NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation The Consolidated Financial Statements include the accounts of the company and its wholly and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Statements of Cash Flows For the purposes of the Consolidated Statements of Cash Flows, the company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.

International operations The financial statements of the company's international operations are measured using local currencies as their functional currencies, with the exception of Venezuela, Mexico and Argentina, which are measured using the U.S. dollar as their functional currency due to their hyperinflationary economies. The company translates the assets and liabilities of its non-U.S. subsidiaries at the exchange rates in effect at year-end and the results of operations at the average rate throughout the year. The translation adjustments are recorded directly as a separate component of shareholders' equity, while transaction gains (losses) are included in net income. Sales to customers outside the United States approximated 37.1 percent of net sales in 2002, 43.3 percent of net sales in 2001 and 43.1 percent in 2000.

Financial instruments The carrying amount of financial instruments including cash and cash equivalents, trade receivables and accounts payable approximated fair value as of December 31, 2002 and 2001 because of the relatively short maturity of these instruments.

Trade receivables and revenue recognition Revenue is recognized based on the terms of the sales contract. The majority of sales contracts for products are written with selling terms "F.O.B. factory." However, certain sales contracts may have other terms such as "F.O.B. destination" or "upon installation." The company recognizes revenue on these contracts when the appropriate event has occurred. Service revenue is recognized in the period service is performed and subject to the individual terms of the service contract.

The concentration of credit risk in the company's trade receivables with respect to the banking and financial services industries is substantially mitigated by the company's credit evaluation process, reasonably short collection terms and the geographical dispersion of sales transactions from a large number of individual customers. The company maintains allowances for potential credit losses, and such losses have been minimal and within management's expectations. The allowance for doubtful accounts is estimated based on various factors including revenue, historical credit losses and current trends.

Inventories Domestic inventories are valued at the lower of cost or market applied on a first-in, first-out basis and foreign inventories are valued using the average cost method. As the company launches new products and rationalizes its product offerings, inventory related to discontinued product is written down to salvage value.

Depreciation and amortization Depreciation of property, plant and equipment is computed using the straight-line method for financial statement purposes. Accelerated methods of depreciation are used for federal income tax purposes. Amortization of leasehold improvements is based upon the shorter of original terms of the lease or life of the improvement.

Research, development and engineering Total research, development and engineering costs charged to expense were $63,887, $64,245 and $60,677 in 2002, 2001 and 2000, respectively.

Advertising costs Advertising costs are expensed as incurred. Total advertising costs charged to expense were $12,227, $12,930 and $13,913 in 2002, 2001 and 2000, respectively.

Other assets Other assets consist primarily of pension assets, computer software, customer demonstration equipment, deferred tooling, investment in service contracts, retained interest in DCCF, finance receivables and certain other assets. Where applicable, these assets are stated at cost and, if applicable, are amortized ratably over a period of three to five years.

Goodwill Goodwill is the cost in excess of the net assets of acquired businesses. These assets are stated at cost and, effective January 1, 2002, are no longer amortized, but evaluated at least annually for impairment, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 establishes accounting and reporting standards for acquired goodwill and other intangible assets in that goodwill and other intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. The year ended 2001 earnings per share of $0.93 included goodwill amortization of $10,287, net of tax. Amortization expense related to goodwill was $15,354 and $15,978 for the years ended December 31, 2001 and 2000.

Under SFAS No. 142, the company was required to test all existing goodwill for impairment as of January 1, 2002, on a "reporting unit" basis. The reporting units were determined on a geographical basis that combine two or more component-level reporting units with similar economic characteristics within a single reporting unit.

A fair value approach is used to test goodwill for impairment. An impairment charge is recognized for the amount, if any, by which the carrying amount of goodwill exceeds its implied fair value. Fair values of reporting units and the related implied fair values of their respective goodwill were established using discounted cash flows. When available and as appropriate, comparative market multiples were used to corroborate results of the discounted cash flows.

In June 2002, the company completed the transitional goodwill impairment test in accordance with SFAS No. 142, which resulted in a non-cash charge of $38,859 ($33,147 after tax, or $0.46 per share) and is reported in the caption "Cumulative effect of a change in accounting principle." All of the charge related to the company's businesses in Latin America. The primary factor that resulted in the impairment charge was the difficult economic environment in the Latin America market. No impairment charge was appropriate under previous goodwill impairment standards, which were based on undiscounted cash flows.

