Diebold Nixdorf Inc (DBD) 2002 Q4 法說會逐字稿

Good day, everyone, welcome to the Diebold, Inc. fourth quarter 2002 financial results conference call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to the Vice President of Global Communications and Investor Relations Mr. Donald Eagon. Please go ahead sir.

. Thank you Paula and good morning everyone and thank you for joining us for Diebold's fourth quarter and year end 2002 conference call. Providing commentary today is Wally O'Dell, chairman and CEO, and Greg Geswein, Executive Vice President and Chief Financial Officer. Attending as well is Wes Vance, Chief Operating Officer.

The replay of this conference call will be available today at 1 p.m. on the Diebold website as well as the phone. The phone replay number is (719)457-0820, and the pass code is 593299. As a reminder, some of the comments today may be considered forward-looking statements. And as a precaution, we refer you to the more detailed information that has been filed with the S.E.C. And now with opening remarks, I'll turn it over to our Chairman and CEO Wally O'Dell.

Walden O’Dell: Thank you, Don. Good morning everyone. Thanks for being part of our call today. Before I review the quarter and the year, I'd like to take this opportunity to thank the entire Diebold team for all their contributions and efforts.

It is their efforts to continually improve processes and improve efficiencies that helped us achieve record performance despite very difficult global economic and market conditions this is past year. They are the reasons that we increase share in each of our three businesses, made guidance each and every quarter, and made the middle of the range of our beginning of the year guidance.

Few companies have performed this well, and our worldwide employees deserve the credit. This is the second year in a row that we have done this. I'm pleased that we were able to report record revenue for the year.

Up 10.2%, or 12% on a fixed rate basis. And once again, meet our previous earnings per share guidance for both the quarter and the year. Just as importantly, our operating margin for financial self-service remains strong at 14% excluding pension income.

Our security business grew dramatically and improved margin, and our voting business was outstanding. Among our most important achievements this past year was our ability to successfully integrate our global election system acquisition, now Diebold election systems, as well as selected assets of Mosler and the Banc of America outsourcing business.

Voting contributed 111 million in revenue for the year. Our voting systems performed extremely well during the state-wide elections in Georgia and Maryland last year, propelling Diebold into the national spotlight. As a result, we are extremely well positioned to capture additional hardware, software, and service revenue during 2003 and beyond. We've just added San Diego County to our successful wins this year.

Additionally, our recent acquisition of Data Information Management System, a small but important data registration company, complements our current offerings and will help contribute to recurring revenue, as service is an important component of this business. Our security business was up significantly over the prior year by 30.6%, contributing an additional 102 million in revenue.

Not only were we able to grow security in the financial sector, but we were able to make significant inroads in the retail and government segments. We also integrated the Banc of America outsourcing business nicely.

It's been a smooth transition, performing better than planned and augments our leadership and outsourcing. We helped the bank improve efficiencies by leveraging the core competency and service, and we continue our discussions with other banks around the world which are looking to move in this direction. Our financial self-service business was up only 1% for the year on a fixed rate basis.

With Asia Pacific showing the strongest growth. While we would have preferred stronger growth in the overall market during 2002, we are pleased to have slightly increased our global market share, and we did it without dropping our operating profit margins. [Literally], profits are the goal, and we are now the clear number one in financial self-service profits. Looking forward to 2003, we expect the security and voting business to remain strong with growth of 10 to 20% in security and 15 to 30% in voting.

We expect financial self-service fixed rate growth of 2 to 5%, which would likely represent a slight share gain, and we'll do it without sacrificing our profit margins. Overall, for the first quarter, we expect revenue to increase in the mid single digit range versus the prior year.

Earnings per share to be in the range of 34 to 39 cents. For 2003, we anticipate revenue growth of 5 to 10% on a fixed rate basis, and we are retaining our previously announced EPS guidance of $2.32 to $2.45, including pension expense of approximately 3 cents versus 5 cents income in 2002. We will be achieving the superior results by providing excellent solutions for our customers and tightly controlling costs.

In conclusion, thank you for your support, and we look forward to another year of growth and remain confident in our ability to continue to deliver superior performance in 2003.

And now I'd like to turn the meeting over to Greg Geswein, our CFO.

Thanks Wally, good morning everyone. I'd like to begin by briefly reviewing financial highlights for the fourth quarter and year and provide you with our outlook for 2003.

