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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

[ X ]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999

OR

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from .................... to....................

Commission file number 1-4879

DIEBOLD, INCORPORATED

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (330) 490-4000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ___

Indicate by check mark 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. [ ]

State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 1, 2000. The aggregate market value was computed by using the closing price on the New York Stock Exchange on March 1, 2000 of $24.75 per share.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE

(1)

PROXY STATEMENT FOR 2000 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 19, 2000

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PART I.

ITEM 1. BUSINESS.

(a) General Development

      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 1999, no significant changes occurred in the manner of conducting the Registrant’s business, except for the acquisition of Procomp Amazonia Industria Eletronica S.A. On October 21, 1999, the Registrant acquired Procomp Amazonia Industria Eletronica, S.A. (Procomp), a Brazilian manufacturer and marketer of innovative technical solutions, including personal computers, servers, software, professional services and retail and banking automation equipment. The acquisition was effected in a combination of cash and stock for $222 million. Prior to the acquisition, Procomp was a major distributor for the Registrant in Latin America. Procomp results following the acquisition are consolidated with the results of the Registrant.

(b) Financial Information about Operating Segments

      In 1999, the Registrant redefined its operating segments to the following sales channels: North American Sales and Service (NASS), International Sales and Service (ISS) and a group of smaller sales channels which are combined in a category called Other. The NASS segment sells financial and retail systems, and also services financial, retail and medical systems in the United States and Canada. The ISS segment sells and services financial and retail systems over the remainder of the globe, including sales to IBM which was the Registrant’s former partner in the InterBold joint venture. The segment called Other, sells educational, medical, and other products and also services educational products in the United States. A reconciliation of segment customer revenues to Consolidated Net Sales and of segment operating contribution to Consolidated Operating Profit is contained in Note 16 to the Consolidated Financial Statements.

(c) Description of Business

      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 1999, 1998, and 1997 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 no customers in 1999 that accounted for more than 10 percent of total net sales, while IBM, which was its partner in the InterBold joint venture, accounted for $51.6 million of the total net sales of $1.3 billion in 1999, $148.8 million of the total net sales of $1.2 billion in 1998, and $173.8 million of the total net sales of $1.2 billion in 1997.

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ITEM 1. BUSINESS. — (continued)

      The Registrant’s operating results and the amount and timing of revenue are affected by numerous factors including production schedules, customer priorities, sales volume, and sales mix. During the past several years, the Registrant has dramatically changed the focus of its self-service business to that of a total solutions approach. The value of unfilled orders is not as meaningful an indicator of future revenues due to the significant portion of revenues derived from the Registrant’s growing service-based business, for which order information is not available. Therefore, the Registrant believes that backlog information is not material to an understanding of its business and does not disclose backlog information.

      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. The 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, Fujitsu, Itautec and Tidel. In serving the security products market for the financial services industry, the Registrant competes primarily with Mosler. 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 make 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 $43.0 million in 1999, $42.9 million in 1998, and $45.1 million in 1997 for research and development costs.

      Compliance by the Registrant with federal, state and local environmental protection laws during 1999 had no material effect upon capital expenditures, earnings or the competitive position of the Registrant and its subsidiaries.

      The total number of employees employed by the Registrant at December 31, 1999 was 9,935 compared with 6,489 at the end of the preceding year. The increase in 1999 is primarily due to the acquisition of Procomp Amazonia Industria Eletronica, S.A.

(d) Financial Information about International and U.S. Operations and Export Sales

      Sales to customers outside the United States as a percent of total consolidated net sales approximated 25.4 percent in 1999, 25.1 percent in 1998, and 26.1 percent in 1997.

ITEM 2. PROPERTIES.

