Diebold Nixdorf Inc (DBD) 2004 Q4 法說會逐字稿

Good day everyone and welcome to the Diebold Inc. fourth quarter 2004 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 Investor Relations, Mr. John Kristoff. Please go ahead.

Thank you, Jamie. Good morning everyone and thank you for joining us for Diebold's fourth quarter and year-end conference call. Providing remarks today is Wally O'Dell, Chairman and Chief Executive Officer and Greg Geswein, Senior Vice President and Chief Financial Officer. Also with us today and available to answer questions are Eric Evans, President and Chief Operating Officer; Dave Bucci, Senior Vice President of Customer Solutions Group and Tom Swidarski, Senior Vice President, Strategic Development and Global Marketing.

Just a few notes before we get started on today's call. The replay of this conference call will be available at 1:00 PM today on our website as well as via telephone. The phone replay number is 719-457-0820 and the passcode is 280934. Also 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 SEC. Now with opening remarks, I'll turn it over to Wally.

Thank you, John. Good morning everyone. Thanks for being a part of our call today. Before I review the quarter and the year, I would like to take this opportunity to thank the entire Diebold team for all their contributions. We faced many significant challenges this year and still managed to perform very well. It was the combined effort of the global Diebold team to continually improve processes and improve efficiencies that helped us once again achieve record performance, despite the challenges. It will take continued effort and sacrifice to extend this great performance.

Our revenue in the fourth quarter increased 10.6 percent on a GAAP basis and 8.6 percent on a fixed exchange rate basis. Earnings were up 7.4 percent to an all-time record 87 cents, which included a 2-cent per share charge associated with finalizing the settlement in California. Excluding the effect of the election system business, earnings per share grew 15.4 percent. Financial self-service revenue growth grew 12.6 percent, or 10.0 percent on a fixed exchange rate basis as we saw solid growth in the Asia-Pacific and the Americas, partly offset by continued weakness in Europe. Security revenue grew 23.8 percent, or 23.3 percent on a fixed exchange rate basis, while the election system's revenue was down significantly as expected.

I am also very pleased with the dramatic improvement in the working capital management during the quarter as free cash flow improved $83 million over the prior year quarter and our DSO of 63 days represents a 20-day sequential improvement from the third quarter and a 10-day improvement versus year-end 2003. For the full year, our revenue increased 12.9 percent on a GAAP basis and 10.7 percent on a fixed exchange rate basis while earnings per share grew 5.8 percent. Financial self-service revenue for the year was up 13.1 percent, or 10.1 percent on a fixed rate basis. Just as importantly, our operating margin for financial self-service remained at an industry high 14.4 percent despite continued price erosion, particularly in Western Europe as well as year-over-year increases in steel and fuel costs. We will be taking actions in 2005 in Europe to better aligned our costs and product structure with the competitive environment there.

You should also note that when we disclose operating profit margins by business segment, we include both product and service results. Additionally, all expenses including corporate overhead and pension expense are fully absorbed.

Our security business also grew significantly while operating profit margin declined slightly as a result of higher steel and fuel costs. Pricing actions we have already taken will improve this situation in 2005.

The election system's business continued to prove challenging throughout 2004 as lower revenue and the settlement in California had a significant impact on margin and earnings per share. I am extremely pleased however with the performance of electronic voting in general and Diebold performance specifically during the recent U.S. presidential election. Our touchscreen election system significantly outperformed all other systems used during the election, resulting in hundreds of thousands of votes being counted that otherwise would not have been on other systems. As a result, we're confident the country will continue to move forward with upgrading elections technology in the coming years as required by the Federal Health America Vote Act and that Diebold will participate fully in this process.

For 2005, we continue to take a conservative view on the election systems market. Ohio recently decided to move forward with optical scan technology rather than touchscreen, which reduces our revenue and earnings-per-share opportunity somewhat from what we had previously expected. It is not clear that this will have any effect on any other states' decisions to move forward in implementing electronic voting, but our recent experience in this market leads us to believe a conservative outlook in the near term is prudent.

Looking forward to the first quarter of 2005, we expect consolidated revenue to increase 9 to 11 percent on a fixed exchange rate basis versus the prior year with an additional 1.5 percent from currency. Earnings per share are expected to be in the range of 35 to 40 cents, including the anticipated restructuring charge in Europe of approximately 7 cents. Excluding these charges, this represents earnings per share growth of 5 to 18 percent. We will be achieving these superior results by continuing to provide excellent solutions for our customers entirely controlling costs.

For the year we're planning on consolidated fixed exchange rate growth of 10 to 12 percent with an additional 1 percent from currency. We expect financial self-service fixed rate growth of 7 to 10 percent and the security business to grow 17 to 20 percent. Election systems revenue is expected to be in the range of $70 to $80 million.