The company performed the annual impairment test as of December 31, 2002, resulting in no impairment.

Had goodwill amortization not been recorded in the years ended December 31, 2001 and 2000, net income would have increased to $77,180 and $147,624; and net income per share to $1.08 and $2.07 on a diluted basis, respectively.

The changes in carrying amount of goodwill for the years ended December 31, 2001 and 2002, are as follows:

Deferred income Deferred income is largely related to service contracts and is recognized for customer service collections in advance of the period in which the service will be performed and is recognized in income on a straight-line basis over the contract period.

Stock-based compensation Compensation cost is measured on the date of grant only if the current market price of the underlying stock exceeds the exercise price. The company provides pro forma net income and pro forma net earnings per share disclosures for employee stock option grants made in 1995 and subsequent years as if the fair value based method had been applied in accordance with SFAS No. 123, Accounting for Stock Based Compensation.

Taxes on income Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Earnings per share Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if common stock equivalents were exercised and then shared in the earnings of the company.

Comprehensive income The company displays comprehensive income in the Consolidated Statements of Shareholders' Equity and accumulated other comprehensive loss separately from retained earnings and additional capital in the Consolidated Balance Sheets and Statements of Shareholders' Equity. Items considered to be other comprehensive loss include adjustments made for foreign currency translation (under SFAS No. 52), pensions (under SFAS No. 87) and unrealized holding gains and losses on available-for-sale securities (under SFAS No. 115).

Components of accumulated other comprehensive loss consist of the following:

Translation adjustments are not booked net of tax. Those adjustments are accounted for under the indefinite reversal criterion of APB Opinion 23, Accounting for Income Taxes--Special Areas.

Use of estimates in preparation of Consolidated Financial Statements The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications The company has reclassified the presentation of certain prior-year information to conform to the current presentation.

NOTE 2: SECURITIZATIONS
On March 30, 2001, Diebold Credit Corporation (DCC), a wholly owned consolidated subsidiary, entered into an agreement to sell, on an ongoing basis, a pool of its lease receivables to a wholly owned, unconsolidated, qualified special purpose subsidiary, DCC Funding LLC (DCCF). DCC sold $95,610 of lease receivables on March 30, 2001 to DCCF. Under a 364-day facility agreement, DCCF sold and, subject to certain conditions, may from time to time sell an undivided fractional ownership interest in the pool of receivables to a multi-seller receivables securitization company (Conduit). Upon sale of the receivables to the Conduit, DCCF holds a subordinated interest in the receivables and services, administers and collects the receivables. DCCF and the Conduit have no recourse to DCC's other assets for failure of debtors to pay when due. Costs associated with the sale of the receivables were $457 as of December 31, 2001.

DCC has a retained interest in the transferred receivables in the form of a note receivable from DCCF to the extent that they exceed advances to DCCF by the Conduit. DCC initially and subsequently measures the fair value of the retained interest at management's best estimate of the discounted expected future cash collections on the transferred receivables. Actual cash collections may differ from these estimates and would directly affect the fair value of the retained interests. The initial transaction on March 31, 2001, resulted in DCC receiving proceeds from securitization of $71,400. DCC recorded an after-tax gain of $2,300 on the sale of the receivables. Subsequent sales of lease receivables totaling $10,689 have resulted in additional cash proceeds of $8,500 and gains of $869. The fair value of the retained interest of $8,236 and $28,086 is included in other assets in the Consolidated Balance Sheets as of December 31, 2002 and 2001.

NOTE 3: INVESTMENT SECURITIES
At December 31, 2002 and 2001, the investment portfolio was classified as available-for-sale. The marketable debt and equity securities are stated at fair value. The fair value of securities and other investments is estimated on quoted market prices.

The company's investment securities, excluding insurance contracts are summarized as follows:

Realized losses from sale of securities were $(1,033), ($865) and ($3,183) in 2002, 2001 and 2000, respectively. Proceeds from the sale of available-for-sale securities were $5,751, $13,457 and $11,446 in 2002, 2001 and 2000, respectively. Gains and losses are determined using the specific identification method.

NOTE 4: INVENTORIES
Major classes of inventories at December 31 are summarized as follows:

NOTE 5: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 is summarized as follows:

*Included in construction in progress is the Oracle global information technology platform.

