FW: PRESS RELEASE

["Swidarski, Thomas W." <Swidart@diebold.com>]

Title: Message

FYI

-----Original Message-----
From: Wally O'Dell
Sent: Wednesday, October 23, 2002 9:38 AM
To: DL-Direct Marketing; DL-Diebold All; DL-Manufacturer Rep
Subject: PRESS RELEASE

As we announce our third quarter earnings today, I again want to compliment each of our associates for their continued good work during the past three months. Once again, in a climate that's been difficult for businesses around the world, we were able to achieve solid results during the past quarter.

The road ahead will be challenging. But if we continue to work together as a great global team - while maintaining our sense of urgency and 'We won't rest' approach in serving our customers - we will continue to thrive and succeed. Thanks again for all your efforts. 

Wally  

 

 

DIEBOLD ANNOUNCES RECORD THIRD QUARTER REVENUE AND EARNINGS 

 

NORTH CANTON, Ohio - Diebold, Incorporated (NYSE: DBD) today reported third quarter net income of $44,080,000, or diluted earnings per share of $.61 on revenue of $529,799,000, at the high end of the company's previous guidance of $.57 to $.61.  Included in the results for the third quarter was a gain of $.01 per share from the previously announced sale of owned and operated cash dispenser assets to Cardtronics.  This compares to third quarter 2001 net income of $14,265,000, or diluted $.20 per share on revenue of $444,627,000. 

 

In accordance with the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), Diebold discontinued amortization of goodwill as of January 1, 2002.  Excluding goodwill amortization, realignment, special charges and MedSelect, the prior-year third quarter net income was $38,387,000 or $.53 per diluted share.  This included $.01 earnings per diluted share related to the InnoVentry business, which did not repeat as a result of its cessation of operations.  

Third Quarter Highlights

·        Total revenue grew 19.2 percent and on a fixed exchange rate basis increased 21.0 percent. Earnings per share grew 15.1 percent, excluding goodwill amortization, realignment, special charges and MedSelect.

·        Financial self-service service revenue grew 13.7 percent, and 14.0 percent on a fixed exchange rate basis.

·        Total Asia-Pacific revenue increased 33.0 percent, and 31.6 percent on a fixed exchange rate basis.

·        Total revenue for the Americas grew 20.9 percent and 25.7 percent on a fixed exchange rate basis.

·        Total Europe, the Middle East and Africa revenue increased 5.3 percent, but declined 2.8 percent on a fixed exchange rate basis.

·        Security solutions revenue grew 31.7 percent as the company continued to capture additional business in this segment.

·        Voting solutions revenue reached $55 million during the quarter.

 

Financial Results

"I am extremely pleased with the strong revenue and earnings growth we reported in the third quarter, particularly the outstanding performance in our voting and security businesses," said Walden W. O'Dell, chairman, president and chief executive officer.  "While revenue for financial self-service hardware remained weak during the quarter, we were encouraged by solid order growth, particularly in the Americas and Asia-Pacific.  In addition, we grew our global service revenue by 15.2 percent through an intense focus on providing new services and continuing to gain market share."

 

"On a geographic basis, Asia-Pacific once again showed the strongest revenue growth at 33.0 percent, while the Americas grew 20.9 percent due to strong growth in security and voting.  In Brazil, we continue to see demand for self-service as witnessed by recent strong orders there.  Europe, the Middle East and Africa showed significant improvement sequentially, which is particularly encouraging in light of the tough comparison to the third quarter 2001, when a large portion of our total Euro conversion/upgrade revenue was recorded."

 

Fixed Rate Third Quarter Orders

Despite a challenging global economic environment, total orders for product and service increased in the low double-digit range.  The Americas increased in the double-digit range and Asia-Pacific orders increased in the high single digit range, while EMEA orders decreased in the low double digit range.  Security orders remain strong, increasing well into the double digits. 

Significant orders for the quarter included:

·        A self-service order valued at more than $25 million from a large financial institution in Brazil.

·        Self-service orders totaling more than $17 million from two large financial institutions in China.

·        Self-service orders for more than $12 million from several financial institutions in the United States.

·        A self-service order valued at $2.7 million from a financial institution in India.

·        More than $2 million in upgrade orders from two financial institutions in Mexico

·        Orders valued at more than $2 million for several financial institutions in Belgium.

·        $1.6 million in security system orders for a major U.S. retailer and a large government facility.

Revenue

Total revenue for the quarter was up $85.2 million, or 19.2 percent and 21.0 percent on a fixed exchange rate basis.  Total financial self-service revenue increased 1.0 percent and 3.0 percent on a fixed exchange rate basis.  Security revenue grew 31.7 percent as the result of increased penetration in the

financial security market.

 

 

           

Gross Margin

Total gross margin for the third quarter was 30.1 percent, down from 30.6 percent in the third quarter 2001.  Excluding special charges, third quarter 2001 total gross margin was 31.8 percent. 

 

Financial self-service product gross margin increased during the quarter, however, total product gross margin in the third quarter decreased to 31.1 percent from 34.6 percent, excluding special charges.  The decrease was the result of higher security and voting sales in the current period, which carry lower gross margins. 

 

Service gross margin was 28.9 percent and compared favorably to the 28.7 percent from the third quarter 2001 excluding special charges.  

 

Operating Expenses

Total operating expenses for the quarter were 17.4 percent, down from 19.8 percent from the third quarter 2001. Excluding realignment, special charges and MedSelect, third quarter 2001 operating expenses were 18.4 percent.   