Earnings per share are expected to be in the range of $2.85 to $3.00, including 8 to 11 cents of restructuring charges in Europe and the more conservative outlook on election systems as a result of Ohio's plan to buy mostly optical scan equipment. Excluding the impact of anticipated restructuring charges in Europe, this represents earnings per share growth of 17 to 21 percent, which is in line with previous guidance we have given.

In conclusion, we believe that through continued focus on speed, global efficiencies, cost control and reduction and creative solutions to customer needs, we will continue to achieve superior results in 2005 and beyond. And now, I would like to turn the meeting over to Greg Geswein, our CFO.

Thanks, Wally, good morning everyone. As Wally said, we are please to report record revenue, earnings and free cash flow for the quarter. Revenue was $717 million, up 10.6 percent while EPS was 87 cents, an increase of 7.4 percent and within previous guidance of 87 to 92 cents a share and free cash flow was $142 million in the quarter, up 140 percent from prior year. Included in the fourth quarter 2004 EPS was a previously disclosed cost associated with the civil action in the state of California which adversely impacted earnings by 2 cents a share. For the full year 2004, we reported revenue of $2.381 billion, up 12.9 percent from 2003 and diluted earnings per share at $2.54, an increase of 5.8 percent from 2003 while free cash flow was $171.4 million, up 31.2 percent from 2003.

Again, we reported strong orders in Asia-Pacific and the Americas. Asia-Pacific's financial self-service orders increased to the mid-double digits led by continued strength in China and India. The Americas had excellent order growth while EMEA remained weak as this market remains very competitive and Opteva is now fully certified Western Europe.

Product orders for the quarter, including and excluding voting, had the second-highest quarter in Diebold's history and the highest fourth quarter in Diebold's history. Opteva has been a significant percentage of global ATM order entry with over $100 million in orders in the quarter with over half of that amount coming from the international locations. This is the second quarter in a row in the excess of $100 million of Opteva orders.

As well I noted fourth quarter revenue was a record 717, up 10 percent on a GAAP basis and 8.6 percent on a fixed exchange rate basis. Positive currency impact in the fourth quarter was $12 million, or approximately 1.8 percent. Financial self-service revenue grew 12 percent on a GAAP basis and 10 percent fixed rate. This was led by strong growth in Asia-Pacific of 30 percent fixed rate while the Americas was up over 10 percent and EMEA down 2.8 percent on a fixed rate basis.

The security business is up double digits for the 13th quarter in a row as a result of recent acquisitions and strong internal growth. The election systems business decreased from $38 million in 2003 to $14 million this quarter.

On the gross margin front, gross margins declined to 28 percent from 29.7 percent in the fourth quarter of 2003. Product gross margins decreased from 31.9 percent in the fourth quarter of 2003 to 29.8 percent in the fourth quarter of 2004. The majority of this decline was due to the election systems business, which was adversely impacted by low volume in the California issues, as well as continued margin pressure in Europe. Product margins in the U.S. excluding election systems remained flat and excluding the unfavorable impact from Europe and the election systems, product margins would have increased slightly.

Service gross margins decreased to 26 percent from the 27 percent reported in the fourth quarter of 2003. This decline was a result of continued pricing pressures and higher fuel costs. In the U.S. where margins remained flat, we were able to offset pricing pressures as well as increase in fuel costs with the efficiencies gained from field automation initiatives. We achieved excellent leverage on the operating expense line. Total operating expenses for the quarter as a percent of revenue was 15.2 percent, down from the 16 percent in the fourth quarter of 2003. Improved leveraging of selling, general and administrative expenses was achieved due to aggressive cost controls on personnel costs, despite the adverse impact of approximately $2 million in additional legal and other expenses related to including the civil action in the state of California. Aggressive controls on personnel costs include strictly limiting the rate of replacement of new hires limiting base compensation increases and implementing a corporatewide efficiency program.

Operating profit was 12.8 percent of revenue, down from the 13.7 percent in the fourth quarter of 2003. This decrease was due to lower gross margins partially offset by the improved operating efficiencies. Other income expense and minority interest decrease $0.5 million of additional expense in the fourth quarter of 2004 versus the fourth quarter of 2003. This decrease was primarily due to favorable foreign exchange, offset by higher minority interest and other expenses.

Net income was 8.8 percent of revenue compared to the 9.1 percent in the fourth quarter of 2003. The decline in net income as a percentage of revenue was mainly due to the lower operating profit in the election systems business. The Company's net debt was 87.3 million at December 31, 2004 compared to net debt of 27.6 million at December 31, 2003. The 59.7 million increase in net debt for the year was due to the positive impact of 171.4 million in free cash flow, more than offset by 71.9 million for the repurchase of the Company's stock, 62.2 million invested in acquisitions, $53.2 million in dividend payments, 26.4 million invested in other assets and 17.4 million in foreign exchange impact.

