THE
NEXT
STEP
2012 ANNUAL REPORT
To our Fellow ShareholderS:
A few
yeArs Ago,
Diebold began a journey toward
a new strategic vision: To
transform the organization from a
hardware-centric manufacturing
company to a world-class
product, software and services provider that
addresses the security, convenience and efficiency
needs of our customers.
In 2012, despite significant challenges, we took
meaningful strides forward. Our revenue growth was
approximately 6 percent; however, our profitability
fell short of our expectations and we need to rectify
this underperformance.
We have conducted a rigorous self-assessment of
our successes, our shortcomings and the changes
necessary to position our company to achieve its full
potential. Our strategies – to drive growth in deposit
automation, integrated services, electronic security
and developing markets – are strong. Yet we have a
considerable amount of work to do to successfully
execute those strategies and drive profitable and
sustainable growth.
In January 2013, the board of
directors determined that achieving
our objectives required a change in
leadership. When I assumed the role
of executive chairman on an interim
basis, I made clear that our first task
is to accelerate the tempo of strategic
transformation and improve the overall
results of the company. As a result,
we created the new position of chief
operating officer and appointed George
S. Mayes, Jr. to that role. George is the
right leader to help us achieve our
goals. He is ideally suited to drive the
improvement required to reach our growth and profitability objectives.
The next transformational step requires us to do more, and to do it more quickly. To strengthen
our performance we must:
• Drive organizational change to establish top-tier performance
• Structure our operations to leverage our global scale and drive more cost efficiencies
• Create more investment capacity to speed our growth initiatives
• Ultimately build the foundation for a stronger and more profitable future
A stable business begins with a strong solutions portfolio. Diebold enjoys that today, and in 2013
we will continue to enhance our core financial self-service offerings. Those enhancements build
on the success of deposit automation, to empower greater branch transformation, and software
and services that make self-service networks more productive, secure and reliable. We also see
opportunity to increase the velocity of growth in our electronic security business, where Diebold’s
extensive experience in outsourced, integrated services is a strong asset.
Transformation toward a more profitable future also requires us to be both aggressive and
thoughtful in creating a more competitive cost structure. To do so we will increase automation,
exit certain areas that are not delivering sufficient value and identify opportunities for greater
efficiency in every division and function.
As we achieve those savings, we will direct them toward investments in growth in dynamic
markets. The 2012 acquisitions of GAS Tecnologia and Altus were in concert with that strategy.
GAS is Brazil’s leading Internet banking, online payment and mobile banking security enterprise.
2012 ANNUAL REPORT 1
Altus is the foremost multi-vendor service and information technology provider in Turkey, one of
the fastest-growing ATM markets in the world. Going forward, we expect these acquisitions to be
joined by others that will accelerate our growth in key areas.
Investments in growth would not be possible without a solid financial foundation. Diebold’s strong
balance sheet, with net debt of only $20 million, positions us to invest appropriately in growth
opportunities. Our sound financial foundation also makes possible our record of returning cash
our first task is to accelerate the
tempo of strategic transformation.
to shareholders. In February 2013, the Board of Directors authorized the 60th consecutive annual
dividend increase – the longest standing record among any public company in North America. It is
an achievement we are proud of, and look to extend.
I am confident in the commitment and engagement of Diebold associates globally during this
time of transition. They have the capacity to meet the challenge of transformation – to build a
high-performance culture, achieve sustainable reductions in our cost structure and deliver the
profitability required to invest in future growth. In addition, we have a strong, engaged board of
directors that is committed to providing the appropriate oversight, and selecting the right leader
in a new CEO, to unleash the full potential of Diebold and its outstanding people.
Diebold’s heritage is a proud one, and its future holds tremendous opportunity. I am confident in
our ability to deliver improved financial results and long-term shareholder value as we enter 2013
with a realigned company and a sharpened focus on executing our core strategies. There are more
steps ahead in our journey of transformation – and the work we are undertaking today will set the
course for our future success.
On behalf of the entire Diebold team, thank you for your continued support.
Sincerely,
Henry D.G. Wallace
Executive Chairman of the Board
2 2012 ANNUAL REPORT
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-4879
Diebold, Incorporated
(Exact name of Registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
5995 Mayfair Road,
P.O. Box 3077, North Canton, Ohio
(Address of principal
executive offices)
34-0183970
(I.R.S. Employer Identification No.)
44720-8077
(Zip Code)
Registrants telephone number, including area code (330) 490-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares $1.25 Par Value
Name of each exchange on which registered:
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
Approximate aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2012, based upon the
closing price on the New York Stock Exchange on June 30, 2012, was $2,322,293,045.
Number of shares of common stock outstanding as of February 8, 2013 was 63,249,000.
Listed hereunder are the documents, portions of which are incorporated by reference, and the parts of this Form 10-K into which such portions
DOCUMENTS INCORPORATED BY REFERENCE
are incorporated:
Diebold, Incorporated Proxy Statement for 2013 Annual Meeting of Shareholders to be held on April 25, 2013, portions of which are
incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART I
ITEM 1:
ITEM 1A:
ITEM 1B:
ITEM 2:
ITEM 3:
ITEM 4:
PART II
ITEM 5:
ITEM 6:
ITEM 7:
ITEM 7A:
ITEM 8:
ITEM 9:
ITEM 9A:
ITEM 9B:
PART III
ITEM 10:
ITEM 11:
ITEM 12:
ITEM 13:
ITEM 14:
PART IV
ITEM 15:
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EXHIBIT INDEX
3
6
14
14
15
15
16
18
19
36
37
82
82
83
84
85
85
86
86
86
89
91
PART I
ITEM 1: BUSINESS
(dollars in thousands)
GENERAL
Diebold, Incorporated (collectively with its subsidiaries, the Company) was incorporated under the laws of the state of Ohio in
August 1876, succeeding a proprietorship established in 1859.
The Company is a global leader in providing integrated software-led services and self-service delivery and security systems to
primarily the financial, commercial, government and retail markets. The Company’s vision is to be recognized as the essential
partner in creating and implementing ideas that optimize convenience, efficiency and security. This vision is the guiding principle
behind the Company’s transformation to becoming a more software-led services company. Services comprise more than 50 percent
of the Company’s revenue. The Company expects that this percentage will continue to grow over time as the Company continues
to build on its strong base of maintenance and advanced services to deliver world-class integrated services. Sales of systems and
equipment are made directly to customers by the Company’s sales personnel, manufacturers’ representatives and distributors
globally. The sales and support organizations work closely with customers and their consultants to analyze and fulfill the customers’
needs.
SERVICE AND PRODUCT SOLUTIONS
The Company has two core lines of business: Self-Service Solutions and Security Solutions, which the Company integrates based
on its customers’ needs. Financial information for the service and product solutions can be found in note 19 to the consolidated
financial statements, which is contained in Item 8 of this annual report on Form 10-K.
Self-Service Solutions
One popular example of self-service solutions is the automated teller machine (ATM). The Company offers an integrated line of
self-service technologies and services, including comprehensive ATM outsourcing, ATM security, deposit and payment terminals
and software. The Company is a leading global supplier of ATMs and related services and holds the leading market position in
many countries around the world.
Self-Service Support and Managed Services
From analysis and consulting to monitoring and repair, the Company provides value and support to its customers every step of
the way. Services include installation and ongoing maintenance of our products, OpteView® remote services, availability
management, branch transformation and distribution channel consulting. Additionally, service revenue includes services and
parts the Company provides on a billed-work basis that are not covered by warranty or service contract. The Company also
provides outsourced and managed services including remote monitoring, troubleshooting for self-service customers, transaction
processing, currency management, maintenance services and full support via person to person or online communication.
Self-Service Products
The Company offers a wide variety of self-service solutions. Self-service products comprise a full range of ATMs and teller
automation, including deposit automation technology such as check-cashing machines, bulk cash recyclers and bulk check
deposit.
Self-Service Software
The Company offers software solutions consisting of multiple applications that process events and transactions. These solutions
are delivered on the appropriate platform, allowing the Company to meet customer requirements while adding new functionality
in a cost-effective manner.
Security Solutions
From the safes and vaults that the Company first manufactured in 1859 to the full range of advanced electronic security offerings
it provides today, the Company’s integrated security solutions contain best-in-class products and award-winning services for its
customers’ unique needs. The Company provides its customers with the latest technological advances to better protect their assets,
improve their workflow and increase their return on investment. These solutions are backed with experienced sales, installation
and service teams. The Company is a leader in providing physical and electronic security systems as well as assisted transactions,
providing total security systems solutions to financial, retail, commercial and government markets.
3
Physical Security and Facility Products
The Company provides security solutions and facility products, pneumatic tube systems for drive-up lanes, vaults, safes,
depositories, bullet-resistive items and undercounter equipment.
Electronic Security Products
The Company provides a broad range of electronic security products including digital surveillance, access control systems,
biometric technologies, alarms and remote monitoring and diagnostics.
Monitoring and Services
The Company provides security monitoring solutions including fire, managed access control, energy management and remote
video management and storage, as well as logical security.
Integrated Solutions
The Company provides end-to-end outsourcing solutions with a single point of contact to help customers maximize their self-
service channel by incorporating new technology, meeting compliance and regulatory mandates, protecting their institutions, and
reducing costs, all while ensuring a high level of service for their customers. Each unique solution may include hardware, software,
services or a combination of all three components. The Company provides value to its customers by offering a comprehensive
array of hardware-agnostic integrated services and support. The Company’s service organization provides strategic analysis and
planning of new systems, systems integration, architectural engineering, consulting and project management that encompass all
facets of a successful financial self-service implementation. The Company also provides design, products, service, installation,
project management and monitoring of electronic security products to financial, government, retail and commercial customers.
Election Systems
The Company is a provider of voting equipment and related products and services in Brazil. The Company provides elections
equipment, networking, tabulation and diagnostic software development, training, support and maintenance.
OPERATIONS
The principal raw materials used by the Company in its manufacturing operations are steel, plastics, and electronic parts and
components, which are purchased from various major suppliers. These materials and components are generally available in ample
quantities. Within the Company's services operations, fuel is a significant cost factor.
The Company’s operating results and the amount and timing of revenue are affected by numerous factors including production
schedules, customer priorities, sales volume and sales mix. During the past several years, the Company has changed the focus of
its self-service business to that of a total solutions and integrated services approach. The value of unfilled orders is not a meaningful
indicator of future revenues due to the significant portion of revenues derived from the Company’s growing service-based business,
for which order information is not available. Therefore, the Company believes that backlog information is not material to an
understanding of its business.
The Company carries working capital mainly related to trade receivables and inventories. Inventories generally are only
manufactured or purchased as orders are received from customers. The Company’s normal and customary payment terms generally
range from net 30 to 90 days from date of invoice. The Company generally does not offer extended payment terms. The Company
also provides financing arrangements to customers that are largely classified and accounted for as sales-type leases. As of
December 31, 2012, the Company’s net investment in finance lease receivables was $77,656.
SEGMENTS AND FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The Company manages its businesses on a geographic basis and reports the following two segments: Diebold North America
(DNA) and Diebold International (DI). The DNA segment sells and services financial and retail systems in the United States and
Canada. The DI segment sells and services financial and retail systems over the remainder of the globe through wholly-owned
subsidiaries, majority-owned joint ventures and independent distributors in most major countries throughout Europe, the Middle
East, Africa, Latin America and in the Asia Pacific region (excluding Japan and Korea). Segment financial information can be
found in note 19 to the consolidated financial statements, which is incorporated herein by reference.
Sales to customers outside the United States in relation to total consolidated net sales were $1,458,019 or 48.7 percent in 2012,
$1,494,681 or 52.7 percent in 2011 and $1,560,879 or 55.3 percent in 2010.
4
Property, plant and equipment, at cost, located in the United States totaled $468,575, $455,814 and $454,666 as of December 31,
2012, 2011 and 2010, respectively, and property, plant and equipment, at cost, located outside the United States totaled $193,335,
$186,442 and $191,569 as of December 31, 2012, 2011 and 2010, respectively.
Additional financial information regarding the Company’s international operations is included in note 19 to the consolidated
financial statements, which is incorporated herein by reference. The Company’s non-U.S. operations are subject to normal
international business risks not generally applicable to domestic business. These risks include currency fluctuation, new and
different legal and regulatory requirements in local jurisdictions, political and economic changes and disruptions, tariffs or other
barriers, potentially adverse tax consequences and difficulties in staffing and managing foreign operations.
COMPETITION
The Company participates in many highly competitive businesses with some services and products in competition directly with
similar services and products and others with alternative products that have similar uses or produce similar results. The Company
distinguishes itself by providing unique value with a wide range of software-led services tailored to meet customers' needs. The
Company believes, based upon outside independent industry surveys, that it is a leading service provider for and manufacturer of
financial self-service systems in the United States and is also a market leader internationally. In the area of automated transaction
systems, the Company competes on a global basis primarily with NCR Corporation and Wincor-Nixdorf. On a regional basis, the
Company competes with many other hardware and software companies such as GRG Banking Equipment Co., Ltd. and Nautilus
Hyosung in Asia Pacific and Itautec and Perto in Latin America. In the security service and product markets, the Company
competes with national, regional and local security companies. Of these competitors, some compete in only one or two product
lines, while others sell a broad spectrum of security services and products. The unavailability of comparative sales information
and the large variety of individual services and products make it difficult to give reasonable estimates of the Company's competitive
ranking in or share of the security market within the financial services, retail, commercial and government sectors. However, the
Company is a uniquely positioned security service and solution provider to global, national, regional and local financial, commercial
and industrial customers. The Company also has a strong position in North America and in global markets as a premier security
service provider that offers a full portfolio of security monitoring and managed services, as well as a full spectrum of systems
integration and enterprise level capabilities.
The Company provides elections systems product solutions and support to the Brazilian government. Competition in this market
is limited and based upon technology pre-qualification demonstrations to the government. Due to the technology investment
required in elections systems, barriers to entry in this market are high.
RESEARCH, DEVELOPMENT AND ENGINEERING
Customer demand for self-service and security technologies is growing. In order to meet this demand, the Company is focused
on delivering innovation to its customers by continuing to invest in technology solutions that enable customers to reduce costs
and improve efficiency. Expenditures for research, development and engineering initiatives were $85,881, $78,108 and $74,225
in 2012, 2011 and 2010, respectively. In 2012, the Company introduced the first concept ATM in the world to utilize 4G technology.
In collaboration with Verizon, operator of the largest 4G network in the United States, Diebold integrated 4G LTE technology to
create a new, additional channel for communication to and from the ATM. Traditionally, the ATM has communicated only with
the financial institution or the transaction processor. With the addition of the 4G LTE channel, the ATM also has the potential to
communicate directly with third parties, such as service providers or monitoring centers, which would potentially allow for
increased efficiencies, enhanced security and improved customer service at the ATM.
PATENTS, TRADEMARKS, LICENSES
The Company owns patents, trademarks and licenses relating to certain products in the United States and internationally. While
the Company regards these as items of importance, it does not deem its business as a whole, or any industry segment, to be
materially dependent upon any one item or group of items.
ENVIRONMENTAL
Compliance with federal, state and local environmental protection laws during 2012 had no material effect upon the Company’s
business, financial condition or results of operations.
EMPLOYEES
At December 31, 2012, the Company employed 16,751 associates globally. The Company’s service staff is one of the financial
industry’s largest, with professionals in more than 600 locations and representation in nearly 90 countries worldwide.
5
EXECUTIVE OFFICERS
Refer to Part III, Item 10 of this annual report on Form 10-K for information on the Company's executive officers, which is
incorporated herein by reference.
AVAILABLE INFORMATION
The Company uses its Investor Relations web site, www.diebold.com/investors, as a channel for routine distribution of important
information, including news releases, analyst presentations and financial information. The Company posts filings as soon as
reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission
(SEC), including its annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; its proxy statements; and any amendments
to those reports or statements. All such postings and filings are available on the Company’s Investor Relations web site free of
charge. In addition, this web site allows investors and other interested persons to sign up to automatically receive e-mail alerts
when the Company posts news releases and financial information on its web site. Investors and other interested persons can also
follow the Company on Twitter at http://twitter.com/dieboldinc. The SEC also maintains a web site, www.sec.gov, that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The
content on any web site referred to in this annual report on Form 10-K is not incorporated by reference into this annual report
unless expressly noted.
ITEM 1A: RISK FACTORS
(dollars in thousands)
The following are certain risk factors that could affect our business, financial condition, operating results and cash flows. These
risk factors should be considered in connection with evaluating the forward-looking statements contained in this annual report on
Form 10-K because they could cause actual results to differ materially from those expressed in any forward-looking statement.
The risk factors highlighted below are not the only ones we face. If any of these events actually occur, our business, financial
condition, operating results or cash flows could be negatively affected.
We caution the reader to keep these risk factors in mind and refrain from attributing undue certainty to any forward-looking
statements, which speak only as of the date of this annual report on Form 10-K.
Demand for and supply of our services and products may be adversely affected by numerous factors, some of which we cannot
predict or control. This could adversely affect our operating results.
Numerous factors may affect the demand for and supply of our services and products, including:
changes in the market acceptance of our services and products;
customer and competitor consolidation;
changes in customer preferences;
declines in general economic conditions;
changes in environmental regulations that would limit our ability to service and sell products in specific markets;
•
•
•
•
•
• macro-economic factors affecting banks, credit unions and other financial institutions may lead to cost-cutting efforts by
customers, which could cause us to lose current or potential customers or achieve less revenue per customer; and
availability of purchased products.
•
If any of these factors occur, the demand for and supply of our services and products could suffer, and this would adversely affect
our results of operations.
Increased energy and raw material costs could reduce our income.
Energy prices, particularly petroleum prices, are cost drivers for our business. In recent years, the price of petroleum has been
highly volatile, particularly due to the unstable political conditions in the Middle East and increasing international demand from
emerging markets. Price increases in fuel and electricity costs, such as those increases which may occur from climate change
legislation or other environmental mandates, will continue to increase our cost of operations. Any increase in the costs of energy
would also increase our transportation costs.
The primary raw materials in our financial self-service, security and election systems product solutions are steel, plastics and
electronic parts and components. The majority of our raw materials are purchased from various local, regional and global suppliers
pursuant to supply contracts. However, the price of these materials can fluctuate under these contracts in tandem with the pricing
of raw materials.
6
Although we attempt to pass on higher energy and raw material costs to our customers, it is often not possible given the competitive
markets in which we operate.
Our business may be affected by general economic conditions, cyclicality and uncertainty and could be adversely affected
during economic downturns.
Demand for our services and products is affected by general economic conditions and the business conditions of the industries in
which we sell our services and products. The business of most of our customers, particularly our financial institution customers,
is, to varying degrees, cyclical and has historically experienced periodic downturns. Under difficult economic conditions, customers
may seek to reduce discretionary spending by forgoing purchases of our services and products. This risk is magnified for capital
goods purchases such as ATMs and physical security products. In addition, downturns in our customer’s industries, even during
periods of strong general economic conditions, could adversely affect the demand for our services and products, and our sales and
operating results.
In particular, economic difficulties in the U.S. credit markets and the global markets have led to an economic recession in some
or all of the markets in which we operate. As a result of these difficulties and other factors, financial institutions have failed and
may continue to fail resulting in a loss of current or potential customers, or deferred or canceled orders, including orders previously
placed. Any customer deferrals or cancellations could materially affect our sales and operating results.
Additionally, the unstable political conditions in the Middle East or the sovereign debt concerns of certain countries could lead to
further financial, economic and political instability, and this could lead to an additional deterioration in general economic conditions.
We may be unable to achieve, or may be delayed in achieving, our cost-cutting initiatives, and this may adversely affect our
operating results and cash flow.
We have launched a number of cost-cutting initiatives, including restructuring initiatives, to improve operating efficiencies and
reduce operating costs. Although we have achieved a substantial amount of annual cost savings associated with these cost-cutting
initiatives, we may be unable to sustain the cost savings that we have achieved. In addition, if we are unable to achieve, or have
any unexpected delays in achieving, additional cost savings, our results of operations and cash flow may be adversely affected.
Even if we meet our goals as a result of these initiatives, we may not receive the expected financial benefits of these initiatives.
We face competition that could adversely affect our sales and financial condition.
All phases of our business are highly competitive. Some of our products are in direct competition with similar or alternative
products provided by our competitors. We encounter competition in price, delivery, service, performance, product innovation,
product recognition and quality.
Because of the potential for consolidation in any market, our competitors may become larger, which could make them more
efficient and permit them to be more price-competitive. Increased size could also permit them to operate in wider geographic
areas and enhance their abilities in other areas such as research and development and customer service. As a result, this could also
reduce our profitability.
We expect that our competitors will continue to develop and introduce new and enhanced services and products. This could cause
a decline in market acceptance of our services and products. In addition, our competitors could cause a reduction in the prices
for some of our services and products as a result of intensified price competition. Also, we may be unable to effectively anticipate
and react to new entrants in the marketplace competing with our services and products.
Competitive pressures can also result in the loss of major customers. An inability to compete successfully could have an adverse
effect on our operating results, financial condition and cash flows in any given period.
Additional tax expense or additional tax exposures could affect our future profitability.
We are subject to income taxes in both the United States and various non-U.S. jurisdictions, and our domestic and international
tax liabilities are dependent upon the distribution of income among these different jurisdictions. If we change our intention to
repatriate cash and cash equivalents and short-term investments residing in international tax jurisdictions, there could be a negative
impact on foreign and domestic taxes. Our tax expense includes estimates of additional tax that may be incurred for tax exposures
and reflects various estimates and assumptions, including assessments of future earnings of the Company that could affect the
valuation of our net deferred tax assets. Our future results could be adversely affected by changes in the effective tax rate as a
result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the
7
Company, changes in tax legislation, changes in the valuation of deferred tax assets and liabilities, the results of audits and
examinations of previously filed tax returns and continuing assessments of our income tax exposures.
Additionally, our future results could be adversely affected by the results of indirect tax audits and examinations, and continuing
assessments of our indirect tax exposures. For example, in August 2012, one of our Brazilian subsidiaries was notified of a tax
assessment of approximately $133,000, including penalties and interest, regarding certain Brazilian federal indirect taxes for 2008
and 2009. The assessment alleges improper importation of certain components into the country's free trade zone that would nullify
certain indirect tax incentives. We have filed administrative defenses with the tax authorities and are awaiting an administrative
level decision that could negatively impact Brazilian federal indirect taxes in other years that remain open under statute. It is
reasonably possible that we could be required to pay taxes, penalties and interest related to this matter, which could be material
to our consolidated financial statements.
In international markets, we compete with local service providers that may have competitive advantages.
