,842 166,572 144,490 128,309
Research, development and engineering expense........ 54,215 54,397 50,576 43,130 36,599
Operating profit..................................... 106,247 183,861 140,364 106,811 90,774
Other income, net.................................... 15,403 6,894 10,533 6,612 5,152
Minority interest ................................... (1,843) (5,096) (4,393) (200) (1,948)
Income before taxes.................................. 119,807 185,659 146,504 113,223 93,978
Taxes on income...................................... 43,659 63,143 49,079 37,014 30,467
Net income .......................................... 76,148 122,516 97,425 76,209 63,511
Realignment and special charges (Note A)............. 61,117 -- -- -- --
Basic earnings per share (Note B).................... 1.10 1.78 1.42 1.11 0.93
Diluted earnings per share (Note B).................. 1.10 1.76 1.40 1.10 0.93
------------------------------------------------------------------------------------------------------------------------------------
DIVIDEND AND COMMON SHARE DATA
Basic weighted-average shares outstanding (Note B)... 68,960 68,939 68,796 68,649 68,243
Diluted weighted-average shares outstanding (Note B). 69,310 69,490 69,350 69,022 68,595
Common dividends paid................................ $ 38,631 $ 34,473 $ 31,190 $ 29,290 $ 26,682
Common dividends paid per share (Note B)............. 0.56 0.50 0.45 0.43 0.39
------------------------------------------------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION
Current assets....................................... $ 543,548 $ 549,837 $ 487,523 $376,212 $329,658
Current liabilities.................................. 235,533 242,080 228,220 189,078 159,755
Net working capital.................................. 308,015 307,757 259,303 187,134 169,903
Property, plant and equipment, net................... 147,131 143,901 95,934 84,072 64,713
Total assets......................................... 1,004,188 991,050 859,101 749,795 666,174
Long-term debt, less current maturities.............. 20,800 20,800 --- --- ---
Shareholders' equity................................. 699,123 668,581 575,570 507,680 459,839
Shareholders' equity per share (Note C).............. 10.15 9.69 8.36 7.39 6.70
------------------------------------------------------------------------------------------------------------------------------------
RATIOS
Pretax profit on net sales (%)....................... 10.1% 15.1% 14.2% 13.1% 12.4%
Current ratio........................................ 2.3 to 1 2.3 to 1 2.1 to 1 2.0 to 1 2.1 to 1
------------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Capital expenditures................................. $ 30,768 $ 67,722 $ 33,581 $ 35,308 $ 22,641
Depreciation and amortization........................ 25,649 18,701 20,984 14,174 13,240
====================================================================================================================================
Note A -- In the second quarter of 1998, the Registrant recorded realignment
and special charges of $61,117 ($41,850 after-tax or $0.60 per diluted
share).
Note B -- After adjustment for stock splits.
Note C -- Based on shares outstanding at year-end adjusted for stock splits.
|
There have been no changes in accountants or disagreements with accountants on accounting and financial disclosures.
PART III.
Information with respect to directors of the Registrant is included on pages 3 through 7 of the Registrant's proxy statement for the 1999 Annual Meeting of Shareholders ("1999 Annual Meeting") and is incorporated herein by reference. Refer to pages 6 through 8 of this Form 10-K for information with respect to executive officers.
Information with respect to executive compensation is included on pages 7 through 15 of the Registrant's proxy statement for the 1999 Annual Meeting and is incorporated herein by reference.
Information with respect to security ownership of certain beneficial owners and management is included on pages 2 through 5 of the Registrant's proxy statement for the 1999 Annual Meeting and is incorporated herein by reference.
The information with respect to certain relationships and related transactions set forth under the caption "Compensation Committee Interlocks and Insider Participation" on page 7 of the Registrant's proxy statement for the 1999 Annual Meeting is incorporated herein by reference.
PART IV.
(a) Documents filed as a part of this report.
1. The following additional information for the years 1998, 1997, and 1996 is submitted herewith:
Independent Auditors' Report on Consolidated Financial Statements and Financial Statement Schedule
SCHEDULE II. Valuation and Qualifying Accounts
All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
-------- ----------------------------------------------------------------
(continued)
2. Exhibits
3.1(i) Amended and Restated Articles of Incorporation of Diebold,
Incorporated -- incorporated by reference to Exhibit 3.1 (i)
of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.
3.1(ii) Code of Regulations -- incorporated by reference to Exhibit
4(c) to Registrant's Post-Effective Amendment No. 1 to Form
S-8 Registration Statement No. 33-32960.
3.2 Certificate of Amendment by Shareholders to Amended Articles
of Incorporation of Diebold, Incorporated -- incorporated by
reference to Exhibit 3.2 to Registrant's Form 10-Q for the
quarter ended March 31, 1996.
3.3 Certificate of Amendment to Amended Articles of
Incorporation of Diebold, Incorporated.
4. 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 Registrant's
Registration Statement on Form 8-A dated February 11, 1999.
*10.1 Form of Employment Agreement as amended and restated as of
September 13, 1990 -- incorporated by reference to Exhibit
10.1 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.
*10.2 Schedule of Certain Officers who are Parties to Employment
Agreements in the form of Exhibit 10.1 -- incorporated by
reference to Exhibit 10.2 to Registrant's Form 10-Q for the
quarter ended June 30, 1998.
*10.5(i) Supplemental Employee Retirement Plan (as amended January 1,
1994) -- incorporated by reference to Exhibit 10.5 of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
*10.5(ii) Amendment No. 1 to the Amended and Restated Supplemental
Retirement Plan - incorporated by reference to Exhibit 10.5
(ii) of Registrant's Form 10-Q for the quarter ended March
31, 1998.
*10.7(i) 1985 Deferred Compensation Plan for Directors of Diebold,
Incorporated -- incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
*10.7(ii) Amendment No. 1 to the Amended and Restated 1985 Deferred
Compensation Plan for Directors of Diebold, Incorporated -
incorporated by reference to Exhibit 10.7 (ii) to
Registrant's Form 10-Q for the quarter ended March 31, 1998.
*10.8(i) 1991 Equity and Performance Incentive Plan as Amended and
Restated -- incorporated by reference to Exhibit 10.8 to
Registrant's Form 10-Q for the quarter ended March 31, 1997.
|
* Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(continued)
*10.8(ii) Amendment No. 1 to the Equity and Performance Incentive Plan as Amended and Restated -- incorporated by reference to Exhibit 10.8 (ii) to Registrant's Form 10-Q for the quarter ended September 30, 1998.
*10.9 Long-Term Executive Incentive Plan -- incorporated by reference to Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.
*10.10(i) 1992 Deferred Incentive Compensation Plan (as amended and restated as of July 1, 1993) -- incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.
*10.10(ii) Amendment No. 1 to the Amended and Restated 1992 Deferred Incentive Compensation Plan -- incorporated by reference to Exhibit 10.10 (ii) to Registrant's Form 10-Q for the quarter ended March 31, 1998.
*10.10(iii) Amendment No. 2 to the Amended and Restated 1992 Deferred Incentive Compensation Plan -- incorporated by reference to Exhibit 10.10 (iii) to Registrant's Form 10-Q for the quarter ended September 30, 1998.