In the fourth quarter, free cash flow improved by $83 million, moving from 59 million in the fourth quarter of 2003 to 142.8 million in the fourth quarter of 2004. As Wally mentioned, the substantial portion of this improvement was a result of improved trade receivables collection. DSO was 63 days at December 31, 2004, a 20-day sequential improvement from the 83 days at September 30, 2004. The 12-month moving average inventory turns improved slightly from 4.9 at September 30, 2004 to the current 5.3 turns.

We estimate the stock options were expensed in accordance with SFAS 123. The full year impact in 2004 and 2003 would've been approximately 6 cents per share. The Company expects to adopt FASB 123-R, which will require the expensing of stock options beginning in the third quarter of 2005. Full year 2005 guidance does not reflect any expensing of stock options.

As previously disclosed in the interest of more directly linking associate rewards to corporate performance in 2004, the Company granted restricted stock units in lieu of options to a select group of key associates. The impact of this transition to grants of the restricted stock units impacted 2004 earnings by approximately 1 cent per share.

Wally has summarized the outlook for the first quarter, just a couple of additional comments. First quarter revenues increased 9 to 11 percent on a fixed exchange rate basis, led by increases in financial self-service revenue of 8 to 10 percent on fixed exchange rate basis and security for the 14th straight quarter will grow double digits in the range of 20 to 24 percent on the fixed exchange rate basis. Collections systems election revenue is expected to be approximately $4 to $6 million for the first quarter and currency exchange is anticipated to be approximately 1.5 percent favorable versus prior year.

Depreciation and amortization is expected to be approximately 19 to 20 million with an effective tax rate of approximately 31.5 percent. Pension expense is expected to increase by approximately a penny per share in the first with of 2005 as compared to the first quarter of 2004. Expectations for the full year of 2005 includes double-digit revenue growth of 10 to 12 percent on a fixed exchange rate basis, again led by strong growth in financial self-service and security. Currency impact is expected to be approximately 1 percent positive versus the prior year and depreciation and amortization is expected to be approximately 75 to 80 million with an effective tax rate of approximately 31.5 percent.

The pension expense is expected to be 3 cents per share higher than 2005, moving from a 5 cent per share expense in 2004 to 8 cents of expense per share in 2005. Research and development will be approximately 2.5 to 3 percent of revenue. As Wally noted, EPS should be in the range of $2.85 to $3.00 and this would represent a 17 to 21 percent increase in EPS over 2004, excluding the impact of restructure in Europe. And on the cash flow guidance, we now expect free cash flow to be in the range of $200 to $230 million for the year. And with that, I will turn it back to John to open it up for questions.

Jamie, we're ready for our first question.

(Operator Instructions) Charlie Brady, Hibernia Southcoast Capital.

Thank you, good morning. Could you give us a little more detail on what exactly the restructuring you're going to be doing in on the Western European market? And also on the certification process there, when you talk about key certifications, can you quantify that a little bit more?

Sure. Obviously, restructuring is a pretty sensitive topic and not all actions have been announced yet. But we are working to downsize our production employment in France somewhat. And of course, we will be introducing Opteva production into that plant. And those are the main driving factors behind the first quarter number. And I don't really want to go into the second quarter numbers right now, but there are small additional actions that we're considering and that has been put into the guidance.

On the certification side, we're making good progress. That's why we're moving forward with our production plan and we are counting on seeing a very solid year-over-year performance next year in Europe because of that.

Can you quantify the penetration rate you're making on key accounts and what size of your identified market that would represent?

I think the basic answer is we will be 100 percent finished with this process by June. So we're making dramatic progress. I don't want to go into percentages and names, but when we get into the third quarter, I think any certification work that we needed to have been done in general will have been done.

And then on the Ohio, the conservatism based on the decision in Ohio, if I'm hearing it correctly, it sounds as though your conservatism is not -- you're not just taking down your expectations because of the reduced revenue opportunity in the Ohio, but you're making some conservative assumption that you may have a reduced revenue opportunity in other jurisdictions that are still deciding which way to go?

The numbers I believe that we've put in the guidance for voting are conservative. They accurately reflect what is likely to happen in Ohio, meaning that the Secretary of State has decided to go with optical scan for all requirements except for the ADA ones, which will I understand be touch screens. And so that is a smaller revenue and therefore smaller profit situation for us, and that is fully reflected in these numbers.

As far as there's many opportunities out there throughout the country and we are just not sure yet exactly at what speed those jurisdictions will move forward. But we have excellent solutions in optical scan and touch screens with printers, without printers, so that we're going to have to be patient and let the counties and states and country decide, and then we'll do an excellent job of providing those solutions. But we did not think it would serve anybody's purpose to put every order that we know might be out there into the guidance. We're going to wait and see what happens.