      The Registrant’s corporate offices are located in North Canton, Ohio. It owns manufacturing facilities in Canton and Newark, Ohio; Lynchburg, Staunton and Danville, Virginia; and Sumter, South Carolina, and leases a manufacturing facility in Rancho Dominguez, California. The Registrant also has manufacturing facilities in Brazil and China. The Registrant has selling, service and administrative offices in the following locations: throughout the United States, and in Argentina, Australia, Austria, Brazil, China, Colombia, France, Germany, Hong Kong, Hungary, Poland, Russia, Singapore, South Africa, Spain, Taiwan, Thailand, the United Arab

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Emirates, and the United Kingdom.The Registrant considers that its properties are generally in good condition, are well maintained, and are generally suitable and adequate to carry on the Registrant’s business.

ITEM 3. LEGAL PROCEEDINGS.

      At December 31, 1999, 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. While in management’s opinion the financial statements would not be materially affected by the outcome of any present legal proceedings, commitments, or asserted claims, management is aware of a potential claim by the Internal Revenue Service concerning the Registrant’s corporate-owned life insurance programs. Management believes that it has complied with all applicable tax laws and regulations with respect to such programs and will vigorously contest any claim.

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

      No matters were submitted to a vote of security holders during the fourth quarter of 1999.

ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT.

      Refer to pages 6 through 8.

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EXECUTIVE OFFICERS OF THE REGISTRANT

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EXECUTIVE OFFICERS OF THE REGISTRANT (continued)

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EXECUTIVE OFFICERS OF THE REGISTRANT — (continued)

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EXECUTIVE OFFICERS OF THE REGISTRANT — (continued)

There is no family relationship, either by blood, marriage or adoption, between any of the executive officers of the Registrant.

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PART II.

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      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:

      There were approximately 98,462 shareholders at December 31, 1999, 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 $0.60 in 1999 $0.56 in 1998, and $0.50 in 1997.

      On October 15, 1999, 230,015 Common Shares were issued from treasury for the acquisition of Nexus Software, Inc. The fair market value of the shares on the date of issue was $7,023,072; these shares are considered unregistered.

      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 were considered unregistered.

ITEM 6. SELECTED FINANCIAL DATA.

      (Dollars in thousands except per share amounts)

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      Management’s Analysis of Results of Operations

      The table below presents the changes in comparative financial data from 1997 to 1999. Comments on significant year-to-year fluctuations follow the table.

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Acquisitions

In 1999, the Registrant made several strategic acquisitions to enhance its globalization strategy. On October 21, 1999, the Registrant acquired Procomp Amazonia Industria Eletronica, S.A. (Procomp), a Brazilian manufacturer and marketer of innovative technical solutions, including personal computers, servers, software, professional services and retail and banking automation equipment. The acquisition was effected in a combination of cash and stock for $222,310. Prior to the acquisition, Procomp was a major distributor for the Registrant in Latin America. Procomp results following the acquisition are consolidated with the results of the Registrant. Procomp reported revenue of $41,615 for the period of October 22, 1999 through December 31, 1999. The acquisition was neutral on earnings per share, but dilutive at the operating profit level. While the Registrant expects Procomp to be slightly accretive in 2000, given the seasonal nature of its business, it will likely be dilutive in the first quarter of 2000.

On October 15, 1999, the Registrant acquired Nexus Software, Inc. (Nexus) of Raleigh, North Carolina. Nexus is a technology development and retail bank branch connectivity company that markets its suite of products to financial institutions around the world. The acquisition was effected in a combination of cash and stock for $13,900.

Both acquisitions have been accounted for as purchase business combinations and, accordingly, the purchase prices have 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 lives from the respective dates of acquisition. The amounts of goodwill and periods of amortization for Procomp and Nexus are $132,826 over 17 years and $9,101 over 10 years, respectively. In connection with the Nexus acquisition, the Registrant immediately wrote off $2,050 of in-process research and development activities. The calculations of the write-off for the in-process research and development activities were made using the approaches outlined by the Securities and Exchange Commission.

Realignment and Special Charges

As of December 31, 1999, the Registrant completed its realignment plan originally announced in the second quarter of 1998. Under the realignment plan in 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 primarily for the write-off of inventory from exited lines of business and a realignment charge of $51,253 for all other realignment costs. In December 1999, the realignment plan concluded and the remaining accrual of $3,261, representing primarily employee costs that were not utilized, was brought back through income.