NOTE 6: FINANCE RECEIVABLES
The components of finance receivables for the net investment in sales-type leases are as follows:

Future minimum lease receivables due from customers under sales-type leases as of December 31, 2002 are as follows:

NOTE 7: SHORT-TERM FINANCING
The company's short-term financing is as follows:

1 106,200 euro (€) borrowing translated at the applicable 12/31/2002 spot rate; €118,600 borrowing translated at the applicable 12/31/2001 spot rate.
2 17,500 Australian dollar (AUD) borrowing translated at the applicable 12/31/2002 spot rate; AUD 12,900 borrowing translated at the applicable 12/31/2001 spot rate.

The company has available credit facilities with domestic and foreign banks for various purposes. The amount of available committed loans at December 31, 2002 that remained available was $85,119, €43,811 ($45,919, translated), and 27,500 Brazilian real ($7,783, translated). In addition to the committed lines of credit, $25,000 of an uncommitted line of credit remained available as of December 31, 2002.

The average short-term rate on the bank credit lines was 3.01 percent, 4.90 percent and 6.72 percent at December 31, 2002, 2001 and 2000, respectively. Interest on short-term financing charged to expense for the year ended December 31 was $7,462, $10,653 and $15,383 for 2002, 2001 and 2000, respectively.

The company's short-term financing agreements contain various restrictive covenants, including debt to capitalization and interest coverage ratios. As of December 31, 2002, the company is in compliance with all restrictive covenants.

NOTE 8: REALIGNMENT, SPECIAL AND OTHER CHARGES
During 2001, the company recognized a pretax charge of $109,893 ($73,628 after tax or $1.03 per diluted share) for expenses related to a corporate-wide realignment program as well as other charges. Components of the charge were as follows: a special charge of $31,404 against inventory related to discontinued products that resulted from a rebalancing of the company's global manufacturing strategy; realignment charges of $42,269 resulting from staff reductions, the closing of various facilities, the exiting of certain product lines, including the sale of MedSelect and actions taken to further integrate the company's European operations; $29,861 in losses incurred in the write-off of the InnoVentry investment and related receivables; and $6,360 in other charges, which are included in selling and administrative expense.

The following are explanations of the realignment, special and other charges described above:

During 2001, staff reductions resulted in 856 involuntary employee terminations and a voluntary early retirement program involving 153 participants. Severance and other employee costs charged to expense in 2001 in connection with the program amounted to $13,987 with an additional $7,546 of expense being recognized for the enhanced early retirement benefits. As of December 31, 2002, 912 positions were eliminated with the remaining staff reductions to take place during 2003.

The loss incurred in connection with the closing of facilities amounted to $5,346, while the costs associated with the exit of certain product lines including the sale of MedSelect amounted to $10,354 in 2001. MedSelect, a wholly owned subsidiary, was a supplier of inventory control solutions to the medical industry. The assets of the subsidiary were sold in July 2001 and ancillary product lines were sold in September 2001 to Medecorx, Inc.

During 2001, losses incurred due to the write-off of the InnoVentry investment amounted to $20,000, which is reflected in investment expense. InnoVentry engaged in the development and deployment of self-service check cashing technology. Due to a depletion of its capital resources, InnoVentry ceased operations in the third quarter of 2001. This prompted the company to write off its investment as well as certain receivables amounting to $9,861, which were charged to selling and administrative expense. The remainder of the other charges totaling $6,360 were principally related to costs associated with bad debt write-offs, loss contingencies and other miscellaneous charges and were included in selling and administrative expense.

Approximately $82,769 of the $109,893 realignment, special and other charges incurred in 2001 were noncash items. Realignment expense of $697 and $5,450 remained accrued as of December 31, 2002 and 2001, respectively. The remainder of the accrual will be paid out early in 2003.

The following table shows the realignment charge and accrual and related activity:

NOTE 9: OTHER LONG-TERM LIABILITIES
Included in other long-term liabilities are bonds payable and a financing agreement. Bonds payable at December 31 consisted of the following:

In 1997, three industrial development revenue bonds were issued on behalf of the company. The proceeds from the bond issuances were used to construct new manufacturing facilities in the United States. The company guaranteed the payments of principal and interest on the bonds by obtaining letters of credit. Each industrial development revenue bond carries a variable interest rate, which is reset weekly by the remarketing agents. The bonds can be called at any time. The company is in compliance with the covenants of its loan agreements and believes that the covenants will not restrict its future operations. One of the manufacturing facilities was disposed of in 2002, causing one of the bonds to become due April 1, 2003. As a result, this bond was reclassified to other current liabilities as of December 31, 2002.