My last question, and I will get back into queue. Can you talk about the steel costs impact versus the fuel cost impact and what steps specifically? You're renegotiate contracts, longer-term contracts steel -- what's going on there?

Well, as we all know, steel prices has surged dramatically across 2004 and have stabilized now at fairly high levels. That certainly on the financial self-service side, it's almost impossible to just pass that along. But through redesign of product and productivity, we've been able to offset it. On the security side, we've taken price action which now has more than fully covered that. But for the year with the time lags, it caused a 3/10 operating profit erosion. I think we had previously estimated those costs $7 to $10 million range of impact for the whole year. And I don't see at this point a significant problem in '05 versus '04 on that topic.

Thank you very much.

Kartik Mehta, FTN Midwest Securities.

Good morning. I wanted to ask a little bit about the security business. It looks like you're going to have another strong year in 2005 and I'm interested in your thoughts on the drivers. Is this financial institutions looking for more products, or is this because you've just done a very good job at gaining market share on the commercial side business?

It's all of the above. It's expansion of our solution set, it is a strong environment from customer demand, from everything from violence issues in banks as well as the whole country and the world's interest in security. And we are very, very well positioned there and we're very focused. Our competition is a little bit fragmented and we have shown great internal growth and will continue to do so.

Question on the election side. As you look at the loss that you recorded --.

Can you speak up a little bit?

Question on the election side. As you look at the loss that was reported in 2004, how much of that would you say is just onetime expenses related to either California decertification or was it legal costs?

We specifically decided not do put that in the release. We will let you sort of figure that out. But we have made -- there is a lot of onetime stuff associated with California, and that's why we are able to give such strong earnings guidance for '05 because we don't expect that type of problem to repeat.

Thank you very much.

You're welcome.

Matt Summerville, McDonald Investments.

Good morning, a couple of questions. On the margin side on the ATM business, while you mentioned year-over-year '04 versus '03 margins were flat at 14.4, what sort of expansion do you envision in that business in '05 excluding the restructuring charges of 8 to 11 cents?

You know, Matt, that's a great question and I've answered that so many times. First of all, we have clearly the highest margins of any competitor in this industry. And what I like to think of it is if you do everything well from redesign to productivity, sourcing, etc. in a market where prices continue to erode, you're doing a mighty fine job if you can hold good margins. So if I was looking at all our margins for operating profit for '05, I would not look for anything significant to be happening on the financial self-service side. I would look for some of the onetime stuff in voting to go away, I would look for a little improvement in the security side, and therefore, a couple of tents maybe consolidated for Diebold.

Okay. If you can talk about maybe just a little more color on what you saw in the Americas in the fourth quarter and kind of what your outlook is for 2005 in that business. In the quarter, did you see much higher strength in the U.S. as opposed to South America, vice versa? Just a little more color on the trend in the Americas region?

I would say first of all that North America is a big, big driver North America for us, as is Brazil and some of the other countries. And I would thank uniformly, the market is very, very good. And we have had tremendous success in North America throughout the year and I feel very good that our competition and ourselves will all do well in the Americas in '05.

You just mentioned a little bit about price erosion. Is there any more color or numbers you can provide on that and are you seeing similar price erosion in all four major regions of the world -- Europe, U.S., Asia-Pacific, Latin America?

It varies a little bit, but we've done a lot of work looking backwards in product and service by region and it looks like it is just almost consistent of minus 4 to 5 percent per year for as far back as we can see. It can vary a little bit around that in a particular region and in a particular period. And certainly, there is really intense competition in Western Europe, which has probably been a little worse than that this year. But you know, everybody is redesigning and getting productivity and using tools, and our customers are very aggressive in terms of trying to get the best price they can. So we don't see any change in that. We would like to see it stable off, but we have not seen any signs that it's going to.

If you look at your European business being down I think close to 3 percent on a fixed rate basis, if you can provide a little more detail around what you are seeing in places like Eastern Europe and Russia, because I imagine that helped the underlying growth rate in that region a little bit?

It certainly did, and I'm not at all happy with Western Europe. We have been transitioning out of a very old product line called 9X and restructuring our plant and now trying to get Opteva fully certified, and now bringing that into the plant. So clearly, there is not one person in this company who is satisfied with our performance in Western Europe. And we are going to work even harder to get that heading in the right direction, and I think we have the right steps climb now.

I think that's a good sign for Opteva too, Matt. In the places where we have not had certification issues, namely Russia and Eastern Europe, Opteva has done exceedingly well in those regions of the world.

We needed a new product line and we brought it out starting in March of '03 little, and it has been very, very well-received.

One final question on voting. That $70 to $80 million revenue guidance, it sounds to me really all that is baked in there, again, just to clarify, is what you anticipate out of the state of Ohio plus any recurring service and maintenance revenue that you'd already kind of have slated for the year. First, is that accurate? And second, maybe if Tom can talk just a little bit about what he has seen in the pipeline out there of opportunities? I know you've talked a bit before about Kansas, about Utah, about Cook County, Ill. etc.?

