Diebold, Incorporated

1859–1992

In the wake of the 1871 Great Chicago Fire, natural disaster proved a boon for Diebold Bahmann & Co. when word spread that all 878 Diebold safes in the area, along with their contents, survived the flames. The Diebold safe's reputation as a haven from the elements came full circle more than a century later when Hurricane Andrew devastated much of South Florida in August 1992. A bank executive in Homestead, Florida, the city that bore the worst of the storm, reported weathering 160-mile-per-hour winds in a Diebold safe. Over the years, Diebold, Incorporated has diversified considerably, becoming the international leader in the production, sale, and servicing of automated teller machines (ATMs) and pioneering in such areas as campus card systems, smart card systems, and automated medication dispensing systems, while continuing to make safes, office equipment, and a variety of security and surveillance systems.

Early History

Charles Diebold first organized Diebold Bahmann in 1859, as a manufacturer of safes and vaults in Cincinnati, Ohio. In 1872 Diebold had outgrown its space in Cincinnati and transferred plant and headquarters to Canton, Ohio, where most of the post-fire orders were filled. In 1874 Wells Fargo of San Francisco chose Diebold to make what would be the world's largest vault. The following year, a special 47-car train transported the 32-foot-long, 27-foot-wide, 12-foot-high vault to San Francisco. In 1876 the company was incorporated under Ohio law as Diebold Safe & Lock Co. Following the Wells Fargo feat, Diebold continued to traffic in the colossal, selling the largest-ever commercial bank vault to Detroit National Bank in 1921. In 1968 the First National Bank of Chicago purchased the largest-ever double vault doors, with a combined weight of 87

tons. Size aside, the company's abiding interest lay in developing equipment to stay one step ahead of bank robbers. In 1890 the company introduced manganese steel doors that were billed as TNT-proof. Through time, combination locks replaced keys, which could be copied. Safety hinges were introduced along with locks that jammed automatically after banking hours.

The company made a splash in 1954 by putting visually pleasing vault doors on the market. In the process of mechanically redesigning its bank vault equipment, the company canvassed bankers for suggested improvements to the standard. The overwhelming answer was that a plain slab of steel, particularly on the inside of the door--the side customers see--was an unworthy complement to a bank's carefully decorated public spaces. The company then hired Charles Deaton, a St. Louis industrial designer, to retool both the interior and exterior of the vaults. Despite the fact that the newly designed vaults cost around twice as much as the simpler models, they dominated new orders from customers.

Began to Diversify in the 1930s

While better and more secure vaults and safes continued to be key features in Diebold's product line, the market for safes and vaults has not always been dependable, relying as it does on the health of the banking industry. In the 1930s, Diebold began to diversify. In slightly over a decade, the company made seven major moves toward expansion. In 1936 the company acquired United Metal Products Co., also of Canton, a manufacturer of hollow metal doors and door frames. In 1938 Diebold made its first entrance into the office equipment business by introducing the Cardineer Rotary File System. This was followed in 1944 with the acquisition of the Visible Records Equipment Company of Chicago, a former subsidiary and a manufacturer of vertical filing systems and other record-keeping equipment. That same year, Diebold bought the patents and manufacturing rights for Flofilm, a process that allowed companies to microfilm records in-house with a one-hour automatic developer. In 1945, buying rights to the Safe-T-Stak Steel Storage File further augmented Diebold's growing office equipment business. The following year, Diebold bought the safe and vault business of the York Safe & Lock Company. Finally, in January 1947, the bank equipment division of O.B. McClintock Co. of Minneapolis went over to Diebold. The products acquired from McClintock included burglar alarms, a bank vault ventilator (in case of lock-ins), and after-hour depositories. Amidst these acquisitions, in 1943 the company changed its name to Diebold, Incorporated to better reflect its diversified product line.

In 1942 Diebold, which had previously grossed around $3 million per year, brought in $40 million.

1942–1979

Several factors motivated Diebold's first expansion. World War II brought the safe and vault business as a whole out of rough years with a flurry of government armament contracts. Following the dismal economy of the 1930s, the war created a demand for manufacturers accustomed to high-precision work with hardened steels. For Diebold, as well as its main competitors York Safe and Mosler Safe Co., the war effort spelled a windfall. In 1942 Diebold, which had previously grossed around $3 million per year, brought in $40 million.

