SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
For the quarterly period ended September 30, 2000
OR
For the transition period from to
Commission file number 1-4879
Diebold, Incorporated
Registrant’s telephone number, including area code: (330) 490-4000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the issuer’s classes of Common Shares, as of the latest practicable date.
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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
INDEX
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ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
See accompanying notes to condensed consolidated financial statements.
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3. Inventory detail at:
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Reconciliation of Segment Information to Condensed Consolidated Statements of Income
For the three month period ending September 30:
For the nine month period ending September 30:
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Product Revenue by Geography
Total Revenue Domestic vs. International
Total Revenue by Product/Service Solution
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of September 30, 2000
Acquisition
On April 17, 2000, the Registrant announced the successful completion of its acquisition of the financial self-service assets and related development activities of European-based Groupe Bull and Getronics NV (European acquisition.) The businesses acquired include ATMs, cash dispensers, other self-service terminals and related services primarily for the global banking industry. The acquisition was completed for approximately $148,080. The majority of subsidiaries of the European acquisition have been acquired and consolidated. The remaining subsidiaries will be consolidated upon completion of the legal closing.
The acquisition has been accounted for as a purchase business combination and, accordingly, the purchase price has been allocated to identifiable tangible and intangible assets acquired and liabilities assumed, based upon their respective fair values, with the excess allocated to goodwill to be amortized over the estimated economic life from the date of acquisition.
Changes in Financial Condition
Total assets for the third quarter ended September 30, 2000 were $1,643,579, up $344,748, or 26.5 percent from December 31, 1999. The increase in total assets is largely related to the assets acquired through the European acquisition (April, 2000) and related goodwill recorded as a result of this acquisition.
Trade receivables, inventories and goodwill have increased by $114,662, $54,296 and $133,112, respectively, of which $43,842, $31,585 and $140,245 are balances related to the European acquisition, respectively. An increase of $26,289 in the Brazil trade receivables has also attributed to the increase in total trade receivables.
Total liabilities of as of September 30, 2000 of $732,804 are up $278,368 or 61.3 percent from December 31, 1999. This increase is largely related to liabilities assumed and debt incurred in relation to the European acquisition.
Accounts payable, notes payable, and other current liabilities have increased by $20,836, $176,824 and $43,500, respectively of which $33,245, $157,760 and $34,198, respectively are balances related to the European acquisition.
The Registrant’s current asset to current liability ratio dropped to 1.3 at September 30, 2000 versus 1.7 at December 31, 1999.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Changes in Financial Condition (continued)
Future capital expenditures, acquisitions and increases in working capital are expected to be financed through internally generated funds and external financing. The Registrant’s investment portfolio is available for any funding needs if required. External financing is also available if needed through the Registrant’s lines of credit. At September 30, 2000, the Registrant’s bank credit lines approximated $235,000, and EUR 100,000 (translation $88,180) with various institutions. The Registrant had $224,793 and EUR 78,794 (translation $69,481) outstanding borrowings under these agreements, with an average short-term rate of 7.07 percent US dollar, and 5.16 percent EUR. The balance in these lines of credit represents an additional and immediate source of liquidity.
Shareholders’ equity is up $66,380 over December 31, 1999, with retained earnings up $68,805, and net stock related activity was an increase to equity of $6,823, and accumulated other comprehensive income increased by $5,519. Shareholders’ equity per Common Share at September 30, 2000 increased to $12.74 from $11.88 at December 31, 1999. The third quarter cash dividend of $0.155 per share was paid on September 8, 2000 to shareholders of record on August 18, 2000. On October 11, 2000 the fourth quarter cash dividend of $0.155 per share was declared payable on December 8, 2000 to shareholders of record on November 17, 2000. Diebold, Incorporated shares are listed on the New York Stock Exchange under the symbol of DBD. The market price during the first nine months of 2000 fluctuated within the range of $21.50 and $32.88.
Results of Operation
Third Quarter 2000 Comparison to Third Quarter 1999
Overall, net sales for the third quarter of 2000 increased from the same period in 1999 by $167,172 or 53.4 percent. Excluding the acquisitions in Europe (April 2000) and Brazil (November 1999) and prior year trade sales to Brazil, net sales increased $21,365 or 6.9 percent. Total product revenue showed an increase of $115,740, or 61.3 percent over the third quarter of 1999 of which $108,823 is related to the acquisitions. Total service revenue increased by $51,432 or 41.5% of which $40,611 is the combined impact of the acquisitions.
Gross profit of $149,040 was $35,223, or 30.9 percent higher than the same quarter last year. Excluding the effect of acquisitions, total gross profit was $7,108 or 6.2% higher than third quarter of 1999. Product gross margin, excluding the acquisitions, of 42.7 percent was up from 1999 third quarter gross margin of 41.8 percent, reflecting the current revenue mix. However, service gross margin of 27.7 percent, excluding the acquisitions, was down from 28.2 percent a year ago, offsetting the higher product gross margin.
Total operating expenses were 18.5 percent of revenue for the third quarter 2000. This was an improvement over the same period of 1999 when expenses were 21.0 percent of revenue. Excluding the acquisitions, expenses were 20.4 percent of revenue, which was a slight improvement over the same period in 1999.
Operating profit was 12.6 percent of revenue compared to 15.4 percent for the same period of 1999. Excluding the acquisitions, operating profit was 16.1 percent of revenue which was an improvement over the 15.4 percent in 1999.