I will turn part of this over to Tom, but it is not just Ohio and recurring revenue. I think it has 10 to 20 million of some success elsewhere in the country out of maybe $50 million -- $50 to $100 million worth of opportunities that might occur. And with that, Tom?

Hi, Matt. Just to kind of add to what Wally is saying is on the recurring revenue stream front, last year, that number was about $30 million. This year, because it's not -- we won't be running the large election throughout the year, that recurring revenue stream number is smaller. So in that 70 to 80 million really is reflective of other opportunities. Certainly, the issue you faced with some of these large ones is the timing of when they occur and the fact in most cases it's an all or nothing kind of arrangement. So we're taking what we think is a realistic approach. We think that might be conservative. But given the delays that have happened in the past and given some of the decisions we've seen recently, we think it is prudent at this point. I feel very good in terms of the products that we have as well as some of the new products that we're rolling that will help both product sales and recurring revenue stream for '06. But I think for '05, given the visibility we have right now, that is a pretty accurate reflection, the 70 to 80 million.

Speaking of certifications, where are you in the process of getting your touchscreen terminal with the paper trail attached to it, if you will, certified with the proper federal authorities?

That has been in there for several months right now. The federal authorities really have not had an opportunity to focus on a lot of that because they were focused through last year on getting everybody ready to run the November elections. And I think they did a pretty effective job there.

Our expectation is it will be out from the federal authorities by the end of the February. At that point, we have already made contact with and have worked with the state of California to go through the state certification process. And we have to then go through a panel and the whole bit. So our expectation is that we have both to the federal level and now all the state applications lined up. By the end of April, it is there and ready to go. We've already demonstrated it to everyone at the state and the federal level, it's just going through all the paces. And as you might imagine, we cannot get it through fast enough. They don't have quite the manpower we'd like to see assigned to these things. But these are small agencies. There's a lot of folks in there clamoring. But our pacing is very good and it will allow us to really meet our expectations for this year.

So by the end of the first quarter, it will have come out of federal and be at all the states where it needs to be. And then we have our resources we can apply to help the states get it through quickly So in the April/May timeframe, I don't think there would be any state that doesn't have both a federally and state certified touchscreen with printer and any other options that they want on it through the process.

Great. Thanks guys.

Jeff Kessler, Lehman Brothers.

Thank you. First, with regard to the margins in your security business, you did describe a couple of sentence why there was this 30 basis point falloff in the margin. I'm just wondering also what else are you doing to insure that you can get better than a 7 percent operating margin or 7 point something percent operating margin next year beyond just pricing? Are some of the acquisitions that you have made bringing in some higher value added types of integration jobs?

Yes. There's plenty of room for margin expansion there over time. We have not counted on major improvement in our '05 guidance, but the synergies with our acquisitions, the better mix, the higher level of services of just the growth alone should help us because you are always running against the things that are going against you as well. So we fully expect over time to get that into double digits. But we did not put dramatic improvement in our '05 guidance.

But it is your contention that over time, you can get the security margins into the double-digit area?

Yes. I would certainly believe that, and it is been frustrating to me personally that we have not made more progress on that and we're going to go back after it again in '05.

In Western Europe, has your certification process and the length of time that some of it has been taking, have you seen any technological developments on the part of your two competitors that would be giving them any type of breathing room, in terms of coming out with competitive technology while your product is being certified?

First of all, I would like to compliment both of our competitors. They're doing very well, they both have had great years. They're always trying to move forward. But I think we can do much, much better in Europe and we will. And I would say that when we are fully certified with Opteva, we will still be in a very good product software and services position in order to succeed there.

Okay, thank you.

Reik Read, Robert W. Baird.

As you guys go through and complete the certification process and thereby you are selling a lot less of the legacy product which has had significant margin pressure, what does that in and of itself do for the margins in Europe?

Doesn't anybody want to talk about how great we're doing in Asia? Certainly, the phaseout of a very old product line and the introduction of a very good product solution set should help us as we move forward. But we have got to get through this -- we're not even starting to make Opteva product yet in Europe. We've got to get the plant restructured, we get agreement with the people, we have to get the product introduced. And as we move forward, it should help us a lot. But again, we have not the operating profit expansion into this guidance because you're always facing human cost increases, various material things -- there is a lot going against you and price reduction. So I think the world seems to underestimate how many in really adverse things you have to do to just to hold margin if prices are dropping at 4 or 5 percent. And believe me, I do not underestimate that task.

Can you guys -- Wally, you talked a little bit about this before, but maybe a little bit more detail, just in terms of how we should be thinking about margins throughout the year. And there's a lot of things that are going on, the things that you just talked about, Opteva has been ramping up in the U.S. and at some point will gain enough critical mass that it will have lower cost. You h8ave restructured the voting business in the past, you have these operating expense initiatives under way. What does that all net out to in terms of margins as we look through '05?