When the dust settled and the contracts disappeared with the end of the war, the company was fiscally sound but its executives were having trouble agreeing on Diebold's path of postwar reconversion. Amid the confusion, Eliot Ness joined the company's board in 1944. A former prohibition agent (of The Untouchables fame) and Cleveland director of safety, he represented the Rex family, who owned the largest single block of Diebold shares (38 percent). Ness, who became chairman of the board, engineered a spectacular takeover of York Safe. Located in York, Pennsylvania, York was the largest prewar producer of safes and vaults, with a strong sales base on the East Coast. However, the company had let its sales division deteriorate during the war, while Diebold's was intact. Seeing York's weakness, Diebold moved in. The deal came together with the help of Clint Murchison, Sr., a Texas oilman and a friend of future chairman Daniel Maggin. Murchison arranged for several insurance companies to make loans to Diebold for the purchase and personally guaranteed them. Diebold acquired all of York's patents, tools, service contracts, and orders as well as its sales branches. However, the York company had diversified to include plastics production and microfilm equipment and Diebold left the remaining business freestanding under the name York Industries, Inc.

Expansion Continued in the 1950s and 1960s

In the 1950s, Diebold cashed in on America's postwar migration to suburban areas, which created a demand for new bank branches and orders for safes as well as the full complement of office and security equipment. Thanks to its expansion during the 1940s, the company was able to meet the new demand for its products. The automobile-oriented suburban life brought buyers for the company's drive-in teller windows, which Diebold had started selling after the purchase of McClintock, along with the Diebold-McClintock burglar alarm and several models of after-hour depositories. In 1955 Diebold acquired K. F. Kline Co., a maker of steel lockers, shelving parts, storage bins, and storage and wardrobe cabinets. The Kline acquisition, combined with Diebold's previous business in record-handling and storage equipment, brought business equipment to account for approximately 50 percent of total volume in 1957.

In August 1958, Diebold acquired the entire stock of Herring-Hall-Marvin Safe Co. of Canada, Ltd., which became The Diebold Company of Canada Limited. In September 1959, Diebold acquired Herring-Hall-Marvin Safe Co. of Hamilton, Ohio. In addition to safes, Herring-Hall made teller counter equipment and the acquisition expanded Diebold's range of service to banks even further. The U.S. government subsequently took the merger to court on antitrust grounds, saying that Diebold and Herring-Hall were two of only three companies in the United States producing bank vault equipment. The Southern District Court of Ohio dismissed the case on the so-called "failing company doctrine," under which an acquisition in danger of antitrust challenges could be justified if it could be shown that the object of a takeover was in such poor shape that its continued existence would not substantially have altered the competitive environment. In 1961 the Justice Department asked the Supreme Court to review the case, saying that the defense should be less broadly defined. The high court recommended that the district court that dismissed the case should try it. In April 1963, before a trial could take place, Diebold and the Justice Department reached an agreement. Diebold would sell the safe and vault part of the Herring-Hall-Marvin operation within the year and agree not to buy any other vault or safe companies for another five years. That limitation would be stretched to 10 years if Herring-Hall was not sold within that time frame.

In the meantime, Diebold continued to expand. Along with the postwar growth in the number of banks in the country, the late 1950s and early 1960s saw an explosion in the per-person use of checks. This prompted Diebold to buy into the check-imprinting business. In 1963 the company acquired Consolidated Business Systems, Inc. and its subsidiary Young & Selden. That company was a maker of business forms and magnetic ink imprinting for checks. Diebold then sold off the business forms part of the business at a loss, but profitably ventured further into the check business with the purchase of the ThriftiCheck Service Corporation later the same year. Diebold sold some assets of Young & Selden in 1970 and all of ThriftiCheck in 1974. Diebold was first listed on the New York Stock Exchange in April 1964, under the symbol DBD.