Third quarter 2000 miscellaneous, net expense was up from the same quarter in the prior year by $3,140, primarily due to the amortization of goodwill from acquisitions. Interest expense is largely related to interest on borrowings to fund acquisitions and has increased $4,865 over the third quarter of 1999.
Net income of $34,901 was up by 6.9 percent over third quarter 2000 net income of $32,654 resulting in third quarter diluted earnings per share of $0.49. Excluding the effect of acquisitions, earnings per share for the third quarter of 2000 was $0.50.
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Results of Operation (continued)
Nine Month 2000 Comparison to Nine Month 1999
Consolidated net sales of $1,266,644 for the nine-month period ending September 30, 2000 were up by $373,387, or 41.8 percent from the same period in 1999. The acquisitions in Brazil and Europe accounted for $315,127 of the increase in net sales. Consolidated product sales were up $243,054 or 45.5 percent of which $217,485 is related to the acquisitions. Total service sales for the nine-month period were up from the prior year by $130,333 or 36.3 percent of which $97,642 is related to the acquisitions.
Total consolidated gross profit for the nine months ended September 30, 2000 increased $79,887 year over year. Total gross margin was 32.0 percent compared to 36.5 percent for the same period in 1999. Total gross margins excluding acquisitions increased slightly to 36.7 percent in 2000 from 36.5 percent in 1999.
Total product gross margin was 34.9 percent or 41.4 percent excluding acquisitions, which compared to 41.6 percent for the same period of 1999. Total service gross margin is 27.5 percent or 29.9 percent excluding acquisitions, which compared to 28.8 percent for year to date 1999.
Year to date total operating expenses as a percent to revenue were 18.5 percent. Excluding acquisitions operating expenses were 20.3 percent. Both, including and excluding acquisitions year to date operating expenses were an improvement over prior year to date of 21.2 percent.
Year to date operating profit was 13.5 percent of revenue; excluding the acquisitions, operating profit was 16.3 percent of revenue; compared to 15.3 percent for the nine month period ending September 30, 1999.
Consolidated net income of $101,994 increased by $8,655 or 9.3 percent over 1999 net income, resulting in nine month period ending September 30, 2000 diluted earnings per share of $1.43, an increase of 5.9 percent over $1.35 for the same period in 1999.
Segment Information
NASS customer revenues of $251,859 for the three month period ending September 30, 2000 increased by $18,578, or 8.0 percent from the same period of 1999. U.S. product revenue increased 8.8 percent, and Canada increased by 72.0 percent. NASS operating profits for the same period were down by $1,113, or 2.7 percent.
ISS customer revenue was up for the third quarter of 2000 over the same quarter of 1999 by $145,730 or 216.6 percent. Asia-Pacific product revenue increased $3,922, or 27.9 percent; while Europe, the Middle East and Africa product revenue increased $17,349, or 106.7 percent, reflecting positive results generated by recently formed direct sales channels as a result of the European acquisition. Latin America increased by $80,503, or 383.9 percent, largely due to revenues resulting from the acquisitions.
The Other segment showed an increase in customer revenues of $2,045, or 18.0 percent for the third quarter 2000 over the same quarter 1999.
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Year 2000 Disclosure
The Registrant was well prepared for year 2000 and experienced no major problems with its internal systems or in products purchased from suppliers used in manufacturing and service of its customers. Registrant’s web page (www.Diebold.com) gave information to customers on year 2000 compliance of products and was a frequently used resource. As required, the Registrant expensed as incurred all costs associated with year 2000 issues. The costs did not have a material effect on the Registrant’s financial position or results of operations.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition.” SAB 101 does not change existing accounting literature on revenue recognition, but rather explains the SEC staff’s general framework for revenue recognition. SAB 101 states that changes in accounting to apply the guidance in SAB 101 may be accounted for as a change in accounting principle. Through issuance of SAB 101B, the change in accounting principle must be recorded by the fourth quarter 2000. The Registrant is currently recognizing revenue consistent with its contract terms and policies and is currently reviewing its recognition practices to determine the impact, if any, on the Registrant’s results of operations.
In June 1998, the FASB issued Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Registrant will adopt Statement No. 133 as required for its first quarterly filing of fiscal year 2001.
Outlook
The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of any mergers, acquisitions or other business combinations that may be completed after September 30, 2000.
Looking toward 2001, while forecasts have yet to be finalized, management is confident that through continued focus on speed, global efficiencies and creative solutions to customer needs, the Registrant will continue to gain market share on a revenue basis. Management expectations include:
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Forward-Looking Statement Disclosure
In the Registrant’s statements, the use of the words “believes,” “anticipates,” “expects” and similar verbs is intended to identify forward-looking statements which have been made and may in the future be made by or on behalf of the Registrant, including statements concerning future operating performance, the Registrant’s share of new and existing markets, and the Registrant’s short- and long-term revenue and earnings growth rates. 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:
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant is exposed to market risk from changes in interest rates, foreign currency exchange rates, and commodity prices. To manage the market risk exposures, the Registrant uses a combination of natural hedging techniques and various hedging transactions governed by corporate policies and procedures. The Registrant does not utilize financial instruments for trading purposes.
The Registrant’s market risk exposure relative to changes in interest and foreign currency exchange rates has changed recently due to increased debt to fund recent acquisitions and increased exposure to international markets as a result of these acquisitions.
The exposure to interest rate and foreign currency exchange rate risk has not been significant and is not expected to be in the short term.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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