As Wally mentioned we achieved record revenue for the quarter of $525.8 million. Net income was $21.9 million or diluted earnings per share of 30 cents which includes the impact from selling with the I.R.S. the deductibility of interest on corporate owned life insurance.

We previously announced earlier in the fourth quarter that the I.R.S. settlement offer reduced the amount of the claim by 20%. As a result, the company took an after tax charge of 37 cents.

We have already paid approximately $31 million in prior quarters and $3 million in the fourth quarter related to this claim, and we expect to refund of approximately $6 million.

People's net income would have been $48.4 million or diluted earnings per share of 67 cents excluding the impact of [inaudible]. The EPS is in the range of the company's previous guidance of 66 to 72 cents a share. On the order front, worldwide orders for product and services increased in the low single digit range, while the Americas were up in the high single digit range, and Asia Pacific increased in the mid single digit range. While [inaudible] was down a quarter we were pleased to see strong order growth in this region and December.

Turning to revenue, financial self-service was down 5.2% or 3.8% on a fixed rate basis during the quarter. Security revenue new was once again very strong during the quarter up more than 34%.

Gross margin, as we previously indicated, there's been no erosion of product gross margin beyond a mix issue of higher voting and security revenue. Service margins were up a point, as we saw improvement on a global basis.

And financial self-service and security, we saw improved operating margins year-over-year. And the 14.1% operating margin in the fourth quarter is the highest in ten quarters.

On the expense side we continue to leverage infrastructure and reduce operating expenses as a percent of revenue by .7 percentage points.

R&D was down as a percent of revenue due to our continued focus on integrating the various R&D operations globally, driving more efficiency.

As a result, we continue to grow the business while improving operating margins. Looking at the year, revenue grew 10.2%, or 12% on a fixed rate basis. Voting revenue grew to 111 million, and Diebold's first full year in the U.S. voting market. The security solutions business grew by 30.6% over the prior year generating more than 102 million in additional revenue.

We ended the year with earnings per share of $2.20 within our previous guidance at the beginning of the year of 2.15 to 2.25.

Earnings per share grew 8.4% excluding good will, realignments, and special charges and that slightly impacted [inaudible]. Additionally if pension income was excluded, earnings would have increased 10.8%. We continue to maintain a strong balance sheet with a net debt to total capital ratio of 6%. Cash and Cash and cash equivalents were up 70 million from 85.4 million at the end of the third quarter to 155.4 million in the fourth quarter. Base sales outstanding end of the year at 68 compared to 79 at the end of the third quarter and 66 at the end of 2001. We reduced inventory by 15.4 million, and improved terms to 5.7 from 5.4 in the third quarter and 5.2 at the end of 2001.

Net debt decreased 54 million in the quarter to 59.59 million from 113.6 million at the end of the third quarter and 83.5 million at the end of 2001. Turning to the outlook, we expect first quarter revenue will increase in the mid single digit range, and we expect EPS in the range of 34 cents to 39 cents a share, and we have to make up a 2-cent-share negative impact from pension on a year to year basis.

We expect overall revenue growth of 2003 of 5 to 10% on a fixed exchange rate bases with our financial self-service business expected to grow 2 to 5%. In North America we remain optimistic about upgrade and replacement growth from regulatory drivers and the moved to advance function hardware as well as open software architecture. However, we don't expect this to have a significant impact on revenue before mid 2003.

In the Middle East and Africa, we are pleased with the strong pickup in orders in December, however remain concerned about the continued weakness in Europe. We continued to see strong growth in Asia pacific, especially like in areas of China and India where we have built and invested in strong sales service and manufacturing operations. Latin America outside of Brazil will continue to be a challenge in 2003 as the economic and political environment remains uncertain.

We are optimistic about self service business prospects in Brazil but remain caution about the political and economic risk there. Moving to the security business, we expect demand to remain strong as we continue our strategy of growing in the financial market while making additional inroads in the retail and government markets in 2003, resulting in growth expectations of 10 to 20%.

As Wally mentioned in electronic voting market in the U.S. continues to grow and we continue to be very pleased about our position in this market. Our current revenue growth expectations for 2003 will be in the range of 15 to 30%. The recent acquisition of Data Information Management companies in the U.S, will further streamline and enhance the total voting solution.

While we don't expect a significant revenue contribution from them in 2003, we're well positioned in this market as it involves in 2004 and beyond. R&D will remain in the kind of 3 and 3 1/2% of revenue range going forward, and we expect continued improvement in operating margin by leveraging the infrastructure.