*10.11 Annual Incentive Plan -- incorporated by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992.
*10.13(i) Forms of Deferred Compensation Agreement and Amendment No. 1 to Deferred Compensation Agreement -- incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996.
*10.13(ii) Section 162 (m) Deferred Compensation Agreement (as amended
and restated January 29, 1998) -- incorporated by reference
to Exhibit 10.13 (ii) to Registrant's Form 10-Q for the
quarter ended March 31, 1998.
10.14 Deferral of Stock Option Gains Plan.
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
24. Power of Attorney.
27. Financial Data Schedule.
|
* Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIEBOLD, INCORPORATED
March 4, 1999 By: /s/Robert W. Mahoney
-------------- --------------------
Date Robert W. Mahoney
Chairman of the Board, President and
Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Robert W. Mahoney Chairman of the Board, President and March 4, 1999
---------------------- Chief Executive Officer -------------
Robert W. Mahoney (Principal Executive Officer)
/s/Gerald F. Morris Executive Vice President March 4, 1999
------------------- and Chief Financial Officer -------------
Gerald F. Morris (Principal Accounting and
Financial Officer
/s/Louis V. Bockius III Director March 4, 1999
----------------------- -------------
Louis V. Bockius III
/s/Daniel T. Carroll Director March 4, 1999
----------------------- -------------
Daniel T. Carroll
/s/Richard L. Crandall Director March 4, 1999
----------------------- -------------
Richard L. Crandall
* Director March 4, 1999
----------------------- -------------
Donald R. Gant
/s/L. Lindsey Halstead Director March 4, 1999
----------------------- -------------
L. Lindsey Halstead
* Director March 4, 1999
----------------------- -------------
Phillip B. Lassiter
|
Signature Title Date
--------- ----- ----
* Director March 4, 1999
----------------------- -------------
John N. Lauer
* Director March 4, 1999
----------------------- -------------
William F. Massy
/s/W.R. Timken, Jr. Director March 4, 1999
----------------------- -------------
W. R. Timken, Jr.
|
* The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to the Powers of Attorney executed by the above-named officers and directors of the Registrant and filed with the Securities and Exchange Commissions on behalf of such officers and directors.
Dated: March 4, 1999 *By: /s/Gerald F. Morris
--------------- ----------------------------------
Gerald F. Morris, Attorney-in-Fact
|
The Board of Directors and Shareholders
Diebold, Incorporated
We have audited the accompanying consolidated balance sheets of Diebold, Incorporated and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1998. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in Item 14 (a)(1) of Form 10-K of Diebold, Incorporated for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements and financial statement schedule are the responsibility of the Registrant's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Diebold, Incorporated and subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/KPMG LLP KPMG LLP Cleveland, Ohio January 19, 1999 |
DIEBOLD, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Balance at Balance
beginning at end
of year Additions Deductions of year
---------- --------- ---------- -------
Year ended December 31, 1998
----------------------------
Allowance for doubtful accounts $6,838,018 $5,438,303 $3,902,649 $8,373,672
Year ended December 31, 1997
----------------------------
Allowance for doubtful accounts $5,917,055 $1,727,130 $806,167 $6,838,018
Year ended December 31, 1996
----------------------------
Allowance for doubtful accounts $5,541,954 $2,273,553 $1,898,452 $5,917,055
|
EXHIBIT NO. DOCUMENT DESCRIPTION PAGE NO.
----------- -------------------- --------
3.3 Certificate of Amendment to Amended
Articles of Incorporation 44
10.14 Deferral of Stock Option Gains Plan 45
21 Subsidiaries of the Registrant 46
23 Consent of Independent Auditors 47
24 Power of Attorney 48
27 Financial Data Schedule 49
|
Return To:
JONES, DAY, REAVIS & POGUE
ATTN H BOWMAN
41 S HIGH ST STE 1900
COLUMBUS, OH 43215-0000
The State of Ohio Certificate Secretary of State - J. Kenneth Blackwell
It is hereby certified that the Secretary of State of Ohio has custody of the business records for DIEBOLD, INCORPORATED and that said business records show the filing and recording of:
Document(s) Document No(s):
----------- ---------------
DOMESTIC/AMENDMENT TO ARTICLES 199903401907
---------------
United States of America Witness my hand and the seal of the Secretary
State of Ohio of State at Columbus Ohio, This 2nd day of
Office of the Secretary of State February, A.D. 1999
/s/ J. Kenneth Blackwell
[SEAL OF OHIO LOGO] J. Kenneth Blackwell
Secretary of State
|
[SEAL OF OHIO LOGO]
Prescribed by ---------------------------
Bob Taft, Secretary of State Charter No. _______________
30 East Broad Street, 14th Floor Approved __________________
Columbus, Ohio 43266-0418 Date ______________________
Form C-107 (January 1991) Fee _______________________
---------------------------
|
CERTIFICATE OF AMENDMENT
By Directors of
Robert W. Mahoney who is:
------------------------
[X] Chairman of the Board [ ] President [ ] Vice President
(check one)
and
Charee Francis-Vogelsang who is: [X] Secretary [ ] Assistant Secretary
------------------------ (check one)
|
of the above named Ohio corporation for profit do hereby certify that:
[X] a meeting of the Board of Directors called and held on the 28th day of January 1999.
[ ] in a writing signed by all the Directors pursuant to Section 1701.54 of the Ohio Revised Code.
the following resolution was adopted pursuant to Section 1701.70(B)(1) (insert the proper paragraph number) of the Ohio Revised Code.
IN WITNESS WHEREOF, the above named officers, acting for and on behalf of the corporation, have hereunto subscribed their names this 2nd day of February, 1999.
BY: /s/ Robert W. Mahoney
-------------------------------
(Chairman)
Robert W. Mahoney
BY: /s/ Charee Francis-Vogelsang
-------------------------------
(Secretary)
Charee Francis-Vogelsang
|
NOTE: Ohio law does not permit one officer or sign in two capacities. Two separate signatures are required, even if this necessitates the election of a second officer before the filing can be made.
CERTIFICATE OF ADOPTION
OF AMENDMENT
TO AMENDED ARTICLES OF INCORPORATION
OF
DIEBOLD, INCORPORATED
We, Robert W. Mahoney, Chairman of the Board and Chief Executive Officer, and Charee Francis-Vogelsang, Vice President and Secretary, of Diebold, Incorporated, an Ohio corporation (the "Company"), do hereby certify that pursuant to the authority conferred upon the Directors of the Company (the "Directors") by the Articles of Incorporation of the Company, the Directors at a meeting duly called and held on January 28, 1999, at which a quorum was present and acting throughout, adopted the following resolution to amend the Amended Articles of Incorporation of the Company pursuant to Section 1701.70(B)(1) of the Ohio Revised Code to amend the Series of Stock currently designated as the Cumulative Redeemable Serial Preferred Shares (to be now designated as the Series A Junior Participating Preferred Stock):
RESOLVED, that Article FOURTH of the Amended Articles of Incorporation of this Company be, and it hereby is, amended by replacing the existing Division A-1 after Division A of Article FOURTH of the Amended Articles of Incorporation with a new Division A-1 as set forth below:
DIVISION A-1
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. DESIGNATION OF SERIES. There is established hereby a series of Serial Preferred Stock that shall be designated Series A Junior Participating Preferred Stock (hereinafter sometimes called this "Series" or the "Series A Junior Participating Preferred Shares") and that shall have the terms set forth in this Division A-1.
