Diebold Reports 4Q Loss But Lift from U.S. Regionals

Diebold Inc. said a goodwill impairment stemming from acquisitions it made in Europe a decade ago underlies a fourth-quarter loss, though it is having greater success in the U.S. with smaller banks.

The North Canton, Ohio, automated teller machine maker said overseas issues have caused it to "rethink" its distributor relationships. Diebold in the quarter wrote off all of the goodwill related to its 2000 acquisitions.

"Our service operation [abroad] isn't performing at the level we are everywhere else in the world," said Thomas Swidarski, the company's chief executive, during an earnings call. "Places like Turkey and other business we won [at] very low margin."

In 2000, Diebold spent about $160 million to buy the ATM assets of Getronics NV in Amsterdam and Groupe Bull in Paris.

These purchases were meant to help it grow beyond the sales and distribution capabilities it had with InterBold, its joint venture with International Business Machines Corp. IBM had left that venture in 1997.

In the fourth quarter, Diebold said, it took $1.2 million in restructuring charges net of tax and $167.5 million in net nonroutine and impairment charges. It reported a loss of $118.8 million for the quarter, down from a profit of $3.2 million a year earlier. Diebold said its revenue grew 9%, to about $791 million, in the same period.

When it made the acquisitions in 2000, Diebold said, it was the No. 3 player in Europe. It remains so today, behind NCR Corp. and Wincor Nixdorf AG, according to Wedbush analyst Gil B. Luria.

Diebold said Monday that it would focus on direct relationships with big banks in countries where it can be more competitive.

"We certainly had our share of challenges in the recent past, which, frankly, has been frustrating for me," said Swidarski. "It can be difficult to get a clear picture of the company in light of some of these complex issues. We understand the challenges we're facing, and we're doing the right things to get these issues behind us."

However, observers were more interested in — and more pleased with — Diebold's domestic business, in particular its recent successes with regional banks. Diebold's share price rose Monday 2.9% to $33.75.

"The key segment for Diebold is small banks in the U.S.," Luria said. "It's doing better than anyone expected."

As smaller retail banks consider upgrading their ATMs, they are increasingly interested in security, Luria said.

Diebold has also had significant software success with big, retail banking players. Last month, it said Bank of America Corp. was upgrading most of its ATMs with a Diebold product that could help the machines fight viruses and more effectively do their own maintenance. This system is being deployed in more than 17,000 B of A machines.

Last year, Diebold said it had been give a contract to provide security at World Trade Center Tower 4 in New York and in the entire transportation hub beneath the World Trade Center site. In late October, Diebold said these projects were expected to bring in about $30 million of revenue.

Deposit automation is still one of Diebold's strongest sells, Swidarski said.

"I remain very optimistic about growth in the North American market and our ability to capture significant portions of the deposit automation opportunity," he said.

Swidarski added that he expects his company will serve more than half the financial services market by yearend.