If you check out the guidance and you make a P&L out of it, you will see that it yields slight operating profits margin improvement in order to make the guidance we've given. So 1 to 3/10ths is what is sort of baked into the guidance. And there is no operating profit margin improvement baked into the financial self-service numbers because again, we're dealing with very significant negative price. But we could possibly do better than that and get two or three more tents, if things went well. So slight OP improvement while reducing prices driven by market demand or reduced prices, not that we're trying to produce prices, is what causes us to give only moderate increasing operating profit margins.

One last quick question from me. Can you just talk about why the R&D has been declining as a percentage of sales throughout the '04 timeframe, and what should we expect looking forward into '05?

One is the mix of security, and two is the fact that you have seen in the past an expansion of that number as we developed the Opteva product line. And now as we move forward with one global platform replacing Forex in Brazil and Nynex in Europe and IX (ph) around the world, you would expect this. And of course, we are also put together with a number of independent companies. And as you do all of that work, you should see some leverage there and we're also growing. So those are the things that help give us a little leverage on that line.

So would it be fair in '05 to see something more along the lines of the low 2 percent range?

We've given guidance on that.

2.5 to 3, right.

Okay, thank you.

Michael (indiscernible) Investment Management.

Good morning. Wally, if you could just sort of look backwards a little bit and I am a little bit surprised that it has taken you this long to restructure in Europe. In hindsight, what would you have done differently and would your timeframe be different in terms of implementing this kind of restructuring action?

Well, the impediment to previously restructuring had to do with the fact that it was only our only plant in the world that made Nynex. And when you have a situation of that type that limits your flexibility on what you can do. And now that Nynex is no longer being produced and Nynex is no longer being consumed and we have multiple plans for Opteva and IX, it gives us the opportunity to restructure that was not there before. And that is the driving factor that resulted in the timing. Additionally, Opteva has a lot less labor hours in it per unit because of its design, and therefore, the need to restructure also increased. So those are the two factors that I think about to and your question.

Fair enough. Given the outlook for the election systems, it looks like obviously there's a pretty strong ramp throughout do rest of the year beyond the first quarter. Are there are opportunities there that you might be thinking about, in terms of restructuring in that division?

We're trying to manage our cost there. We fully expect to understand exactly how the country is going to move forward in the very near future. But the country still has to spend over $1 billion to take care of all of this old equipment. So let's just be patient, wait and see what the opportunity is and Diebold will be there to provide the solutions this country needs. And it will be very good for our shareholders when that happens.

Okay, great. Thank you.

Sineol Odoptura (ph), Bramwell (ph) Capital Management.

Good morning. I wanted to know about in your guidance what kind of assumptions are you making for steel and fuel costs? Are you hedging most of the steel and fuel costs if they rise further from here?

Obviously, if things suddenly change, we can change how we price. But I think it's fair to say that the current expectations for most people for steel and fuel is pretty stable compared to current levels. And that's the cost and pricing that is built into our guidance.

Okay. In terms of that -- again to the guidance -- in terms of the growth for revenues of 10 to 12 percent, could you break it down for growth between products and services, what kind of assumptions are you making for those?

Just give me a second here; I have some sheets on that. Are you talking about calendar '05?

Absolutely.

The numbers I'm looking at, and I don't want to go into exact detail in financial self-service have faster growth rate in product than in service. In security it is pretty similar on both product and service. And in elections, I would not want to get into the split because there's some noncomparability between prior year with some Brazil business. So on financial self-service, faster product and service and on security, both product and service are growing at approximately the rate that we have given in our guidance.

And one more last question. You mentioned about orders in financial service would be $100 million in the fourth quarter. Could you give us a feeling of the backlog of orders in both the financial (indiscernible) and the securities listings?

The $100 million is Opteva only.

We generally don't talk about backlog, and the reason we don't is it is not a very good measure of anything, other than maybe how quickly you are able to serve your customers, not necessarily strength of customer demand. But our backlogs are solid. We're very confident of our numbers. Our orders have been great and they're going to continue to remain great.

The backlog is strong in all segments.

Right. The backlog is just when left after --. So you take this -- it's more of a measure of your supply chain efficiency than it is of strength of market. So I think the right measure is orders and our orders have been great. But as a subpoint this to answer your question, our backlog in all areas looks as it should to conform to the guidance we have given.

You mentioned about one more thing about Asia, you're doing great in Asia. What is that you're doing in Asia that is you're not doing in Western Europe or America in that case?

First of all, we're doing great in Americas as well. And the answer to that question is, number one, we're fully certified with Opteva and very strongly positioned in Asia. And number two, the markets in Asia are growing faster than the markets in Europe. We do make Opteva product in our Shanghai plant.