Net Sales

1999 net sales of $1,259,177 (including Procomp net sales of $41,615) represented an increase of $73,470 or 6.2 percent from 1998 and $32,241 or 2.6 percent from 1997. Product sales growth was less than experienced in prior years primarily due to a slowdown in bank spending and the Registrant’s ongoing efforts to replace IBM as its primary international distributor. IBM accounted for more than 10 percent of net sales in both 1998 and 1997. 1999 sales to IBM were $51,552 or 4.1 percent of net sales. 1999 service sales increased over 1998 by 15.2 percent and over 1997 by 24.9 percent. This increase is due to the Registrant’s efforts to position itself as a total solutions provider as opposed to strictly a self-service equipment supplier. The Registrant will continue to expand as a solutions provider through global acquisitions while gaining market share both domestically and around the world.

The Registrant’s operating results and the amount and timing of revenue are affected by numerous factors including production schedules, customer priorities, sales volume and sales mix. During the past several years, the Registrant has changed the focus of its self-service business to that of a total solutions approach. The value of unfilled orders is not as meaningful an indicator of future revenues due to the significant portion of revenues derived from the Registrant’s growing service-based business, for which order information is not recorded. Therefore, the Registrant believes that backlog information is not material to an understanding of its business and does not disclose backlog information.

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Product net sales of $757,246 improved over 1998 by $7,085, but fell short of 1997 results by $67,879 or 8.2 percent. During 1999 and 1998, the Registrant experienced slowdowns in global sales of ATMs. On a geographic basis, product sales increased in 1999 over 1998 in every region of the globe with the exception of Canada and Latin America. The decline in Canada was due to the replacement of IBM as the Registrant’s primary Canadian distributor, which did not take place as quickly as anticipated. The decline in Latin America was due to abnormally high sales in Venezuela in 1998 and the generally weak economic conditions in the region in 1999. Geographic comparisons to 1997 are all unfavorable with the exception of Latin America.

Total service revenues in 1999 increased $66,385 or 15.2 percent over 1998 and $100,120 or 24.9 percent over 1997. Domestically, the Registrant’s service business has continued to show strong growth. Domestic service revenues have grown in 1999 by 7.7 percent over 1998 and 18.6 percent over 1997. This increase was due to a growing installed base of self-service terminals as well as the Registrant’s initiatives to further provide service offerings, such as first and second line service. Internationally, the Registrant has expanded operations and its service technicians are providing service to customers around the world. International service revenue in 1999 is up $36,056 or 84.9 percent over 1998, and $33,824 or 75.7 percent over 1997. Procomp accounted for $14,333 of 1999 service revenues. The Registrant expects to further grow its service business in 2000 and beyond by expanding service operations in more countries and enhancing its competitive market share of installed self-service terminals.

Total revenue by product and service solution illustrate the Registrant’s growth in the professional/special services and custom maintenance service areas. Professional and special services increased in 1999, $18,999 or 85.9 percent over 1998, and are up $25,606 or 165.0 percent over 1997. Security solutions were basically flat in 1999 as compared with 1998, but have grown $27,991 or 18.4 percent over 1997. Self-service hardware sales, which have consistently decreased as a percentage of revenue, were down due in large part to the global slowdown in bank spending over the last two years.

Operating Segment Revenue and Operating Profit

In 1999, the Registrant redefined its operating segments to the following sales channels: North American Sales and Service (NASS), International Sales and Service (ISS) and a group of smaller sales channels which are combined in a category called Other. The NASS segment sells financial and retail systems, and also services financial, retail and medical systems in the United States and Canada. The ISS segment sells and services financial and retail systems over the remainder of the globe, including product sales to IBM, which was the Registrant’s former partner in the InterBold joint venture. The segment called Other sells products to educational and medical institutions and other customers. This segment also services educational customers in the United States. A reconciliation of segment customer revenues to Consolidated Net Sales and of segment operating profit

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to Consolidated Operating Profit is contained in Note 16 to the Consolidated Financial Statements.