In a number of international markets, especially those in Asia Pacific and Latin America, we face substantial competition from
local service providers that offer competing services and products. Some of these companies may have a dominant market share
in their territories and may be owned by local stakeholders. This could give them a competitive advantage. Local providers of
competing services and products may also have a substantial advantage in attracting customers in their country due to more
established branding in that country, greater knowledge with respect to the tastes and preferences of customers residing in that
country and/or their focus on a single market. Further, the local providers may have greater regulatory and operational flexibility
since we are subject to both U.S. and foreign regulatory requirements.
Because our operations are conducted worldwide, they are affected by risks of doing business abroad.
We generate a significant percentage of revenue from operations conducted outside the United States. Revenue from international
operations amounted to approximately 48.7 percent in 2012, 52.7 percent in 2011 and 55.3 percent in 2010 of total revenue during
these respective years.
Accordingly, international operations are subject to the risks of doing business abroad, including the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
fluctuations in currency exchange rates;
transportation delays and interruptions;
political and economic instability and disruptions;
restrictions on the transfer of funds;
the imposition of duties and tariffs;
import and export controls;
changes in governmental policies and regulatory environments;
disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including
the Foreign Corrupt Practices Act (FCPA);
labor unrest and current and changing regulatory environments;
the uncertainty of product acceptance by different cultures;
the risks of divergent business expectations or cultural incompatibility inherent in establishing joint ventures with
foreign partners;
difficulties in staffing and managing multi-national operations;
limitations on the ability to enforce legal rights and remedies;
reduced protection for intellectual property rights in some countries; and
potentially adverse tax consequences, including repatriation of profits.
Any of these events could have an adverse effect on our international operations by reducing the demand for our services and
products or decreasing the prices at which we can sell our services and products, thereby adversely affecting our financial condition
or operating results. We may not be able to continue to operate in compliance with applicable customs, currency exchange control
regulations, transfer pricing regulations or any other laws or regulations to which we may be subject. In addition, these laws or
regulations may be modified in the future, and we may not be able to operate in compliance with those modifications.
Additionally, there are ongoing concerns regarding the short- and long-term stability of the euro and its ability to serve as a single
currency for a variety of individual countries. These concerns could lead individual countries to revert, or threaten to revert, to
their former local currencies, which could lead to the dissolution of the euro. Should this occur, the assets we hold in a country
that re-introduces its local currency could be significantly devalued. Furthermore, the dissolution of the euro could cause significant
volatility and disruption to the global economy, which could impact our financial results. Finally, if it were necessary for us to
8
conduct our business in additional currencies, we would be subjected to additional earnings volatility as amounts in these currencies
are translated into U.S. dollars.
We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that the Company or any of
its subsidiaries has violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.
We are subject to compliance with various laws and regulations, including the FCPA and similar worldwide anti-bribery laws,
which generally prohibit companies and their intermediaries from engaging in bribery or making other improper payments to
foreign officials for the purpose of obtaining or retaining business or gaining an unfair business advantage. The FCPA also requires
proper record keeping and characterization of such payments in our reports filed with the SEC.
While our employees and agents are required to comply with these laws, we operate in many parts of the world that have experienced
governmental and commercial corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws
may conflict with local customs and practices. Foreign companies, including some that may compete with us, may not be subject
to the FCPA. Accordingly, such companies may be more likely to engage in activities prohibited by the FCPA, which could have
a significant adverse impact on our ability to compete for business in such countries.
Despite our commitment to legal compliance and corporate ethics, we cannot ensure that our policies and procedures will always
protect us from intentional, reckless or negligent acts committed by our employees or agents. Violations of these laws, or allegations
of such violations, could disrupt our business and result in financial penalties, debarment from government contracts and other
consequences that may have a material adverse effect on our business, financial condition or results of operations.
In particular, during the second quarter of 2010, while conducting due diligence in connection with a potential acquisition in
Russia, the Company identified certain transactions and payments by its subsidiary in Russia (primarily during 2005 to 2008) that
potentially implicate the FCPA, particularly the books and records provisions of the FCPA. As a result, the Company conducted
a global internal review and collected information related to its global FCPA compliance. In the fourth quarter of 2010, the Company
identified certain transactions within its Asia Pacific operation that occurred over the past several years that may also potentially
implicate the FCPA. The Company continues to monitor its ongoing compliance with the FCPA.
The Company has voluntarily self-reported its findings to the SEC and the U.S. Department of Justice (DOJ) and is cooperating
with these agencies in their review. The Company was previously informed that the SEC's inquiry had been converted to a formal,
non-public investigation. The Company also received a subpoena for documents from the SEC and a voluntary request for
documents from the DOJ in connection with the investigation. Because the SEC and DOJ investigations are ongoing, there can
be no assurance that their review will not find evidence of additional transactions that potentially implicate the FCPA. The Company
is continuing its discussions with the government toward a resolution to this matter. At this time, the Company cannot predict the
results of the government investigations, and it is reasonably possible that the resolution of these matters with the SEC and the
DOJ could result in changes in management's estimates of losses, which could be material to the Company’s consolidated financial
statements.
In addition, our business opportunities in select geographies have been or may be adversely affected by these reviews and any
subsequent findings. Some countries in which we do business may also initiate their own reviews and impose penalties, including
prohibition of our participating in or curtailment of business operations in those jurisdictions. If it is determined that a violation
of the FCPA has occurred, such violation may give rise to an event of default under our loan agreements. We could also face third-
party claims in connection with any such violation or as a result of the outcome of the current or any future government reviews.
Our disclosure, internal review, any current or future governmental review and any findings regarding any alleged violation of
the FCPA could, individually or in the aggregate, have a material adverse affect on our reputation and our ability to obtain new
business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the
capital markets.
We may expand operations into international markets in which we may have limited experience or rely on business partners.
We continually look to expand our services and products into international markets. We have currently developed, through joint
ventures, strategic investments, subsidiaries and branch offices, service and product offerings in over 90 countries outside of the
United States. As we expand into new international markets, we will have only limited experience in marketing and operating
services and products in such markets. In other instances, we may rely on the efforts and abilities of foreign business partners in
such markets. Certain international markets may be slower than domestic markets in adopting our services and products, and our
operations in international markets may not develop at a rate that supports our level of investment.
9
An inability to effectively manage acquisitions, divestitures and other significant transactions successfully could harm our
operating results, business and prospects.
As part of our business strategy, we frequently engage in discussions with third parties regarding possible investments, acquisitions,
strategic alliances, joint ventures, divestitures and outsourcing arrangements, and we enter into agreements relating to such
transactions in order to further our business objectives. In order to pursue this strategy successfully, we must identify suitable
candidates, successfully complete transactions, some of which may be large and complex, and manage post-closing issues such
as the integration of acquired companies or employees. Integration and other risks of these transactions can be more pronounced
in larger and more complicated transactions, or if multiple transactions are pursued simultaneously. If we fail to identify and
successfully complete transactions that further our strategic objectives, we may be required to expend resources to develop products
and technology internally. This may put us at a competitive disadvantage, and we may be adversely affected by negative market
perceptions any of which may have a material adverse effect on our revenue, gross margin and profitability.
Integration issues are complex, time-consuming and expensive and, without proper planning and implementation, could
significantly disrupt our business. The challenges involved in integration include:
• combining service and product offerings and entering into new markets in which we are not experienced;
• convincing customers and distributors that the transaction will not diminish client service standards or business focus,
preventing customers and distributors from deferring purchasing decisions or switching to other suppliers or service providers
(which could result in additional obligations to address customer uncertainty), and coordinating service, sales, marketing and
distribution efforts;
• consolidating and rationalizing corporate information technology infrastructure, which may include multiple legacy systems
from various acquisitions and integrating software code;
• minimizing the diversion of management attention from ongoing business concerns;
• persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees,
integrating employees into our Company, correctly estimating employee benefit costs and implementing restructuring
programs;
• coordinating and combining administrative, service, manufacturing, research and development and other operations,
subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining
adequate standards, controls and procedures; and
• achieving savings from supply chain and administration integration.
We evaluate and enter into these types of transactions on an ongoing basis. We may not fully realize all of the anticipated benefits
of any transaction, and the timeframe for achieving benefits of a transaction may depend partially upon the actions of employees,
suppliers or other third parties. In addition, the pricing and other terms of our contracts for these transactions require us to make
estimates and assumptions at the time we enter into these contracts, and, during the course of our due diligence, we may not identify
all of the factors necessary to estimate costs accurately. Any increased or unexpected costs, unanticipated delays or failure to
achieve contractual obligations could make these agreements less profitable or unprofitable.
Managing these types of transactions requires varying levels of management resources, which may divert our attention from other
business operations. These transactions could result in significant costs and expenses and charges to earnings, including those
related to severance pay, early retirement costs, employee benefit costs, asset impairment charges, charges from the elimination
of duplicative facilities and contracts, in-process research and development charges, inventory adjustments, assumed litigation
and other liabilities, legal, accounting and financial advisory fees, and required payments to executive officers and key employees
under retention plans. Moreover, we could incur additional depreciation and amortization expense over the useful lives of certain
assets acquired in connection with these transactions, and, to the extent that the value of goodwill or intangible assets with indefinite
lives acquired in connection with a transaction becomes impaired, we may be required to incur additional material charges relating
to the impairment of those assets. In order to complete an acquisition, we may issue common stock, potentially creating dilution
for existing shareholders, or borrow funds, affecting our financial condition and potentially our credit ratings. Any prior or future
downgrades in our credit rating associated with a transaction could adversely affect our ability to borrow and result in more
restrictive borrowing terms. In addition, our effective tax rate on an ongoing basis is uncertain, and such transactions could impact
our effective tax rate. We also may experience risks relating to the challenges and costs of closing a transaction and the risk that
an announced transaction may not close. As a result, any completed, pending or future transactions may contribute to financial
results that differ from the investment community’s expectations.
10
We have a significant amount of long-term assets, including goodwill and other intangible assets, and any future impairment
charges could adversely impact our results of operations.
We review long-lived assets, including property, plant and equipment and identifiable intangible assets, for impairment whenever
changes in circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the
carrying amount of the asset, a loss is recognized for the difference. Factors which may cause an impairment of long-lived assets
include significant changes in the manner of use of these assets, negative industry or market trends, a significant underperformance
relative to historical or projected future operating results, or a likely sale or disposal of the asset before the end of its estimated
useful life.
As of December 31, 2012, we had $272,951 of goodwill. We assess all existing goodwill at least annually for impairment on a
“reporting unit” basis. The Company’s five reporting units are defined as Domestic and Canada, Brazil, Latin America, Asia
Pacific, and Europe, Middle East and Africa (EMEA). The techniques used in our qualitative and quantitative assessment and
goodwill impairment tests incorporate a number of estimates and assumptions that are subject to change; although we believe
these estimates and assumptions are reasonable and reflect market conditions forecast at the assessment date. Any changes to
these assumptions and estimates due to market conditions or otherwise may lead to an outcome where impairment charges would
be required in future periods. In particular, the amount of goodwill in our Brazil reporting unit was $120,571 as of December 31,
2012, with excess fair value of approximately $113,348 or 22.0 percent when compared to its carrying amount. Because actual
results may vary from our forecasts and such variations may be material and unfavorable, we may need to record future impairment
charges with respect to the goodwill attributed to any reporting unit, which could adversely impact our results of operations.
System security risks and systems integration issues could disrupt our internal operations or services provided to customers,
and any such disruption could adversely affect revenue, increase costs, and harm our reputation and stock price.
Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate our own
confidential information or that of our customers, corrupt data, create system disruptions or cause shutdowns. A network security
breach could be particularly harmful if it remained undetected for an extended period of time. Groups of hackers may also act in
a coordinated manner to launch distributed denial of service attacks, or other coordinated attacks, that may cause service outages
or other interruptions. We could incur significant expenses in addressing problems created by network security breaches, such as
the expenses of deploying additional personnel, enhancing or implementing new protection measures, training employees or hiring
consultants. Further, such corrective measures may later prove inadequate. Moreover, actual or perceived security vulnerabilities
in our services and products could cause significant reputational harm, causing us to lose existing or potential customers.
Reputational damage could also result in diminished investor confidence. Actual or perceived vulnerabilities may also lead to
claims against us. Although our license agreements typically contain provisions that eliminate or limit our exposure to such
liability, there is no assurance these provisions will withstand legal challenges. We could also incur significant expenses in
connection with customers’ system failures.
In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties
may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the
operation of the system. The costs to eliminate or alleviate security problems, viruses and bugs could be significant, and the efforts
to address these problems could result in interruptions, delays or cessation of service that could impede sales, manufacturing,
distribution or other critical functions.
Portions of our information technology infrastructure also may experience interruptions, delays or cessations of service or produce
errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in
implementing new systems, and transitioning data and other aspects of the process could be expensive, time consuming, disruptive
and resource-intensive. Such disruptions could adversely impact the ability to fulfill orders and interrupt other processes. Delayed
sales, lower margins, lost customers or diminished investor confidence resulting from these disruptions could adversely affect
financial results, stock price and reputation.
An inability to attract, retain and motivate key employees could harm current and future operations.
In order to be successful, we must attract, retain and motivate executives and other key employees, including those in managerial,
professional, administrative, technical, sales, marketing and information technology support positions. We also must keep
employees focused on our strategies and goals. Hiring and retaining qualified executives, engineers and qualified sales
representatives are critical to our future, and competition for experienced employees in these areas can be intense. The failure to
hire or loss of key employees could have a significant impact on our operations.
11
We may not be able to generate sufficient cash flows to fund our operations and make adequate capital investments, or to pay
dividends or continue dividend increases.
Our cash flows from operations depend primarily on sales and service margins. To develop new service and product technologies,
support future growth, achieve operating efficiencies and maintain service and product quality, we must make significant capital
investments in manufacturing technology, facilities and capital equipment, research and development, and service and product
technology. In addition to cash provided from operations, we have from time to time utilized external sources of financing.
Depending upon general market conditions or other factors, we may not be able to generate sufficient cash flows to fund our
operations and make adequate capital investments, or to continue our trend of annual dividend increases or to continue to pay
dividends at all, either in whole or in part. In addition, due to the recent economic downturn there has been a tightening of the
credit markets, which may limit our ability to obtain alternative sources of cash to fund our operations.
New service and product developments may be unsuccessful.
We are constantly looking to develop new services and products that complement or leverage the underlying design or process
technology of our traditional service and product offerings. We make significant investments in service and product technologies
and anticipate expending significant resources for new software-led services and product development over the next several years.
There can be no assurance that our service and product development efforts will be successful, that we will be able to cost effectively
develop or manufacture these new services and products, that we will be able to successfully market these services and products
or that margins generated from sales of these services and products will recover costs of development efforts.
An adverse determination that our services, products or manufacturing processes infringe the intellectual property rights of
others could have a materially adverse effect on our business, operating results or financial condition.
As is common in any high technology industry, others have asserted from time to time, and may assert in the future, that our
services, products or manufacturing processes infringe their intellectual property rights. A court determination that our services,
products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or
require us to make material changes to our services, products and/or manufacturing processes. We are unable to predict the outcome
of assertions of infringement made against us. Any of the foregoing could have a materially adverse effect on our business,
operating results or financial condition.
Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial
performance and restrict our ability to operate our business or execute our strategies.
New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or enforcement, could
increase our cost of doing business and restrict our ability to operate our business or execute our strategies. This includes, among
other things, the possible taxation under U.S. law of certain income from foreign operations, compliance costs and enforcement
under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), and costs associated with complying
with the Patient Protection and Affordable Care Act of 2010 and the regulations promulgated thereunder. For example, under
Section 1502 of the Dodd-Frank Act, the SEC has adopted additional disclosure requirements related to the source of certain
“conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or product manufactured, or
contracted to be manufactured, by that issuer. The metals covered by the rules include tin, tantalum, tungsten and gold, commonly
referred to as “3TG.” Our suppliers may use some or all of these materials in their production processes. The SEC's rules require
us to perform supply chain due diligence on every member of our supply chain, including the mine owner and operator. Global
supply chains can have multiple layers, thus the costs of complying with these new requirements could be substantial. These new
requirements may also reduce the number of suppliers who provide conflict free metals, and may affect our ability to obtain
products in sufficient quantities or at competitive prices. Compliance costs and the unavailability of raw materials could have a
material adverse effect on our results of operations.
Anti-takeover provisions could make it more difficult for a third party to acquire us.
Certain provisions of our charter documents, including provisions limiting the ability of shareholders to raise matters at a meeting
of shareholders without giving advance notice and permitting cumulative voting, may make it more difficult for a third party to
gain control of our Board of Directors and may have the effect of delaying or preventing changes in our control or management.
This could have an adverse effect on the market price of our common stock. Additionally, Ohio corporate law provides that certain
notice and informational filings and special shareholder meeting and voting procedures must be followed prior to consummation
of a proposed “control share acquisition,” as defined in the Ohio Revised Code. Assuming compliance with the prescribed notice
and information filings, a proposed control share acquisition may be made only if, at a special meeting of shareholders, the
acquisition is approved by both a majority of our voting power represented at the meeting and a majority of the voting power
remaining after excluding the combined voting power of the “interested shares,” as defined in the Ohio Revised Code. The
application of these provisions of the Ohio Revised Code also could have the effect of delaying or preventing a change of control.
12
Any actions or other governmental investigations or proceedings related to or arising from the matters that resulted in the 2009
SEC settlement, including the related SEC investigation and Department of Justice investigation, could result in substantial
costs to defend enforcement or other related actions that could have a materially adverse effect on our business, operating
results or financial condition.
The Company had previously reached an agreement in principle in 2009 with the staff of the SEC to settle civil charges stemming
from the staff's enforcement inquiry. We could incur substantial additional costs to defend and resolve third-party litigation or
other governmental actions, investigations or proceedings arising out of, or related to, the completed investigations or the SEC
settlement. In addition, we could be exposed to enforcement or other actions with respect to these matters by the SEC's Division
of Enforcement or the DOJ. The diversion of resources to address issues arising out of any such third-party or governmental
actions may harm our business, operating results and financial condition in the future.
Our ability to maintain effective internal control over financial reporting may be insufficient to allow us to accurately report
our financial results or prevent fraud, and this could cause our financial statements to become materially misleading and
adversely affect the trading price of our common stock.
We require effective internal control over financial reporting in order to provide reasonable assurance with respect to our financial
reports and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because
of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore,
even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of
financial statements. If we cannot provide reasonable assurance with respect to our financial statements and effectively prevent
fraud, our financial statements could become materially misleading which could adversely affect the trading price of our common
stock.
Management identified control deficiencies during 2012 that constituted a material weakness. In August 2012, one of our Brazilian
subsidiaries was notified of a tax assessment of approximately $133,000, including penalties and interest, regarding certain Brazilian
federal indirect taxes for 2008 and 2009, alleging improper importation of certain components into the country's free trade zone
that would nullify certain indirect tax incentives. After evaluating relevant controls, we concluded that controls pertaining to
manufacturing and supply chain processes that could materially impact indirect tax incentives in the Brazilian subsidiary and roles
and responsibilities within this Brazilian subsidiary pertaining to the operation of these controls were not designed and/or operating
effectively, and controls designed to ensure adequate and effective communication by operational management to regional and
corporate management were not operating effectively. In 2012, we have enhanced, and in 2013 will continue to enhance, our
internal control over financial reporting. As of December 31, 2012, we had not remediated the material weakness. If we are not
able to maintain the adequacy of our internal control over financial reporting, including any failure to implement required new or
improved controls, or if we experience difficulties in their implementation, our business, financial condition and operating results
could be harmed.
Any material weakness could affect investor confidence in the accuracy and completeness of our financial statements. As a result,
our ability to obtain any additional financing, or additional financing on favorable terms, could be materially and adversely affected.
This, in turn, could materially and adversely affect our business, financial condition and the market value of our securities and
require us to incur additional costs to improve our internal control systems and procedures. In addition, perceptions of our Company
among customers, lenders, investors, securities analysts and others could also be adversely affected.
We can give no assurances that any additional material weaknesses will not arise in the future due to our failure to implement and
maintain adequate internal control over financial reporting. In addition, although we have been successful historically in
strengthening our controls and procedures, those controls and procedures may not be adequate to prevent or identify irregularities
or ensure the fair presentation of our financial statements included in our periodic reports filed with the SEC.
Low investment performance by our domestic pension plan assets may result in an increase to our net pension liability and
expense, which may require us to fund a portion of our pension obligations and divert funds from other potential uses.
We sponsor several defined benefit pension plans that cover certain eligible employees. Our pension expense and required
contributions to our pension plans are directly affected by the value of plan assets, the projected rate of return on plan assets, the
actual rate of return on plan assets and the actuarial assumptions we use to measure the defined benefit pension plan obligations.
A significant market downturn could occur in future periods resulting in a decline in the funded status of our pension plans and
actual asset returns to be below the assumed rate of return used to determine pension expense. If return on plan assets in future
periods perform below expectations, future pension expense will increase. Further, as a result of global economic instability in
recent years, our pension plan investment portfolio has been volatile.
13
We establish the discount rate used to determine the present value of the projected and accumulated benefit obligations at the end
of each year based upon the available market rates for high quality, fixed income investments. We match the projected cash flows
of our pension plans against those generated by high-quality corporate bonds. The yield of the resulting bond portfolio provides
a basis for the selected discount rate. An increase in the discount rate would reduce the future pension expense and, conversely,
a decrease in the discount rate would increase the future pension expense.
Based on current guidelines, assumptions and estimates, including investment returns and interest rates, we plan to make
contributions of $3,343 to our pension plans in 2013. Changes in the current assumptions and estimates could result in contributions
in years beyond 2013 that are greater than the projected 2013 contributions required. We cannot predict whether changing market
or economic conditions, regulatory changes or other factors will further increase our pension expenses or funding obligations,
diverting funds we would otherwise apply to other uses.
Our businesses are subject to inherent risks, some for which we maintain third-party insurance and some for which we self-
insure. We may incur losses and be subject to liability claims that could have a material adverse effect on our financial condition,
results of operations or cash flows.
We maintain insurance policies that provide limited coverage for some, but not all, of the potential risks and liabilities associated
with our businesses. The policies are subject to deductibles and exclusions that result in our retention of a level of risk on a self-
insurance basis. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to
the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase
substantially, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage.
As a result, we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially
reasonable terms, if at all. Even where insurance coverage applies, insurers may contest their obligations to make payments. Our
financial condition, results of operations and cash flows could be materially and adversely affected by losses and liabilities from
un-insured or under-insured events, as well as by delays in the payment of insurance proceeds, or the failure by insurers to make
payments. We also may incur costs and liabilities resulting from claims for damages to property or injury to persons arising from
our operations.
Our assumptions used to determine our self-insurance liability could be wrong and materially impact our business.
We evaluate our self-insurance liability based on historical claims experience, demographic factors, severity factors and other
actuarial assumptions. However, if future occurrences and claims differ from these assumptions and historical trends, our business,
financial results and financial condition could be materially impacted by claims and other expenses.