Thanks.

Colin Campbell, Brookside Capital.

Hi, thanks for taking the question. What is the annual cost savings from the restructuring that's being done in Western Europe, and how much of that do you expect to see in 2005 since presumably (multiple speakers) --?

Thank you for that question. And if you're trying to for instance compare back to prior guidance, the answer to that little riddle is, we've included about 3 to 5 cents in savings from the restructuring in this guidance, but we have also, due to the adjustments in Ohio in what they're going to buy, that basically offset that. So if you take the prior guidance and you make those adjustments, you will get our new guidance.

And the 3 to 5 cents is the annual number for '05?

That is correct.

And would the annualized number be larger than that just because presumably you won't see the full benefit in '05 since those actions (MULTIPLE SPEAKERS)

Certainly, that is true.

Great. I'm sorry if I missed it, but did you guys give the percent of orders or shipments that were Opteva by geography?

No, but we have them right here and we were waiting for you to ask. Would you like it on revenue or orders?

Both, actually.

Globally?

By each GO, if you have it.

I can't go over all of that over the phone. Maybe we can give you some further information. But on the order side, starting back in '03, very low single digits in the first two quarters, and then like 30 percent in the third and fourth. And then in the 40s, the 50 and this year’s early part of the year, and the last two quarters, over 60 percent of our ATM product orders were Opteva.

Did it increase between Q3 and Q4?

Is held steady in the low 60s on orders. On the revenue side, it was like zero almost in quarters 1 and 2 in '03. And then 9 and then 24. And then this year, it was 30s in the first quarter and then 40s in the second and third and almost 60 in the fourth. So for the year, revenue was 50 percent Opteva versus 12 percent the year before. And for orders, it was 50-something percent this year versus 21 the year before. So it is definitely taking hold. It does vary a little bit by region and those are all heading for 100 in '06 and ramping up during '05.

Thank you.

Alan Zwickler (ph), First Manhattan Company.

I was going to ask the Asia question.

Thank you, thank you. That's sort of the way it is. You only focus on the problems. We spend a lot of our time only focused on the problems too. But we were very, very pleased with our performance in Latin America, North America and Asia and security and global financial self-service this year. Obviously disappointed in voting and obviously disappointed in Western Europe results. But that tells us something about where to focus our efforts. And we have had dramatic success in Asia. We were very late to the market in Asia some years ago and we have been growing at very, very solid rates. This year, Asia growth rate was approximately 30, which is obviously more than market and we continue to catch up there and we feel very good about the outlook as we go forward.

I just have a couple of questions on that and then a couple of other issues. Is your profit in Asia for selling your machineries similar to the U.S. higher or lower?

We don't want to sort of antagonize any particular group of customers with that kind of talk, but we do very well in Asia. And of course our margins, are low in Western Europe.

Right, okay. And is there any service component that you're seeing with some of these new orders in Asia?

Interestingly, our service business in Asia is smaller than one might hope and it stems from the fact that the installed bases overall in Asia are still pretty small. Also, the way that customers look at service there tends to be somewhat different. And of course all of our competitors and ourselves were very interested in increasing customer's awareness of service issues and they demand higher levels of service and that they do more with the manufacturers like ourselves rather than all of the third-party guys. But our service business is a smaller percentage in Asia than it is say anywhere else, and it is for those reasons.

Could you just go over two other issues -- one is service in the other businesses security in the U.S.? And also, could you give us what the growth rate for '05 in security would be about, excluding the acquisitions? What's your expectation?

Would you rephrase your first question again please?

Yes. If you go through various -- the service component both in security and in ATM U.S., what -- how is that going in general? And then in the security business, what would be growth rate be in '05, excluding the companies that you purchased in '04?

The service business this year, say in financial self-service, grew slower than product. It is has very similar margins. We think this slower growth is largely related to the fact that there has been a very rapid increase in new units out there which are under warranty. Our security service business has grown as fast as our product business. And as far as our security growth next year without deals needing some help.

You can help me -- you can buy something. Let's see. We've given guidance for the year of security growth of 17 to 20.

And this is the number without deals? Yes, we would be in the high single digits 8 to 10, in that range.

And is there any significant new deals that are worth noting or industries or anything that we should be focused on?

What's clear is that our guidance includes no acquisitions, no divestitures, no changes in any kind of structure. As I've mentioned you a few times on the security side, basically our security business is in Australia, China and North America, a little bit basically, and we're trying to build out our European security business. And we are working on several small deals that may help us get that done. But that is not included in any guidance here.

Thank you.

Matt Summerville, McDonald Investments.

Two quick ones on voting. First, as this optical buying optical scans instead of touchscreens thing catches on in a more significant way outside the state of Ohio, first you still feel the opportunity is around $1 billion? And then second, what do you think is the likelihood that '06 deadline on the decertification of punch card and leverage gets pushed to '08?