NASS customer revenues for 1999 were $926,975, an increase of $35,687 or 4.0 percent over 1998 and $21,344 or 2.4 percent over 1997. Growth in the NASS channel has come from increased service revenues. NASS posted an increase in operating profit in 1999 of $8,913 or 6.2 percent. Operating profits in 1999 compare unfavorably to 1997 predominately due to the impact of global slowdowns in bank spending.

ISS customer revenues of $293,316 are up over 1998 by $29,888 or 11.3 percent and are flat to 1997. All IBM sales have been reclassified to be included this year in the ISS channel. As IBM sales have diminished, ISS has successfully begun to replace those revenues. Procomp revenues of $41,615 are included in the ISS customer revenue line. Operating profits improved in 1999 to $17,801 from a low in 1998 of $7,470 and are unfavorable to 1997 operating contribution of $20,904. ISS continues to invest in international infrastructure and will strive for further operating efficiencies in 2000.

Sales channels in the Other category include educational and medical products. Revenues for other sales have increased to $37,131 in 1999, up $2,951 or 8.6 percent over 1998 and $9,771 or 35.7 percent over 1997. These channels are dilutive on the operating profit line, and their continued feasibility is being evaluated.

Cost of Sales and Expenses

Cost of sales for 1999 was $802,365, compared with $779,457 in 1998 and $796,836 in 1997. Product cost of sales as a percentage of product revenue was 58.7 percent in 1999, 61.7 percent in 1998 and 61.5 percent in 1997. Service cost of sales as a percentage of revenue was 71.3 percent in 1999, 70.4 percent in 1998 and 72.1 percent in 1997. The Registrant continues to aggressively work for further cost containment and for more efficient manufacturing and sourcing of the products it sells and services. Efficient and strategically placed manufacturing facilities will be key in the Registrant’s international growth. The Registrant acquired manufacturing facilities in Brazil through its acquisition of Procomp that will support sales in the Latin American region in the future.

Product gross profits continued to improve in 1999 to 41.3 percent, up from 38.3 percent in 1998 and 38.5 percent in 1997. Product margins have benefited greatly from the Registrant’s transition to its own international distribution channels and the ending of the InterBold joint venture with IBM. Sales to IBM through the InterBold joint venture had contractually lower margins. Service gross profits declined slightly to 28.7 percent in 1999 from a high in 1998 of 29.6 percent and 27.9 percent in 1997. Some of the drop in service margins can be attributed to the setup of new service branches worldwide and competitive bidding for international contracts.

Operating expenses in 1999 were $271,900 (excluding realignment charges and in-process research and development) compared with $248,750 (excluding realignment charges) in 1998 and $246,239 in 1997. The growth in operating spending in 1999 versus 1998 is due primarily to the setup of international facilities worldwide. The stability of operating expenses in 1998 versus 1997 stems from the Registrant’s efforts to contain operating costs on lower sales volumes and the initial benefits of the 1998 realignment. Research, development and engineering spending in 1999 was down $3,708 or 6.8 percent from 1998 and down $3,890 or 7.2 percent from 1997. The decrease in research, development and engineering spending is due primarily to effects of the 1998 realignment. The Registrant is committed to bringing new and innovative products to market and has focused on its product development efforts for the year 2000 and beyond.

Operating profit as a percent of sales excluding all realignment and special charges and in-process research and development costs was 14.7 percent in 1999, 14.1 percent in 1998 and 15.0 percent in 1997. Gains in this area in 1999 versus 1998 are due primarily to favorable product gross margins. 1999 compares unfavorably with 1997 due mostly to increases in selling and administrative spending.