Section 2. NUMBER OF SHARES. The number of shares of this Series shall be 125,000.
Section 3. DIVIDEND RATE AND PAYMENT. (a) The holders of record of Series A Junior Participating Preferred Shares shall be entitled to receive, when and as declared by the Directors in accordance with the terms hereof out of funds legally available for the purpose, cumulative quarterly dividends payable in cash on the first day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Series A Junior Participating Preferred Share or fraction of a Series A Junior Participating Preferred Share in an amount per share (rounded to the nearest cent) equal to the greater of (i) $1.00 per share or (ii) subject to the provision for adjustment hereinafter set forth, 1000 times the aggregate per share amount of all cash dividends, and 1000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions (other than a dividend payable in shares or Common Stock, or a subdivision of the outstanding Common Stock (by reclassification or otherwise)), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any Series A Junior Participating Preferred Share or fraction of a Series A Junior Participating Preferred Share. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of Series A Junior Participating Preferred Shares were entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(b) Dividends shall begin to accrue and be cumulative on outstanding Series A Junior Participating Preferred Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such Series A Junior Participating Preferred Shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. No dividends shall be paid upon or declared and set apart for any Series A Junior Participating Preferred Shares for any dividend period unless at the same time a dividend for the same dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid upon or declared and set apart for all Serial Preferred Stock of all series then outstanding and entitled to receive such dividend. The Directors may fix a record date for the determination of holders of Series A Junior Participating Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 40 days prior to the date fixed for the payment thereof.
Section 4. REDEMPTION. The Series A Junior Participating Preferred Shares are not redeemable.
Section 5. LIQUIDATION. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company (hereinafter referred to as a "Liquidation"), no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon Liquidation) to the Series A Junior Participating Preferred Shares, unless, prior thereto, the holders of Series A Junior Participating Preferred Shares shall have received at least an amount per share equal to one thousand times the then applicable Purchase Price as defined in the Rights Agreement, as the same may be from time to time amended in accordance with its terms (which Purchase Price is $150.00 as of February 11, 1999), subject to adjustment from time to time as provided in the Rights Agreement, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the
date of such payment, provided that the holders of shares of Series A Junior Participating Preferred Shares shall be entitled to receive at least an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1000 times the aggregate amount to be distributed per share to holders of Common Stock (the "Series A Junior Participating Preferred Shares Liquidation Preference").
(b) In the event, however, that the net assets of the Company are not sufficient to pay in full the amount of the Series A Junior Participating Preferred Shares Liquidation Preference and the liquidation preferences of all other series of Serial Preferred Stock, if any, which rank on a parity with the Series A Junior Participating Preferred Shares as to distribution of assets in Liquidation, all shares of this Series and of such other series of Serial Preferred Stock shall share ratably in the distribution of assets (or proceeds thereof) in Liquidation in proportion to the full amounts to which they are respectively entitled.
(c) In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of Series A Junior Participating Preferred Shares were entitled immediately prior to such event pursuant to the proviso set forth in paragraph (a) above, shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(d) The merger or consolidation of the Company into or with any other corporation, or the merger of any other corporation into it, or the sale, lease or conveyance of all or substantially all the property or business of the Company, shall not be deemed to be a Liquidation for the purpose of this Section 5.
Section 6. CONVERSION RIGHTS. The Series A Junior Participating Preferred Shares shall not be convertible into Common Stock.
IN WITNESS WHEREOF, Robert W. Mahoney, Chairman of the Board and Chief Executive Officer, and Charee Francis-Vogelsang, Vice President and Secretary, of Diebold, Incorporated, acting for and on behalf of the Company, have hereunto subscribed their names this 2nd day of February, 1999.
/s/ Robert W. Mahoney ---------------------------- Robert W. Mahoney, Chairman of the Board and Chief Executive Officer /s/ Charee Francis-Vogelsang ---------------------------- Charee Francis-Vogelsang Vice President and Secretary |
EXHIBIT 10.14
DIEBOLD, INCORPORATED
Diebold, Incorporated, an Ohio corporation, hereby establishes, effective as of April 15, 1998, the DEFERRAL OF STOCK OPTION GAINS PLAN. Such Plan provides key executives and non-employee directors with the opportunity to defer stock option gains, in accordance with the provisions of this Plan.
ARTICLE I
DEFINITIONS
For the purposes hereof, the following words and phrases shall have the meanings indicated.
1. "Account" shall mean a bookkeeping account in which Gain Shares deferred by a Participant shall be recorded and to which stock dividends and distributions may be credited in accordance with the Plan.
2. "Beneficiary" or "Beneficiaries" shall mean the person or persons designated by a Participant in accordance with the Plan to receive payment of the remaining balance of the Participant's Account in the event of the death of the Participant prior to receipt of the entire amount credited to the Participant's Account.
3. "Board" shall mean the Board of Directors of the Company.
4. "Change in Control" shall have the same meaning as defined in the Equity and Performance Incentive Plan.
5. "Code" shall mean the Internal Revenue Code of 1986, as amended.
6. "Committee" shall mean the Compensation and Pension Committee of the Board or such other committee as may be authorized by the Board to administer the Plan.
7. "Common Shares" shall mean common shares, $1.25 par value, of the Company or any security into which such Common Shares may be changed by reason of any transaction or event of the type referred to in Section 10 of Article II of the Plan.
8. "Company" shall mean Diebold, Incorporated and its successors, including, without limitation, the surviving corporation resulting from any merger or consolidation of Diebold, Incorporated with any other corporation or corporations.
9. "Director Deferred Compensation Plan" shall mean the Diebold, Incorporated Amended and Restated 1985 Deferred Compensation Plan for Directors, as amended from time to time.
10. "Disability" shall mean a physical or mental condition of a Participant resulting from a bodily injury, disease or mental disorder which renders him or her incapable of continuing in the employment of, or service with, the Company. Such Disability shall be determined by the Committee based upon appropriate medical evidence and examination.
11. "Election Agreement" shall mean an agreement in substantially the form attached hereto as Exhibit A, as modified from time to time by the Company.
12. "Eligible Associate" shall mean an associate of the Company, or a Subsidiary, who is selected by the Committee to participate in this Plan. Unless otherwise determined by the Committee, an Eligible Associate shall continue as such until termination of employment. For purposes of the Plan, a "termination of employment" shall not be deemed to occur upon a transfer of employment to a Subsidiary or the Company.
13. "Employee Deferred Compensation Plan" shall mean the Diebold, Incorporated 1992 Deferred Incentive Compensation Plan, as amended from time to time.
14. "Equity and Performance Incentive Plan" shall mean the Diebold, Incorporated 1991 Equity and Performance Incentive Plan, as amended from time to time.
15. "Extension Agreement" shall mean an agreement in substantially the form attached hereto as Exhibit B, as modified from time to time by the Company.