 

Operating Profit

Operating profit was 12.7 percent of revenue, up from 10.7 percent from 2001.  Excluding realignment, special charges and MedSelect, third quarter 2001 operating profit was 13.5 percent.  The rapid growth of security and voting is the cause of the decrease of operating profit margin. There was no margin erosion in the core business.

 

Net Income

Net income was 8.3 percent of revenue compared to 3.2 percent in the third quarter 2001.  Excluding realignment, special charges and MedSelect, second quarter 2001 net income was 8.0 percent of revenue. 

 

Balance Sheet Items ($000's)

Diebold's balance sheet remains one of the strongest in any industry with a net debt to total capital ratio of approximately 11 percent.

 

 

 

 

While improvement in working capital was noted during the quarter, net debt increased due to the previously disclosed payment to the IRS in July 2002 related to the Company Owned Life Insurance and a higher overall income tax payment.

 

In July 2002, the company entered into a multi-year information technology outsourcing arrangement with Deloitte Consulting to transform specific business processes, administer application development, and provide related project management, maintenance and support.  As part of this arrangement, the company purchased an Oracle global information technology platform, which will be reflected in property, plant and equipment and other long-term liabilities.

 

Stock Option Expense

On October 4, 2002 the FASB issued an exposure draft, Accounting for Stock-Based Compensation - Transition and Disclosure, which would amend SFAS 123, Accounting for Stock-Based Compensation.  As part of this proposed amendment, companies electing not to expense stock options would be required to provide the pro forma net income and earnings per share information not only annually but also on a quarterly basis.  While continuing to review the matter, the company has no current plans to begin expensing stock options.   The company estimates that if it had expensed stock options (in accordance with SFAS 123), the full-year impact in 2002 would be approximately $.05 per share.  

 

Pension Income

The company is in the process of reviewing key assumptions related to its pension plans for 2003.  The company anticipates that it will be lowering pension plan assumptions from 2002 within the following ranges: 

 

 

 

 

 

 

 

Based upon these anticipated lower assumptions as well as the stock market downturn this year, the company expects pension income to decline from approximately $5.0 million in 2002 to a net expense position in 2003 in the range of approximately $3.0 million to $4.0 million.  Currently, our pension plan remains adequately funded and we do not anticipate a need for additional funding at this time.

 

Pension income excludes retiree medical expense, which is considered to be a part of normal operating expense and is approximately $3.0 million for 2002.  

 

Outlook

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

 

The global efficiencies that Diebold has experienced by balancing manufacturing, product rationalization, organizational alignment and process improvements will continue to benefit the company into the fourth

quarter.

 

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

·        Fourth quarter revenue will increase in the mid single digit range vs. prior year including voting.  Voting is not expected to contribute materially to revenue in the fourth quarter.

·        Fourth quarter EPS to be in the range of $.66 to $.72.

·        Depreciation and amortization to be approximately $17 to $18 million for the fourth quarter.

·        Full year revenue growth of approximately 10 percent.

·        For 2002, operating profit margins, excluding pension income, for the self-service business will be approximately 14 percent, while the security and voting business operating profit margins will be approximately 8 percent.

·        Full year EPS to be in the range of $2.19 to $2.25, before the effect of the cumulative accounting change, which represents 12-15 percent EPS growth over 2001.

·        A full year effective tax rate of approximately 32.0 percent.

 

Looking forward to 2003, while business unit forecasts have yet to be finalized and visibility is difficult given uncertain global economic conditions, management believes that through continued focus on speed, global efficiencies, and creative solutions to customer needs, the company will continue to gain market share.  The company also expects positive gains in the global voting market as a result of our successful acquisition and integration of Diebold Election Systems.  The following expectations do not include the potential impact of any future mergers, acquisitions, disposals, other business combinations or any impact from an unfavorable ruling on the Company Owned Life Insurance claim by the IRS.  Given these factors management has the following expectations:

 

·        2003 revenue growth of 8 to 10 percent, on a fixed rate basis.

·        Depreciation and amortization in the range of $70 to $75 million.

·        Pension expense will negatively impact earnings per share by approximately

$.08 to $.09 versus 2002.

·        Effective tax rate of 32 percent.

·        2003 earnings per share is expected to be in the range of $2.32 to $2.45.  This represents a 10 to 13 percent increase in EPS excluding pension impact.

 

Financial Information

Walden W. O'Dell and Senior Vice President and Chief Financial Officer Gregory T. Geswein will discuss the company's financial performance during a conference call today at 10:00 a.m. (EDT). Access is available from Diebold's Web site at www.diebold.com. The replay can also be accessed on the site for up to one year after the call.

 

Forward-Looking Statement

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

 

·        competitive pressures, including pricing pressures and technological developments;

·        changes in the company'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 company's  operations, including Brazil, where a significant portion of the company's revenue is derived;

·        acceptance of the company's product and technology introductions in the marketplace;

·        unanticipated litigation, claims or assessments;

·        ability to reduce costs and expenses and improve internal operating efficiencies; and

·        variation in consumer demand for self-service technologies, products and services.

 

Diebold, Incorporated is a global leader in providing integrated self-service delivery systems and services. Diebold employs more than 13,000 associates with representation in more than 88 countries worldwide and headquarters in Canton, Ohio, USA.  Diebold reported revenue of $1.76 billion in 2001 and is publicly traded on the New York Stock Exchange under the symbol 'DBD.'  For more information, visit the company's Web site at www.diebold.com.

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PR/2903