We are currently subject to a purported shareholder class action, the unfavorable outcome of which might have a material
adverse effect on our financial condition, operating results and cash flow.
A purported shareholder class action lawsuit has been filed against us and certain current former officers alleging violations of
federal securities laws. Although we believe this lawsuit is without merit, and we intend to vigorously defend against the claim,
we cannot determine with certainty the outcome or resolution of the claim or any future related claims, or the timing for their
resolution. In addition to the expense and burden incurred in defending this litigation and any damages that we may suffer,
management’s efforts and attention may be diverted from the ordinary business operations in order to address these claims. It is
reasonably possible that the resolution of this shareholder class action lawsuit could be material to the Company's consolidated
financial statements.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTIES
The Company's corporate offices are located in North Canton, Ohio. The Company owns manufacturing facilities in Lynchburg,
Virginia and Lexington, North Carolina. The Company also has manufacturing facilities in Belgium, Brazil, China, Hungary and
India. The Company has selling, service and administrative offices in the following locations: throughout the United States, and
in Australia, Austria, Barbados, Belgium, Belize, Bolivia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Dominican
Republic, Ecuador, El Salvador, France, Greece, Guatemala, Haiti, Honduras, Hong Kong, Hungary, India, Indonesia, Italy,
Jamaica, Kazakhstan, Malaysia, Mexico, Namibia, Netherlands, Nicaragua, Panama, Paraguay, Peru, Philippines, Portugal, Poland,
Russia, Singapore, South Africa, Spain, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom,
Uruguay, Venezuela and Vietnam. The Company leases a majority of the selling, service and administrative offices under operating
lease agreements.
14
The Company considers that its properties are generally in good condition, are well maintained, and are generally suitable and
adequate to carry on the Company's business.
ITEM 3: LEGAL PROCEEDINGS
(dollars in thousands)
At December 31, 2012, 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 Company's consolidated financial statements would not be materially affected
by the outcome of those legal proceedings, commitments, or asserted claims.
In addition to the routine legal proceedings noted above the Company was a party to the lawsuits described below at December 31,
2012:
Brazilian Federal Indirect Tax Assessment
In August 2012, one of the Company's Brazilian subsidiaries was notified of a tax assessment of approximately $133,000, including
penalties and interest, regarding certain Brazilian federal indirect taxes (Industrialized Products Tax, Import Tax, Programa de
Integração Social and Contribution to Social Security Financing) for 2008 and 2009. The assessment alleges improper importation
of certain components into the country's free trade zone that would nullify certain indirect tax incentives. On September 10, 2012,
the Company filed its administrative defenses with the tax authorities. This proceeding is currently pending an administrative
level decision, which could negatively impact Brazilian federal indirect taxes in other years that remain open under statute. It is
reasonably possible that the Company could be required to pay taxes, penalties and interest related to this matter, which could be
material to the Company's consolidated financial statements. Management believes that the possible range of loss associated with
the Brazilian federal indirect tax assessment is $0 to $236,000.
Securities Action
On June 30, 2010, a shareholder filed a putative class action complaint in the United States District Court for the Northern District
of Ohio alleging violations of the federal securities laws against the Company, certain current and former officers, and the Company's
independent auditors (Louisiana Municipal Police Employees Retirement System v. KPMG et al., No. 10-CV-1461). The complaint
seeks unspecified compensatory damages on behalf of a class of persons who purchased the Company's stock between June 30,
2005 and January 15, 2008 and fees and expenses related to the lawsuit. The complaint generally relates to the matters set forth
in the court documents filed by the SEC in June 2010 finalizing the settlement of civil charges stemming from the investigation
of the Company conducted by the Division of Enforcement of the SEC. It is reasonably possible that the resolution of this putative
federal securities class action could be material to the Company's consolidated financial statements; however, management believes
that any possible loss or range of loss cannot be estimated.
Global Foreign Corrupt Practices Act (FCPA) Review
During the second quarter of 2010, while conducting due diligence in connection with a potential acquisition in Russia, the
Company identified certain transactions and payments by its subsidiary in Russia (primarily during 2005 to 2008) that potentially
implicate the FCPA, particularly the books and records provisions of the FCPA. As a result, the Company conducted a global
internal review and collected information related to its global FCPA compliance. In the fourth quarter of 2010, the Company
identified certain transactions within its Asia Pacific operation that occurred over the past several years that may also potentially
implicate the FCPA. The Company continues to monitor its ongoing global compliance with the FCPA.
The Company has voluntarily self-reported its findings to the SEC and the U.S. Department of Justice (DOJ) and is cooperating
with these agencies in their review. The Company was previously informed that the SEC's inquiry had been converted to a formal,
non-public investigation. The Company also received a subpoena for documents from the SEC and a voluntary request for
documents from the DOJ in connection with the investigation. Because the SEC and DOJ investigations are ongoing, there can
be no assurance that their review will not find evidence of additional transactions that potentially implicate the FCPA. The Company
is continuing its discussions with the government toward a resolution to this matter. At this time, the Company cannot predict the
results of the government investigations, and it is reasonably possible that the resolution of these matters with the SEC and the
DOJ could result in changes in management's estimates of losses, which could be material to the Company's consolidated financial
statements.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
15
PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The common shares of the Company are listed on the New York Stock Exchange with a symbol of “DBD.” The price ranges of
common shares of the Company for the periods indicated below are as follows:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Full Year
2012
2011
2010
High
Low
High
Low
High
Low
$
$
40.38
42.93
38.49
34.33
42.93
$
$
29.21
35.03
31.48
27.66
27.66
$
$
36.35
37.12
33.89
33.59
37.12
$
$
30.20
29.26
24.70
25.83
24.70
$
$
32.23
35.18
31.59
33.29
35.18
$
$
26.47
24.22
25.72
29.79
24.22
There were approximately 52,329 shareholders at December 31, 2012, which includes an estimated number of shareholders who
have shares held in their accounts by banks, brokers, and trustees for benefit plans and the agent for the dividend reinvestment
plan.
On the basis of amounts paid and declared, the annualized dividends per share were $1.14, $1.12 and $1.08 in 2012, 2011 and
2010, respectively.
Information concerning the Company’s share repurchases made during the fourth quarter of 2012:
Period
October
November
December
Total
Total Number
of Shares
Purchased
(1)
792
11,611
—
12,403
Average Price
Paid Per Share
32.56
$
30.21
—
30.36
$
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
—
—
—
—
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans (2)
2,426,177
2,426,177
2,426,177
(1) All shares were surrendered or deemed surrendered to the Company in connection with the Company’s stock-based compensation plans.
(2) The total number of shares repurchased as part of the publicly announced share repurchase plan was 13,450,772 as of December 31, 2012. The plan
was approved by the Board of Directors in April 1997. The Company may purchase shares from time to time in open market purchases or privately
negotiated transactions. The Company may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans. The plan
has no expiration date. The following table provides a summary of Board of Director approvals to repurchase the Company's outstanding common
shares:
1997
2004
2005
2007
2011
2012
Total Number of Shares
Approved for Repurchase
2,000,000
2,000,000
6,000,000
2,000,000
1,876,949
2,000,000
15,876,949
16
PERFORMANCE GRAPH
The graph below compares the cumulative five-year total return to shareholders on Diebold, Inc.'s common stock relative to the
cumulative total returns of the S&P 500 index, the S&P Midcap 400 index and two customized peer groups of twenty-five companies
and twenty-four companies respectively, whose individual companies are listed in footnotes 1 and 2 below. The graph assumes
that the value of the investment in our common stock, in each index, and in each of the peer groups (including reinvestment of
dividends) was $100 on December 31, 2007 and tracks it through December 31, 2012.
(1) There are twenty-five companies included in the company's old customized peer group which are: Actuant Corp., Benchmark Electronics Inc., Brady Corp.,
Cooper Industries, Coinstar Inc., Dover Corp., Fidelity National Information Services, Fiserv Inc., Flowserve Corp., Global Payments Inc., Imation Corp.,
International Game Technology, Logitech International SA, Mastercard Inc., Mettler Toledo International Inc., NCR Corp., Pitney-Bowes Inc., Rockwell
Automation Inc., Sensata Technologies Holding NV, SPX Corp., The Brinks Company, The Timken Company, Unisys Corp., Western Union Company (The)
and Woodward Inc.
(2) The twenty-four companies included in the company's new customized peer group are: Actuant Corp., Benchmark Electronics Inc., Brady Corp., Coinstar
Inc., DTS Inc., Fidelity National Information Services, Fiserv Inc., Flowserve Corp., Global Payments Inc., Harris Corp., Imation Corp., International Game
Technology, Lexmark International Inc., Logitech International SA, Mettler Toledo International Inc., NCR Corp., Pitney-Bowes Inc., Sensata Technologies
Holding NV, SPX Corp., The Brinks Company, The Timken Company, Unisys Corp., Western Union Company (The) and Woodward Inc. This peer group
originally included Cooper Industries, Limited, however, in November 2012, Cooper Industries was acquired by Eaton Corp. and, as such, was dropped from
the peer group.
17
ITEM 6: SELECTED FINANCIAL DATA
The following table should be read in conjunction with “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Part II — Item 8 — Financial Statements and Supplementary Data.”
Results of operations
Net sales
Cost of sales
Gross profit
Amounts attributable to Diebold, Incorporated
Income (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Diebold, Incorporated
Basic earnings per common share:
Income (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Diebold, Incorporated
Diluted earnings per common share:
Income (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Diebold, Incorporated
Number of weighted-average shares outstanding
Basic shares
Diluted shares
Dividends
Common dividends paid
Common dividends paid per share
Consolidated balance sheet data (as of period end)
Current assets
Current liabilities
Net working capital
Property, plant and equipment, net
Total long-term liabilities
Total assets
Total equity
$
$
$
$
$
$
$
$
$
$
$
Year Ended December 31,
2012
2011
2010
2009
2008
(in millions, except per share data)
$
$
$
$
$
$
$
$
2,992
2,256
736
82
(3)
78
1.29
(0.05)
1.24
1.28
(0.05)
1.23
63
64
$
$
$
$
$
$
$
$
2,836
2,100
736
144
1
145
2.24
0.01
2.25
2.23
0.01
2.24
64
65
2,824
2,104
720
$
$
(21) $
1
(20) $
(0.31) $
—
(0.31) $
(0.31) $
—
(0.31) $
66
66
$
$
$
$
$
$
$
$
2,718
2,068
650
73
(47)
26
1.10
(0.71)
0.39
1.09
(0.70)
0.39
66
67
73
1.14
$
$
73
1.12
$
$
72
1.08
$
$
69
1.04
$
$
3,082
2,307
775
108
(19)
89
1.63
(0.29)
1.34
1.62
(0.29)
1.33
66
66
67
1.00
1,815
$
1,732
$
1,714
$
1,588
$
1,614
839
976
184
909
2,593
845
824
908
193
835
2,517
858
810
904
203
720
2,520
990
743
845
205
740
2,555
1,072
735
879
204
838
2,538
964
18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Management's discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying
notes that appear elsewhere in this annual report on Form 10-K.
Introduction
Diebold, Incorporated is a global leader in providing integrated self-service delivery and security systems and services primarily
to the financial, commercial, government, and retail markets. Founded in 1859, the Company today has approximately
17,000 employees with representation in nearly 90 countries worldwide.
During the year, the Company accelerated its transformation into a world-class, software-led services provider aligned with the
security, convenience and efficiency needs of its customers. Three essential pillars provide the Company a clear path toward
reaching this future:
• A strategy that leverages its leadership in software-led services, attuned with the needs of the Company's core global
markets for financial self-service (FSS) and security solutions.
• The financial capacity to implement that strategy and fund the investments necessary to drive growth, while preserving
the ability to return value to shareholders in the form of reliable, growing dividends and, as appropriate, share repurchase.
• A disciplined risk assessment process, focused on proactively identifying and mitigating potential risks to the Company's
continued success.
The Company achieved six percent revenue growth in 2012 as well as operating profitability in Europe, Middle East and Africa
(EMEA) for the full year after completing extensive restructuring efforts in the region, which began in 2008. The Company is
also taking appropriate actions and making the necessary investments to reduce its overall cost structure and improve its near-
term delivery and execution. In addition, the Company is sharpening its focus on the execution of its core strategies in FSS and
electronic security and making the appropriate investments to deliver growth within these areas. The Company's strategic focus
remains sound and the growing backlog in Asia-Pacific and U.S. national accounts is encouraging. However, the Company
maintains a cautious outlook for 2013 given a difficult year-over-year comparison and an uncertain environment in the U.S. regional
bank space. In addition, the timing and outcome of large orders pending in Brazil could have a significant impact on the Company's
earnings in 2013.
Income from continuing operations attributable to Diebold, Incorporated, net of tax, for the year ended December 31, 2012 was
$81,579 or $1.28 per share, a decrease of $62,713 or $0.95 per share, respectively, from the year ended December 31, 2011. Total
revenue for the year ended December 31, 2012 was $2,991,693, an increase of $155,845 from the year ended December 31, 2011.
Income (loss) from continuing operations attributable to Diebold, Incorporated, net of tax, for the year ended December 31, 2011
was $144,292 or $2.23 per share, an increase of $164,819 or $2.54 per share respectively, from the year ended December 31, 2010.
In 2010, the Company incurred a non-cash goodwill impairment charge of $168,714 associated with the Company’s EMEA
business. Total revenue for the year ended December 31, 2011 was $2,835,848, up slightly compared to 2010.
Vision and strategy
The Company’s vision is to be recognized as the essential partner in creating and implementing ideas that optimize convenience,
efficiency and security. This vision is the guiding principle behind the Company’s transformation to becoming a more software
and services focused company. Services comprise more than 50 percent of the Company’s revenue and this percentage is expected
to continue to grow over time as the Company builds on its strong base of maintenance and advanced services to deliver world-
class integrated services.
Several years ago, the Company launched its Diebold Integrated Services outsourcing business in North America. Initially the
scale was small, generating about $5,000 in contract value in year one. In the ensuing years, it has achieved substantial growth
in this business. During 2012, the Company signed new integrated services contracts totaling approximately $300,000. The
Company also made appropriate investments within its services infrastructure in 2012 to support the sizable outsourcing business
19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
secured in late 2011 from TD Bank Group, one of the largest financial institutions in North America, as well as the continued
growth the Company expects in this space moving forward.
In addition to service and integrated services, another demand driver in the global ATM marketplace continued to be deposit
automation. Among the largest U.S. national banks there has been extensive deployment of deposit automation-enabled terminals.
Today, approximately 25 percent of ATMs globally are configured for automated deposits.
In its FSS business, during 2012, the Company's already strong solution set was further enhanced with the pilot of Concierge
Video Services. The solution enables consumers with immediate access to bank call center representatives right at the ATM terminal
for sales or bank account maintenance support. In addition to delivering a personal touch outside of regular business hours,
Concierge Video Services ultimately assists financial institutions in maximizing operational efficiency, improving the consumer
experience and enhancing the overall consumer relationship.
In its security business, the Company has an equal, if not greater, potential for a successful integrated services approach. Security
challenges and the systems to address them have grown increasingly complex. That has created a greater appetite among financial
institutions and commercial customers for outsourcing solutions, particularly in the areas of monitoring, services and software.
Today the Company is bringing its expertise back into the financial sector and pursuing other areas, namely the commercial market,
with a focused effort to secure large, complex and technologically demanding projects. The Company has customer-focused teams
that possess the high levels of specialized expertise in logical and enterprise security required in this business. The Company is
also leveraging best practices and some of the best talent to build the foundation for a new security outsourcing business.
Moving forward, the Company intends to create shareholder value by leveraging its growing advantage in software and services
capabilities, taking advantage of key market opportunities around the world and further leveraging opportunities in the security
business. To this extent, the Company made two strategic acquisitions in 2012, Altus in Turkey and GAS Tecnologia in Brazil.
Altus, an industry-leading multi-vendor service provider in Turkey, will allow the Company to better capitalize on the growth
opportunities provided by one of the fastest growing ATM markets in the world. GAS Tecnologia, a leading Internet banking,
online payment and mobile banking security company in Brazil, adds a meaningful addition to the Company's security portfolio
as the Company looks to build upon its expertise within this space and expand into other international markets. Many additional
opportunities lie ahead, and the Company will continue to invest in developing new software, services and security solutions,
particularly in emerging markets.
Cost savings initiatives, restructuring and other charges
Over the past several years, the Company’s SmartBusiness (SB) initiatives have led to rationalization of product development,
streamlined procurement, realignment of the Company’s manufacturing footprint and improved logistics. Building on that success,
the Company's SB 300 initiatives in 2011 shifted the focus from reducing cost of sales to lowering operating expenses and are
targeted to achieve an additional $100,000 in efficiencies by the end of 2013.
The Company is committed to making the strategic decisions that not only streamline operations, but also enhance its ability to
serve its customers. The Company remains confident in its ability to continue to execute on cost-reduction initiatives, deliver
solutions that help improve customers’ businesses and create shareholder value. During the years ended December 31, 2012, 2011
and 2010, the Company incurred pre-tax net restructuring charges of $15,241 or $0.17 per share, $26,182 or $0.32 per share and
$4,183 or $0.05 per share, respectively. Restructuring charges in 2012 primarily related to the Company’s global realignment
plan, including realignment of resources and certain international facilities to better support opportunities in target markets and
leverage software-led services technology to support customers in efforts to optimize overall operational performance. Also , the
Company's shared services plan in 2012 entailed expanding the global shared services center and transferred IT and financial
services-related jobs residing in other geographies to India. Restructuring charges in 2011 primarily related to the Company’s
EMEA reorganization plan, which realigns resources and further leverages the existing shared services center. Restructuring
charges in 2010 were primarily related to reduction in the Company’s global workforce.
Other charges consist of items that the Company has determined are non-routine in nature and are not expected to recur in future
operations. Net non-routine expenses of $42,328 or $0.45 per share impacted the year ended December 31, 2012 compared to
$14,981 or $0.16 per share and $16,234 or $0.21 per share in the same period of 2011 and 2010, respectively. Net non-routine
expenses for 2012 primarily related to the FCPA investigation, including $16,750 within miscellaneous, net of estimated pre-tax
losses related to the potential outcome of this matter and $21,907 within selling and administrative expense of pre-tax non-routine
20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
expenses related to early pension buy-out payments made to certain deferred terminated vested participants. Net non-routine
expenses for 2011 consisted primarily of legal and compliance costs related to the FCPA investigation and were recorded in selling
and administrative expense and miscellaneous, net. Net non-routine expenses for 2010 consisted primarily of a settlement and
legal fees related to a previously disclosed employment class-action lawsuit as well as legal and compliance costs related to the
FCPA investigation.
Business Drivers
The business drivers of the Company’s future performance include, but are not limited to:
•
•
•
•
•
demand for new service offerings, including software-led services and integrated services (i.e. outsourcing);
demand for security products and services for the financial, commercial, retail and government sectors;
demand for products and solutions related to bank branch transformation opportunities;
timing of self-service equipment upgrades and/or replacement cycles, including deposit automation in mature markets
such as the United States; and
high levels of deployment growth for new self-service products in emerging markets, such as Asia Pacific.
21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
The table below presents the changes in comparative financial data for the years ended December 31, 2012, 2011 and 2010.
Comments on significant year-to-year fluctuations follow the table. The following discussion should be read in conjunction with
the consolidated financial statements and the accompanying notes that appear elsewhere in this annual report on Form 10-K.
Year ended December 31,
2011
% of
Net
Sales
54.7
45.3
100.0
40.1
33.9
74.0
26.0
17.7
2.8
0.1
(0.1)
20.5
5.5
0.3
5.8
0.5
5.3
—
5.4
0.3
5.1
5.1
—
5.1
2010
$ 1,493,425
1,330,368
2,823,793
1,100,305
1,003,923
2,104,228
719,565
472,956
74,225
175,849
(1,663)
721,367
(1,802)
(595)
(2,397)
14,561
% of
Net
Sales
52.9
47.1
100.0
39.0
35.6
74.5
25.5
16.7
2.6
6.2
(0.1)
25.5
(0.1)
—
(0.1)
0.5
(16,958)
(0.6)
275
(16,683)
—
(0.6)
%
Change
3.9
(3.5)
0.4
3.4
(4.2)
(0.2)
2.3
6.0
5.2
N/M
15.5
(19.6)
N/M
N/M
N/M
(12.0)
N/M
90.2
N/M
104.1
3,569
0.1
N/M
$
(20,252)
(0.7)
$
(20,527)
(0.7)
275
—
$
(20,252)
(0.7)
2012
% of
Net
Sales
54.4
45.6
100.0
40.6
34.8
75.4
24.6
17.1
2.9
0.5
—
20.4
4.2
(0.2)
3.9
1.0
2.9
$ 1,626,521
1,365,172
2,991,693
1,215,673
1,039,867
2,255,540
736,153
510,979
85,881
15,783
(1,202)
611,441
124,712
(7,286)
117,426
29,905
87,521
(3,125)
84,396
(0.1)
2.8
Net sales
Services
Products
Cost of sales
Services
Products
Gross profit
Selling and administrative expense
Research, development and
engineering expense
Impairment of assets
Gain on sale of assets, net
Operating profit (loss)
Other (expense) income, net
Income (loss) from continuing
operations before taxes
Taxes on income
Income (loss) from continuing
operations
(Loss) income from discontinued
operations, net of tax
Net income (loss)
Net income attributable to
noncontrolling interests
%
Change
4.8
6.4
5.5
6.8
8.1
7.4
—
2.0
10.0
N/M
(37.4)
5.4
(19.8)
N/M
(28.6)
133.4
(42.3)
N/M
(44.5)
(18.4)
$ 1,552,358
1,283,490
2,835,848
1,138,213
961,706
2,099,919
735,929
501,186
78,108
2,962
(1,921)
580,335
155,594
8,798
164,392
12,815
151,577
523
152,100
7,285
(45.8)
$
144,815
Net income (loss) attributable to
Diebold, Incorporated
$
78,454
5,942
0.2
2.6
Amounts attributable to
Diebold, Incorporated
Income (loss) from continuing
operations, net of tax
(Loss) income from discontinued
operations, net of tax
Net income (loss) attributable to
Diebold, Incorporated
$
81,579
2.7
$
144,292
(3,125)
(0.1)
523
$
78,454
2.6
$
144,815
22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
RESULTS OF OPERATIONS
2012 comparison with 2011
Net Sales
The following table represents information regarding our net sales for the years ended December 31:
Net sales
2012
2,991,693
$
2011
2,835,848
$ Change
$
155,845
% Change
5.5
$
FSS sales in 2012 improved $174,356 or 8.2 percent compared to 2011. The increase in FSS sales included a net unfavorable
currency impact of $85,545 or 4.5 percent, of which approximately 56 percent related to the Brazilian real. The following division
highlights include the impact of foreign currency. DNA sales increased $181,576 or 20.9 percent as a result of significant growth
within the U.S. regional and national bank business influenced by the Americans with Disabilities Act compliance and a focus on
deposit automation technology. With the expiration of the Americans with Disabilities Act compliance deadline, the rate of growth
in regional sales has slowed and led to a higher concentration of national bank sales. DI sales decreased by $7,220 or 0.6 percent
related to the following: EMEA decreased $20,085 or 5.8 percent; Latin America, including Brazil, increased $9,228 or 1.8 percent;
and Asia Pacific increased $3,637 or 0.9 percent. The decrease in EMEA was driven by an unfavorable currency impact, particularly
the euro and rand, partially offset with growth in South Africa compared to the prior year. The increase in Latin America, including
Brazil, was influenced by higher volume across most of the geographies despite the currency headwinds related to the Brazilian
real. The improvement in Asia Pacific was driven by higher volume in Thailand, partially offset by an unfavorable currency impact
associated mostly with the Indian rupee.