We expect pension expense of 3 cents per share in 2002 compared to pension income of 5 cents per share in 2002, and our tax rate should remain at approximately 32% or lower.

Expected continue growth in security and voting and our confidence as we continue to gain market share and self-service globally we are confirming the previous 2003 earnings per share guidance of $2.30 to 2 .45 dollars per share which includes pension expense of 3 cents per share. This represents a 9 to 15% increase in EPS over 2002 if you exclude 8 cents per share pension impact year-over-year. We've committed to delivering the results we've outlined for the street.

Other financial targets of 2003 include continued improvement in DSO to the low '60s, inventory turns at 7, depreciation amortization of approximately 70 million, free cash flow of 150 to 175 million during 2003 and expected capital expenditures of approximately $50 million for the year.

In conclusion, we're pleased with our results in 2002, and delivering on the earnings that we indicated to the street at the beginning of the year, and are excited about our growth prospects for the coming year. Not only are we confident that we have the right strategies in place, we have a great balance sheet to help us continue to focus on additional growth opportunities that complement these strategies. Thank you and I'll turn it back to Don for questions.

Paula we'll open it for question now.

OPERATOR Thank you gentlemen. The question and answer session will be conducted electronically. If you'd like to ask a question, please do so by pressing the star key followed by the digit one on your touch tone telephone. If you are using a speaker phone, please make sure the mute function is turned off to allow your signal to reach our equipment. Once again it is star 1, and we'll pause for just a moment moment. And our first question comes from Kartik Mehta with Midwest Research.

Morning.

Morning. Gee my question was, when you gave out your initial guidance for the fourth quarter it was 66 cents to, I believe, 71 cents. As you look at what happened -- what happened in the fourth quarter compared to what you were looking for, where was the -- where would you say the weakness was in not being able to reach that high end of the goal.

Walden O’Dell: Well, Kartik, this is Wally. First of all, we give a range because the entire range is within a reasonable expectation level. One shouldn't always assume that we're going to finish at the high end of the range. I certainly -- certainly, European markets were weaker. It was a difficult quarter, and we think that the overall results which were improved over the prior year which were within the range which gave us totally acceptable year performance, considering what happened in the market competitively. You know, I think it was solid performance, and I would not assume that every time we give range that we're going to finish at the top of it. That's not what the range is all about.

Greg wants to add something.

Year-over-year, too, we're 3 cents diluted on the voting side of the things as well in the quarter.

Walden O’Dell: Yeah, that's true. So if you looked at the performance year-over-year, that's a very relevant point. As far as the range that we gave for the quarter, voting finished right where we thought it would be when we gave the range. So, you know, voting was very helpful during the year in total and performed as expected in the fourth quarter.

As you look at the markets, what market would you anticipate is the most competitive? Is Europe still the most competitive market you see out there?

Walden O’Dell: Yeah there's no doubt about that because all three major players are fighting for share, plus the market is weak. So, yeah, that's a very difficult market. I would definitely say that that's the case.

You've done a good job in cutting expenses. As you look, are there more opportunities to cut expenses out of the manufacturing side, especially for the advanced function or the high end of the ATM?

Walden O’Dell: I think good companies, you know, in 2002, performed well because they managed the cost side well. And they set their views of the market in line with what really happened, and that's certainly what we did. And we have set all of our views and plans to tightly control costs, cost reduced products, cost reduce our service offerings, more efficient operation. I see successful companies as the ones who can improve margin while reducing prices, and I don't see that changing in the near future.

Thank you. I have a couple of others but I'll get back in queue.

Walden O’Dell: Thank you.

OPERATOR Moving on we'll take our next question from Jay Stevens of Buckingham Research.

Yes, thank you. I'd like to follow along on Kartik’s question by focusing on self-service maintenance revenue up 5.6% in the quarter year over year. The weakest performance for the year on a percent gain basis and certainly, in my model, one single line item where I missed the number by, you know, the greatest miss of the whole model. And I'm wondering if, Wally, you or Greg could put a little more color on self-service maintenance revenue as a specific item in the quarter relative to a year ago, relative to the third quarter, any way you think that it's fair to look at it.

Walden O’Dell: I'd have to think about that question a little bit, Jay, but it was a tough quarter in service. It's very competitive. We think that there's a, you know, pretty acceptable quarter. But, you know, everybody's eager to increase their service business.