The financing agreement was entered into in July 2002 with Fleet Business Credit, LLC in order to finance the purchase of an Oracle global information technology platform. The financing agreement of $24,862 is payable in quarterly installments of $2,128, which includes interest at 5.75 percent, through May 2007.

NOTE 10: SHAREHOLDERS' EQUITY
On the basis of amounts declared and paid, the annualized quarterly dividends per share were $0.66, $0.64 and $0.62 in 2002, 2001 and 2000, respectively.

In the following chart, the company provides net income and basic earnings per share reduced by the pro forma amounts calculating compensation cost for the company's fixed stock option plan under the fair value method. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for 2002, 2001 and 2000, respectively: risk-free interest rates of 4.2, 4.9 and 6.4 percent; dividend yield of 1.9, 1.7 and 1.6 percent; volatility of 42, 41 and 31 percent; and average expected lives of six years for management and four years for executive management and nonemployee directors.

Fixed stock options Under the 1991 Equity and Performance Incentive Plan (1991 Plan) as amended and restated, common shares are available for grant of options at a price not less than 85 percent of the fair market value of the common shares on the date of grant. The exercise price of options granted since January 1, 1995, was equal to the market price at the grant date, and, accordingly, no compensation cost has been recognized. In general, options are exercisable in cumulative annual installments over five years, beginning one year from the date of grant. In February 2001, the Plan was amended to extend the term of the Plan for ten years beginning April 2, 2001 and increase the numbers of shares available in the Plan by 3,000,000 in addition to other miscellaneous administrative matters. The number of common shares that may be issued or delivered pursuant to the 1991 Plan is 7,103,446, of which 3,667,715 shares were available for issuance at December 31, 2002. The 1991 Plan will expire on April 2, 2011.

Under the 1997 Milestone Stock Option Plan (Milestone Plan), options for 100 common shares were granted to all eligible salaried and hourly employees. The exercise price of the options granted under the Milestone Plan was equal to the market price at the grant date, and, accordingly, no compensation cost has been recognized. In general, all options were exercisable beginning two years from the date of grant. The number of common shares that could be issued or delivered pursuant to the Milestone Plan was 600,000. The Milestone Plan expired on March 2, 2002.

The following is a summary with respect to options outstanding at December 31, 2002, 2001 and 2000, and activity during the years ending on those dates:

The following table summarizes pertinent information regarding fixed stock options outstanding and options exercisable at December 31, 2002:

Restricted share grants The 1991 Plan provides for the issuance of restricted shares to certain employees. Restricted shares totaling 29,330 were issued during the current year and 247,042 restricted shares were outstanding as of December 31, 2002. The shares are subject to forfeiture under certain circumstances. Unearned compensation representing the fair market value of the shares at the date of grant will be charged to income over the three to seven-year vesting period. During 2002, 2001 and 2000, $924, $1,412 and $1,554 was charged to expense relating to the Plan.

Performance share grants The 1991 Plan provides for the issuance of common shares based on the achievement of certain management objectives, as determined by the Board of Directors each year. Each performance share that is earned out entitles the holder to the then current value of one common share. All of the management objectives are calculated over a three-year period. No amount is payable unless the management objectives are met. During 2002, 207,900 performance share awards were granted to certain employees. The compensation cost that has been charged against income for the performance-based share grant plan was $1,786, $0 and $368 in 2002, 2001 and 2000, respectively.

In addition, the Board of Directors elected to issue a one-time award totaling 24,800 shares in 2002 that will be paid out after seven years of employment, or earlier, if targeted stock performance levels are achieved, or in the event of death, disability or retirement. Compensation expense charged against income for these awards during 2002 was not material to the financial statements.

Rights Agreement On January 28, 1999 the Board of Directors announced the adoption of a new Rights Agreement that provided for Rights to be issued to shareholders of record on February 11, 1999. The description and terms of the Rights are set forth in the Rights Agreement, dated as of February 11, 1999, between the company and the Bank of New York, as Agent. Under the Rights Agreement, the Rights trade together with the common shares and are not exercisable. In the absence of further Board action, the Rights generally will become exercisable and allow the holder to acquire common shares at a discounted price if a person or group acquires 20 percent or more of the outstanding common shares. Rights held by persons who exceed the applicable threshold will be void. Under certain circumstances, the Rights will entitle the holder to buy shares in an acquiring entity at a discounted price. The Rights Agreement also includes an exchange option. In general, after the Rights become exercisable, the Board of Directors may, at its option, effect an exchange of part or all of the Rights (other than Rights that have become void) for common shares. Under this Option, the company would issue one common share for each Right, subject to adjustment in certain circumstances. The Rights are redeemable at any time prior to the Rights becoming exercisable and will expire on February 11, 2009, unless redeemed or exchanged earlier by the company.