16. "Gain Shares" shall mean a number of Common Shares equal to the difference between the number of Common Shares issuable upon exercise of the related Option Rights and the number of Common Shares delivered by the Participant in satisfaction of the exercise price for such Option Rights.
17. "Market Value per Share" shall mean, as of any particular date, the fair market value of the Common Shares as determined by the Committee. Unless otherwise determined by the Committee, "Market Value Per Share" shall mean at any date the mean of the high and low trading prices of Common Shares in the principal market in which the Common Shares are traded on the immediately preceding date (or, if there are no sales on that date, the last preceding date on which there were sales).
18. "Non-Employee Director" means a director of the Company who is not an employee of the Company or any Subsidiary.
19. "Option Right" shall mean any stock option, other than an "incentive stock option" as defined in section 422 of the Code, granted to a Participant under the Equity and Performance Incentive Plan or any similar plan of the Company.
20. "Participant" shall mean any Eligible Associate or Non-Employee Director who has at any time elected to defer the receipt of Gain Shares in accordance with the Plan.
21. "Plan" shall mean this deferral plan, which shall be known as the Deferral of Stock Option Gains Plan for the Company.
22. "Reload Option Rights" means additional Option Rights granted automatically to a Participant upon the exercise of Option Rights pursuant to the Equity and Performance Incentive Plan and Section 3 of Article II of this Plan.
23. "Subsidiary" shall mean any corporation, joint venture, partnership, unincorporated association or other entity in which the Company has a direct or indirect ownership or other equity interest and directly or indirectly owns or controls more than 50 percent of the total combined voting or other decision-making power.
ARTICLE II
1. ELECTION TO DEFER. A Participant who desires to defer Gain Shares pursuant to this Plan must complete and deliver an Election Agreement to the Secretary of the Company specifying the number of shares and award date(s) of the Option Right(s) to which the Election Agreement applies. By delivering an Election Agreement, the Participant irrevocably waives his or her rights under the related Option Rights to (i) exercise the Option Rights for cash at any time when the Participant is an Eligible Associate or Non-Employee Director and (ii) exercise the Option Rights in any manner during the period commencing on the date of the Election Agreement and ending six months thereafter; provided, however, that such waiver shall be null and void in the event that during such six-month period (a) an Eligible Associate's employment by the Company is terminated or a Non-Employee Director's service with the Board is terminated other than as a result of voluntary resignation, (b) an Eligible Associate's employment, or a Non-Employee Director's service, terminates as a result of his death or Disability, or (c) there is a Change in Control of the Company. By delivering an Election Agreement, the Participant also consents to the Company's withholding of amounts from other compensation payable to the Participant for required social security, medicare, local and any other taxes payable upon the exercise of the Option Rights.
2. EFFECT OF ELECTION. In order to exercise Option Rights with respect to which an Election Agreement is in effect, the Participant must, actually or constructively tender, in satisfaction of the option exercise price, Common Shares owned by the Participant (and, if acquired upon any exercise of Option Rights, which the Participant has owned for at least six (6) months) having a fair market value (determined based on Market Value per Share) as of the exercise date equal to the aggregate exercise price for the Option Rights exercised. Upon such exercise, the Company shall (i) deliver to the Participant a number of Common Shares equal to
the number of Common Shares surrendered by the Participant in payment of the exercise price and (ii) credit the Gain Shares to the Participant's Account.
3. RELOAD OPTION RIGHTS. If Market Value per Share on the date the Election Agreement is delivered by a Participant to the Secretary of the Company is at least 120% of the exercise price of the Option Rights being exercised pursuant to this Plan or the Market Value per Share on the date of exercise is at least 120% of the exercise price of the Option Rights being exercised, a Participant shall automatically be granted Reload Option Rights upon the exercise of such Option Rights (including Reload Option Rights). Reload Option Rights, subject to the limitations set forth in Section 3 of the Equity and Performance Incentive Plan (Shares Available Under the Plan) including the per person limitation set forth in Section 3(b) of the Equity and Performance Incentive Plan and other limits in any other Plan, shall cover the number of Common Shares surrendered to the Company upon any exercise pursuant to this Plan. Reload Option Rights shall have an option price equal to the Market Value per Share on the exercise date. Such Reload Option Rights shall become exercisable six months after grant (or earlier in the event of a Change in Control of the Company) and terminate at such time as the Option Rights being exercised would have terminated had they not been exercised. In no event, however, shall Reload Option Rights be granted unless the remainder of the original term of the Option Rights being exercised is greater than six (6) months at the time of such exercise. In addition, Reload Option Rights shall be on the other terms and conditions set forth in the form of a Reload Option Agreement attached hereto as Exhibit C, which shall be issued as evidence of such Reload Option.
4. PERIOD OF DEFERRAL. The delivery of Gain Shares to a Participant shall occur, or commence in the case an installment payout is selected pursuant to Section 7 of this Article, on the date specified by the Participant in the Election Agreement or Extension Agreement, which may be a date certain or a date determined by reference to the date the Participant ceases to be an associate or Non-Employee Director by reason of death, retirement or otherwise. In the event that a date certain is selected, such date must be at least two years from the date of exercise of
the Option Rights pursuant to this Plan. In order for an Extension Agreement to be effective, such agreement must be delivered to the Secretary of the Company prior to the first anniversary of the date of exercise of the Option Rights pursuant to the Plan and at a time when the Participant is an associate or Non-Employee Director. For each Gain Share covered by this Plan, a Participant may file only one Extension Agreement and, if timely delivered, the Extension Agreement shall be irrevocable.
5. ACCOUNT. The Account shall be utilized solely as a device for the measurement and determination of the amount of deferred compensation payable under this Plan. The Account, on the exercise date of the related Option Rights, shall be credited with the number of Gain Shares. Such Account shall be deemed to be invested in Common Shares and shall be credited with stock dividends declared thereon.
6. DIVIDEND CREDITS. To the extent that the Company declares cash or other property dividends with respect to Common Shares, a Participant's account established (or to be established) under either the Employee Deferred Compensation Plan or Director Deferred Compensation Plan, as the case may be, shall be credited, on the date cash or other property dividends are paid, with an amount equal to the amount of the cash (or fair market value of other property) dividend paid with respect to Common Shares multiplied by the number of Common Shares credited to the Participant's Account as of the record date for the corresponding dividend. Thereafter, such amounts shall be subject to the terms and provisions of the Employee Deferred Compensation Plan or the Director Deferred Compensation Plan, as the case may be.
7. PAYMENT OF ACCOUNTS. The number of Common Shares in a Participant's Account shall be issued or transferred to the Participant in a lump sum or in a number of approximately equal annual installments (not be exceed 10), as designated by the Participant in the Election Agreement or Extension Agreement. The number of Common Shares issued or transferred in a lump sum or in each installment shall be reduced by a number of Common Shares having a fair market value (determined based on Market Value per Share) equal to the amount of
any taxes REQUIRED to be withheld with respect to such lump sum or installment. The Company and Participant may also make similar arrangements with respect to the payment of any taxes with respect to which withholding is not required. The amount of such Account remaining unpaid shall continue to be credited with dividends, as provided in Sections 5 and 6 of this Article. The lump sum payment on the first annual installment, as the case may be, shall be made as soon as practicable following the end of the period of deferral as specified in Section 4 of this Article.