Security solutions sales in 2012 increased by $18,135 or 3.0 percent compared to 2011. DNA increased $3,938 or 0.7 percent
compared to the prior year combined with improvement in DI of $14,197 or 20.4 percent. The DNA variance was driven from
an increase in infrastructure projects for government agency and commercial customers, partially offset by lower volume with
financial customers compared to the prior year. The DI variance was a result of higher volume in Latin America, mostly in
Colombia and Chile, combined with an increase in Asia Pacific related to growth in India that was partially offset by lower volume
in Australia.
The Brazilian-based election and lottery systems sales in 2012 decreased by $36,646 or 39.5 percent compared to 2011,
inclusive of a $13,608 net unfavorable currency impact. The decrease was driven by a $46,116 reduction in election system
sales primarily due to lower volume, partially offset with an increase in lottery unit sales compared to 2011.
Gross Profit
The following table represents information regarding our gross profit for the years ended December 31:
Gross profit - services
Gross profit - products
Total gross profit
Gross margin - services
Gross margin - products
Total gross margin
2012
410,848
325,305
736,153
$
$
2011
414,145
321,784
735,929
$
$
$
$
$ Change
(3,297)
3,521
224
% Change
(0.8)
1.1
—
25.3%
23.8%
24.6%
26.7%
25.1%
26.0%
The decrease in service gross margin for 2012 compared to 2011 was driven by DNA and Latin America, including Brazil, partially
offset with improvement in EMEA. In DNA, service margin was down compared to the prior year due to the increased competitive
environment and associated pricing impact coupled with higher compensation and benefits, scrap, and insurance charges. The
decrease in Latin America, including Brazil, was driven by an increase in warranty expense combined with higher restructuring
charges in 2012. In EMEA, service margin improved as fewer net restructuring charges were incurred in 2012 related to the EMEA
reorganization paired with a favorable customer mix. Total service gross margin for 2012 included $6,226 of net restructuring
charges compared to $10,678 of net restructuring charges in 2011.
23
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
The decrease in product gross margin was driven by product and customer mix differences in Latin America, including Brazil, as
well as continued pricing pressure in the Asia Pacific region. Partially offsetting these decreases, DNA product revenue was
significantly higher in 2012, which caused a favorable shift in revenue mix between DNA and DI that improved product gross
margin. Total product gross margin for 2012 included $1,849 of net restructuring accrual benefits compared to $3,905 of net
restructuring charges in 2011 related mainly to the EMEA reorganization.
Operating Expenses
The following table represents information regarding our operating expenses for the years ended December 31:
2012
2011
$ Change
Selling and administrative expense
Research, development and engineering expense
Impairment of assets
Gain on sale of assets, net
Total operating expenses
$
$
510,979
85,881
15,783
(1,202)
611,441
$
$
501,186
78,108
2,962
(1,921)
580,335
$
$
9,793
7,773
12,821
719
31,106
% Change
2.0
10.0
N/M
(37.4)
5.4
Selling and administrative expense increased $9,793 or 2.0 percent in 2012 compared to 2011. The increase was due to higher
non-routine expenses, compensation and benefits increase, and legal expenses, partially offset by a favorable currency impact of
$13,848 and lower restructuring charges. Selling and administrative expense in 2012 and 2011 included non-routine expenses of
$24,792 and $13,230, respectively. The majority of non-routine expenses in 2012 were related to early pension buy-out payments
made to certain deferred terminated vested participants while most of the non-routine expenses in 2011 pertained to legal,
consultative, and audit costs related to the global FCPA investigation. In addition, selling and administrative expense included
$9,037 and $11,607 of restructuring charges in 2012 and 2011, respectively. The 2012 restructuring charges related to the Company's
global realignment and global shared services plans. The 2011 restructuring charges related mainly to the EMEA reorganization.
Research, development and engineering expense as a percent of net sales in 2012 and 2011 were 2.9 percent and 2.8 percent,
respectively and increased $7,773 year over year. The increase in operational spend was associated with key initiatives such as
the development of next generation hardware and software platforms. Research, development and engineering expense also
included higher restructuring charges associated with the Company's global realignment plan.
During the second quarter of 2012, the Company impaired previously capitalized software and software-related costs of $6,701
due to changes in the global ERP system implementation plan related to configuration and design. In the third quarter of 2012,
the Company recorded an impairment of $7,930 related to its 50 percent ownership in Shanghai Diebold King Safe Company,
Ltd. In the fourth quarter of 2012, the Company recorded an impairment of $1,012 related to the Company's decision to cancel
the new corporate headquarters project. The impairment charge of $2,962 in 2011 resulted from a non-cash intangible asset
impairment related to a prior acquisition.
Operating Profit
The following table represents information regarding our operating profit for the years ended December 31:
Operating profit
Operating profit margin
2012
124,712
$
2011
155,594
$
$ Change
$
(30,882)
% Change
(19.8)
4.2%
5.5%
The decrease in operating profit in 2012 compared to 2011 was influenced by a decrease in both service and product gross margins
paired with the increase in operating expenses noted above. All of these items combined to produce a 1.3 percentage point decrease
in operating profit margin in 2012 compared to 2011.
24
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Other Income (Expense)
The following table represents information regarding our other income (expense) for the years ended December 31:
Investment income
Interest expense
Foreign exchange gain (loss), net
Miscellaneous, net
Other income (expense)
2012
2011
$ Change
$
$
$
37,593
(30,330)
2,654
(17,203)
(7,286) $
41,663
(34,456)
3,095
(1,504)
8,798
$
$
(4,070)
(4,126)
(441)
(15,699)
(16,084)
% Change
(9.8)
(12.0)
14.2
N/M
N/M
Miscellaneous expense was unfavorable $15,699 driven primarily from non-routine expenses of $16,750 and $3,250 in 2012 and
2011, respectively. These non-routine expenses related to the Company's estimate of losses associated with the potential outcome
of the FCPA investigation. Interest expense in 2012 was favorable compared to 2011 due to lower interest rates and favorable
foreign exchange hedge activity. Investment income declined in 2012 from the influence of a net unfavorable currency impact in
DI.
Income from Continuing Operations
The following table represents information regarding our income (loss) from continuing operations for the years ended December
31:
Income from continuing operations, net of tax
$
87,521
$
2012
2011
151,577
$ Change
$
(64,056)
% Change
42.3
Percent of net sales
Effective tax rate
2.9%
25.5%
5.3%
7.8%
The decrease in net income from continuing operations in 2012 compared to 2011 was driven by the reduction in operating profit
margin, a decrease in other income, and the increase in the effective tax rate. The 17.7 percentage point increase in the effective
tax rate was due to the 2011 benefit of valuation allowance released in Brazil, offset by 2012 net income in jurisdictions with a
lower tax rate.
Segment Revenue and Operating Profit Summary
The following table represents information regarding our revenue by reporting segment for the years ended December 31:
DNA
DI
Total net sales
2012
1,590,532
1,401,161
2,991,693
$
$
2011
1,405,018
1,430,830
2,835,848
$
$
$
$
$ Change
185,514
(29,669)
155,845
% Change
13.2
(2.1)
5.5
The increase in DNA net sales was driven by growth in the FSS business, particularly related to higher product volume in both
the U.S. regional and national bank business. The higher FSS product volume influenced growth in service installations and
software-led services. Partially offsetting these increases was a reduction in security product volume in the U.S. national bank
business.
The decrease in DI net sales was influenced by a net unfavorable currency impact of $99,131, of which approximately 62 percent
related to the Brazilian real. Operationally, DI realized higher FSS volumes in Latin America, including Brazil, Asia Pacific, and
EMEA. In addition, Latin America generated a higher volume of security sales, particularly Colombia and Chile, while Brazil
benefited from an increase in lottery unit sales in 2012 compared to 2011. These increases were partially offset with fewer election
system sales in Brazil for 2012.
25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
The following table represents information regarding our operating profit by reporting segment for the years ended December 31:
DNA
DI
Total operating profit
2012
2011
$ Change
$
$
103,596
21,116
124,712
$
$
123,033
32,561
155,594
$
$
(19,437)
(11,445)
(30,882)
% Change
(15.8)
(35.1)
(19.8)
DNA operating profit for 2012 decreased by $19,437 compared to 2011. The decrease was driven by a lower margin in traditional
maintenance services related to competitive pricing and higher compensation and benefits, scrap, and insurance charges. Operating
expenses were also higher in DNA related to an increase in non-routine expenses and restructuring charges, higher compensation
and benefit costs, impairment charges, and research, development and engineering expense. These decreases were partially offset
by higher FSS product volume in the U.S. regional bank business.
DI operating profit for 2012 decreased by $11,445 compared to 2011. The decrease was driven by customer and product mix
differences in Latin America, including Brazil as well as fewer election system sales compared to the prior year. In addition,
pricing pressures continued in the Asia Pacific region. Partially offsetting these decreases, EMEA benefited from fewer restructuring
charges related to the 2011 reorganization combined with operational improvement related to customer and product mix. An
improvement in operating expenses was realized across a mix of geographies, inclusive of a favorable currency impact and higher
impairment charges.
Refer to note 19 to the consolidated financial statements for further details of segment revenue and operating profit.
2011 comparison with 2010
Net Sales
The following table represents information regarding our net sales for the years ended December 31:
Net sales
2011
2,835,848
$
2010
2,823,793
$
$
$ Change
12,055
% Change
0.4
FSS sales in 2011 increased by $91,156 or 4.5 percent compared to 2010. The increase in FSS sales included a net favorable
currency impact of $45,972, of which approximately 50 percent related to the Brazilian real. The following division highlights
include the impact of foreign currency. DNA increased $107,193 or 14.1 percent due to continued growth within the U.S. regional
bank business with customer demand focused on meeting regulatory requirements and providing deposit automation technology.
DI sales decreased by $16,037 or 1.2 percent related to the following: Latin America, including Brazil, decreased $58,343 or 10.0
percent, EMEA decreased $5,487 or 1.6 percent and Asia Pacific increased $47,793 or 13.6 percent. The decrease in Latin America,
including Brazil, was driven mainly from lower volume in Brazil paired with improvement across most of Latin America. The
decrease in EMEA was influenced by lower volumes in Europe, partially offset with growth in Africa. The increase in Asia Pacific
resulted from additional volume in several countries most notably China and India.
Security solutions sales in 2011 decreased by $24,843 or 3.9 percent compared to 2010. DNA decreased $22,756 or 4.1 percent
compared to the prior year and DI decreased by $2,087 or 2.9 percent. The reduction in DNA was influenced by lower product
volumes in the U.S. regional and national bank business. The DI variance was due to a reduction in Asia Pacific mostly from
Australia, partially offset by improvement in Latin America compared to 2010.
The Brazil-based lottery and election systems sales decreased $54,258 or 36.9 percent in 2011 compared to 2010. This decrease
was driven by a $47,767 reduction in election sales as well as a $6,491 decrease in lottery sales compared to 2010. Election sales
decreased due to cyclical purchasing decisions within the country.
26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Gross Profit
The following table represents information regarding our gross profit for the years ended December 31:
Gross profit - services
Gross profit - products
Total gross profit
Gross margin - services
Gross margin - products
Total gross margin
2011
414,145
321,784
735,929
$
2010
393,120
326,445
719,565
$
$
$ Change
21,025
(4,661)
16,364
% Change
5.3
(1.4)
2.3
26.7%
25.1%
26.0%
26.3%
24.5%
25.5%
The increase in service gross margin resulted from operational cost efficiencies in Brazil as well as growth in DNA, Asia Pacific
and Latin America. Partially offsetting these increases, EMEA realized lower margin mostly due to higher restructuring charges
in 2011 related to the EMEA reorganization. Total service gross margin for 2011 included $10,678 of restructuring charges
compared to $540 of charges in the same period of 2010.
The increase in product gross margin was driven by DNA with higher volumes and favorable customer mix, primarily from the
U.S. regional bank business as well as favorable absorption in the U.S. manufacturing plants due to higher production volume.
Partially offsetting these improvements, a reduction in DI was related mostly to lower volume in Brazil paired with lower margins
across most of the other geographies. Additionally, the total product gross margin in 2011 and 2010 included restructuring charges
of $3,905 and $1,163, respectively.
Operating Expenses
The following table represents information regarding our operating expenses for the years ended December 31:
Selling and administrative expense
Research, development and engineering expense
Impairment of assets
Gain on sale of assets, net
Total operating expenses
$
$
2011
2010
$ Change
501,186
78,108
2,962
(1,921)
580,335
$
$
472,956
74,225
175,849
(1,663)
721,367
$
$
28,230
3,883
(172,887)
(258)
(141,032)
% Change
6.0
5.2
(98.3)
15.5
(19.6)
Selling and administrative expense increased in 2011 compared to 2010 due to higher compensation and benefits, $7,976 of
unfavorable currency impact, higher restructuring expenses and lower non-routine income, partially offset with a reduction in
non-routine expenses. Selling and administrative expense in 2011 and 2010 included net, non-routine expense of $13,230 and
$16,234, respectively. Net non-routine expense in 2011 primarily pertained to legal, consultative, audit and severance costs related
to the FCPA investigation. Net non-routine expense in 2010 included settlement and legal fees related to an employment class
action lawsuit and legal and professional fees driven by the FCPA investigation, partially offset by non-routine income of $4,148
consisting of reimbursements from the Company's director and officer insurance carriers. In addition, selling and administrative
expense included $11,607 and $3,809 of restructuring charges in 2011 and 2010, respectively. The 2011 restructuring charges
related primarily to the EMEA reorganization.
Research, development and engineering expense as a percent of net sales in 2011 and 2010 was 2.8 percent and 2.6 percent,
respectively. The increase as a percent of net sales was due to higher project volume and focus on innovation.
The impairment charges in 2011 resulted from non-cash intangible asset impairments related primarily to prior acquisitions. The
impairment charges in 2010 resulted from a $168,714 non-cash goodwill impairment charge associated with the Company's EMEA
business, an impairment related to customer contract intangible assets and an other-than-temporary impairment related to a cost
method investment.
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Operating (Loss) Profit
The following table represents information regarding our operating (loss) profit for the years ended December 31:
Operating profit (loss)
Operating profit (loss) margin
2011
155,594
$
2010
$ Change
$
(1,802)
$
157,396
% Change
N/M
5.5%
(0.1)%
The increase in operating profit in 2011 compared to 2010 resulted from a decrease in operating expenses mostly related to a
reduction in impairment charges in EMEA, partially offset by an increase in other operating expenses noted above. In addition,
operating profit increased due to improved product and service margins and an increased service revenue base.
Other Income (Expense)
The following table represents information regarding our other income (expense) for the years ended December 31:
Investment income
Interest expense
Foreign exchange gain (loss), net
Miscellaneous, net
Other income (expense)
2011
2010
$ Change
$
$
41,663
(34,456)
3,095
(1,504)
8,798
$
$
$
34,545
(37,887)
(1,301)
4,048
(595) $
7,118
(3,431)
(4,396)
(5,552)
9,393
% Change
20.6
(9.1)
N/M
N/M
N/M
Investment income in 2011 was favorable compared to 2010, driven primarily by Brazil, with a combination of increased investment
and favorable currency impact. The improvement in foreign exchange was influenced by the realization of favorable currency
positions. Interest expense was favorable compared to the same period in 2010 due to favorable interest rates and lower fees.
Income (Loss) from Continuing Operations
The following table represents information regarding our income from continuing operations for the years ended December 31:
Income (loss) from continuing operations, net of tax
Percent of net sales
Effective tax rate
2011
151,577
5.3
7.8%
2010
$ Change
168,535
(16,958)
(0.6)
607.5%
% Change
N/M
The increase in net income from continuing operations in 2011 compared to 2010 resulted from lower operating expenses related
to the 2010 non-cash goodwill impairment charge that did not recur in 2011, higher gross profit and favorable other income. The
effective tax rate in 2011 was positively impacted by an approximately $28,000 valuation allowance released in Brazil. Sustained
improvement in operating results, combined with a more favorable outlook for business in Brazil, triggered the release of this
valuation allowance on deferred tax assets. The effective tax rate in 2010 was negatively impacted by the impairment of non-
deductible goodwill.
Segment Revenue and Operating Profit Summary
The following table represents information regarding our revenue by reporting segment for the years ended December 31:
DNA
DI
Total net sales
2011
1,405,018
1,430,830
2,835,848
$
$
2010
1,320,581
1,503,212
2,823,793
$
$
$
$
$ Change
84,437
(72,382)
12,055
% Change
6.4
(4.8)
0.4
The increase in DNA net sales was due to higher FSS product volume in both the U.S. regional and national bank business. In
addition, higher volume was also realized in managed and other services. Partially offsetting the increases, a reduction in security
products was realized in both the U.S. regional and national bank business.
28
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
The decrease in DI net sales was due primarily to lower FSS and election systems volume in Brazil, partially offset by a net
favorable currency impact of $58,917, of which approximately 59 percent related to Brazil. These decreases were also partially
offset by service revenue growth in Asia Pacific compared to 2010.
The following table represents information regarding our operating profit (loss) by reporting segment for the years ended December
31:
DNA
DI
Total operating profit (loss)
2011
2010
$ Change
123,033
32,561
155,594
81,022
(82,824)
(1,802)
42,011
115,385
157,396
% Change
51.9
(139.3)
N/M
DNA operating profit for 2011 increased by $42,011 or 51.9 percent compared to 2010. The increase was driven primarily by
higher FSS product volume in the U.S. regional bank business, improvement in U.S. installation related to higher volume and cost
efficiencies as well as a reduction in non-routine expenses. These increases were partially offset with an increase in operating
expense related mostly to higher compensation and benefits as well as lower non-routine income.
DI operating profit for 2011 increased by $115,385 compared to 2010 primarily due to a non-cash goodwill impairment charge
of $168,714 incurred in 2010 associated with the Company's EMEA business. Partially offsetting this improvement were lower
FSS and election systems sales in Brazil, higher restructuring expenses related mostly to the EMEA reorganization and higher
operational expenses across most geographies.
Refer to note 19 to the consolidated financial statements for further details of segment revenue and operating profit.
LIQUIDITY AND CAPITAL RESOURCES
Capital resources are obtained from income retained in the business, borrowings under the Company’s senior notes, committed
and uncommitted credit facilities, long-term industrial revenue bonds and operating and capital leasing arrangements. Management
expects that the Company’s capital resources will be sufficient to finance planned working capital needs, research and development
activities, investments in facilities or equipment, pension contributions, the payment of dividends on the Company’s common
shares and the purchase of the Company’s common shares for at least the next 12 months. At December 31, 2012, approximately
$614,000 or 97 percent of the Company’s cash and cash equivalents and short-term investments reside in international tax
jurisdictions. Repatriation of these funds could be negatively impacted by potential foreign and domestic taxes. Part of the
Company’s growth strategy is to pursue strategic acquisitions. The Company has made acquisitions in the past and intends to
make acquisitions in the future. The Company intends to finance any future acquisitions with either cash and short-term investments,
cash provided from operations, borrowings under available credit facilities, proceeds from debt or equity offerings and/or the
issuance of common shares.
The following table summarizes the results of our consolidated statement of cash flows for the years ended December 31:
Net cash flow provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
2012
2011
2010
135,508
(72,831)
(36,227)
8,422
34,872
$
$
215,397
(90,706)
(123,535)
4,106
5,262
$
$
273,353
(164,756)
(111,100)
2,735
232
$
$
During 2012, the Company generated $135,508 in cash from operating activities, a decrease of $79,889 from 2011. Cash flows
from operating activities are generated primarily from operating income and managing the components of working capital. Cash
flows from operating activities during the year ended December 31, 2012 compared to the year ended December 31, 2011, were
negatively impacted by a $67,704 decrease in net income, as well as unfavorable changes in trade receivables, prepaid expenses,
refundable income taxes, other current assets, accounts payable and deferred revenue. These changes were partially offset by
favorable changes in inventories, deferred income taxes, pension and postretirement benefits and certain other assets and liabilities,
including the sale of finance receivables.
29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Net cash used in investing activities was $72,831 in 2012, a decrease of $17,875 from 2011. The decrease was primarily due to
a $43,681 change in net investment security activity, a $8,309 decrease in other asset expenditures and a decrease of $5,011 in
capital expenditures. These activities were partially offset by $28,292 paid for acquisitions in 2012 and a $6,086 decrease in
collections on purchased finance receivables.
Net cash used in financing activities was $36,227 in 2012, a decrease of $87,308 from 2011. The decrease was primarily due to
a decrease of common share repurchases of $108,363, an increase in the issuance of common shares related to share-based
compensation activity of $12,636 and a decrease of $3,776 in distributions to noncontrolling interest holders. This was partially
offset by a $39,566 increase in net borrowings.
Benefit Plans The Company expects to contribute $3,343 to its pension plans during the year ending December 31, 2013. Beyond
2013, minimum statutory funding requirements for the Company's U.S. pension plans may become significant. However, the
actual amounts required to be contributed are dependent upon, among other things, interest rates, underlying asset returns and the
impact of legislative or regulatory actions related to pension funding obligations. The Company has adopted a pension investment
policy designed to achieve an adequate funded status based on expected benefit payouts and to establish an asset allocation that
will meet or exceed the return assumption while maintaining a prudent level of risk. The plan's target asset allocation adjusts
based on the plan's funded status. As the funded status improves or declines, the debt security target allocation will increase and
decrease, respectively.
Payments due under the Company's other postretirement benefit plans are not required to be funded in advance, but are paid as
medical costs are incurred by covered retirees, and are principally dependent upon the future cost of retiree medical benefits under
these plans. We expect the other postretirement benefit plan payments to approximate $1,607 in 2013, net of a benefit of
approximately $191 from the Medicare prescription subsidy. Refer to note 12 to the consolidated financial statements for further
discussion of the Company's pension and other postretirement benefit plans.