The markets in Europe were weak. Currency hurt us substantially in Latin America. So we all know the market -- you know, we're seeing everybody else's numbers, and we have some ideas about the ones that don't report publicly that we surmise. We think this was an excellent performance, given the marketplace, and the market was definitely weak. One of the key issues is in the prior year, fourth quarter, the -- there's the euro conversion revenue that certainly impacts us and has, you know, overall impact on service as well. So I think that's part of it. Wes wants to add a point.

Jay, one other point I'd throw out relative to the maintenance service business is we got into the fourth quarter, and particularly what we saw with the economy being where it was globally, is a lot of our customers worldwide were really watching their discretionary spending, and to some degree that impacted our maintenance service volume over the quarter. In the term of [billed work]. So, I think the economy is playing a pretty significant factor in that as we got into a bit of a slowdown relative in maintenance service.

I have another question. I didn't understand Greg's comment about voting machines and three 3 cents in the quarter. Greg, could you say that again and put color on what you were trying to tell us?

Sure, Jay. If you look at year over year, the comment that Wally made, you know, it was a pretty nice quarter, 67 cents verses 61 last year, and in the 67 cents, voting, while they were created for the year, diluted by about 3 cents in the fourth quarter.

How should I interpret that word diluted? It's still not clear to me what you are trying to tell us at all. Is that voting machines lose money in the fourth quarter?

Yes. That's absolutely correct.

Oh, okay.

There's no fourth quarter revenue of any significance, 7 million. And there's operating expense. So the business is very seasonal, and the fourth quarter in voting will always be a poor-profit quarter because of the election cycles.

Okay. Now it's clear. Thanks a lot.

You're welcome.

OPERATOR Moving on, the next question is from Reik Read of Robert W. Baird & Company .

Reik Read, Robert W. Baird & Company, Analyst: Could you guys give more color on your guidance for the first quarter? If we look back over the last couple of quarters the EPS growth has been above 10% with the guidance you're giving in the first quarter, you're talking about a range of potentially down 8% up to 5% in rough terms. What are you seeing that makes you nervous in the first quarter that kind of causes you to give what appears to be softer guidance than recent results would support?

Walden O’Dell: I think the first thing that we think about is the pension 2 cents year over year problem. The markets are also weak and, you know, when we look at our forecast by operation, we have a huge year-over-year currency issue in Brazil in the first quarter, and those things lead us to give what we would consider flat year-over-year guidance, which once you get beyond pension, is, you know, up like 6%.

Okay.

If you look at the high end of the guidance of 39 cents verses taking the 2 cents out for the year-over-year pension, in fact, it’s actually up 11%.

No, that's helpful. Thank you. With respect to, I guess the security in the voting business, you guys are giving guidance ranges now; and in security, it's 10 to 20%. Last quarter, you were giving kind of a hard 15%, and in voting you were giving 15 to 30, and last quarter it was just a hard 20%. Is that reflective of some of the volatility you see in the market, or how would I interpret that?

Walden O’Dell: What we're trying to give you a is a reasonable set of ranges for each result. If you notice, on our revenue range, we widened the bottom end of that. We said 5 to 10 instead of 8 to 10. And the idea there is to tell you that within a range of 5 to 10% growth, we expect to be able to deliver the earnings per share guidance that we gave 232 to 245. In other words, within the range of relatively poor to relatively good economies, we are going to rely on our own performance and cost control and initiatives to deliver the guidance we've given.

Okay. And then just lastly, on the ATM business, Greg, in your comments, you had mentioned that you really wouldn't expect to see any up-tick as the result of the factors that are out there, whether it's Os2 or ADA or [Triple S], until the back half of the year, can you comment on what you're seeing from a bank standpoint, where are they with capital expenditures, where is their interest level with respect to some of these upgrades, and in particular some of the new functionality equipment are they tended to hold off right now?

Greg, This is Wes. They're not necessarily tending to hold off. We're moving forward according to schedule with respect to the kinds of things that you've mentioned. I would add to that the EMV upgrades in Europe also being an issue the banks have to respond to as those networks change, EMV. But I'd say we're continuing to move forward as we anticipate. Of course, in my earlier comment, economic pressures are mandating that everybody hold their spending to the greatest degree possible. So, we’re trying to manage that and balance that as we go forward.

Great, guys, thank you very much.