8. DEATH OF A PARTICIPANT. Unless otherwise specified by a Participant in the Election Agreement or Extension Agreement, in the event of the death of a Participant, the remaining amount of the Participant's Account shall be paid in a lump sum to the Beneficiary or Beneficiaries designated in a writing substantially in the form attached hereto as Exhibit D (the "Beneficiary Designation"). A Participant's Beneficiary Designation may be changed at any time prior to his or her death by the execution and delivery of a new Beneficiary Designation. The Beneficiary Designation on file with the Company that bears the latest date at the time of the Participant's death shall govern. In the absence of a Beneficiary Designation or the failure of any Beneficiary to survive the Participant, the amount of the Participant's Account shall be paid to the Participant's estate in a lump sum 90 days after the appointment of an executor or administrator. In the event of the death of the Beneficiary or Beneficiaries after the death of a Participant, the remaining amount of the Account shall be paid in a lump sum to the estate of the last Beneficiary to receive payments 90 days after the appointment of an executor or administrator.
9. ACCELERATION. Notwithstanding the provisions of the foregoing: (i) if a Change in Control occurs, the amount of each Participant's Account shall immediately be paid to the Participant in full; (ii) in the event of an unforeseeable emergency, as defined in section 1.457-2(h)(4) and (5) of the Income Tax Regulations, that is caused by an event beyond the control of the Participant or Beneficiary and that would result in severe financial hardship to the individual if acceleration were not permitted, the Committee may in its sole discretion accelerate
the payment to the Participant or Beneficiary of the amount of his or her Account, but only up to the amount necessary to meet the emergency.
10. ADJUSTMENTS. The Committee may make or provide for such
adjustments in the numbers of Common Shares credited to Participants' Accounts,
and in the kind of shares so credited, as the Committee in its sole discretion,
exercised in good faith, may determine is equitably required to prevent dilution
or enlargement of the rights of Participants that otherwise would result from
(i) any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Company, or (ii) any merger,
consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of rights or
warrants to purchase securities, or (iii) any other corporate transaction or
event having an effect similar to any of the foregoing. Moreover, in the event
of any such transaction or event, the Committee, in its discretion, may provide
in substitution for any or all Common Shares deliverable under this Plan such
alternative consideration as it, in good faith, may determine to be equitable in
the circumstances.
11. SMALL PAYMENTS. Notwithstanding the foregoing, if installment payments elected by a Participant would result in a payment with a value of less than $500, the entire amount of the Participant's Account may at the discretion of the Committee be paid in a lump sum in accordance with Section 4 of this Article.
12. FRACTIONAL SHARES. The Company shall not be required to issue any fractional Common Shares pursuant to this Plan. The Committee may provide for the elimination of fractions or for the settlement of fractions in cash.
ARTICLE III
The Company, through the Committee, shall be responsible for the general administration of the Plan and for carrying out the provisions hereof. The Committee shall have
all such powers as may be necessary to carry out the provisions of the Plan,
including the power to (i) determine all questions relating to eligibility for
participation in the Plan and the amount in the Account of any Participant and
all questions pertaining to claims for benefits and procedures for claim review,
(ii) resolve all other questions arising under the Plan, including any questions
of construction, and (iii) take such further action as the Company shall deem
advisable in the administration of the Plan. The actions taken and the decisions
made by the Committee hereunder shall be final and binding upon all interested
parties. In accordance with the provisions of Section 503 of the Employee
Retirement Income Security Act of 1974, the Committee shall provide a procedure
for handling claims of Participants or their Beneficiaries under this Plan. Such
procedure shall be in accordance with regulations issued by the Secretary of
Labor and shall provide adequate written notice within a reasonable period of
time with respect to the denial of any such claim as well as a reasonable
opportunity for a full and fair review by the Committee of any such denial.
ARTICLE IV
The Company reserves the right to amend or terminate the Plan at any time by action of the Board; provided, however, that no such action shall adversely affect any Participant or Beneficiary to the extent of any exercise of previously granted Option Rights pursuant to the Plan, or result in the acceleration of payment of the amount of any Account (except as otherwise permitted under the Plan), without the consent of the Participant or Beneficiary.
ARTICLE V
1. NON-ALIENATION OF DEFERRED COMPENSATION. Except as permitted by this Plan, no right or interest under this Plan of any Participant or Beneficiary shall, without the written consent of the Company, be (i) assignable or transferable in any manner, (ii) subject to
alienation, anticipation, sale, pledge, encumbrance, attachment, garnishment or other legal process or (iii) in any manner liable for or subject to the debts or liabilities of the Participant or Beneficiary.
2. INTEREST OF PARTICIPANTS. The obligation of the Company under the Plan to make payment of amounts reflected in an Account merely constitutes the unsecured promise of the Company to make payments from its general assets or in the form of its Common Shares, as the case may be, as provided herein, and no Participant or Beneficiary shall have any interest in, or a lien or prior claim upon, any property of the Company. Nothing in this Plan shall be construed as guaranteeing future employment to Eligible Associates. It is the intention of the Company that the Plan be unfunded for tax purposes and for purposes of Title I of ERISA. The Company may create a trust to hold funds, Common Shares or other securities to be used in payment of its obligations under the Plan, and may fund such trust; PROVIDED, HOWEVER, that any funds contained therein shall remain liable for the claims of the Company's general creditors.
3. CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no event be construed as giving any other person, firm or corporation any legal or equitable right as against the Company or any Subsidiary or the officers, employees or directors of the Company or any Subsidiary, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan.
4. SEVERABILITY. The invalidity and unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom.
5. GOVERNING LAW. Except to the extent preempted by federal law, the provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio.
6. RELATIONSHIP TO OTHER PLANS. This Plan is intended to serve the purposes of and to be consistent with the Equity and Performance Incentive Plan and any similar plan
approved by the Committee for purposes of this Plan. The issuance or transfer of Common Shares pursuant to this Plan shall be subject in all respects to the terms and conditions of the Equity and Performance Incentive Plan and any other such plan. Without limiting the generality of the foregoing, Common Shares credited to the Account of Participants pursuant to this Plan shall be taken into account for purposes of Section 3 of the Equity and Performance Incentive Plan (Shares Available Under the Plan) and for purposes of the corresponding provisions of any other such plan.
EXHIBIT A
DEFERRAL OF STOCK OPTION GAINS PLAN
DIEBOLD, INCORPORATED
ELECTION AGREEMENT
I,______________, hereby elect to participate in the Deferral of Stock Option Gains Plan for Diebold, Incorporated (the "Plan") as follows:
I. DEFERRAL OF GAIN SHARES
1. Number of Common Shares that I am entitled to receive upon exercise of the Option to which this Election Agreement applies: (1)
Common Shares
2. Grant date(s) of Option:
3. Please make payment of the Gain Shares resulting from the exercise of the Option to which this Election Agreement applies, together with any stock dividends attributable to such Gain Shares, as follows:
a. Pay in lump sum [ ]
b. Pay in ______ approximately equal annual installments
[ ] (not to exceed 10) (Check one or both)
4. Please defer payment or make payment of first installment as follows:
a. Defer until the date I cease to be an associate [ ] or Non-Employee Director [ ] (Check one or both)
b. Defer until ________________ [ ] (specify date or number of years following termination of employment or service ended as a Non-Employee Director)
c. Defer until second anniversary of the date of exercise of the Option [ ]
(1) In the event of a partial exercise of an Option, this Election Agreement applies to the Common Shares that would be the first to be received.