Dividends The Company paid dividends of $72,830, $72,901 and $71,900 in the years ended December 31, 2012, 2011 and 2010,
respectively. Annualized dividends per share were $1.14, $1.12 and $1.08 for the years ended December 31, 2012, 2011 and 2010,
respectively. The quarterly 2013 cash dividend, which represents $1.15 per share on an annualized basis, marks the Company's
60th consecutive annual dividend increase.
Contractual Obligations The following table summarizes the Company’s approximate obligations and commitments to make
future payments under contractual obligations as of December 31, 2012:
Minimum operating lease obligations
Debt
Interest on debt (1)
Purchase commitments
Total
Total
224,205
651,746
93,684
9,772
979,407
$
$
Less than 1
year
$
$
41,932
109,212
21,161
9,772
182,077
$
$
Payment due by period
1-3 years
3-5 years
More than 5
years
57,195
2,437
49,277
—
108,909
$
$
35,659
490,090
12,038
—
537,787
$
$
89,419
50,007
11,208
—
150,634
(1) Amounts represent estimated contractual interest payments on outstanding long-term debt and notes payable. Rates in effect as of December 31,
2012 are used for variable rate debt.
At December 31, 2012, the Company also had uncertain tax positions of $13,178, for which there is a high degree of uncertainty
as to the expected timing of payments (refer to note 4 to the consolidated financial statements).
As of December 31, 2012, the Company had various short-term uncommitted lines of credit with borrowing limits of $111,337.
The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of December 31,
2012 and 2011 was 2.81 percent and 4.23 percent, respectively. The decline in the weighted-average interest rate is attributable
to the change in geographic mix of borrowings. Short-term uncommitted lines mature in less than one year. The amount available
under the short-term uncommitted lines at December 31, 2012 was $77,421.
In June 2011, the Company entered into a five-year credit facility, which replaced its previous credit facility. As of December 31,
2012, the Company had borrowing limits under the credit facility totaling $500,000. Under the terms of the credit facility agreement,
30
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
the Company has the ability, subject to various approvals, to increase the borrowing limits by $250,000. Up to $50,000 of the
revolving credit facility is available under a swing line subfacility. The weighted-average interest rate on outstanding credit facility
borrowings as of December 31, 2012 and 2011 was 1.33 percent and 1.49 percent, respectively, which is variable based on the
London Interbank Offered Rate (LIBOR). The amount available under the credit facility as of December 31, 2012 was $200,000.
The Company incurred $1,876 of fees related to its credit facility in 2011, which are amortized as a component of interest expense
over the term of the facility.
In March 2006, the Company issued senior notes in an aggregate principal amount of $300,000 with a weighted-average fixed
interest rate of 5.50 percent. The maturity dates of the senior notes are staggered, with $75,000, $175,000 and $50,000 becoming
due in 2013, 2016 and 2018, respectively. As of December 31, 2012, although due within twelve months, $75,000 of the senior
notes remain classified as long-term debt because of the Company's intent and ability to fund the repayment using amounts available
under its credit facility. Additionally, the Company entered into a pre-issuance cash flow hedge to offset interest rate risk on
$200,000 of the senior notes, which reduced the effective interest rate by 14 basis points from 5.50 to 5.36 percent.
The Company’s financing agreements contain various restrictive financial covenants, including net debt to capitalization and net
interest coverage ratios. As of December 31, 2012, the Company was in compliance with the financial covenants in its debt
agreements.
Off-Balance Sheet Arrangements The Company enters into various arrangements not recognized in the consolidated balance
sheets that have or could have an effect on its financial condition, results of operations, liquidity, capital expenditures or capital
resources. The principal off-balance sheet arrangements that the Company enters into are guarantees and sales of finance
receivables. The Company provides its global operations guarantees and standby letters of credit through various financial
institutions to suppliers, regulatory agencies and insurance providers. If the Company is not able to make payment, the suppliers,
regulatory agencies and insurance providers may draw on the pertinent bank. Refer to note 14 to the consolidated financial
statements for further details of guarantees. The Company has sold finance receivables to financial institutions while continuing
to service the receivables. The Company records these sales by removing finance receivables from the consolidated balance sheets
and recording gains and losses in the consolidated statement of operations. Refer to note 6 to the consolidated financial statements
for further details on finance lease receivables.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s
consolidated financial statements. The consolidated financial statements of the Company are prepared in conformity with
accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of the accompanying
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about
future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures
about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include revenue recognition,
the valuation of trade and financing receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies,
guarantee obligations, and assumptions used in the calculation of income taxes, pension and postretirement benefits and customer
incentives, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management
evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors
the economic conditions and other factors and will adjust such estimates and assumptions when facts and circumstances dictate.
As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.
The Company’s significant accounting policies are described in note 1 to the consolidated financial statements. Management
believes that, of its significant accounting policies, its policies concerning revenue recognition, allowances for credit losses,
inventory reserves, goodwill, taxes on income and pensions and postretirement benefits are the most critical because they are
affected significantly by judgments, assumptions and estimates. Additional information regarding these policies is included below.
Revenue Recognition In general, the Company records revenue when it is realized, or realizable and earned. The application of
U.S. GAAP revenue recognition principles to the Company's customer contracts requires judgment, including the determination
of whether an arrangement includes multiple deliverables such as hardware, software, maintenance and/or other services. For
contracts that contain multiple deliverables, total arrangement consideration is allocated at the inception of the arrangement to
each deliverable based on the relative selling price method. The relative selling price method is based on a hierarchy consisting
of vendor specific objective evidence (VSOE) (price sold on a stand-alone basis), if available, or third-party evidence (TPE), if
31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. The Company's ESP is consistent
with the objective of determining VSOE, which is the price at which we would expect to transact on a stand-alone sale of the
deliverable. The determination of ESP is based on applying significant judgment to weigh a variety of company-specific factors
including our pricing practices, customer volume, geography, internal costs and gross margin objectives, information gathered
from experience in customer negotiations, recent technological trends and competitive landscape. In contracts that involve multiple
deliverables, maintenance services are typically accounted for under Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 605-20 Separately Priced Extended Warranty and Product Maintenance Contracts. There have
been no material changes to these estimates for the periods presented and the Company believes that these estimates generally
should not be subject to significant changes in the future. However, changes to deliverables in future arrangements could materially
impact the amount of earned or deferred revenue.
For sales of software, which excludes software required for the equipment to operate as intended, the Company applies the software
revenue recognition principles within FASB ASC 985-605, Software - Revenue Recognition. For software and software-related
deliverables (software elements), the Company allocates revenue based upon the relative fair value of these deliverables as
determined by VSOE. If the Company cannot obtain VSOE for any undelivered software element, revenue is deferred until all
deliverables have been delivered or until VSOE can be determined for any remaining undelivered software elements. When the
fair value of a delivered element has not been established, but fair value evidence exists for the undelivered software elements,
the Company uses the residual method to recognize revenue. Under the residual method, the fair value of the undelivered elements
is deferred and the remaining portion of the arrangement consideration is allocated to the delivered elements and recognized as
revenue. Determination of amounts deferred for software support requires judgment about whether the deliverables can be divided
into more than one unit of accounting and whether the separate deliverables have value to the customer on a stand-alone basis.
There have been no material changes to these deliverables for the periods presented. However, changes to deliverables in future
arrangements and the ability to establish VSOE could affect the amount and timing of revenue recognition.
Allowances for Credit Losses The Company maintains allowances for potential credit losses, and such losses have been minimal
and within management’s expectations. Since the Company’s receivable balance is concentrated primarily in the financial and
government sectors, an economic downturn in these sectors could result in higher than expected credit losses. The concentration
of credit risk in the Company’s trade receivables with respect to financial and government customers is largely mitigated by the
Company’s credit evaluation process and the geographical dispersion of sales transactions from a large number of individual
customers.
Inventory Reserves At each reporting period, the Company identifies and writes down its excess and obsolete inventories to net
realizable value based on usage forecasts, order volume and inventory aging. With the development of new products, the Company
also rationalizes its product offerings and will write-down discontinued product to the lower of cost or net realizable value.
Goodwill Goodwill is the cost in excess of the net assets of acquired businesses (refer to note 10 to the consolidated financial
statements). The Company tests all existing goodwill at least annually as of November 30 for impairment on a “reporting unit”
basis. The Company tests for impairment between annual tests if an event occurs or circumstances change that would more likely
than not reduce the carrying value of a reporting unit below its reported amount. The Company’s reporting units are defined as
Domestic and Canada, Brazil, Latin America, Asia Pacific, and Europe, Middle East and Africa (EMEA). Each year, the Company
may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit
is less than its carrying value. In evaluating whether it is more likely than not the fair value of a reporting unit is less than its
carrying amount, the Company considers the following events and circumstances, among others, if applicable: (a) macroeconomic
conditions such as general economic conditions, limitations on accessing capital or other developments in equity and credit markets;
(b) industry and market considerations such as competition, multiples or metrics and changes in the market for the Company's
products and services or regulatory and political environments; (c) cost factors such as raw materials, labor or other costs; (d)
overall financial performance such as cash flows, actual and planned revenue and earnings compared with actual and projected
results of relevant prior periods; (e) other relevant events such as changes in key personnel, strategy or customers; (f) changes in
the composition of a reporting unit's assets or expected sales of all or a portion of a reporting unit; and (g) any sustained decrease
in share price.
If the Company's qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than
its carrying value, or if management elects to perform a quantitative assessment of goodwill, a two-step impairment test is used
to identify potential goodwill impairment and measure the amount of any impairment loss to be recognized. In the first step, the
Company compares the fair value of each reporting unit with its carrying value. The fair value is determined based upon discounted
32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
estimated future cash flows as well as the market approach or guideline public company method. The Company’s Step 1 impairment
test of goodwill of a reporting unit is based upon the fair value of the reporting unit, defined as the price that would be received
to sell the net assets or transfer the net liabilities in an orderly transaction between market participants at the assessment date. In
the event that the net carrying amount exceeds the fair value, a Step 2 test must be performed whereby the fair value of the reporting
unit’s goodwill must be estimated to determine if it is less than its net carrying amount. In its two-step test, the Company uses
the discounted cash flow method and the guideline company method for determining the fair value of its reporting units. Under
these methods, the determination of implied fair value of the goodwill for a particular reporting unit is the excess of the fair value
of a reporting unit over the amounts assigned to its assets and liabilities in the same manner as the allocation in a business
combination.
The techniques used in the Company's qualitative assessment and, if necessary, two-step impairment test have incorporated a
number of assumptions that the Company believes to be reasonable and to reflect market conditions forecast at the assessment
date. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes all efforts to
forecast future cash flows as accurately as possible with the information available at the time a forecast is made. To this end, the
Company evaluates the appropriateness of its assumptions as well as its overall forecasts by comparing projected results of
upcoming years with actual results of preceding years and validating that differences therein are reasonable. Key assumptions, all
of which are Level 3 inputs (refer to note 18 to the consolidated financial statements), relate to price trends, material costs, discount
rate, customer demand, and the long-term growth and foreign exchange rates. A number of benchmarks from independent industry
and other economic publications were also used. Changes in assumptions and estimates after the assessment date may lead to an
outcome where impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s
forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the
conclusions may differ in reflection of prevailing market conditions.
In 2012, goodwill was reviewed for impairment based on a two-step test (refer to note 1 to the consolidated financial statements),
which resulted in no impairment in any of the Company's reporting units. As a result of the 2012 Step 1 impairment test, the
Company concluded the Brazil reporting unit had excess fair value of approximately $113,348 or 22.0 percent when compared to
its carrying amount. The amount of goodwill in the Company's Brazil reporting unit was $120,571 as of December 31, 2012. All
other reporting units had excess fair value greater than 20 percent when compared to their carrying amounts.
In 2011, the Company performed a qualitative assessment to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying value. In the 2011 qualitative assessment, management concluded that the Company's
reporting units were not at risk of failing step one and therefore the two-step impairment test was not performed.
In 2010, goodwill was reviewed for impairment based on a two-step test. In 2010, management concluded that all of the Company’s
goodwill within the EMEA reporting unit was not recoverable and recorded a $168,714,000 non-cash impairment charge during
the fourth quarter 2010.
Taxes on Income Deferred taxes are provided on an asset and liability method, whereby deferred tax assets are recognized for
deductible temporary differences, operating loss carry-forwards and tax credits. Deferred tax liabilities are recognized for taxable
temporary differences. 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.
The Company operates in numerous taxing jurisdictions and is subject to examination by various federal, state and foreign
jurisdictions for various tax periods. Additionally, the Company has retained tax liabilities and the rights to tax refunds in connection
with various divestitures of businesses. The Company’s income tax positions are based on research and interpretations of the
income tax laws and rulings in each of the jurisdictions in which the Company does business. Due to the subjectivity of
interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions, as
well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income
tax liabilities may differ from actual payments or assessments.
The Company regularly assesses its position with regard to tax exposures and records liabilities for these uncertain tax positions
and related interest and penalties, if any, when the tax benefit is not more likely than not realizable. The Company has recorded
an accrual that reflects the recognition and measurement process for the financial statement recognition and measurement of a tax
33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
position taken or expected to be taken on a tax return. Additional future income tax expense or benefit may be recognized once
the positions are effectively settled.
At the end of each interim reporting period, the Company estimates the effective tax rate expected to apply to the full fiscal year.
The estimated effective tax rate contemplates the expected jurisdiction where income is earned, as well as tax planning alternatives.
Current and projected growth in income in higher tax jurisdictions may result in an increasing effective tax rate over time. If the
actual results differ from estimates, the Company may adjust the effective tax rate in the interim period if such determination is
made.
Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources
are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred
in connection with loss contingencies are expensed as incurred. There is no liability recorded for matters in which the liability is
not probable and reasonably estimable. Attorneys in the Company's legal department monitor and manage all claims filed against
the Company and review all pending investigations. Generally, the estimate of probable loss related to these matters is developed
in consultation with internal and outside legal counsel representing the Company. These estimates are based upon an analysis of
potential results, assuming a combination of litigation and settlement strategies. The Company attempts to resolve these matters
through settlements, mediation and arbitration proceedings when possible. If the actual settlement costs, final judgments, or fines,
after appeals, differ from the estimates, the future results may be materially impacted. Adjustments to the initial estimates are
recorded when a change in the estimate is identified.
Pensions and Other Postretirement Benefits Annual net periodic expense and benefit liabilities under the Company’s defined
benefit plans are determined on an actuarial basis. Assumptions used in the actuarial calculations have a significant impact on
plan obligations and expense. Members of the management investment committee periodically review the actual experience
compared with the more significant assumptions used and make adjustments to the assumptions, if warranted. The discount rate
is determined by analyzing the average return of high-quality (i.e., AA-rated) fixed-income investments and the year-over-year
comparison of certain widely used benchmark indices as of the measurement date. The expected long-term rate of return on plan
assets is determined using the plans’ current asset allocation and their expected rates of return based on a geometric averaging
over 20 years. The rate of compensation increase assumptions reflects the Company’s long-term actual experience and future and
near-term outlook. Pension benefits are funded through deposits with trustees. Other postretirement benefits are not funded and
the Company’s policy is to pay these benefits as they become due.
The following table represents assumed health care cost trend rates at December 31:
Healthcare cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that rate reaches ultimate trend rate
2012
2011
8.0%
4.2%
2099
8.0%
4.2%
2099
The healthcare trend rates are reviewed based upon the results of actual claims experience. The Company used healthcare cost
trends of 8.0 percent and 8.0 percent in 2013 and 2012, respectively, decreasing to an ultimate trend of 4.2 percent in 2099 for
both medical and prescription drug benefits using the Society of Actuaries Long Term Trend Model with assumptions based on
the 2008 Medicare Trustees’ projections. Assumed healthcare cost trend rates have a significant effect on the amounts reported
for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
Effect on total of service and interest cost
Effect on other postretirement benefit obligation
RECENTLY ISSUED ACCOUNTING GUIDANCE
One-
Percentage-
Point Increase
51
$
911
One-
Percentage-
Point Decrease
(46)
$
(825)
Refer to note 1 to the consolidated financial statements of this annual report on Form 10-K for information on recently issued
accounting guidance.
34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2012
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
FORWARD-LOOKING STATEMENT DISCLOSURE
In this annual report on Form 10-K, statements that are not reported financial results or other historical information are “forward-
looking statements.” Forward-looking statements give current expectations or forecasts of future events and are not guarantees
of future performance. These forward-looking statements relate to, among other things, the Company’s future operating
performance, the Company’s share of new and existing markets, the Company’s short- and long-term revenue and earnings growth
rates, the Company’s implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of
the Company’s manufacturing capacity. The use of the words "will," "believes," "anticipates," "plans," "projects," "expects,"
"intends" and similar expressions is intended to identify forward-looking statements that have been made and may in the future
be made by or on behalf of the Company.
Although the Company believes that these forward-looking statements are based upon reasonable assumptions regarding, among
other things, the economy, its knowledge of its business, and on key performance indicators that impact the Company, these
forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from
those expressed in or implied by the forward-looking statements. The Company is not obligated to update forward-looking
statements, whether as a result of new information, future events or otherwise.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.
Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or
implied by the forward-looking statements include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
competitive pressures, including pricing pressures and technological developments;
changes in the Company's relationships with customers, suppliers, distributors and/or partners in its business ventures;
changes in political, economic or other factors such as currency exchange rates, inflation rates, recessionary or expansive
trends, taxes and regulations and laws affecting the worldwide business in each of the Company's operations, including
Brazil, where a significant portion of the Company's revenue is derived;
global economic conditions, including any additional deterioration and disruptions in the financial markets, including
bankruptcies, restructurings or consolidations of financial institutions, which could reduce our customer base and/or
adversely affect our customers’ ability to make capital expenditures, as well as adversely impact the availability and cost
of credit;
acceptance of the Company's product and technology introductions in the marketplace;
the Company’s ability to maintain effective internal controls;
changes in the Company’s intention to repatriate cash and cash equivalents and short-term investments residing in
international tax jurisdictions could negatively impact foreign and domestic taxes;
unanticipated litigation, claims or assessments, as well as the outcome/impact of any current/pending litigation, claims or
assessments, including with respect to the Company's Brazilian tax dispute;
variations in consumer demand for financial self-service technologies, products and services;
potential security violations to the Company's information technology systems;
the investment performance of the Company’s pension plan assets, which could require the Company to increase its
pension contributions, and significant changes in health care costs, including those that may result from government
action;
the amount and timing of repurchases of the Company’s common shares, if any;
the outcome of the company's global FCPA review and any actions taken by government agencies in connection with the
company's self-disclosure, including the pending DOJ and SEC investigations;
the Company's ability to settle the FCPA investigation, and the ultimate amount of any losses incurred therewith;
the Company’s ability to achieve benefits from its cost-reduction initiatives and other strategic changes, including its
restructuring actions; and
the risk factors described above under Item 1A "Risk Factors.”
35
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to foreign currency exchange rate risk inherent in its international operations denominated in currencies
other than the U.S. dollar. A hypothetical 10 percent movement in the applicable foreign exchange rates would have resulted in
an increase or decrease in 2012 and 2011 year-to-date operating profit of approximately $5,946 and $7,909, respectively. The
sensitivity model assumes an instantaneous, parallel shift in the foreign currency exchange rates. Exchange rates rarely move in
the same direction. The assumption that exchange rates change in an instantaneous or parallel fashion may overstate the impact
of changing exchange rates on amounts denominated in a foreign currency.
The Company’s risk-management strategy uses derivative financial instruments such as forwards to hedge certain foreign currency
exposures. The 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 derivatives for trading purposes. The Company’s primary
exposures to foreign exchange risk are movements in the euro/U.S. dollar, U.S. dollar/Brazilian real, Australian dollar/U.S. dollar
and Chinese yuan renmindbi/U.S. dollar. There were no significant changes in the Company’s foreign exchange risks in 2012
compared with 2011.
The Company’s Venezuelan operations consist of a fifty-percent owned subsidiary, which is consolidated. Venezuela is measured
using the U.S. dollar as its functional currency because its economy is considered highly inflationary. In recent years, the Venezuelan
bolivar has devalued. In the future, fluctuations in the bolivar may result in gains or losses in the statement of operations.
The Company manages interest rate risk with the use of variable rate borrowings under its committed and uncommitted credit
facilities and interest rate swaps. Variable rate borrowings under the credit facilities totaled $345,816 and $324,472 at December 31,
2012 and 2011, respectively, of which $50,000 and $25,000, respectively, was effectively converted to fixed rate using interest
rate swaps. A one percentage point increase or decrease in interest rates would have resulted in an increase or decrease in interest
expense of approximately $2,662 and $2,896 for 2012 and 2011, respectively, including the impact of the swap agreements. The
Company’s primary exposure to interest rate risk is movements in the London Interbank Offered Rate (LIBOR), which is consistent
with prior periods.
36
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2012, 2011 and
2010
Consolidated Statements of Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
FINANCIAL STATEMENTS SCHEDULES
Schedule II - Valuation of Qualifying Accounts for the years ended December 31, 2012, 2011 and 2010
All other schedules are omitted because they are not applicable.
38
40
41
42
43
44
45
90
37
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Diebold, Incorporated:
We have audited the accompanying consolidated balance sheets of Diebold, Incorporated and subsidiaries (the Company) as of
December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), equity, and
cash flows for each of the years in the three-year period ended December 31, 2012. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule, Schedule II “Valuation and Qualifying Accounts.”
These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Diebold, Incorporated and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated February 15, 2013 expressed an adverse opinion on the effectiveness of the Company's internal control over financial
reporting.
/s/ KPMG LLP
Cleveland, Ohio
February 15, 2013
38
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Diebold, Incorporated:
We have audited Diebold, Incorporated's (the Company) internal control over financial reporting as of December 31, 2012, based
on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Diebold, Incorporated's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A(b) of the Company's
December 31, 2012 annual report on Form 10-K. Our responsibility is to express an opinion on the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures, as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented
or detected on a timely basis. A material weakness related to controls over indirect taxes and communication to corporate
management has been identified in management's assessment. We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance sheets of Diebold, Incorporated and subsidiaries
as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), equity,
and cash flows for each of the years in the three-year period ended December 31, 2012. This material weakness was considered
in determining the nature, timing, and extent of audit tests applied in our audit of the 2012 consolidated financial statements, and
this report does not affect our report dated February 15, 2013, which expressed an unqualified opinion on those consolidated
financial statements.