OPERATOR Once again press star 1 if you would like to ask a question. And Peter Thompson of Cohen Partners has our next question.

Good morning. I was just wondering given your projections for next year, you guys would essentially be net debt free, and given the stocks correction today, is there any reason we could expect a share repurchase in the foreseeable future and could you talk to your dividend policy?

Walden O’Dell: Sure. Obviously, we can't buy the stock this week, but we certainly think it's a bargain at the price that it's trading in at this particular moment. So we have authorization, and you may very well see us in there next week.

Can you tell me what your authorization is.

It's 1.3 million now that's left.

Uh-huh.

Shares.

Walden O’Dell: And what was the second part of your question?

Just your dividend policy.

Walden O’Dell: : Yeah, we've been trying to increase your dividend about 3% a year.

In fact, this will be our 50th year of increasing dividends.

Walden O’Dell: So given our strong balance sheet and earnings performance, we would expect that to continue. But that decision has not been taken.

So that does suggest that your payout over time is going to continue to come down?

Walden O’Dell: As a percentage?

Right.

Yeah, we've said that, you know, we'd like to grow earnings like 8 to 10% a year, and dividends about 3% a year, or so.

Walden O’Dell: We always look at it in terms of average earnings over a period of time, and like something in the 30% payouts on the average earnings.

Okay. Perfect. Thanks so much.

Walden O’Dell: You're welcome.

OPERATOR And Matt Summerville of McDonald Investments has our next question.

Good morning.

Morning Matt.

Couple of questions. While you talk about maintaining the ATM margins at 14% range and some improvements that you've achieved in security and voting throughout the year, I was hoping you could provide some similar color in terms of perhaps, you know, where you entered the year and where things wrapped up and, you know, what your thoughts are for '03 there.

Walden O’Dell: Well, certainly you saw that our highest margin quarter of the year was the fourth, so that's a good thing. And our -- I would certainly expect us to be able to hold margin going forward, or improve it. And like I said, for me, the measure of a fine company is one that can gradually reduce price while improving margin by controlling costs.

And that's what we expect to be able to do. We would like to see margins in each of the three areas that we report to improve. And depending on market conditions, that's our goal. So you should at least count on steady margins by segment and hopefully slightly improving.

Okay. And with respect to the voting business, you have round numbers, 30 or 35 million or so that looks like it's kind of locked in California in '03. I was wondering if you could take us from the run rate to the 130-or-so million you're looking in business this year. Where are the hot spots right now?

Walden O’Dell: Well there's a lot more business in California, Maryland, Ohio -- and Tom's here, any other?

Yeah, Matt, what's happening right now is there's a lot of excitement in the industry as the result of the Help America Vote Act. of 2002, but the logistics of how that's going to fund into each state is being established.So Wally picked out the states we see going forward no matter what.

California has specific counties moving forward. See a lot of activity in Ohio in terms of responding to [RSPs] which we think we're well positioned in. Even in Puerto Rico, we've got a fair amount of interest. But just from a timing standpoint, the states who are looking for funding are working with GSA have to certification information place by April of 2003, so there's a lot of activity of the appropriation of that funding. And the Secretary of State of each states will be determining how that funding allocates out to the counties. So we expect, really, in the latter part of the second quarter and the third quarter to really get a much better gauge and viewpoint of how fast this pace is going to pick up.

But right now, we think, regardless of that, you know, we can deliver in the neighborhood of 130 million this year.

Okay. Thanks guys. That's all I have for you. I'll get back in queue.

Thank you.

OPERATOR And as a final reminder, please press star 1 now if you do have a question. Moving on, we'll take our next question from Alan Wickler from First Manhattan.

Maybe I'm missing a couple of pages from the press release, but, anyway the order rates in the financial services, could you maybe just elaborate in terms of, you know, what's going on in the U.S. and maybe harp a little bit more on the self-service side, the service business? Just what are the trends overall, meaning how much of it is recurring verses, own, one-shot deals?

Walden O’Dell: Well, internationally, our orders were great in Asia. We had some good orders in Latin America, but the exchange rate issues, in Europe the orders were very not good in October but picked up in November and a lot in December. Our U.S. orders were in line with what we thought they'd be and were reasonably good. In terms of repetitive versus one-time, the first thing I think about as repetitive is service, and our service is growing very, very well. As we move into 2003, we're looking at the upgrade in functionality people have been talking about, and, you know, we note that many banks are reporting good results and seriously working on investing. So we think 2003 will look pretty good.