II. SIGNATURE/AUTHORIZATION
I acknowledge that I have reviewed the Plan and understand that my participation will be subject to the terms and conditions contained in the Plan. Capitalized terms used, but not otherwise defined, in this Election Agreement shall have the respective meanings assigned to them in the Plan.
I acknowledge that I have been advised to consult with my own financial, tax, estate planning and legal advisors before making this election to defer in order to determine the tax effects and other implications of my participation in the Plan.
Dated this ____ day of ___________, 19__.
EXHIBIT B
DEFERRAL OF STOCK OPTION GAINS PLAN
DIEBOLD, INCORPORATED
EXTENSION AGREEMENT
I,________________________ , hereby elect to extend the deferral for certain Gains Shares, together with any stock dividends attributable to such Gain Shares, under the Deferral of Stock Option Gains Plan for Diebold, Incorporated (the "Plan") as follows:
I. EXTENSION OF DEFERRAL
1. Number of Gain Shares to which this Extension Agreement applies:
Common Shares _________________
2. Date of exercise of Option Rights that resulted in crediting of Gain Shares to my Account:
3. Please make payment of the Gain Shares to which this Extension Agreement applies, together with any stock dividends attributable to such Gain Shares, as follows:
a. Pay in lump sum [ ]
b. Pay in__________ approximately equal annual installments [ ](not to exceed 10) (Check one or both)
4. Please defer payment or make payment of first installment as follows:
a. Defer until the date I cease to be an associate [ ]
or Non-Employee Director as the case may be [ ]
(Check one or both)
b. Defer until ________ [ ] (specify date or number of years following termination of employment or service ended as a Non-Employee Director)
II. SIGNATURE/AUTHORIZATION
I acknowledge that I have reviewed the Plan and understand that my participation will be subject to the terms and conditions contained in the Plan. Capitalized terms used, but not
otherwise defined, in this Election Agreement shall have the respective meanings assigned to them in the Plan.
I understand that in order for this Extension Agreement to be effective, this agreement must be delivered to the Secretary of the Company within one year of the date specified in Part I.2. above. I further understand that this Extension Agreement is irrevocable.
I acknowledge that I have been advised to consult with my own financial, tax, estate planning and legal advisors before making this election to defer in order to determine the tax effects and other implications of my participation in the Plan.
Dated this __________day of ___________________, 19___.
EXHIBIT C
DIEBOLD, INCORPORATED
RELOAD OPTION AGREEMENT
WHEREAS, ______________ (hereinafter called the "Optionee") is a key associate or Non-Employee Director of Diebold, Incorporated (hereinafter called the "Corporation"); and
WHEREAS, the Optionee was granted an option to purchase __________ Common Shares of the Corporation (the "Original Option Rights") pursuant to a Nonqualified Stock Option Agreement dated as of _________, 19__, between the Optionee and the Corporation (the "Original Option Agreement") pursuant to the Diebold, Incorporated 1991 Equity and Performance Incentive Plan (the "Incentive Plan"); and
WHEREAS, pursuant to the Diebold, Incorporated Deferral of Stock Option Gains Plan (the "Deferral Plan"), upon exercise of the Original Option Agreement (or any subsequent Reload Option Agreement) the Optionee became entitled to the automatic grant of additional option rights ("Reload Option Rights"); and
WHEREAS, the execution of a Reload Option Agreement substantially in the form hereof has been authorized by a resolution of the Board of Directors of the Corporation duly adopted on April 15, 1998; and
WHEREAS, the option granted hereby is intended as a nonqualified stock option and shall not be treated as an "incentive stock option" (an "ISO") within the meaning of that term under Section 422 of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, the Corporation hereby grants to the Optionee Reload Option Rights pursuant to the Deferral Plan and the Incentive Plan to purchase ____ Common Shares of the Corporation at a price of ______ Dollars ($______) per share (which represents one hundred (100) percent of the Market Value per Share on the day prior to the Date of Grant) (the "Option Price"), and agrees to cause certificates for any shares purchased hereunder to be delivered to the Optionee upon payment of the purchase price in full, all subject, however, to the terms and conditions of the Deferral Plan and the Incentive Plan and the terms and conditions
hereinafter set forth. Capitalized terms used herein without definition shall have the meanings assigned to them in the Incentive Plan.
1. The Option Price of the Reload Option Rights shall be payable (A) in cash or by check acceptable to the Corporation, (B) by actual or constructive transfer to the Corporation of nonforfeitable, unrestricted Common Shares owned by the Optionee and, if acquired upon exercise of any Option Rights, owned for more than six (6) months prior to the date of exercise, Restricted Shares or other Common Shares that are forfeitable or subject to restrictions on transfer, including, without limitation, Common Shares issued pursuant to the earn out of Performance Shares or Performance Units, or (C) by a combination of such methods of payment. The requirement of payment in cash shall be deemed satisfied if the Optionee shall have made arrangements satisfactory to the Corporation with a bank or a broker who is a member of the National Association of Securities Dealers, Inc. to sell on the exercise date a sufficient number of the shares being purchased so that the net proceeds of the sale transaction will at least equal the Option Price plus payment of any applicable withholding taxes and pursuant to which the bank or broker undertakes to deliver the full Option Price plus payment of any applicable withholding taxes to the Corporation on a date satisfactory to the Corporation, but not later than the date on which the sale transaction will settle in the ordinary course of business.
2. Subject to the terms and conditions of the Deferral Plan, additional Reload Option Rights may be automatically granted to the Optionee upon exercise of the Reload Option Rights evidenced hereby.
3. Whenever payment of the Option Price is made in whole or in part in any of the forms of consideration specified in Section 1(B) herein, the Common Shares received upon exercise of the Reload Option Rights shall be subject to such risks of forfeiture or restrictions on transfer as may correspond to any that apply to the consideration surrendered, but only to the extent of the number of Restricted Shares or other Common Shares that are forfeitable or subject to restriction on transfer, including, without limitation, Common Shares issued pursuant to the earn out of Performance Shares or Performance Units surrendered.