In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control
criteria, Diebold, Incorporated has not maintained effective internal control over financial reporting as of December 31, 2012,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
/s/ KPMG LLP
Cleveland, Ohio
February 15, 2013
39
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
2012
2011
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Trade receivables, less allowances for doubtful accounts of
$27,854 and $22,128, respectively
Inventories
Deferred income taxes
Prepaid expenses
Refundable income taxes
Other current assets
Total current assets
Securities and other investments
Property, plant and equipment at cost
Less accumulated depreciation and amortization
Property, plant and equipment, net
Goodwill
Deferred income taxes
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Notes payable
Accounts payable
Deferred revenue
Payroll and benefits liabilities
Other current liabilities
Total current liabilities
Long-term debt
Pensions and other benefits
Other postretirement benefits
Deferred income taxes
Other long-term liabilities
Commitments and contingencies
Equity
Diebold, Incorporated shareholders' equity
Preferred shares, no par value, 1,000,000 authorized shares, none issued
Common shares, $1.25 par value, 125,000,000 authorized shares,
77,661,118 and 76,840,956 issued shares,
63,240,667 and 62,513,615 outstanding shares, respectively
Additional capital
Retained earnings
Treasury shares, at cost (14,420,451 and 14,327,341 shares, respectively)
Accumulated other comprehensive loss
Total Diebold, Incorporated shareholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
40
$
368,792
261,886
$
333,920
286,853
414,969
440,900
114,250
31,452
14,467
95,544
1,732,355
74,869
642,256
449,562
192,694
253,063
91,090
173,372
2,517,443
21,722
221,964
241,992
79,854
258,685
824,217
606,154
148,399
23,196
32,029
25,188
—
—
$
$
488,373
412,996
143,248
35,614
16,357
87,591
1,814,857
77,101
661,910
477,565
184,345
272,951
76,375
167,358
2,592,987
34,212
224,973
222,343
69,814
287,513
838,855
617,534
198,241
22,904
34,250
35,892
—
—
97,076
358,281
996,834
(551,189)
(91,039)
809,963
35,348
845,311
2,592,987
$
96,051
327,805
991,210
(547,737)
(40,343)
826,986
31,274
858,260
2,517,443
$
$
$
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year ended December 31,
2011
2010
2012
$
$
1,626,521
1,365,172
2,991,693
$
1,552,358
1,283,490
2,835,848
1,493,425
1,330,368
2,823,793
1,215,673
1,039,867
2,255,540
736,153
510,979
85,881
15,783
(1,202)
611,441
124,712
37,593
(30,330)
2,654
(17,203)
117,426
29,905
87,521
(3,125)
84,396
5,942
78,454
63,061
63,914
1.29
(0.05)
1.24
1.28
(0.05)
1.23
81,579
(3,125)
78,454
$
$
$
$
$
$
$
1,138,213
961,706
2,099,919
735,929
501,186
78,108
2,962
(1,921)
580,335
155,594
41,663
(34,456)
3,095
(1,504)
164,392
12,815
151,577
523
152,100
7,285
144,815
64,244
64,792
2.24
0.01
2.25
2.23
0.01
2.24
144,292
523
144,815
$
$
$
$
$
$
$
1,100,305
1,003,923
2,104,228
719,565
472,956
74,225
175,849
(1,663)
721,367
(1,802)
34,545
(37,887)
(1,301)
4,048
(2,397)
14,561
(16,958)
275
(16,683)
3,569
(20,252)
65,907
65,907
(0.31)
—
(0.31)
(0.31)
—
(0.31)
(20,527)
275
(20,252)
$
$
$
$
$
$
$
Net sales
Services
Products
Cost of sales
Services
Products
Gross profit
Selling and administrative expense
Research, development and engineering expense
Impairment of assets
Gain on sale of assets, net
Operating profit (loss)
Other income (expense)
Investment income
Interest expense
Foreign exchange gain (loss), net
Miscellaneous, net
Income (loss) from continuing operations before taxes
Taxes on income
Income (loss) from continuing operations
(Loss) income from discontinued operations, net of tax
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to Diebold, Incorporated
Basic weighted-average shares outstanding
Diluted weighted-average shares outstanding
Basic earnings per share:
Income (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Diebold, Incorporated
Diluted earnings per share:
Income (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Diebold, Incorporated
Amounts attributable to Diebold, Incorporated
Income (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Diebold, Incorporated
See accompanying notes to consolidated financial statements.
41
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive (loss) income, net of tax:
Translation adjustment
Foreign currency hedges
(net of tax of $(1,218), $(713) and $0, respectively)
Interest rate hedges:
Net gain (loss) recognized in other comprehensive income
(net of tax of $(99), $336 and $(141), respectively)
Less: reclassification adjustment for net gains included in net income
(net of tax of $(230), $(178) and $(257), respectively)
Pension and other postretirement benefits:
Prior service credit recognized during the year
(net of tax of $99, $94 and $133, respectively)
Net actuarial losses recognized during the year
(net of tax of $(6,544), $(3,597) and $(2,490), respectively)
Prior service cost occurring during the year
(net of tax of $0, $0 and $312, respectively)
Net actuarial losses occurring during the year
(net of tax of $23,765, $26,062 and $10,061, respectively)
Settlements
(net of tax of $(8,303), $0 and $0, respectively)
Year ended December 31,
2012
2011
$
84,396
$
152,100
$
2010
(16,683)
(36,164)
(75,877)
28,490
1,803
1,055
—
141
91
50
(491)
156
(647)
(442)
305
(747)
(160)
(164)
(187)
10,721
6,289
3,482
—
—
(436)
(38,939)
(45,568)
(14,069)
13,604
(14,774)
—
(39,443)
—
(11,210)
Unrealized gain (loss) on securities, net:
Net gain (loss) recognized in other comprehensive income
Less: reclassification adjustment for net gain (loss) included in net income
Other
Other comprehensive (loss) income, net of tax
Comprehensive income (loss)
Less: comprehensive income attributable to noncontrolling interests
3,304
4,523
(1,219)
(168)
(50,472)
33,924
6,166
1,130
(1,505)
2,635
(494)
(112,771)
39,329
8,483
Comprehensive income (loss) attributable to Diebold, Incorporated
$
27,758
$
30,846
$
(1,264)
33
(1,297)
(220)
15,016
(1,667)
4,238
(5,905)
See accompanying notes to consolidated financial statements.
42
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(dollars in thousands)
Common Shares
Number Par Value
Additional
Capital
Retained
Earnings
Treasury
Shares
Accumulated
Other
Comprehensive
Income (Loss)
Total Diebold,
Incorporated
Shareholders'
Equity
Noncontrolling
Interests
Total
Equity
76,093,101
$
95,116
$
290,689
$
1,011,448
$
(410,153)
$
59,279
$
1,046,379
$
25,647
$
1,072,026
123,091
5,828
88,366
54,738
154
7
110
69
3,178
2,182
(110)
1,924
(1,705)
12,541
(20,252)
14,347
(71,900)
(25,769)
3,569
669
(20,252)
14,347
3,332
2,189
—
1,993
(1,705)
12,541
(71,900)
(25,769)
76,365,124
$
95,456
$
308,699
$
919,296
$
(435,922)
$
73,626
$
961,155
$
28,659
$
—
(1,226)
144,815
(113,969)
150,769
9,878
121,462
186,523
7,200
189
12
152
233
9
3,854
(12)
(152)
(233)
(9)
1,362
14,296
(72,901)
(111,815)
7,285
1,198
144,815
(113,969)
4,043
—
—
—
—
1,362
14,296
(72,901)
(111,815)
(16,683)
15,016
3,332
2,189
—
1,993
(1,705)
12,541
(71,900)
(25,769)
(1,226)
989,814
152,100
(112,771)
4,043
—
—
—
—
1,362
14,296
(72,901)
(111,815)
76,840,956
$
96,051
$
327,805
$
991,210
$
(547,737)
$
(40,343)
$
826,986
$
31,274
$
858,260
—
(5,868)
(5,868)
78,454
(50,696)
554,718
5,828
164,552
87,864
7,200
693
7
206
110
9
15,986
(7)
(206)
(110)
(9)
982
13,840
(72,830)
(3,452)
78,454
(50,696)
16,679
—
—
—
—
982
13,840
(72,830)
(3,452)
5,942
224
84,396
(50,472)
16,679
—
—
—
—
982
13,840
(72,830)
(3,452)
77,661,118
$
97,076
$
358,281
$
996,834
$
(551,189)
$
(91,039)
$
809,963
$
35,348
$
845,311
—
(2,092)
(2,092)
Balance, January 1, 2010
Net (loss) income
Other comprehensive income
Stock options exercised
Restricted shares
Restricted stock units issued
Performance shares issued
Income tax detriment from share-based
compensation
Share-based compensation expense
Dividends declared and paid
Treasury shares
Distributions to noncontrolling interest
holders, net
Balance, December 31, 2010
Net income
Other comprehensive (loss) income
Stock options exercised
Restricted shares
Restricted stock units issued
Performance shares issued
Deferred shares
Income tax benefit from share-based
compensation
Share-based compensation expense
Dividends declared and paid
Treasury shares
Distributions to noncontrolling interest
holders, net
Balance, December 31, 2011
Net income
Other comprehensive (loss) income
Stock options exercised
Restricted shares
Restricted stock units issued
Performance shares issued
Deferred shares
Income tax benefit from stock-based
compensation
Share-based compensation expense
Dividends declared and paid
Treasury shares
Distributions to noncontrolling interest
holders, net
Balance, December 31, 2012
See accompanying notes to consolidated financial statements.
43
DIEBOLD INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flow from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization
Share-based compensation
Excess tax benefits from share-based compensation
Impairment of assets
Devaluation of Venezuelan balance sheet
Gain on sale of assets, net
Equity in earnings of an investee
Cash flow from changes in certain assets and liabilities, net of the effects of acquisitions:
Trade receivables
Inventories
Prepaid expenses
Refundable income taxes
Other current assets
Accounts payable
Deferred revenue
Deferred income taxes
Pension and other postretirement benefits
Certain other assets and liabilities
Net cash provided by operating activities
Cash flow from investing activities:
Proceeds from sale of discontinued operations
Payments for acquisitions, net of cash acquired
Proceeds from maturities of investments
Proceeds from sale of investments
Payments for purchases of investments
Proceeds from sale of assets
Capital expenditures
Increase in certain other assets
Purchase of finance receivables, net of cash collections
Net cash used in investing activities
Cash flow from financing activities:
Dividends paid
Debt issuance costs
Debt borrowings
Debt repayments
Distribution to noncontrolling interest holders, net
Excess tax benefits from share-based compensation
Issuance of common shares
Repurchase of common shares
Net cash used in financing activities
Effect of exchange rate changes on cash
Increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash (paid) received for:
Income taxes
Interest
Significant noncash investing and financing activities:
Finance receivables acquired
Liabilities assumed related to acquisition of finance receivables
Accrued holdback for acquisition
See accompanying notes to consolidated financial statements.
44
Year Ended December 31,
2011
2010
2012
$
84,396
$
152,100
$
(16,683)
78,644
13,840
(1,843)
15,783
—
(1,202)
(702)
(75,275)
20,955
(3,490)
(1,890)
(16,080)
2,564
(21,767)
(10,558)
25,681
26,452
135,508
—
(28,292)
325,403
50,431
(377,070)
3,357
(49,742)
(13,077)
16,159
(72,831)
(72,830)
—
804,163
(780,538)
(2,092)
1,843
16,679
(3,452)
(36,227)
8,422
34,872
333,920
368,792
$
79,855
14,296
(1,691)
2,962
—
(1,921)
(1,813)
(22,790)
(12,602)
(119)
5,187
(389)
11,741
41,610
(29,338)
(14,187)
(7,504)
215,397
2,520
—
259,145
52,292
(356,354)
5,585
(54,753)
(21,386)
22,245
(90,706)
(72,901)
(1,876)
713,327
(650,136)
(5,868)
1,691
4,043
(111,815)
(123,535)
4,106
5,262
328,658
333,920
$
79,253
12,541
(426)
175,849
5,148
(1,663)
(2,982)
(69,377)
3,136
5,057
74,253
(7,402)
65,768
8,568
(47,777)
(7,450)
(2,460)
273,353
1,815
—
345,911
38,016
(470,641)
2,184
(51,298)
(20,878)
(9,865)
(164,756)
(71,900)
—
553,965
(569,928)
(1,226)
426
3,332
(25,769)
(111,100)
2,735
232
328,426
328,658
(49,011) $
(28,917) $
(27,468) $
(30,712) $
15,860
(32,054)
— $
— $
$
12,000
— $
— $
— $
33,843
20,861
—
$
$
$
$
$
$
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
2
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial statements include the accounts of Diebold, Incorporated and its wholly-
and majority-owned subsidiaries (collectively, the Company). All significant intercompany accounts and transactions have been
eliminated.
Use of Estimates in Preparation of Consolidated Financial Statements The preparation of the accompanying consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP)
requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions
affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of
revenues and expenses. Such estimates include revenue recognition, the valuation of trade and financing receivables (refer to note
7), inventories, goodwill, intangible assets, and other long-lived assets, legal contingencies, guarantee obligations, and assumptions
used in the calculation of income taxes, pension and other postretirement benefits and customer incentives, among others. These
estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and
assumptions on an ongoing basis using historical experience and other factors. Management monitors the economic condition
and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. As future events and their
effects cannot be determined with precision, actual results could differ significantly from these estimates.
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, which is measured using the U.S. dollar as its functional currency
because its economy is considered highly inflationary.
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 in relation to total consolidated net sales approximated 48.7 percent, 52.7 percent and 55.3 percent in 2012, 2011
and 2010, respectively.
Reclassifications The Company has reclassified the presentation of certain prior-year information to conform to the current
presentation.
Revenue Recognition The Company’s revenue recognition policy is consistent with the requirements of Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) 605, Revenue Recognition (ASC 605). In general, the Company
records revenue when it is realized, or realizable and earned. The Company considers revenue to be realized, or realizable and
earned, when the following revenue recognition requirements are met: persuasive evidence of an arrangement exists, which is
typically a customer contract; the products or services have been approved by the customer after delivery and/or installation
acceptance or performance of services; the sales price is fixed or determinable within the contract; and collectability is reasonably
assured. The Company's products include both hardware and the software required for the equipment to operate as intended, and
for product sales, the Company determines that the earnings process is complete when title, risk of loss and the right to use
equipment and/or software has transferred to the customer. Within Diebold North America (DNA), this occurs upon customer
acceptance. Where the Company is contractually responsible for installation, customer acceptance occurs upon completion of the
installation of all equipment at a job site and the Company’s demonstration that the equipment is in operable condition. Where
the Company is not contractually responsible for installation, revenue recognition of these items is upon shipment or delivery to
a customer location depending on the terms in the contract. Within DI, customer acceptance is upon the earlier of delivery or
completion of the installation depending on the terms in the contract with the customer.
The application of ASC 605 to the Company's customer contracts requires judgment, including the determination of whether an
arrangement includes multiple deliverables such as hardware, software, maintenance and/or other services. For contracts that
contain multiple deliverables, total arrangement consideration is allocated at the inception of the arrangement to each deliverable
based on the relative selling price method. The relative selling price method is based on a hierarchy consisting of vendor specific
objective evidence (VSOE) (price when sold on a stand-alone basis), if available, or third-party evidence (TPE), if VSOE is not
available, or estimated selling price (ESP) if neither VSOE nor TPE is available. The Company's ESP is consistent with the
objective of determining VSOE, which is the price at which we would expect to transact on a stand-alone sale of the deliverable.
The determination of ESP is based on applying significant judgment to weigh a variety of company-specific factors including our
pricing practices, customer volume, geography, internal costs and gross margin objectives, information gathered from experience
45
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
in customer negotiations, recent technological trends, and competitive landscape. In contracts that involve multiple deliverables,
maintenance services are typically accounted for under FASB ASC 605-20, Separately Priced Extended Warranty and Product
Maintenance Contracts.
For software sales, which excludes software included in the product that is required for the equipment to operate as intended, the
Company applies the software revenue recognition principles within FASB ASC 985-605, Software - Revenue Recognition. For
software and software-related deliverables (software elements), the Company allocates revenue based upon the relative fair value
of these deliverables as determined by VSOE. If the Company cannot obtain VSOE for any undelivered software element, revenue
is deferred until all deliverables have been delivered or until VSOE can be determined for any remaining undelivered software
elements. When the fair value of a delivered element has not been established, but fair value evidence exists for the undelivered
software elements, the Company uses the residual method to recognize revenue. Under the residual method, the fair value of the
undelivered elements is deferred and the remaining portion of the arrangement consideration is allocated to the delivered elements
and recognized as revenue.
The Company has the following revenue streams related to sales to its customers:
Financial Self-Service Product & Integrated Services Revenue Financial self-service products, which includes both hardware
and the software required for the equipment to operate as intended, are primarily automated teller machines (ATMs) and other
equipment primarily used in the banking industry. The Company also provides service contracts on financial self-service products.
Service contracts typically cover a 12-month period and can begin at any given month after the warranty period expires. The
service provided under warranty is limited as compared to those offered under service contracts. Further, warranty is not
considered a separate deliverable of the sale and covers only replacement of defective parts inclusive of labor. Service contracts
are tailored to meet the individual needs of each customer. Service contracts provide additional services beyond those covered
under the warranty, and usually include preventative maintenance service, cleaning, supplies stocking and cash handling, all of
which are not essential to the functionality of the equipment. Additionally, service revenue includes services and parts the
Company provides on a billed-work basis that are not covered by warranty or service contract. The Company also provides
customers with integrated services such as outsourced and managed services which may include remote monitoring, trouble-
shooting, training, transaction processing, currency management, maintenance services or full support via person to person or
online communication.
Electronic Security Products & Integrated Services Revenue The Company provides global product sales, service, installation,
project management for longer-term contracts and monitoring of original equipment manufacturer electronic security products
to financial, government, retail and commercial customers. These solutions provide the Company’s customers a single-source
solution to their electronic security needs.
Physical Security & Facility Revenue The Company designs, manufactures and/or procures and installs physical security and
facility products. These consist of vaults, safe deposit boxes and safes, drive-up banking equipment and a host of other banking
facilities products.
Election and Lottery Systems Revenue The Company offers election and lottery systems product solutions and support to the
government in Brazil. Election systems revenue consists of election equipment sales, networking, tabulation and diagnostic
software development, training, support and maintenance. Lottery systems revenue primarily consists of equipment sales. The
election and lottery equipment components are included in product revenue. The software development, training, support and
maintenance components are included in service revenue.
Software Solutions & Service Revenue The Company offers software solutions, which excludes software required for the
equipment to operate as intended, consisting of multiple applications that process events and transactions (networking software)
along with the related server. Sales of networking software represent software solutions to customers that allow them to network
various different vendors’ ATMs onto one network. Included within service revenue is revenue from software support agreements,
which are typically 12 months in duration and pertain to networking software.
Depreciation and Amortization Depreciation of property, plant and equipment is computed using the straight-line method for
financial statement purposes. Amortization of leasehold improvements is based upon the shorter of original terms of the lease or
life of the improvement. Repairs and maintenance are expensed as incurred. Amortization of the Company’s other long-term
assets, such as intangible assets and capitalized computer software, is computed using the straight-line method over the life of the
asset.
46
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Advertising Costs Advertising costs are expensed as incurred and were $11,316, $10,474 and $8,782 in 2012, 2011 and 2010,
respectively.
Shipping and Handling Costs The Company recognizes shipping and handling fees billed when products are shipped or delivered
to a customer, and includes such amounts in net sales. Third-party freight payments are recorded in cost of sales.
Taxes on Income Deferred taxes are provided on an asset and liability method, whereby deferred tax assets are recognized for
deductible temporary differences, operating loss carry-forwards and tax credits. Deferred tax liabilities are recognized for taxable
temporary differences. 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.
The Company regularly assesses its position with regard to tax exposures and records liabilities for these uncertain tax positions
and related interest and penalties, if any, when the tax benefit is not more likely than not realizable. The Company has recorded
an accrual that reflects the recognition and measurement process for the financial statement recognition and measurement of a tax
position taken or expected to be taken on a tax return. Additional future income tax expense or benefit may be recognized once
the positions are effectively settled.
Sales Tax The Company collects sales taxes from customers and accounts for sales taxes on a net basis.
Cash Equivalents The Company considers highly liquid investments with original maturities of three months or less at the time
of purchase to be cash equivalents.
Financial Instruments The carrying amount of cash and cash equivalents, trade receivables and accounts payable, approximated
their fair value because of the relatively short maturity of these instruments. The Company’s risk-management strategy uses
derivative financial instruments such as forwards to hedge certain foreign currency exposures and interest rate swaps to manage
interest rate risk. The 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 derivatives for trading purposes. The Company
recognizes all derivatives on the balance sheet at fair value. Changes in the fair values of derivatives that are not designated as
hedges are recognized in earnings. If the derivative is designated and qualifies as a hedge, depending on the nature of the hedge,
changes in the fair value of the derivatives are either offset against the change in the hedged assets or liabilities through earnings
or recognized in other comprehensive income until the hedged item is recognized in earnings.
Inventories The Company primarily values inventories at the lower of cost or market applied on a first-in, first-out basis. At each
reporting period, the Company identifies and writes down its excess and obsolete inventories to net realizable value based on usage
forecasts, order volume and inventory aging. With the development of new products, the Company also rationalizes its product
offerings and will write-down discontinued product to the lower of cost or net realizable value.
Deferred Revenue Deferred revenue is recorded for any services billed to customers and not yet recognizable if the contract period
has commenced or for the amount collected from customers in advance of the contract period commencing. In addition, deferred
revenue is recorded for products and other deliverables that are billed to and collected from customers prior to revenue being
recognizable.
Split-Dollar Life Insurance The Company recognizes a liability for the postretirement obligation associated with a collateral
assignment arrangement if, based on an agreement with an employee, the Company has agreed to maintain a life insurance policy
during the postretirement period or to provide a death benefit. In addition, the Company recognizes a liability and related
compensation costs for future benefits that extend to postretirement periods.
Goodwill Goodwill is the cost in excess of the net assets of acquired businesses (refer to note 10). The Company tests all existing
goodwill at least annually as of November 30 for impairment on a “reporting unit” basis. The Company tests for impairment
between annual tests if an event occurs or circumstances change that would more likely than not reduce the carrying value of a
reporting unit below its reported amount. The Company’s reporting units are defined as Domestic and Canada, Brazil, Latin
America, Asia Pacific, and Europe, Middle East and Africa (EMEA). Each year, the Company may elect to perform a qualitative
assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. In
evaluating whether it is more likely than not the fair value of a reporting unit is less than its carrying amount, the Company considers
47
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
the following events and circumstances, among others, if applicable: (a) macroeconomic conditions such as general economic
conditions, limitations on accessing capital or other developments in equity and credit markets; (b) industry and market
considerations such as competition, multiples or metrics and changes in the market for the Company's products and services or
regulatory and political environments; (c) cost factors such as raw materials, labor or other costs; (d) overall financial performance
such as cash flows, actual and planned revenue and earnings compared with actual and projected results of relevant prior periods;
(e) other relevant events such as changes in key personnel, strategy or customers; (f) changes in the composition of a reporting
unit's assets or expected sales of all or a portion of a reporting unit; and (g) any sustained decrease in share price.