NOTE 11: EARNINGS PER SHARE
[In thousands, except per share amounts]

The following data show the amounts used in computing earnings per share and the effect on the weighted-average number of shares of dilutive potential common stock.

Fixed stock options of 530, 1,303 and 1,383 on common shares in 2002, 2001 and 2000, respectively were not included in computing diluted earnings per share, because their effects were antidilutive.

NOTE 12: PENSION PLANS AND POSTRETIREMENT BENEFITS
The company has several pension plans covering substantially all United States employees. Plans covering salaried employees provide pension benefits that are based on the employee's compensation during the 10 years before retirement. The company's funding policy for those plans is to contribute annually at an actuarially determined rate. Plans covering hourly employees and union members generally provide benefits of stated amounts for each year of service. The company's funding policy for those plans is to make at least the minimum annual contributions required by applicable regulations.

Employees of the company's operations in countries outside of the United States participate to varying degrees in local pension plans, which in the aggregate are not significant.

Approximately 90 percent of the plan assets at September 30, 2002 and 2001 were invested in listed stocks and investment-grade bonds.

Minimum liabilities have been recorded in 2002 and 2001 for the plans whose total accumulated benefit obligation exceeded the fair value of the plan's assets.

In addition to providing pension benefits, the company provides healthcare and life insurance benefits for certain retired employees. Eligible employees may be entitled to these benefits based upon years of service with the company, age at retirement and collective bargaining agreements. Presently, the company has made no commitments to increase these benefits for existing retirees or for employees who may become eligible for these benefits in the future. Currently there are no plan assets and the company funds the benefits as the claims are paid.

The effect of a one-percentage-point annual increase in the assumed healthcare cost trend rate would increase the service and interest cost components of the healthcare benefits by $122, while a one-percentage-point decrease in the trend rate would decrease the service and interest components of the healthcare benefits by $109.

The postretirement benefit obligation was determined by application of the terms of medical and life insurance plans together with relevant actuarial assumptions and healthcare cost trend rates. For 2003, medical cost trend rates were projected at 8.5 percent and prescription drug cost trend rates were projected at 14.0 percent, with both cost trend rate assumptions gradually declining to 4.75 percent by 2009 and remaining at that level thereafter. The effect of a one-percentage-point annual increase in these assumed healthcare cost trend rates would increase the healthcare accumulated postretirement benefit obligation by $1,856, while a one-percentage-point decrease in the trend rate would decrease the accumulated postretirement benefit obligation by $1,662.

The following table sets forth the change in benefit obligation, change in plan assets, funded status, Consolidated Balance Sheet presentation and relevant assumptions for the company's defined benefit pension plans and health and life insurance postretirement benefits at December 31:

The annual increases to the salary scale changed from 5.0 percent in 2001 and 2000 to 3.0 percent in 2002, based on the company's estimated projections.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $(53,852), $(51,976) and $15,337, respectively, as of December 31, 2002, and $(51,874), $(48,607) and $19,182, respectively, as of December 31, 2001. The amounts included within other comprehensive loss arising from a change in the additional minimum pension liability, net of tax, were $(3,012) and $(1,628) in 2002 and 2001, respectively. In 2001, as a part of the corporate realignment plan, the company offered a Voluntary Early Retirement Program (VERP) to qualifying employees, which resulted in a one-time additional charge of $4,507 in pension and $2,495 in health and life benefits expense.

The company offers an employee 401(k) Savings Plan (Savings Plan) to encourage eligible employees to save on a regular basis by payroll deductions, and to provide them with an opportunity to become shareholders of the company. Under the Savings Plan for the year ended December 31, 2002, the company matched 60 percent of a participating employee's first 3 percent of contributions and 30 percent of a participating employee's second 3 percent of contributions. Total company match was $6,813, $6,100 and $7,155 in 2002, 2001 and 2000, respectively.