Hey, Matt, this is Tom, I'll take a stab at that. Relative to moving back the timeline from a federal level, I think we're like everyone else in terms of trying to understand that issue. As it stands right now, it does not appear likely that they're pushing that date back. Certainly, with something of this magnitude, that is always a possibility. But it does not appear that that's likely at this point based upon the context and conversations we have had.

In terms of optical scan and whether that makes a tremendous difference in the opportunity, my feeling is long-term, no. Even the state of Ohio is going to be buying touchscreen systems. And the good news in that is I have one of the few things where I can come out and scan touchscreen system together and you can actually put the results on either one and do things with them on our system because of the way they are configured, it's much easier than some of the competitors, which I think gives us a competitive advantage.

Second is once you get to a precinct and someone has an opportunity to experience a touchscreen, in Ohio, the touchscreen will be used as a backup. So all of the problems they had with the line problems (inaudible) touch cards, people use that touchscreen system. So I think that's going to expose people to touchscreens. And with or without the printer, they'll have experience that someone did in Georgia and Maryland and other places that have used them, which means they're going to fall in love with them. And I think over time, that operating costs associated with an optical scan is greater than it is with a touchscreen. So from an operating cost standpoint on an annual basis, there is a compelling reason to go to touchscreen.

So I don't think the Ohio decision is going to have a dramatic impact on other states. They were going to look at the same thing very differently. And secondly, if they do run optical scans, they're going to need more paper. We have capabilities of delivering things and it's a good business model from our current revenue stream there. And I truly ,believe no matter who you talk to from an election official standpoint, 95 percent of them eventually want to migrate to touchscreen. So as long as I can get one per precinct, I think that gives us a good long-term path for the right answer and to a very good business model for us.

I appreciate that. And then Greg, did you buy back any stock in the fourth quarter? And then can you talk about how much is left under current authorizations and maybe what your plans are for '05?

Sure, Matt. We did not buy back any in the fourth quarter. There's 1.770 million I think under the current authorization. And I think as we have talked about previously, there will be buyers, modest buyers of stock throughout the year.

Lastly, Wally, as far as, if you get back to I think Tom's question on the mix between shipments and orders on Opteva, if Opteva right now is about 60 percent of revenue, I guess I'm still struggling when we get back to very little if any margin expansion in the ATM business in '05 versus '04. I thought one of the high points of the whole Opteva platform is that it would allow you to more than outrun things like price degradation or maybe what hopefully is a near-term spike in steel prices. Can you just talk more about that?

Well, I think people consistently underestimate how much work has to be done to hold margins in a negative pricing environment, and that would be worth taking a serious look at. We're very proud of the fact that we have the highest fully absorbed margins in our industry and that we're going to remain in exactly that position. And we are not counting on OP margin expansion, but certainly it could happen if prices stabilize or material costs retract a little bit. But with down pricing, just think about it. You're doing a couple of billion dollars worth of business, you have an $80 million problem before you start just from price. And then you add in labor cost increases, then the next thing you know, you're nine digits. And then you better be doing a lot just to stay steady. And so four, over the last four years, we have either been steady or up every year in financial self-service on a fully absorbed basis. And while some people might think those margins should go up, I think we're pretty pleased with what we've been able to accomplish.

I appreciate the color, thank you.

We've also, in that same environment, gained a very substantial amount of share. We've gained 4 or 5 points of global share over the last five years. And the hold margins increased share build out your global business, I think that is certainly more than adequately performance.

Thanks again, Wally.

Charlie Brady, Hibernia Southcoast Capital.

I don't know if I missed it earlier. Can you talk about what your CapEx number would be in '05?

Yes. When you include rotables (ph), it will be in the 60-plus range, Charlie.

We have absolutely no major capital expenditure requirements. It's business as usual. We have enough plants, and so we will be tooling.

When you think about it, Charlie, in terms of cash flow, you ought to think about depreciation and CapEx kind of offsetting each other.

Okay, thank you.

Sineol Odoptura, Bramwell (ph) Capital Management.

Just a follow-up. On your newest print (ph), you mentioned that the market is good. All the competitors can exist in the market to do well in the current year '06. But at the same time, you mentioned there are continued pricing pressures. Could you help me understand where are those pricing pressures? Is it in product, (indiscernible) and in what regions?

I'm not sure I caught all of that, but the world is full of aggressive competitors, the world is full of major customers who are very aggressive in terms of trying to get the best prices they can. There's technology application to what we do both on product and service and software that allows for good companies to get cost reduction. And all of those driving factors come into play here.

Okay, thanks.

We are standing by with no further questions at this time. I'd like to turn the conference back over to management for any additional or closing comments.

Thank you for joining us to today. And as always, if you have any additional or follow-up questions, you can contact me directly.

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation. You may disconnect at this time.