If the Company's qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than
its carrying value, or if management elects to perform a quantitative assessment of goodwill, a two-step impairment test is used
to identify potential goodwill impairment and measure the amount of any impairment loss to be recognized. In the first step, the
Company compares the fair value of each reporting unit with its carrying value. The fair value is determined based upon discounted
estimated future cash flows as well as the market approach or guideline public company method. The Company’s Step 1 impairment
test of goodwill of a reporting unit is based upon the fair value of the reporting unit, defined as the price that would be received
to sell the net assets or transfer the net liabilities in an orderly transaction between market participants at the assessment date. In
the event that the net carrying amount exceeds the fair value, a Step 2 test must be performed whereby the fair value of the reporting
unit’s goodwill must be estimated to determine if it is less than its net carrying amount. In its two-step test, the Company uses the
discounted cash flow method and the guideline company method for determining the fair value of its reporting units. Under these
methods, the determination of implied fair value of the goodwill for a particular reporting unit is the excess of the fair value of a
reporting unit over the amounts assigned to its assets and liabilities in the same manner as the allocation in a business combination.
The techniques used in the Company's qualitative assessment and, if necessary, two-step impairment test have incorporated a
number of assumptions that the Company believes to be reasonable and to reflect market conditions forecast at the assessment
date. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes all efforts to
forecast future cash flows as accurately as possible with the information available at the time a forecast is made. To this end, the
Company evaluates the appropriateness of its assumptions as well as its overall forecasts by comparing projected results of upcoming
years with actual results of preceding years and validating that differences therein are reasonable. Key assumptions, all of which
are Level 3 inputs (refer to note 18), relate to price trends, material costs, discount rate, customer demand, and the long-term growth
and foreign exchange rates. A number of benchmarks from independent industry and other economic publications were also used.
Changes in assumptions and estimates after the assessment date may lead to an outcome where impairment charges would be
required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material
and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing
market conditions.
Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources
are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. As additional
information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary.
Legal costs incurred in connection with loss contingencies are expensed as incurred.
Pensions and Other Postretirement Benefits Annual net periodic expense and benefit liabilities under the Company’s defined
benefit plans are determined on an actuarial basis. Assumptions used in the actuarial calculations have a significant impact on
plan obligations and expense. Members of the management investment committee periodically review the actual experience
compared with the more significant assumptions used and make adjustments to the assumptions, if warranted. The healthcare trend
rates are reviewed based upon the results of actual claims experience. The discount rate is determined by analyzing the average
return of high-quality (i.e., AA-rated) fixed-income investments and the year-over-year comparison of certain widely used
benchmark indices as of the measurement date. The expected long-term rate of return on plan assets is determined using the plans’
current asset allocation and their expected rates of return based on a geometric averaging over 20 years. The rate of compensation
increase assumptions reflects the Company’s long-term actual experience and future and near-term outlook. Pension benefits are
funded through deposits with trustees. Other postretirement benefits are not funded and the Company’s policy is to pay these
benefits as they become due.
The Company recognizes the funded status of each of its plans in the consolidated balance sheet. Amortization of unrecognized
net gain or loss resulting from experience different from that assumed and from changes in assumptions (excluding asset gains
and losses not yet reflected in market-related value) is included as a component of net periodic benefit cost for a year if, as of the
beginning of the year, that unrecognized net gain or loss exceeds five percent of the greater of the projected benefit obligation or
48
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
the market-related value of plan assets. If amortization is required, the amortization is that excess divided by the average remaining
service period of participating employees expected to receive benefits under the plan.
Comprehensive Income Items included in other comprehensive income primarily represent adjustments made for foreign currency
translation, pension and other postretirement benefit plans (refer to note 12) unrealized gains and losses on available-for-sale
securities (refer to note 5) and hedging activities (refer to note 16).
Accumulated other comprehensive (loss) income consists of the following as of December 31:
Translation adjustment
Foreign currency hedges
Interest rate hedges
Pensions and other postretirement benefits
Unrealized gain (loss) on securities, net
Other
Income tax benefit
Total accumulated other comprehensive (loss) income
2012
2011
2010
$
68,393
(7,827)
(2,169)
(243,872)
119
(882)
(186,238)
95,199
(91,039) $
$
104,781
(10,848)
(2,088)
(220,081)
1,338
(714)
(127,612)
87,269
(40,343) $
181,856
(12,616)
(927)
(158,079)
(1,297)
(220)
8,717
64,909
73,626
$
$
Foreign currency translation adjustments are not booked net of tax. Those adjustments are accounted for under the indefinite
reversal criterion of FASB ASC 740-30, Income Taxes — Other Considerations or Special Areas.
Recently Adopted Accounting Guidance
In June 2011, the FASB issued Accounting Standards Update (ASU) 2011-05, Presentation of Comprehensive Income (ASU
2011-05), which eliminates the option to present components of other comprehensive income (OCI) as part of the statement of
changes in stockholders’ equity. The amendments in this standard require that all non-owner changes in stockholders’ equity be
presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.
Subsequently, in December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation
of Reclassifications of Items Out of Accumulated Other Comprehensive Income (ASU 2011-12), which indefinitely defers the
requirement in ASU 2011-05 to present on the face of the financial statements reclassification adjustments for items that are
reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are
presented. The Company has provided the required statements of comprehensive income for the years ended December 31, 2012,
2011 and 2010.
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 amended Accounting Standards Codification 820, Fair
Value Measurements and Disclosures, to converge the fair value measurement guidance in U.S. GAAP and International Financial
Reporting Standards (IFRSs). ASU 2011-04 changes the wording used to describe many requirements in U.S. GAAP for measuring
fair value and for disclosing information about fair value measurements. Disclosure requirements have been expanded to include
additional information about transfers between level 1 and level 2 of the fair value hierarchy and level 3 measurements regarding
the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. Additionally, ASU
2011-04 clarifies the FASB’s intent about the application of existing fair value measurements including: (a) the application of the
highest and best use valuation premise concepts; (b) measuring the fair value of an instrument classified in a reporting entity's
stockholders' equity; and (c) quantitative information required for fair value measurements categorized within level 3. The adoption
of this guidance did not have an impact on the Company's consolidated financial statements; however, the Company provided
additional disclosure as required by ASU 2011-04 in note 18.
Recently Issued Accounting Guidance
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income, which required entities to disclose additional information for items reclassified out of accumulated other comprehensive
income (AOCI). For items reclassified out of AOCI and into net income in their entirety, entities are required to disclose the effect
of the reclassification on each affected net income line item. For AOCI reclassification items that are not reclassified in their
49
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
entirety into net income, a cross reference to other required U.S. GAAP disclosures is required. This information may be provided
either in the notes or parenthetically on the face of the statement that reports net income as long as all the information is disclosed
in a single location. However, an entity is prohibited from providing this information parenthetically on the face of the statement
that reports net income if it has items that are not reclassified in their entirety into net income. The guidance is effective for annual
and interim reporting periods beginning after December 15, 2012. The adoption of this update will not have a material impact
on the financial statements of the Company.
In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which allows assessment
of qualitative factors to determine if it is more likely than not that the fair value of indefinite-lived intangible assets are less than
their carrying amount. If that assessment indicates no impairment, the quantitative impairment test is not required. The FASB
issued similar guidance for testing goodwill for impairment in September 2011. The guidance is effective for annual and interim
impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of
this update is not expected to have a material impact on the financial statements of the Company.
NOTE 2: EARNINGS PER SHARE
Basic earnings per share is based on the weighted-average number of common shares outstanding. Diluted earnings per share
includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing earnings per share,
non-vested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating
securities. The Company’s participating securities include restricted stock units (RSUs), director deferred shares and shares that
were vested but deferred by employees. The Company calculated basic and diluted earnings per share under both the treasury
stock method and the two-class method. For the years presented there were no differences in the earnings per share amounts
calculated using the two methods. Accordingly, the treasury stock method is disclosed below.
The following table represents amounts used in computing earnings per share and the effect on the weighted-average number of
shares of dilutive potential common shares for the years ended December 31:
Numerator:
Income (loss) used in basic and diluted earnings per share:
Income (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Diebold, Incorporated
Denominator (in thousands):
Weighted-average number of common
shares used in basic earnings per share
Effect of dilutive shares (1)
Weighted-average number of shares used in
diluted earnings per share
Basic earnings per share:
Income (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Diebold, Incorporated
Diluted earnings per share:
Income (loss) from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net income (loss) attributable to Diebold, Incorporated
Anti-dilutive shares (in thousands):
Anti-dilutive shares not used in calculating diluted
weighted-average shares
2012
2011
2010
$
$
$
$
$
$
81,579
(3,125)
78,454
$
$
144,292
523
144,815
$
$
(20,527)
275
(20,252)
63,061
853
63,914
1.29
(0.05)
1.24
1.28
(0.05)
1.23
$
$
$
$
64,244
548
64,792
2.24
0.01
2.25
2.23
0.01
2.24
$
$
$
$
65,907
—
65,907
(0.31)
—
(0.31)
(0.31)
—
(0.31)
2,201
2,270
2,658
(1)
Incremental shares of 632,000 were excluded from the computation of diluted EPS for the year ended December 31, 2010 because their effect is
anti-dilutive due to the loss from continuing operations.
50
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
NOTE 3: SHARE-BASED COMPENSATION AND EQUITY
Dividends On the basis of amounts declared and paid, the annualized dividends per share were $1.14, $1.12 and $1.08 for the
years ended December 31, 2012, 2011 and 2010, respectively.
Share-Based Compensation Cost The Company recognizes costs resulting from all share-based payment transactions based on
the fair market value of the award as of the grant date. Awards are valued at fair value and compensation cost is recognized on a
straight-line basis over the requisite periods of each award. The Company estimated forfeiture rates are based on historical
experience. To cover the exercise and/or vesting of its share-based payments, the Company generally issues new shares from its
authorized, unissued share pool. The number of common shares that may be issued pursuant to the Amended and Restated 1991
Equity and Performance Incentive Plan (as amended and restated as of April 13, 2009) (1991 Plan) was 6,666,570, of which
2,342,109 shares were available for issuance at December 31, 2012.
The following table summarizes the components of the Company’s employee and non-employee share-based compensation
programs recognized as selling and administrative expense for the years ended December 31:
2012
2011
2010
Stock options:
Pre-tax compensation expense
Tax benefit
Stock option expense, net of tax
Restricted Stock Units:
Pre-tax compensation expense
Tax benefit
RSU expense, net of tax
Performance shares:
Pre-tax compensation expense
Tax benefit
Performance share expense, net of tax
Deferred shares:
Pre-tax compensation expense
Tax benefit
Deferred share expense, net of tax
Total share-based compensation:
Pre-tax compensation expense
Tax benefit
Total share-based compensation, net of tax
$
$
$
$
$
$
$
$
$
$
2,572
(825)
1,747
5,741
(1,809)
3,932
4,425
(1,602)
2,823
1,102
(408)
694
13,840
(4,644)
9,196
$
$
$
$
$
$
$
$
$
$
3,486
(1,238)
2,248
5,734
(1,845)
3,889
4,076
(1,459)
2,617
1,000
(370)
630
14,296
(4,912)
9,384
$
$
$
$
$
$
$
$
$
$
3,540
(1,310)
2,230
4,355
(1,611)
2,744
3,820
(1,413)
2,407
826
(306)
520
12,541
(4,640)
7,901
51
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following table summarizes information related to unrecognized share-based compensation costs as of December 31, 2012:
Stock options
RSUs
Performance shares
Deferred shares
Unrecognized
Cost
$
$
7,764
10,752
5,986
259
24,761
Weighted-
Average
Period
(years)
2.6
1.8
1.2
0.3
EMPLOYEE SHARE-BASED COMPENSATION AWARDS
Stock options, RSUs, restricted shares and performance shares have been issued to officers and other management employees
under the Company’s 1991 Plan.
Stock Options
Stock options generally vest over a four- or five-year period and have a maturity of ten years from the issuance date. Option
exercise prices equal the closing price of the Company’s common shares on the date of grant. The estimated fair value of the
options granted was calculated using a Black-Scholes option pricing model using the following assumptions:
Expected life (in years)
Weighted-average volatility
Risk-free interest rate
Expected dividend yield
2012
6-7
41%
0.83 - 1.39%
3.08 - 3.23%
2011
6-7
40%
1.15 - 3.05%
2.74 - 2.97%
2010
6-7
40%
2.77 - 3.15%
2.44 - 2.63%
The Company uses historical data to estimate option exercise timing within the valuation model. Employees with similar historical
exercise behavior with regard to timing and forfeiture rates are considered separately for valuation and attribution purposes.
Expected volatility is based on historical volatility of the price of the Company’s common shares. The risk-free rate of interest is
based on a zero-coupon U.S. government instrument over the expected life of the equity instrument. The expected dividend yield
is based on actual dividends paid per share and the price of the Company’s common shares.
Options outstanding and exercisable as of December 31, 2012 and changes during the year ended were as follows:
Outstanding at January 1, 2012
Expired or forfeited
Exercised
Granted
Outstanding at December 31, 2012
Options exercisable at December 31, 2012
Options vested and expected to vest (2) at
December 31, 2012
Weighted-
Average
Exercise Price
(per share)
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(1)
$
36.70
37.33
30.11
34.98
37.56
40.96
37.62
5
3
5
$
2,617
1,703
2,589
Number of
Shares
(in thousands)
3,201
(555)
(554)
576
2,668
1,572
2,638
(1) The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing share price on the last trading
day of the year in 2012 and the exercise price, multiplied by the number of “in-the-money” options) that would have been received by the option holders
had all option holders exercised their options on December 31, 2012. The amount of aggregate intrinsic value will change based on the fair market
value of the Company’s common shares.
(2) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumption to total outstanding non-vested options.
52
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The aggregate intrinsic value of options exercised for the years ended December 31, 2012, 2011 and 2010 was $4,393, $936 and
$510, respectively. The weighted-average grant-date fair value of stock options granted for the years ended December 31, 2012,
2011 and 2010 was $10.43, $10.90 and $9.46, respectively. Total fair value of stock options vested during the years ended
December 31, 2012, 2011 and 2010 was $3,413, $2,967 and $3,059, respectively. Exercise of options during the year ended
December 31, 2012, 2011 and 2010 resulted in cash receipts of $16,679, $4,043 and $3,332, respectively. The tax (benefit) expense
during the years ended December 31, 2012, 2011 and 2010 related to the exercise of employee stock options were $(982), $(1,362)
and $1,705, respectively.
Restricted Stock Units
Each RSU provides for the issuance of one common share of the Company at no cost to the holder and generally vests after three
to seven years. During the vesting period, employees are paid the cash equivalent of dividends on RSUs. Non-vested RSUs are
forfeited upon termination unless the Board of Directors determines otherwise.
Non-vested RSUs outstanding as of December 31, 2012 and changes during the year ended were as follows:
Non-vested at January 1, 2012
Forfeited
Vested
Granted
Non-vested at December 31, 2012
Number of
Shares
(in thousands)
717
(71)
(165)
251
732
$
Weighted-
Average
Grant-Date
Fair Value
30.69
31.19
25.53
35.16
33.33
The weighted-average grant-date fair value of RSUs granted for the years ended December 31, 2012, 2011 and 2010 was $35.16,
$32.86 and $27.16, respectively. The total fair value of RSUs vested during the years ended December 31, 2012, 2011 and 2010
was $4,202, $3,226 and $3,989, respectively.
Performance Shares
Performance shares are granted based on certain management objectives, as determined by the Board of Directors each year. Each
performance share earned entitles the holder to one common share of the Company. The performance share objectives are generally
calculated over a three-year period and no shares are granted unless certain management threshold objectives are met.
Non-vested performance shares outstanding as of December 31, 2012 and changes during the year ended were as follows:
Non-vested at January 1, 2012
Forfeited
Vested
Granted
Non-vested at December 31, 2012
Number of
Shares
(in thousands)
727
(215)
(86)
303
729
$
Weighted-
Average
Grant-Date
Fair Value
34.70
30.99
29.25
44.25
40.41
Non-vested performance shares are based on a maximum potential payout. Actual shares granted at the end of the performance
period may be less than the maximum potential payout level depending on achievement of performance share objectives. The
weighted-average grant-date fair value of performance shares granted for the years ended December 31, 2012, 2011 and 2010 was
$44.25, $39.74 and $35.89, respectively. The total fair value of performance shares vested during the years ended December 31,
2012, 2011 and 2010 was $2,521, $5,041 and $3,026, respectively.
53
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
NON-EMPLOYEE SHARE BASED COMPENSATION AWARDS
Director Deferred Shares
Deferred shares have been issued to non-employee directors under the 1991 Plan. Deferred shares provide for the issuance of a
common share of the Company at no cost to the holder. Deferred shares vest in either a six- or twelve-month period and are issued
at the end of the deferral period. During the vesting period and until the common shares are issued, non-employee directors are
paid the cash equivalent of dividends on deferred shares.
Non-vested deferred shares as of December 31, 2012 and changes during the year ended were as follows:
Non-vested at January 1, 2012
Vested
Granted
Non-vested at December 31, 2012
Vested at December 31, 2012
Outstanding at December 31, 2012
$
Number of
Shares
(in thousands)
19
(27)
28
20
116
136
Weighted-
Average
Grant-Date
Fair Value
33.98
36.05
40.54
40.54
34.36
35.27
The weighted-average grant-date fair value of deferred shares granted for the years ended December 31, 2012, 2011 and 2010
was $40.54, $33.98 and $33.28, respectively. The aggregate intrinsic value of deferred shares released during the years ended
December 31, 2012, 2011 and 2010 was $247, $247 and $0, respectively. Total fair value of deferred shares vested for the years
ended December 31, 2012, 2011 and 2010 was $979, $887 and $819, respectively.
Other Non-employee Share-Based Compensation
In connection with the acquisition of Diebold Colombia, S.A., in December 2005, the Company issued warrants to purchase 34,789
common shares with an exercise price of $46.00 per share and grant-date fair value of $14.66 per share. The grant-date fair value
of the warrants was valued using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate
of 4.45 percent, dividend yield of 1.63 percent, expected volatility of 30 percent, and contractual life of six years. The warrants
will expire in December 2016.
NOTE 4: INCOME TAXES
The following table presents components of income (loss) from continuing operations before income taxes for the years ended
December 31:
Domestic
Foreign
Total
2012
2011
2010
$
$
(37,910) $
155,336
117,426
$
16,173
148,219
164,392
$
$
(28,344)
25,947
(2,397)
54
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following table presents the components of income tax expense (benefit) from continuing operations for the years ended
December 31:
2012
2011
2010
Current:
U.S. Federal
Foreign
State and local
Total current
Deferred:
U.S. Federal
Foreign
State and local
Total deferred
Taxes on income
$
$
3,859
38,707
2,006
44,572
(2,344)
(11,479)
(844)
(14,667)
29,905
$
$
(921) $
41,244
932
41,255
9,727
(35,318)
(2,849)
(28,440)
12,815
$
649
52,783
1,812
55,244
(9,431)
(30,368)
(884)
(40,683)
14,561
In addition to the income tax expense listed above for the years ended December 31, 2012, 2011 and 2010, income tax benefit
allocated directly to shareholders equity for the same periods was $8,909, $23,695 and $5,512, respectively.
Income tax benefit recognized as an adjustment to goodwill was $3,922 for the year ended December 31, 2010 and was not material
for the years ended December 31, 2012 and 2011.
Income tax benefit allocated to discontinued operations for the years ended December 31, 2012, 2011 and 2010 was $0, $116,
and $2,836, respectively.
Income tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying
the U.S. federal income tax rate of 35 percent to pretax income from continuing operations. The following table presents these
differences for the years ended December 31:
Statutory tax expense (benefit)
Brazil nontaxable incentive
Change in valuation allowance
Brazil tax goodwill amortization
Foreign tax rate differential
U.S. taxed foreign income
Foreign taxes on undistributed earnings
Goodwill impairment
FCPA provision, nondeductible portion
Other (1)
Taxes on income
2012
2011
2010
$
$
41,099
(10,622)
1,609
(4,802)
(14,397)
8,320
2,328
—
2,399
3,971
29,905
$
$
57,537
(10,652)
(32,315)
(5,231)
(11,001)
8,542
2,182
—
1,160
2,593
12,815
$
$
(839)
(14,600)
(6,631)
(4,938)
4,043
3,265
—
27,647
—
6,614
14,561
(1) Other consists of life insurance, state and local income taxes, net of federal benefit, nondeductible expenses, changes to uncertain tax position
liabilities and other items, none of which are individually significant.
The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013. Under the Act, the Federal Research and Development
Tax Credit and the IRC Section 954(c )6, Look-Thru Rule for Related Controlled Foreign Corporations were retroactively reinstated
for 2012. The 2012 benefit of $1,515 for the Research and Development Credit and $1,708 for the reversal of the additional taxes
provided related to the expiration of the Controlled Foreign Corporation Look-Thru rule will be recognized as a reduction of
income tax expense in the quarter ended March 31, 2013, which is the quarter that the law was enacted.
The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the consolidated financial
statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position will be sustained upon
55
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is greater than fifty percent
likely of being realized upon settlement.
Details of the unrecognized tax benefits are as follows:
Balance at January 1
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Settlements
Reduction due to lapse of applicable statute of limitations
Balance at December 31
2012
2011
$
12,636
$
712
(181)
180
—
(169)
13,178
$
$
9,842
4,431
(162)
3,297
(4,442)
(330)
12,636
The entire amount of unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate.
The Company classifies interest expense and penalties related to the underpayment of income taxes in the consolidated financial
statements as income tax expense. Consistent with the treatment of interest expense, the Company accrues interest income on
overpayments of income taxes where applicable and classifies interest income as a reduction of income tax expense in the
consolidated financial statements. As of December 31, 2012 and 2011, accrued interest and penalties related to unrecognized tax
benefits totaled approximately $4,043 and $2,387, respectively.
It is reasonably possible that the total amount of unrecognized tax benefits will change during the next 12 months. The Company
does not expect those changes to have a significant impact on its consolidated financial statements. The expected timing of
payments cannot be determined with any degree of certainty.
As of December 31, 2012, the Company is under audit by the IRS for tax years ended December 31, 2010, 2009 and 2008. During
the year ended December 31, 2011, the Company settled the IRS exam for tax years ended December 31, 2007, 2006 and 2005.
All federal tax years prior to 2004 are closed by statute. The Company is subject to tax examination in various U.S. state jurisdictions
for tax years 2003 to the present, as well as various foreign jurisdictions for tax years 2005 to the present.