In 1965 the company added the products of the Lamson Corporation of Syracuse, New York, to its line of office equipment. A maker of materials-handling systems, Lamson became a division of Diebold. Among its products was a message-carrying system that used pneumatic tubes. When Diebold took over, it expanded the operations of the Syracuse plant and invested in research and development, resulting in the computer-regulated tube transport systems that were used to carry material between floors in large office buildings and continue to be used in drive-up remote teller stations. In 1970 Diebold acquired Florida Development Services, a Clearwater, Florida, company that made "modular" bank buildings. Those structures, used for small branch offices, could be transported to a site and assembled within 90 days. The following year the name was changed to Diebold Contracting Services, Inc. The concern was sold in 1979.

1973–1996

Quickly Became ATM Leader in 1970s

In the early 1970s, Diebold was faced with a slowdown in sales of security equipment. The company, led by longtime president and CEO Raymond Koontz, decided to respond by looking ahead and taking a chance on ATMs. Diebold invested heavily in electronic research, applied computer technology, ergonomic design, and software development and, in 1973, introduced the first ATM model. The ATM trade turned out to be a natural for the company that had been doing business with banks for over a century. While Diebold was a relative newcomer to this type of computer technology, its experience with cash-handling systems and security concerns made Diebold ATMs an attractive choice for banks. Within five years, up against competing products from IBM, NCR, Burroughs, TRW, and Honeywell, Diebold had captured 45 percent of the domestic market. In 1979 banks using Diebold ATMs included Bank of America, Citibank, Marine Midland, and the Shawmut Corp.

Through the early 1980s, the business press portrayed Diebold's ATM dominance over IBM and NCR as the pin-striped battle between David and a two-headed Goliath. "Those three letters I-B-M are the first thing we think of when we awake," Forbes quoted Earl Wearstler, then Diebold executive vice-president, as saying in 1980. But Diebold held its ground, working out a reciprocal sales agreement with Bunker Ramo, a maker of microcomputer-driven teller terminals with strong sales in Europe and the United States. To gain access to the Canadian ATM market, the company signed a sales and service agreement with Phillips, the international electronics company.

In 1985 and 1986, ATM orders from banks sagged in pace with a general slowdown in bank equipment sales. Diebold had to cut back on costs, but kept the research and development funds flowing toward finding additional applications for ATM technology and aggressively sought out nonbank ATM buyers. In 1985 National Transactions Systems ordered 1,000 cash-dispensing machines to be placed in West Coast 7-Eleven and Safeway stores. In 1986 Diebold announced 26 new products. These included self-serve video rental machines, credit card-activated gas station pumps, and interactive video systems to be used for dispensing tickets and information. For banks that wanted lower-cost cash networks, they also came out with automatic teller machines that were smaller and performed fewer operations, such as dispensing cash but not taking deposits.

1990s Saw Partnership Between Diebold and IBM and Several New Ventures

In July 1990, Diebold, the company that professed to having nightmares about IBM a decade earlier, announced a joint venture with its erstwhile competitor, which was dubbed InterBold. At the time, Diebold held a larger proportion of the domestic and world ATM markets than IBM, but the venture was designed to make the most of each parent company's expertise. Diebold owned the majority share of the partnership, at 70 percent. Through InterBold, Diebold benefited from IBM's strengths in software development and systems integration as well as from the company's strong position in Europe, Asia, and Latin America. Within a year of the venture, InterBold introduced the i Series ATM, the first ATM model to use "image-lift" technology. Image-lift allowed ATM users to see a picture of deposited checks on the ATM screen, and addressed customers' fears about trusting deposits to the machines. By 1992, InterBold had the only networked ATMs in Poland and held the leading position in Mexico, where the banking industry was in the process of privatization. The following year, Diebold formed a joint venture to manufacture and support ATMs in China. As the 1990s continued, Diebold made additional moves to enter or expand in such markets as Mexico, Venezuela, India, and Russia. These overseas moves helped to more than double Diebold's foreign sales during the first several years of the 1990s, with 22.3 percent of net sales coming from outside the United States by 1996.