Well, I note that a couple of banks are talking about the Check Truncation Act.

Walden O’Dell: Sure.

And Bank One talked about an upgrade in ATM's. So it would seems on the surface, and talk is cheap, that banks in the U.S. are seriously contemplating that mortal upgrade cycle. I mean, am I missing something or help me out here.

Walden O’Dell: You're not missing anything. I think 2003 will be a pretty good upgrade cycle in the U.S. As you mentioned the Check Truncation Act or checking for the 21st century, I guess is what they're calling it now, or increased functionality that many of the banks are looking for will certainly drive orders in revenue. Wes, do you want to add to that?

I would agree with what Wally is saying there is we're seeing pretty steady state in terms of moving forward, Alan, and I think all the items you mentioned in terms of events functionality which we have solutions for, check imaging as we go forward, the demand continues to build.

Okay. I thank you.

Walden O’Dell: You're welcome.

OPERATOR We do have a follow-up from Jay Stevens of Buckingham Research.

Yes. Thank you. Greg, this would be for you. I'm looking at the reported gross profit on products and gross profit on service for the four quarters. In '02, the gross margin on product declined every quarter from the first to the third, then it went up a bit in Q4. And service was the opposite. It started low and went up steadily through the year. So how can we use that to determine what gross margin levels we could go to for Q1 and for '03? I just need a little color on what you see as a logical trend or focus that we should use going forward through these quarters in '03.

Jay, when you look at '02, you've got to remember there's a big slug of voting in there from a product gross margin standpoint. Mostly product, a little service. That was lower gross margins than the ATM business. We had more security business and again lower gross margins on that front as well. So you're really looking at a mix -- mix issue. From an ATM standpoint as we talked acts those margins were slightly up on a year-over-year basis.

Walden O’Dell: The voting business being so seasonal and large in the second and third quarter affect facet that a lot. So, Jay, the first thing I'd recommend if you're trying to project margin by quarter is to project revenue by quarter in each of these three segments, and then apply the on going run rates, and then the mix effect will show up in the consolidated margin.

Well, I would,do that, but, you know, last year in Q1, you had very -- the strongest gross margin of the year in product. And I'm just wondering, as I look at how that behaved through the fourth quarters, where I should start Q1 at. It certainly -- it sounds, now, like the Q1 gross margin on products alone will be lower than the Q1 on products of '02. Is that a reasonable assumption?

Walden O’Dell: Jay, you're getting hung up on the mix by quarter of voting. And, so, if you take '02 and remove -- you know, put voting on its own line, you will see that the trends are very predictable, very steady. We can help you with that offline, I think.

Okay. Let's do that.

OPERATOR And Matt Summerville has our next follow-up question of McDonald Investments.

Yeah, Greg, with respect to that $6 million tax refund, is that imbedded in the earnings outlook for next year.

That's not a P & L impact.

Follow-up on the ATM service business, Wally, if you could comment beyond the success you had with Banc of America this year with that business, how you feel about the underlying growth rate there.

Walden O’Dell: One of the reasons we've done well, I think, is because our service services perform so well and our customers like it. We gained share in service, and it helped us gain international share with our product, and I think that will continue. It's our -- you know, it's our strong suit, I believe.

Okay. So overall for the year, you're pretty satisfied, then, with the underlying growth rate if, again, we look beyond the success you had with B of A.

Walden O’Dell: You're talking about 2002?

Yeah.

Walden O’Dell: I'm not really satisfied with our overall growth rate at all. But given the market conditions, we did a credible job there. And I think that the most important thing is, you know, we gained a lot of share in 2000, we gained a lot of share in 2001. Basically, we held share or gained slight share in 2002, but we did it without cratering our margins. And it's very tough economic condition out there, and the whole margin and whole share, in 2002, is an outstanding performance.

Thank you.

OPERATOR And moving open, we'll take our next question from Kevin Merrit of Fiduciary Trust.

Kevin Merrit; Fiduciary Trust, Analyst: Good morning.

Walden O’Dell: Morning.

Wally, two questions for you. Was wondering if you could comment on the competitive environment within voting, how you feel. Obviously, you've taken a substantial amount of share over the last year, you know, how do you feel about that going into '03. And then secondly, could you just update us on your thoughts for potential acquisitions for the company to make in the next year? Thanks very much.