NOTE 13: LEASES
The company's future minimum lease payments due under operating leases for real and personal property in effect at December 31, 2002 are as follows:

Rental expense under all lease agreements amounted to approximately $44,474, $40,032 and $36,361 for 2002, 2001 and 2000, respectively.

NOTE 14: INCOME TAXES
Income tax expense attributable to income from continuing operations consists of:

In addition to the 2002 income tax expense of $86,250, certain income tax benefits of $2,511 were allocated directly to shareholders' equity and $5,712 to cumulative effect of a change in accounting principle.

A reconciliation of the difference between the U.S. statutory tax rate and the effective tax rate is as follows:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the company's deferred tax assets and liabilities are as follows:

At December 31, 2002, the company's international subsidiaries had deferred tax assets relating to net operating loss carryforwards of $8,451, $2,247 which expires in years 2004 through 2012, and $6,204 which has an indefinite carryforward period. The company recorded a valuation allowance to reflect the estimated amount of deferred tax assets which, more likely than not, will not be realized. The valuation allowance relates to certain international net operating losses and other international deferred tax assets.

During 2002, the company accepted an offer by the IRS to settle its previously disclosed dispute on a claim concerning the deductibility of interest on corporate-owned life insurance from 1990 to 1998. This resulted in an after-tax charge of $26,494. As of December 31, 2002, the company paid approximately $34,000 related to this claim and expects a refund of approximately $6,000. No other years after 1998 are subject to this claim. Of the $26,494, net of tax charge, $14,972 ($10,454, net of tax) was charged to interest expense and $16,040 was charged to taxes on income.

NOTE 15: COMMITMENTS AND CONTINGENCIES
At December 31, 2002, the company was a party to several lawsuits that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the company's financial position or results of operations. In management's opinion, the financial statements would not be materially affected by the outcome of any present legal proceedings, commitments, or asserted claims.

NOTE 16: SEGMENT INFORMATION
The company has defined its segments into its three main sales channels: Diebold North America (DNA), Diebold International (DI) and Voting and Other, which combines several of the company's smaller sales channels. These sales channels are evaluated based on revenues from customers and operating profit contribution to the total corporation. A reconciliation between segment information and the Consolidated Financial Statements is also disclosed. All income and expense items below operating profit are not allocated to the segments and are not disclosed. Revenue by geography and revenue by product and service solution are also disclosed.

The DNA segment sells financial and retail systems and also services financial, retail and medical systems in the United States and Canada. The DI segment sells and services financial and retail systems over the remainder of the globe. The segment called Voting and Other includes the operating results of Diebold Election Systems, Inc. (DESI) beginning in 2002, as well as corporate administrative costs. Also included in this segment are the results of the MedSelect business, which was sold in July 2001 as a part of the company's realignment plan. See Note 8 for additional information pertaining to the realignment plan. Each of the sales channels buys the goods it sells from the company's manufacturing plants through intercompany sales that are eliminated on consolidation, and intersegment revenues are not significant. Each year, intercompany pricing is agreed upon, which drives sales channel operating profit contribution. As permitted under SFAS No. 131, certain information not routinely used in the management of these segments, information not allocated back to the segments, or information that is impractical to report, is not shown. Items not allocated are as follows: interest revenue, interest expense, equity in the net income of investees accounted for by the equity method, income tax expense or benefit, extraordinary items, significant noncash items and total assets.

More than 90 percent of the company's customer revenues are derived from the sale and servicing of financial systems and equipment. The company had no customers in 2002, 2001 and 2000 that accounted for more than 10 percent of total net sales.

*Voting revenue for 2000 of $106,535 was related to the Brazilian operations and was included in the results for DI.

NOTE 17: ACQUISITIONS/DIVESTITURES
On September 30, 2002, the company finalized the asset sale of 1,200 cash dispensers that it owned and operated to Cardtronics. The agreement included the sale of hardware and related replacement contracts. The sale resulted in a gain of $1,023, net of tax or approximately $0.01 per share.

On July 15, 2002, the company announced the acquisition of Sersi Italia, a company specializing in multivendor customer service and closed-circuit television monitoring of automated teller machines (ATMs) for banks and post offices throughout Italy. The purchase price was $2,000 and was paid in cash in July 2002. Goodwill and other intangibles acquired in the transaction amounted to $2,092. The results of the acquisition, which were included in the 2002 year-end Consolidated Financial Statements, were not material.