Other Income, Net and Minority Interest Expense

Other income, net increased over 1998 by $981 and over 1997 by $9,490. Investment income was up due to favorable returns on the Registrant’s preferred stock portfolio as well as income from the Registrant’s investment in subsidiaries accounted for under the equity method. Finance receivables were again a large part of the Registrant’s investment strategy worldwide, and Procomp also provided financing to its customers in Brazil. As the Registrant uses its short-and long-term securities for worldwide acquisitions, it is expected that investment income will decline in the future. Miscellaneous, net expense of $6,577 in 1999 was up from $3,184 in 1998 and down from 1997 results of $12,215. Miscellaneous, net expense grew in 1999 over 1998 due in part to amortization of goodwill from newly acquired subsidiaries. 1999 compared favorably to 1997 because of goodwill write-offs under the Registrant’s 1998 realignment plan.

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Minority interest expense of $1,169 was basically flat to 1998 levels of $1,843 and decreased from $5,096 in 1997 due to the Registrant purchasing IBM’s 30 percent minority share in the InterBold joint venture in January 1998. Minority interest expense consisted primarily of income or losses allocated to the minority ownership of Diebold Argentina, Diebold Colombia, 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

1999 income before taxes amounted to $200,127 (excluding realignment charges and in-process research and development) or 15.9 percent of net sales. 1999 results improved on 1998 pretax income (excluding realignment and special charges) of $180,924 (15.3 percent of net sales) and 1997 pretax income of $185,659 (15.1 percent of net sales).

The effective tax rate was 36.0 percent in 1999 compared with 36.4 percent in 1998 and 34.0 percent in 1997. The primary reason for the unusually high tax rate in 1998 was the write-off of intangible assets in connection with the Registrant’s realignment program, which is non-deductible for tax purposes. The tax rate in 1999 is up in comparison with 1997 due to the 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 1999 Consolidated Financial Statements.

1999 net income of $128,856 grew over 1998 results of $117,998 (excluding realignment and special charges) and also grew over 1997 results of $122,516. 1999 net income as a percentage of sales was 10.2 percent, and 10.0 percent in both 1998 (excluding realignment and special charges) and 1997.

Management’s Analysis of Financial Condition

The Registrant continued to enhance its financial position during 1999 through its strategic acquisitions. Total assets increased $294,643 or 29.3 percent to a 1999 year-end level of $1,298,831. Procomp accounted for $141,906 of the increase in assets in 1999, excluding goodwill acquired in the purchase. Asset turnover (excluding cash, cash equivalents and short-term and long-term investment securities) fell in 1999 to 1.51 (measured quarterly) versus 1.53 in 1998.

Total current assets at December 31, 1999, of $647,936 represented an increase of $104,388 or 19.2 percent from the prior year-end. Trade receivables increased $30,619 over 1998 excluding the effects of Procomp trade receivables of $14,996. Inventories increased $5,591 excluding Procomp’s December 31, 1999 inventory of $36,314. Short-term notes receivable are primarily from Procomp’s financing to Brazilian customers.

Short-term investments and long-term securities and other investments increased by $27,139, or 13.2 percent to a level of $232,580 at December 31, 1999. The increase was due to the Procomp acquisition (Procomp had $36,489 in short-term investments at December 31, 1999) as well as additional cash flow from operating activities and the Registrant’s ability to keep its funds fully invested. The Registrant anticipates being able to meet both short- and long-term operational funding requirements through the use of its investment securities or drawing on its lines of credit. Certain securities may have to be liquidated in the future for strategic acquisitions. Since most of the Registrant’s securities are marketable, these securities could readily be converted into cash and cash equivalents if needed.

Total property, plant and equipment, net of accumulated depreciation, was $160,724 at the end of 1999. Procomp accounted for $15,135 of the total. Capital expenditures were $40,341 in 1999, compared with $30,768 in 1998. The increase in 1999 capital spending versus 1998 was primarily due to setting up sales and service operations internationally. Capital expenditures are expected to grow as international expansion continues and as the Registrant invests in capital items to support the future growth of its business.