4. This Reload Option shall terminate on the earliest of the following dates:
(A) Ninety (90) days after the Optionee ceases to be an associate or Non-Employee Director as the case may be of the Corporation or a Subsidiary, unless he or
she ceases to be such associate or Non-Employee Director as the case may be by reason of death or permanent total disability or by reason of retirement under any retirement plan (including any supplemental retirement plan) of the Corporation or a Subsidiary at or after the earliest voluntary retirement age provided for in any such retirement plan or retirement at an earlier age with the consent of the Board of Directors, or in the event of Termination for Cause (as hereinafter defined);
(B) One (1) year after the death or permanent total disability of the Optionee or Non-Employee Director if the Optionee or Non-Employee Director dies or becomes permanently and totally disabled while an associate or Non-Employee Director of the Corporation or a Subsidiary, or if the same occurs within the ninety (90) day period referred to in subsection (A) hereof;
(C) Ten years from the Date of Grant of the Original Option. In the event of a Termination for Cause (as hereinafter defined), the Optionee shall forfeit any Reload Option Rights granted to him or her hereunder and such Reload Option Rights shall thereupon terminate. For the purposes of this section, a "Termination for Cause" shall mean a termination (i) due to the Optionee's willful and continuous gross neglect of his or her duties for which he or she is employed, or (ii) due to an act of dishonesty on the part of the Optionee 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. Nothing contained in this Reload Option Agreement shall limit whatever right the Corporation or a Subsidiary might otherwise have to terminate the employment of the Optionee.
5. These Reload Option Rights are not transferable by the Optionee otherwise than by will or the laws of descent and distribution, except (so long as the Optionee is not a director or officer of the Corporation within the meaning of Section 16 of the Securities Exchange Act of 1934) to a fully revocable trust of which the Optionee is treated as the owner for federal income tax purposes.
6. These Reload Option Rights shall not be exercisable if such exercise would involve a violation of any applicable federal or state securities law, and the Corporation hereby agrees to make reasonable efforts to comply with such securities laws. If the Ohio Securities Act shall be applicable to this option, it shall not be exercisable unless under said Act at the time of exercise the Common Shares or other securities purchasable hereunder are exempt, are the
subject matter of an exempt transaction, are registered by description or by qualification, or at such time are the subject matter of a transaction which has been registered by description.
7. The Board of Directors shall make such adjustments in the
Option Price and in the number or kind of Common Shares or other securities
covered by these Reload Option Rights as such Board in its sole discretion,
exercised in good faith, may determine is equitably required to prevent dilution
or enlargement of the rights of the Optionee that otherwise would result from
(i) any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Corporation, or (ii) any merger,
consolidation, separation, reorganization or partial or compete liquidation, or
(iii) any other corporate transaction or event having an effect similar to any
of the foregoing. Moreover, in the event of any such transaction or event, the
Board, in its discretion, may provide in substitution for any or all of the
Reload Option Rights provided for herein such alternative consideration as it,
in good faith, may determine to be equitable in the circumstances.
8. If the Corporation shall be required to withhold any federal, state, local or foreign tax in connection with the exercise of these Reload Option Rights, it shall be a condition to such exercise that the Optionee pay or make provision satisfactory to the Corporation for payment of all such taxes. The Optionee may elect that all or any part of such withholding requirement be satisfied by retention by the Corporation of a portion of the shares purchased upon exercise of these Reload Option Rights. The Corporation and the Optionee may also make similar arrangements with respect to the payment of any taxes with respect to which withholding is not required. If such election is made, the shares so retained shall be credited against such withholding requirement at the fair market value on the date of exercise.
9. For purposes of this Agreement, the continuous employ of the Optionee with the Corporation or a Subsidiary shall not be deemed interrupted, and the Optionee shall not be deemed to have ceased to be an associate of the Corporation or any Subsidiary, by reason of the transfer of his or her employment among the Corporation and its Subsidiaries.
10. The Reload Option Rights covered hereby shall not be exercisable during the six (6) month period following the Date of Grant hereof. Notwithstanding the preceding sentence, the Reload Option Rights granted hereby shall become immediately exercisable in full if at any time during the employment of the Optionee a Change in Control (as defined in the
Original Option Agreement) occurs. To the extent exercisable, these Reload Option Rights may be exercised in whole or part from time to time.
EXECUTED this ___ day of _____________, 19__.
DIEBOLD, INCORPORATED
By:________________________________
Title:_____________________________
The undersigned Optionee hereby acknowledges receipt of an executed original of this Reload Option Agreement and accepts the Reload Option Rights granted thereunder.
Date: _________________________ __________ Optionee
EXHIBIT D
DEFERRAL OF STOCK OPTION GAINS PLAN
DIEBOLD, INCORPORATED
In accordance with the terms and conditions of the Deferral of Stock Option Gains Plan for Diebold, Incorporated (the "Plan"), I hereby designate the person(s) indicated below as my beneficiary(ies) to receive the amounts payable under said Plan.
Name ______________________________________________
Address ______________________________________________
Social Sec. Nos. of Beneficiary(ies) ___________________
Relationship(s) _______________________________________
Date(s) of Birth _______________________________________
In the event that the above-named beneficiary(ies) predecease(s) me, I hereby designate the following person as beneficiary(ies);
Name ______________________________________________
Address ______________________________________________
Social Sec. Nos. of Beneficiary(ies) ___________________
Relationship(s) _______________________________________
Date(s) of Birth _______________________________________
I hereby expressly revoke all prior designations of beneficiary(ies), reserve the right to change the beneficiary(ies) herein designated and agree that the rights of said beneficiary(ies) shall be subject to the terms of the Plan. In the event that there is no beneficiary living at the time of my death, I understand that the amounts payable under the Plan will be paid to my estate.
EXHIBIT 21
LIST OF SIGNIFICANT SUBSIDIARIES
The following are the subsidiaries of the Registrant included in the Registrant's consolidated financial statements at December 31, 1998. Other subsidiaries are not listed because such subsidiaries are inactive. Subsidiaries are listed alphabetically under either the domestic or international categories.
Percent of
Jurisdiction under voting securities
which organized owned by Registrant
--------------- -------------------
Domestic
--------
ATM Finance, Inc. Ohio 100%
Central Security Systems, Incorporated Hawaii 100%
DBD Investment Management Company Delaware 100%
Diebold Australia Holding Company, Inc. Delaware 100%
Diebold China Security Holding Company, Inc. Delaware 100%
Diebold Credit Corporation Delaware 100%
Diebold Finance Company, Inc. Delaware 100% (1)
Diebold Foreign Sales Corporation St. Thomas, U.S. Virgin Islands 100% (1)
Diebold Holding Company, Inc. Delaware 100%
Diebold Investment Company Delaware 100%
Diebold Latin America Holding Company, Inc. Delaware 100%
Diebold Mexico Holding Company, Inc. Delaware 100%
Diebold Midwest Manufacturing, Inc. Delaware 100%
Diebold of Nevada, Inc. Nevada 100%
Diebold Self -Service Systems New York 100% (2)
Diebold Southeast Manufacturing, Inc. Delaware 100% (3)
Diebold SST Holding Company, Inc. Delaware 100%
Diebold Texas, Incorporated Texas 100%
Griffin Technology Incorporated New York 100%
InterBold Technologies, Inc. Delaware 100% (4)
Mayfair Software Distribution, Inc. Delaware 100%
VDM Holding Company, Inc. Delaware 100%
(1) 100% of voting securities are owned by Diebold Investment Company which is
100% owned by the Registrant.
(2) 70% of partnership interest is owned by Diebold Holding Company, Inc.,
which is 100% owned by the Registrant and 30% is owned by Diebold SST
Holding Company, Inc., which is 100% owned by the Registrant.