Also during the 1990s, retail and other applications for card-activated transaction equipment continued to multiply; Diebold moved aggressively to leverage its ATM expertise into new applications which company CEO and chairman Robert Mahoney hoped would keep the company growing rapidly even as the market for ATMs began to mature. InterBold developed a "multi-media dispenser" capable of self-service distribution of postage stamps, airline tickets, travelers' checks, food stamps, and public transportation passes, among other items. In 1992 Diebold formed a joint venture with Nelson Vending Technology Limited of Toronto to distribute automated videocassette vending systems to convenience stores, drugstores, apartment complexes, business centers, hotels, hospitals, and other commercial centers.

1990–1997

In mid-1992 Diebold introduced an Integrated Campus Access Management (ICAM) system, which enabled students to use a single card to gain access to various campus buildings and to pay for meals, books, and vending machine items, as well as to get cash from an ATM. By the end of 1993, 20 colleges and universities had signed up for ICAM, including Texas A&M, Florida State, and the University of Illinois. This system was designed not only for college campuses but also for any other campus-like setting, such as hospitals, amusement parks, and prisons. By 1995 ICAM was making inroads into the primary and secondary school markets. In December of that year, Diebold bolstered its position through the $18.1 million acquisition of Griffin Technology Incorporated, a Farmington, New York-based company with revenue of $18 million that had installed its own card system on 250 college campuses (Diebold had installed about 40 systems by this time).

In yet another new venture, Diebold, through its nascent MedSelect Systems division, introduced an automated drug dispensing system in late 1995. The system allowed healthcare institutions to manage their supplies of pharmaceuticals and other supplies as well as to automatically bill patients as drugs and supplies are used.

In the mid-1990s Diebold also participated in leading-edge testing of so-called smart cards through its Advanced Card Systems division. In 1995 the company partnered with First Union Corporation to test a system whereby fans at Jacksonville Jaguars National Football League games purchased cards that they used to buy concessions and other stadium items. With each purchase, the transaction amount is automatically deducted from the current value of the card. The next year Diebold and First Union again teamed for the largest smart card test program yet--at the 1996 Summer Olympics in Atlanta. From a consumer standpoint, smart cards were touted as a convenient way for people to pay for small items, reducing the amount of cash they have to carry. Although the future of smart cards remained in doubt, Diebold's participation in their development showed the company's commitment to staying on the cutting edge.

With demand for ATMs continuing to grow, Diebold faced a lengthy production backlog in 1996, leading to its 1997 addition of three new U.S. manufacturing facilities in Staunton and Danville, Virginia, and in Lexington, North Carolina. The company also expanded and upgraded its existing U.S. plants in Canton and Sumter, South Carolina. Diebold continued to operate other manufacturing facilities in Germany, China, India, and the United States.

Although Diebold's share of the U.S. ATM market had fallen from about 55 percent in 1992 to about 40 percent in 1996--thanks in large part to new competitors, most notably Triton Systems Corp., based in Long Beach, Mississippi--the rapid growth in ATMs worldwide, 41 percent in 1996 alone, provided an environment for healthy growth and profitability. Diebold's net sales more than doubled from 1990 to 1996, from $476.1 million to $1.03 billion, while net income grew even faster, increasing from $27.1 million in 1990 to $97.4 million in 1996. The company was growing so fast that in late 1996 it was somewhat belatedly decided that the positions of president and COO--which Mahoney had assumed two years earlier while remaining CEO and chairman&mdash⁄ould finally be given to someone else, namely Gregg A. Searle, who had been an executive vice-president.

Diebold's managers felt confident enough about the company's ability to sell ATMs overseas that in July 1997 they announced that the company intended to discontinue the InterBold joint venture with IBM, phasing it out over the following 18 months. Talks between Diebold and IBM were soon underway over Diebold buying IBM's 30 percent InterBold stake. This bold move was indicative of a company filled with confidence about its future. Still the world leader in the far-from-mature ATM market--and with numerous overseas markets still only starting to develop ATM networks--Diebold could count on many more years of revenues and profits from its bread-and-butter product line. And it also was aggressively seeking out the blockbusters of tomorrow through its involvement with ICAMs, medical dispensing systems, smart cards, and also transaction software for the Internet. Diebold could certainly face the new millennium feeling safe and secure.