Total current liabilities at December 31, 1999, were $382,407, which represented an increase of $146,874 over the prior year-end. The primary cause for the increase is due to short-term notes payable of $117,450 that were used to fund the Registrant’s acquisition of Procomp. Procomp also accounts for $24,030 of the rise in current liabilities. The Registrant’s current ratio dropped to 1.7 at December 31, 1999 versus 2.3 at the end of 1998, due primarily to the short-term notes payable on the Consolidated Balance Sheets.

At December 31, 1999, the Registrant had bank credit lines approximating $245,500 and EUR 100,000 (translation $99,315), with $117,450 of outstanding borrowings under these agreements. 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

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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 $24,309 at December 31, 1999, representing an increase of $1,564 or 6.9 percent over the prior year-end. The net periodic pension costs of $5,673 charged to income in 1999 represented an increase of $809 from the prior year. Postretirement liabilities at December 31, 1999, were $22,497, an increase of $251 over the prior year end. Net periodic health and life benefit expense charged to income in 1999 of $1,477 increased slightly over the prior year’s expense of $1,303. In addition, the Registrant matches employee contributions to its defined contribution 401(k) savings plan. The Registrant matched 80 percent of each employee’s first 4 percent of savings and 40 percent of each employee’s second 4 percent of savings. Net expense for the 401(k) match was $9,012 in 1999, which was down from the prior year by $326.

Minority interests of $4,423 represented the minority interest in Diebold Financial Equipment Company, Ltd. (China) owned by the Aviation Industries of China and the Industrial and Commercial Bank of China, Shanghai Pudong Branch; in Diebold OLTP Systems, C.A (Venezuela), owned by five individual investors; in Diebold Argentina, owned by Ciccone Calcografica S.A.; and in Diebold Colombia, owned by Richardson and Company Ltd.

Shareholders’ equity increased $145,272 or 20.8 percent to $844,395 at December 31, 1999. Equity increased primarily due to current year earnings and share issuance for acquisitions. Shareholders’ equity per share was $11.88 at the end of 1999, compared with $10.15 in 1998. The Common Shares of the Registrant are listed on the New York Stock Exchange with a symbol of DBD. There were approximately 8,573 registered shareholders of record as of December 31, 1999.

The Board of Directors declared a first-quarter 2000 cash dividend of $0.155 per share. This amount, which represents a 3.3 percent increase from the prior year’s quarterly dividend rate, will be paid on March 10, 2000, to shareholders of record on February 18, 2000. Comparative quarterly cash dividends paid in 1999 and 1998 were $0.15 and $0.14 per share, respectively.

Management’s Analysis of Cash Flows

During 1999, the Registrant generated $188,585 in cash from operating activities, compared with $177,238 in 1998 and $111,330 in 1997. In addition to net income of $128,856 adjusted for depreciation, amortization and other charges of $53,435, decreases in prepaid expenses and other current assets and changes in other certain assets and liabilities 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 14.5 percent in 1999, 17.6 percent in 1998 and 11.2 percent in 1997.

Net cash generated from operating and financing activities in 1999 was used to reinvest $281,800 in assets of the Registrant, compared with $96,509 in 1998 and $102,725 in 1997. The Registrant returned $41,668 to shareholders in the form of cash dividends paid during 1999, which was a 7.9 percent increase from 1998 and a 20.9 percent increase from 1997.

Other Business Information

Year 2000 Disclosure

The Registrant was well prepared for the 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 the 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 For 2001

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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Registrant does not have material exposure to interest rate risk, foreign currency exchange rate risk or commodity price risk. As the Registrant continues to expand internationally it expects market risks to have a greater impact on its financial position and results of operation.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Refer to pages 18 through 40.

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Consolidated Balance Sheets
Diebold, Incorporated and Subsidiaries
December 31, 1999 and 1998
(Dollars in thousands except per share amounts)

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Statements of Income
Diebold, Incorporated and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands except per share amounts)

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Statements of Shareholders’ Equity
Diebold, Incorporated and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)