(3) 100% of voting securities are owned by Diebold Midwest Manufacturing, Inc.,
which is 100% owned by the Registrant.
(4) 100% of voting securities are owned by Diebold Self -Service Systems, which
is 70% owned by Diebold Holding Company, Inc. and 30% owned by Diebold SST
Holding Company, Inc., which are 100% owned by the Registrant.
|
EXHIBIT 21
LIST OF SIGNIFICANT SUBSIDIARIES (CONTINUED)
Percent of
Jurisdiction under voting securities
International which organized owned by Registrant
------------- --------------- -------------------
China Diebold Financial Equipment Company LTD. Peoples Republic of China 71%
DBD Asset Management S.A. de C.V. Mexico 100% (5)
Diebold Australia Pty. Ltd. Australia 100% (6)
The Diebold Company of Canada Limited Canada 100%
Diebold France SARL France 100%
Diebold Germany GmbH Germany 100% (8)
Diebold HMA Private Limited India 50%
Diebold International Limited United Kingdom 100%
Diebold Mexico, S.A. de C.V. Mexico 100% (7)
Diebold OLTP Systems, A.V.V. Aruba, Dutch West Indies 50%
Diebold OLTP Systems, C.A. Venezuela 50%
Diebold Pacific, Limited Hong Kong 100%
Diebold Singapore Pte. Ltd Singapore 100%
Diebold South Africa (PTY) LTD South Africa 100%
DPB S.A. Argentina 50%
InterBold Pacific Limited Hong Kong 100% (8)
InterBold Singapore Pte Ltd Singapore 100% (9)
Realm Security Pty. Ltd. Australia 100% (10)
RLM Monitoring Pty. Ltd. Australia 100% (10)
Safequip Automated Systems Pty. Ltd. Australia 50% (11)
Safetell Cash Handling Pty. Ltd. Australia 100% (12)
Safetell International Security Limited Australia 100% (10)
Safetell International Services Pty. Ltd. Australia 100% (12)
Starbuck Computer Empire, A.V.V. Aruba, Dutch West Indies 50%
Tecron Security Pty. Ltd. Australia 100% (10)
(5) 100% of voting securities are owned by Diebold Mexico, S.A. de C.V. which
is 100% owned by Diebold Mexico Holding Company, Inc., which is 100% owned
by the Registrant.
(6) 100% of voting securities are owned by Diebold Australia Holding Company,
Inc. which is 100% owned by the Registrant.
(7) 100% of voting securities are owned by Diebold Mexico Holding Company, Inc.
which is 100% owned by the Registrant.
(8) 100% of voting securities are owned by Diebold Self-Service Systems which
is 70% owned by Diebold Holding Company, Inc. and 30% owned by Diebold SST
Holding Company, Inc., which are 100% owned by the Registrant.
(9) 100% of voting securities are owned by InterBold Pacific Limited, which is
100% owned by Diebold Self-Service Systems which is 70% owned by Diebold
Holding Company, Inc. and 30% owned by Diebold SST Holding Company, Inc.,
which are 100% owned by the Registrant.
(10) 100% of voting securities are owned by Diebold Australia Pty. Ltd., which
is 100% owned by Diebold Australia Holding Company, Inc., which is 100%
owned by the Registrant.
(11) 50% of voting securities are owned by Safetell Cash Handling Pty. Ltd.,
which is 100% owned by Safetell International Security Limited, which is
100% owned by Diebold Australia Pty. Ltd., which is 100% owned by Diebold
Australia Holding Company, Inc. which is 100% owned by the Registrant.
(12) 100% of voting securities are owned by Safetell International Security
Limited, which is 100% owned by Diebold Australia Pty. Ltd., which is 100%
owned by Diebold Australia Holding Company, Inc. which is 100% owned by the
Registrant.
|
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Diebold, Incorporated
We consent to incorporation by reference in the Registration Statements (Nos. 2-44467, 2-92107, 33-32960, 33-39988, 33-55452, 33-54677, 33-54675, 333-32187 and 333-31993) on Form S-8 of Diebold, Incorporated of our report dated January 19, 1999 relating to the consolidated balance sheets of Diebold, Incorporated and subsidiaries as of December 31, 1998, and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, and related schedule, which report appears in the December 31, 1998 annual report on Form 10-K of Diebold, Incorporated.
/s/KPMG LLP KPMG LLP Cleveland, Ohio March 8, 1999 |
EXHIBIT 24
KNOW ALL MEN BY THESE PRESENTS, That the undersigned directors of Diebold, Incorporated, a corporation organized and existing under the laws of the State of Ohio, do for themselves and not for another, constitute and appoint Warren W. Dettinger, Charee Francis-Vogelsang or Gerald F. Morris, or any one of them, a true and lawful attorney in fact in their names, place and stead, to sign their names to the report on Form 10-K for the year ended December 31, 1998, or to any and all amendments to such reports, and to cause the same to be filed with the Securities and Exchange Commission; it being intended to give and grant unto said attorneys in fact and each of them full power and authority to do and perform any act and thing necessary and proper to be done in the premises as fully and to all intents and purposes as the undersigned by themselves could do if personally present. The undersigned directors ratify and confirm all that said attorneys in fact or either of them shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date set opposite their signature.
Signed in the presence of: Signature Date
--------- -----
/s/Charee Francis-Vogelsang /s/Donald R. Gant March 4, 1999
----------------------------------- -------------------------------------- ----------------
Donald R. Gant, Director
/s/Charee Francis-Vogelsang /s/Phillip B. Lassiter March 4, 1999
----------------------------------- -------------------------------------- ----------------
Phillip B. Lassiter, Director
/s/Charee Francis-Vogelsang /s/John N. Lauer March 4, 1999
----------------------------------- -------------------------------------- ----------------
John N. Lauer, Director
/s/Charee Francis-Vogelsang /s/William F. Massy March 4, 1999
----------------------------------- -------------------------------------- ----------------
William F. Massy, Director
|
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998 AND CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998. |
| MULTIPLIER: 1,000 |
| CURRENCY: U.S. DOLLARS |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | DEC 31 1998 |
| EXCHANGE RATE | 1 |
| CASH | 42,540 |
| SECURITIES | 37,433 |
| RECEIVABLES | 266,891 |
| ALLOWANCES | 0 |
| INVENTORY | 127,880 |
| CURRENT ASSETS | 543,548 |
| PP&E | 278,435 |
| DEPRECIATION | 131,304 |
| TOTAL ASSETS | 1,004,188 |
| CURRENT LIABILITIES | 235,533 |
| BONDS | 20,800 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 86,868 |
| OTHER SE | 612,255 |
| TOTAL LIABILITY AND EQUITY | 699,123 |
| SALES | 750,161 |
| TOTAL REVENUES | 1,185,707 |
| CGS | 462,788 |
| TOTAL COSTS | 779,457 |
| OTHER EXPENSES | 300,003 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 0 |
| INCOME PRETAX | 119,807 |
| INCOME TAX | 43,659 |
| INCOME CONTINUING | 76,148 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 76,148 |
| EPS PRIMARY | 1.10 |
| EPS DILUTED | 1.10 |