Walden O’Dell: I feel great about our situation in voting. The company required was 9 or $10 million in 2001, and third in market share.

And we went from third to first in a year. And then all of our equipment and all of our support performed perfectly on Election Day, and that propelled us forward with the great, great opportunity to continue to lead the industry and hopefully gain more share and to participate well in that market. As far as acquisitions, it's an opportunity-rich environment.

There are a number of fallen angels out there. We have a very strong balance sheet. We have been the industry consolidator in the industries we participate in, and I expect to continue to do that .

Quick follow up for you Wally. Within voting would you say one company is standing out right now as showing up more frequently against you, or is it still fairly fragmented?

Walden O’Dell: There are two other significant players. I think it will stay that way.

Okay. Thanks very much.

OPERATOR And we'll take our next question from Jeff [Joinoff] of [inaudible] Capital .

Yes, I was wondering, perhaps, Greg, if you could provide us more color throughout the year, not necessarily numbers by quarter, but if we look at the growth rates in the first quarter from, perhaps, down 2 1/2 to up to 11 on the high end versus the range for the full year? Could you just maybe kind of walk us through the year a bit and give us more color on where the growth rates are going to come from as we get out through the year.

I don't think it's going to be too dissimilar from what we saw in 2002. First quarter flat up. Second quarter up slightly, and then third and fourth quarter, very strong quarters as they were this year. So that's how I see the trend moving forward.

Okay. Thank you.

OPERATOR We do have a follow-up from Reik Read of Robert Baird & Company.

Just two quick follow-ups. Wes, can you comment on the status of the pilot program at Wal-Mart, how that's goings and are you seeing a potential to add some other retailers?

Yeah, Reik, we continue to do well with the pilots that you're referring to. And, yes the short answer is we're continuing to look for additional retailers to work with and are working with them very closely.

Is there a reason to believe that may be rolling out sometime in the foreseeable future.

Yes, we would anticipate we would continue to drive advanced functionality across our entire customer base, but we want to do that on a basis that generates a positive return in investment for them in the right locations in the right volumes going across the terminals. So, yes, you can anticipate improvement and growth in that space.

And then, Wally, quickly, on the voting side, you mentioned the ramp that you guys had after you acquired Global Election in one year. Can we assume something similar from data information, or is there a different dynamic there?

Walden O’Dell: Well, first of all, it's a much smaller opportunity. We haven't disclosed the numbers, but they're very small numbers.

We see a good opportunity, you know, maybe in the 10 to $20 million a year that we could do going forward. More interestingly, though, it augments what we're offering in product and will help us grow the hardware side of the business as well.

So the combination of voter registration systems and voting equipment, we think, is a winning combination in the marketplace, and we think, for instance, the dims offering was very compatible with our product in San Diego and helped us win the San Diego voting business.

Okay. That's helpful. Thank you.

Walden O’Dell: Your welcome.

OPERATOR Our final question comes from Kartik Mehta of Midwest Research.

Good morning, just a couple of follow-ups. On the security side, you mentioned that the retail is an area you're focusing on. Could you add a little bit more color as to the opportunities in retail out there and the potential to win some of that business?

Walden O’Dell: I would be happen at happy to do that. I think Wes can answer that directly.

Yeah, Kartik, I think there's tremendous opportunity out there, as we take some of the capabilities that we have in terms of electronic security development and design, the installation, the monitoring and maintenance of that, that's an area we see as a very rich target, kind of an environment for us to go forward with those security products. I think you will see a good growth in that moving forward.

Yeah, and just a follow-up on the retail strategy. As you look at the ATM side, what would be the retail strategy there? I know earlier in the year you sold off some of the ATMs. As you look going forward, what would that strategy be?

Well, assuming that businesses we own today, it's to sell, you know, lower-cost equipment to, you know, retail customers, large chains, at profitable prices and not to the owner-operators, and not to lose money doing the transactions. And it, of course, remains less than 1% of our revenue.

Thank you very much.

You're welcome Kartik. Paula.

Yes, Mr. Eagon.

I think you said we'll take the last question. Can we check to see if we have more questions?

OPERATOR Certainly. As a reminder it is star 1 if you would like to ask another question. We'll pause for a moment. Mr. Eagon. It appears there are no further questions at this time. I'll turn the conference back to you.

Thank you. And all of us here at Diebold want to thank you for joining us today and have a great day.

OPERATOR That concludes today's conference, and we thank you for your participation.--- 0