On January 22, 2002, the company announced the acquisition of Global Election Systems, Inc. (GES), now known as Diebold Election Systems, Inc. (DESI), a manufacturer and supplier of electronic voting terminals and solutions. GES was acquired with a combination of cash and stock for a total purchase price of $24,667. A cash payment of $4,845 was made in January 2002 with the remaining purchase price being paid with company stock valued at $19,822. Goodwill and other intangibles acquired in the transaction amounted to $41,029. DESI reported revenue of $111,004 for the year ended December 31, 2002. The acquisition was accretive to earnings per share and operating profit.

On October 25, 2001, the company acquired select properties and operations of Mosler Inc. (Mosler) in the United States and Canada, including the physical and electronic security assets, currency processing equipment, certain service and support activities, and related properties. The acquisition was completed for approximately $33,382 including legal and professional fees. Goodwill acquired in the transaction amounted to $14,351. The results of the acquisition, which were included in the 2001 year-end Consolidated Financial Statements, were not material.

On April 17, 2000, the company announced the completion of its acquisition of the financial self-service assets and related development activities of European-based Groupe Bull and Getronics NV. The businesses acquired include ATMs, cash dispensers, other self-service terminals and related services primarily for the global banking industry. The acquisition was completed for approximately $147,600. Goodwill that was acquired in the transaction amounted to $141,641 and was being amortized over a 20-year life. The reported revenue from the acquisition was $148,785 for the period of April 17, 2000 through December 31, 2000.

All of the acquisitions mentioned above have been accounted for as purchase business combinations, which means the purchase prices have been allocated to assets acquired and liabilities assumed and they are based upon their respective fair values and the excesses have been allocated to goodwill. Effective January 1, 2002, the company no longer amortizes goodwill or other intangibles with indefinite lives due to the adoption of SFAS No. 142, which requires such assets to be analyzed periodically for impairment.

NOTE 18: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which for the company was effective January 1, 2001. SFAS No. 133 established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recognized on the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 required that changes in the derivative instrument's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative instrument's gains and losses to partially or wholly offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. The cumulative effect of adopting SFAS No. 133 as of January 1, 2001 was not material to the company's consolidated financial statements.

Since a substantial portion of the company's operations and revenue arise outside of the United States, financial results can be significantly affected by changes in foreign exchange rate movements. The company's financial risk management strategy uses forward contracts to hedge certain foreign currency exposures. Such contracts are designated at inception to the related foreign currency exposures being hedged. The company's intent is to offset gains and losses that occur on the underlying exposures, with gains and losses on the derivative contracts hedging these exposures. The company does not enter into any speculative positions with regard to derivative instruments. The company's forward contracts generally mature within six months.

The company records all derivatives on the balance sheet at fair value. For derivative instruments not designated as hedging instruments, changes in their fair values are recognized in earnings in the current period. Results from settling the company's forward contracts were not material to the financial statements as of December 31, 2002 and 2001, respectively.

The company manages its debt portfolio by using interest rate swaps to achieve an overall desired position of fixed and variable rates. In 2001, the company entered into the following interest rate swap contracts that remained outstanding at December 31, 2002:

Interest rate swaps that relate to debt held by the company convert $50,000 notional amount from variable rates to fixed rates. The variable rates for these contracts at December 31, 2002, based on three-month LIBOR rates, ranged from 1.40 percent to 1.89 percent versus fixed rates of 4.36 percent and 4.72 percent. The variable rates for these contracts at December 31, 2001, ranged from 2.01 percent to 2.03 percent versus fixed rates of 4.36 percent and 4.72 percent. These contracts mature throughout 2003.

Based on current interest rates for similar transactions, the fair value of all interest rate swap agreements is not material to the financial statements as of December 31, 2002 and 2001.

Credit and market risk exposures are limited to the net interest differentials. The net payments or receipts from interest rate swaps are recorded as part of interest expense and are not material to the financial statements for the years ended December 31, 2002 and 2001.

The company is exposed to credit loss in the event of nonperformance by counterparties on the above instruments, but does not anticipate nonperformance by any of the counterparties.

NOTE 19: SUBSEQUENT EVENT
On January 23, 2003, the company announced the acquisition of Data Information Management Systems, Inc. (DIMS), one of the largest voter registration systems companies in the United States. DIMS was purchased for $5,840 in company stock and will be integrated within DESI as a wholly owned subsidiary.

NOTE 20: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
See "Comparison of Selected Quarterly Financial Data (Unaudited)"in this annual report.