56
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
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 at December 31 are as follows:
2012
2011
Deferred tax assets:
Accrued expenses
Warranty accrual
Deferred compensation
Allowance for doubtful accounts
Inventory
Deferred revenue
Pension and postretirement benefits
Finance lease receivables
Tax credits
Net operating loss carryforwards
Capital loss carryforwards
State deferred taxes
Other
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Goodwill
Finance lease receivables
Investment in partnership
Undistributed earnings
Other
Net deferred tax liabilities
Net deferred tax asset
$
$
$
$
43,622
26,296
18,587
9,239
11,490
15,361
66,222
6,210
23,738
74,528
3,534
17,341
7,083
323,251
(57,303)
265,948
14,369
41,175
—
17,056
5,016
3,511
81,127
184,821
Deferred income taxes reported in the consolidated balance sheets as of December 31 are as follows:
Deferred income taxes - current assets
Deferred income taxes - long-term assets
Other current liabilities
Deferred income taxes - long-term liabilities
Net deferred tax asset
2012
143,248
76,375
(552)
(34,250)
184,821
$
$
$
$
$
$
$
$
39,881
18,386
18,659
7,189
11,610
14,669
54,990
—
46,330
86,918
3,604
13,061
7,961
323,258
(66,988)
256,270
20,116
36,712
3,655
18,372
4,750
3,867
87,472
168,798
2011
114,250
91,090
(4,513)
(32,029)
168,798
At December 31, 2012, the Company had domestic and international net operating loss (NOL) carryforwards of $520,803, resulting
in an NOL deferred tax asset of $74,528. Of these NOL carryforwards, $407,827 expires at various times between 2013 and 2033
and $112,976 does not expire. At December 31, 2012, the Company had a domestic foreign tax credit carryforward resulting in
a deferred tax asset of $24,263 that will expire between years 2017 and 2020.
The Company has a valuation allowance to reflect the estimated amount of certain foreign and state deferred tax assets that, more
likely than not, will not be realized. The net change in total valuation allowance for the years ended December 31, 2012 and 2011
was a decrease of $9,685 and $38,187, respectively. The 2012 reduction in valuation allowance is primarily attributable to the
57
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
write off of deferred tax assets and corresponding valuation allowance for dissolved legal entities. The 2011 reduction in valuation
allowance is primarily related to a change in circumstances, including sustained profitability in core operations and a favorable
outlook that caused a change in judgment about the realization of a deferred tax asset in Brazil.
For the years ended December 31, 2012 and 2011, provisions were made for foreign withholding taxes and estimated U.S. income
taxes, less available tax credits, which may be incurred upon the remittance of certain undistributed earnings in foreign subsidiaries
and foreign unconsolidated affiliates. Provisions have not been made for income taxes on approximately $900,000 of undistributed
earnings at December 31, 2012 in foreign subsidiaries and corporate joint ventures that are deemed permanently reinvested.
Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such
liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized
if and when the Company no longer plans to permanently reinvest these undistributed earnings.
NOTE 5: INVESTMENTS
The Company’s investments, primarily in Brazil, consist of certificates of deposit and U.S. dollar indexed bond funds that are
classified as available-for-sale and stated at fair value based upon quoted market prices and net asset values, respectively. Unrealized
gains and losses are recorded in OCI. Realized gains and losses are recognized in investment income and are determined using
the specific identification method. Realized gains (losses) from the sale of securities, net for the year ended December 31, 2012
and 2011 were $4,523 and $(1,505), respectively. Proceeds from the sale of available-for-sale securities were $50,431 and $52,292
during the years ended December 31, 2012 and 2011, respectively.
The Company has deferred compensation plans that enable certain employees to defer receipt of a portion of their cash or share-
based compensation and non-employee directors to defer receipt of director fees at the participants’ discretion. For deferred cash-
based compensation, the Company established a rabbi trust (refer to note 12), which is recorded at fair value of the underlying
securities within securities and other investments. The related deferred compensation liability is recorded at fair value within
other long-term liabilities. Realized and unrealized gains and losses on marketable securities in the rabbi trust are recognized in
investment income.
The Company’s investments, excluding cash surrender value of insurance contracts of $70,318 and $67,699 as of December 31,
2012 and 2011, respectively, consist of the following:
As of December 31, 2012
Short-term investments:
Certificates of deposit
U.S. dollar indexed bond funds
Long-term investments:
Assets held in a rabbi trust
As of December 31, 2011
Short-term investments:
Certificates of deposit
U.S. dollar indexed bond funds
Long-term investments:
Assets held in a rabbi trust
Cost Basis
Unrealized
Gain/(Loss)
Fair Value
$
$
$
$
$
$
258,518
3,249
261,767
6,266
269,033
16,482
285,515
7,428
$
$
$
$
$
$
— $
119
119
$
258,518
3,368
261,886
517
$
6,783
— $
1,338
1,338
$
269,033
17,820
286,853
(258) $
7,170
58
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
NOTE 6: FINANCE LEASE RECEIVABLES
The Company provides financing arrangements to customers purchasing its products. These financing arrangements are largely
classified and accounted for as sales-type leases. In 2012 and 2011, the Company sold finance lease receivables of $50,255 and
$14,987, respectively. In 2010, the Company purchased $33,843 of finance lease receivables.
The following table presents the components of finance lease receivables as of December 31:
Gross minimum lease receivable
Allowance for credit losses
Estimated unguaranteed residual values
Less:
Unearned interest income
Unearned residuals
Total
2012
2011
76,763
(525)
7,508
83,746
(4,771)
(1,319)
(6,090)
77,656
$
$
99,808
(210)
6,048
105,646
(6,190)
(1,160)
(7,350)
98,296
$
$
Future minimum payments due from customers under finance lease receivables as of December 31, 2012 are as follows:
2013
2014
2015
2016
2017
Thereafter
$
$
25,283
19,700
16,263
11,418
2,581
1,518
76,763
NOTE 7: ALLOWANCE FOR CREDIT LOSSES
Trade Receivables The Company evaluates the collectability of trade receivables based on (1) a percentage of sales related to
historical loss experience and current trends and (2) periodic adjustments for known events such as specific customer circumstances
and changes in the aging of accounts receivable balances. After all efforts at collection have been unsuccessful, the account is
deemed uncollectible and is written off.
Financing Receivables The Company evaluates the collectability of notes and finance lease receivables (collectively, financing
receivables) on a customer-by-customer basis and evaluates specific customer circumstances, aging of invoices, credit risk changes
and payment patterns and historical loss experience. When the collectability is determined to be at risk based on the above criteria,
the Company records the allowance for credit losses which represents the Company’s current exposure less estimated reimbursement
from insurance claims. After all efforts at collection have been unsuccessful, the account is deemed uncollectible and is written
off.
59
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following table summarizes the Company’s allowance for credit losses and amount of financing receivables evaluated for
impairment:
Allowance for credit losses
Balance at January 1, 2011
Provision for credit losses
Recoveries
Write-offs
Balance at December 31, 2011
Provision for credit losses
Recoveries
Write-offs
Balance at December 31, 2012
Finance
Leases
Notes
Receivable
Total
$
$
$
378
107
138
(413)
210
263
52
—
525
$
$
$
470
2,078
5,455
(5,956)
2,047
—
—
—
2,047
$
$
$
848
2,185
5,593
(6,369)
2,257
263
52
—
2,572
The Company's allowance of $2,572 and $2,257 for the years ended December 31, 2012 and 2011, respectively, all resulted from
individual impairment evaluation. As of December 31, 2012, finance leases and notes receivables individually evaluated for
impairment were $78,181 and $12,855, respectively. As of December 31, 2011, finance leases and notes receivables individually
evaluated for impairment were $98,506 and $13,869, respectively.
The Company records interest income and any fees or costs related to financing receivables using the effective interest method
over the term of the lease or loan. The Company reviews the aging of its financing receivables to determine past due and delinquent
accounts. Credit quality is reviewed at inception and is re-evaluated as needed based on customer specific circumstances. Receivable
balances 60 days to 89 days past due are reviewed and may be placed on nonaccrual status based on customer-specific circumstances.
Receivable balances are placed on nonaccrual status upon reaching great than 89 days past due. Upon receipt of payment on
nonaccrual financing receivables, interest income is recognized and accrual of interest is resumed once the account has been made
current or the specific circumstances have been resolved.
As of December 31, 2012 and 2011, the recorded investment in past-due finance lease receivables on nonaccrual status was $2,060
and $1,740, respectively. The recorded investment in finance lease receivables past due 90 days or more and still accruing interest
was $0 and $114 as of December 31, 2012 and 2011, respectively. The recorded investment in impaired notes receivable was
$2,047 and was fully reserved as of December 31, 2012 and 2011, respectively.
The following table summarizes the Company’s aging of past-due notes receivable balances:
30-59 days past due
60-89 days past due
> 89 days past due
Total past due
NOTE 8: INVENTORIES
The following table summarizes the major classes of inventories as of December 31:
Finished goods
Service parts
Raw materials and work in process
Total inventories
60
December 31,
2012
2011
— $
—
1,840
1,840
$
—
—
1,495
1,495
2012
2011
183,286
151,189
78,521
412,996
$
$
188,571
152,597
99,732
440,900
$
$
$
$
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
NOTE 9: PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment, at cost less accumulated depreciation and amortization as of
December 31:
Land and land improvements
Buildings and building equipment
Machinery, tools and equipment
Leasehold improvements (1)
Computer equipment
Computer software
Furniture and fixtures
Tooling
Construction in progress
Total property plant and equipment, at cost
Less accumulated depreciation and amortization
Total property plant and equipment, net
Estimated
Useful Life
(years)
0-15
15
5-12
10
3-5
5-10
5-8
3-5
2012
2011
7,652
67,533
118,663
27,026
83,822
178,590
79,346
82,539
16,739
661,910
477,565
184,345
7,855
66,261
119,780
24,243
78,543
170,614
76,962
80,979
17,019
642,256
449,562
192,694
(1) The estimated useful life for leasehold improvements is the lesser of 10 years or the term of the lease.
During 2012, 2011 and 2010, depreciation expense, computed on a straight-line basis over the estimated useful lives of the related
assets, was $51,447, $50,549 and $51,425, respectively.
During 2012, the Company recorded impairment charges within DNA of $6,701 related to a portion of its global enterprise resource
planning (ERP) system. Previously capitalized software and software-related costs were impaired due to changes in the ERP
implementation plan related to configuration and design. In addition, the Company recorded an impairment in 2012 of $1,134
related to the Company's decision to cancel the new corporate headquarters project.
NOTE 10: GOODWILL AND OTHER ASSETS
The changes in carrying amounts of goodwill within the Company’s DNA and DI segments are summarized as follows:
Goodwill
Accumulated impairment losses
Balance at January 1, 2011
Currency translation adjustment
Goodwill
Accumulated impairment losses
Balance at December 31, 2011
Goodwill acquired
Currency translation adjustment
Goodwill
Accumulated impairment losses
Balance at December 31, 2012
DNA
112,163
(13,171)
98,992
(50)
112,113
(13,171)
98,942
—
63
112,176
(13,171)
99,005
$
$
$
$
$
$
$
$
DI
377,979
(207,573)
170,406
(16,285)
361,694
(207,573)
154,121
26,003
(6,178)
381,519
(207,573)
173,946
$
$
$
$
Total
490,142
(220,744)
269,398
(16,335)
473,807
(220,744)
253,063
26,003
(6,115)
493,695
(220,744)
272,951
In 2012, goodwill was reviewed for impairment based on a two-step test which resulted in no impairment in any of the Company's
reporting units. As a result of the 2012 Step 1 impairment test, the Company concluded the Brazil reporting unit had excess fair
value of approximately $113,348 or 22.0 percent when compared to its carrying amount. The amount of goodwill in the Company's
Brazil reporting unit was $120,571 as of December 31, 2012. All other reporting units had excess fair value greater than 25 percent
when compared to their carrying amounts.
61
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
In 2011, the Company performed a qualitative assessment to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying value. In the 2011 qualitative assessment, management concluded that the Company's
reporting units were not at risk of failing step one and therefore the two-step impairment test was not performed.
In 2010, goodwill was reviewed for impairment based on a two-step test. In 2010, management concluded that all of the Company’s
goodwill within the EMEA reporting unit was not recoverable and recorded a $168,714 non-cash impairment charge during the
fourth quarter 2010.
Other Assets Included in other assets are net capitalized computer software development costs of $49,513 and $51,117 as of
December 31, 2012 and 2011, respectively. Amortization expense on capitalized software of $18,833, $18,742 and $17,315 was
included in product cost of sales for 2012, 2011 and 2010, respectively. Other long-term assets also consist of patents, trademarks
and other intangible assets. Where applicable, other assets are stated at cost and, if applicable, are amortized ratably over the
relevant contract period or the estimated life of the assets. Fees to renew or extend the term of the Company’s intangible assets
are expensed when incurred.
During the year ended December 31, 2012, the Company acquired $15,744 of amortizable intangible assets (refer to note 20) with
an estimated weighted-average amortization period of eight years.
Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. If the expected future undiscounted cash flows are less than the carrying amount of the asset, an
impairment loss is recognized at that time to reduce the asset to the lower of its fair value or its net book value.
For the years ended December 31, 2011 and 2010, the Company recorded other asset-related impairment charges within DNA
continuing operations of $2,962 and $7,135, respectively. The 2011 impairment charge related to a software intangible asset. The
2010 impairment charges related primarily to customer contract intangible assets and an other than temporary impairment of a
cost-method investment.
Investment in Affiliate Investment in the Company’s non-consolidated affiliate was accounted for under the equity method and
consists of a 50 percent ownership in Shanghai Diebold King Safe Company, Ltd. The balance of this investment as of December 31,
2012 and 2011 was $1,904 and $11,461, respectively, and fluctuated based on impairment, equity earnings and dividends. Equity
earnings from the non-consolidated affiliate are included in miscellaneous, net in the consolidated statements of operations and
were $702, $1,813 and $2,982 for the years ended December 31, 2012, 2011 and 2010, respectively. The non-consolidated affiliate
declared dividends of $2,329, $2,470 and $2,172 for the years ended December 31, 2012, 2011 and 2010, respectively. During
the year ended December 31, 2012, the Company determined the investment was partially impaired and recorded an impairment
charge of $7,930, which was allocated to DNA and DI continuing operations. The Company determined the fair value of its
investment using level three inputs (refer to note 18) such as price trends, material costs, discount rate, customer demand, and the
long term growth rate. Additionally, the Company suspended the equity method of accounting for the investment during the
quarter ended September 30, 2012.
62
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
NOTE 11: DEBT
Outstanding debt balances were as follows:
Notes payable – current:
Uncommitted lines of credit
Other
Long-term debt:
Credit facility
Senior notes
Industrial development revenue bonds
Other
December 31,
2012
2011
$
$
$
$
33,916
296
34,212
300,000
300,000
11,900
5,634
617,534
$
$
$
$
21,572
150
21,722
291,000
300,000
11,900
3,254
606,154
As of December 31, 2012, the Company had various short-term uncommitted lines of credit with borrowing limits of $111,337.
The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of December 31,
2012 and 2011 was 2.81 percent and 4.23 percent, respectively. The decline in the weighted-average interest rate is attributable
to the change in geographic mix of borrowings. Short-term uncommitted lines mature in less than one year. The amount available
under the short-term uncommitted lines at December 31, 2012 was $77,421.
In June 2011, the Company entered into a five-year credit facility, which replaced its previous credit facility. As of December 31,
2012, the Company had borrowing limits under the credit facility totaling $500,000. Under the terms of the credit facility agreement,
the Company has the ability, subject to various approvals, to increase the borrowing limits by $250,000. Up to $50,000 of the
revolving credit facility is available under a swing line subfacility. The weighted-average interest rate on outstanding credit facility
borrowings as of December 31, 2012 and 2011 was 1.33 percent and 1.49 percent, respectively, which is variable based on the
London Interbank Offered Rate (LIBOR). The amount available under the credit facility as of December 31, 2012 was $200,000.
The Company incurred $1,876 of fees related to its credit facility in 2011, which are amortized as a component of interest expense
over the term of the facility.
In March 2006, the Company issued senior notes in an aggregate principal amount of $300,000 with a weighted-average fixed
interest rate of 5.50 percent. The maturity dates of the senior notes are staggered, with $75,000, $175,000 and $50,000 becoming
due in 2013, 2016 and 2018, respectively. Additionally, the Company entered into a pre-issuance cash flow hedge to offset interest
rate risk on $200,000 of the senior notes, which reduced the effective interest rate from 5.50 to 5.36 percent.
Maturities of debt as of December 31, 2012 are as follows: $109,212 in 2013, $1,351 in 2014, $1,086 in 2015, $476,662 in 2016,
$13,428 in 2017 and $50,007 thereafter. As of December 31, 2012, although due within twelve months, $75,000 of the senior
notes remain classified as long-term debt because of the Company's intent and ability to fund the repayment using amounts available
under its credit facility. Interest expense on the Company’s debt instruments for the years ended December 31, 2012, 2011 and
2010 was $23,454, $26,002 and $27,520, respectively.
In 1997, 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. The bonds were issued with a 20-year original term and are scheduled to mature
in 2017. Each industrial development revenue bond carries a variable interest rate, which is reset weekly by the remarketing
agents. The weighted-average interest rate on the bonds was 0.49 percent and 0.77 percent as of December 31, 2012 and 2011,
respectively. Interest expense on the bonds for the years ended December 31, 2012, 2011 and 2010 was $88, $88 and $72,
respectively.
The Company’s financing agreements contain various restrictive financial covenants, including net debt to capitalization and net
interest coverage ratios. As of December 31, 2012, the Company was in compliance with the financial and other covenants in its
debt agreements.
63
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
NOTE 12: BENEFIT PLANS
Qualified Pension Benefits Plans that cover salaried employees provide pension benefits based on the employee’s compensation
during the ten years before retirement. The Company’s funding policy for salaried plans is to contribute annually based on actuarial
projections and applicable regulations. During the fourth quarter of 2012, $62,754 of pension plan assets were distributed to certain
deferred terminated vested participants to settle certain salary plan liabilities which resulted in $21,907 of additional pension
expense recognized in selling and administrative expense within the Company's statement of operations. Plans covering hourly
employees and union members generally provide benefits of stated amounts for each year of service. The Company’s funding
policy for hourly 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.
Supplemental Executive Retirement Benefits The Company has non-qualified pension plans to provide supplemental retirement
benefits to certain officers. Benefits are payable at retirement based upon a percentage of the participant’s compensation, as defined.
Other Benefits In addition to providing pension benefits, the Company provides postretirement healthcare and life insurance
benefits (referred to as other 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. Currently, 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 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.
64
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following tables set forth the change in benefit obligation, change in plan assets, funded status, consolidated balance sheet
presentation and net periodic benefit cost for the Company’s defined benefit pension plans and other benefits at and for the years
ended December 31:
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Plan participant contributions
Medicare retiree drug subsidy reimbursements
Benefits paid
Settlements
Other
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participant contributions
Benefits paid
Settlements
Fair value of plan assets at end of year
Funded status
Amounts recognized in balance sheets
Current liabilities
Noncurrent liabilities (1)
Accumulated other comprehensive loss:
Unrecognized net actuarial loss (2)
Unrecognized prior service cost (benefit) (2)
Net amount recognized
Change in accumulated other comprehensive loss
Balance at beginning of year
Prior service cost (credit) recognized during the year
Net actuarial losses recognized during the year
Net actuarial (losses) gains occurring during the year
Settlements
Balance at end of year
Pension Benefits
Other Benefits
2012
2011
2012
2011
636,210
11,446
31,831
96,016
—
—
(23,909)
(77,910)
27
673,711
485,489
58,560
15,711
—
(23,909)
(62,754)
473,097
$
$
$
$
552,760
10,854
31,491
63,079
—
—
(21,932)
—
(42)
636,210
450,632
33,471
23,318
—
(21,932)
—
485,489
$
$
$
$
17,022
—
814
(414)
79
166
(1,940)
—
—
15,727
$
$
— $
—
1,861
79
(1,940)
—
— $
16,885
—
930
1,277
114
177
(2,361)
—
—
17,022
—
—
2,247
114
(2,361)
—
—
(200,614) $
(150,721) $
(15,727) $
(17,022)
2,931
197,683
$
2,846
147,875
$
(238,144)
(1,679)
(39,209) $
(213,712)
(1,935)
(64,926) $
(215,647) $
258
16,777
(63,118)
21,907
(239,823) $
(155,050) $
259
9,497
(70,353)
—
(215,647) $
1,574
14,153
(4,982)
933
11,678
$
$
(4,434) $
(517)
488
414
—
(4,049) $
1,693
15,329
(5,884)
1,450
12,588
(3,029)
(517)
389
(1,277)
—
(4,434)
$
$
$
$
$
$
$
$
$
Included in the consolidated balance sheets in pensions and other benefits and other postretirement benefits are international plans.
(1)
(2) Represents amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost.
65
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
$
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (1)
Recognized net actuarial loss
Settlement loss
Net periodic pension benefit cost
$
Pension Benefits
2011
2012
2010
2012
Other Benefits
2011
2010
11,446
31,831
(40,821)
258
16,777
21,907
41,398
$
$
10,854
31,491
(40,735)
259
9,497
—
11,366
$
$
9,994
30,723
(38,412)
197
5,688
—
8,190
$
$
— $
814
—
(517)
488
—
785
$
— $
930
—
(517)
389
—
802
$
—
993
—
(517)
284
—
760
(1) The annual amortization of prior service cost is determined as the increase in projected benefit obligation due to the plan change divided by the average
remaining service period of participating employees expected to receive benefits under the plan.
The following table represents information for pension plans with an accumulated benefit obligation in excess of plan assets at
December 31:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
2012
2011
$
673,711
605,424
473,097
636,210
580,200
485,489
The following table represents the weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate
Rate of compensation increase
Pension Benefits
Other Benefits
2012
2011
2012
2011
4.21%
3.25%
5.04%
3.25%
4.21%
N/A
5.04%
N/A
The following table represents the weighted-average assumptions used to determine periodic benefit cost at December 31:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
Pension Benefits
Other Benefits
2012
2011
2012
2011
5.04%
8.25%
3.25%
5.83%
8.50%
3.25%
5.04%
N/A
N/A
5.83%
N/A
N/A
The discount rate is determined by analyzing the average return of high-quality (i.e., AA-rated) fixed-income investments and the
year-over-year comparison of certain widely used benchmark indices as of the measurement date. The expected long-term rate
of return on plan assets is primarily determined using the plan’s current asset allocation and its expected rates of return based on
a geometric averaging over 20 years. The Company also considers information provided by its investment consultant, a survey
of other companies using a December 31 measurement date and the Company’s historical asset performance in determining the
expected long-term rate of return. The rate of compensation increase assumptions reflects the Company’s long-term actual
experience and future and near-term outlook.
The following table represents assumed health care cost trend rates at December 31:
Healthcare cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that rate reaches ultimate trend rate
2012
2011
8.0%
4.2%
2099
8.0%
4.2%
2099
66
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The healthcare trend rates are reviewed based upon the results of actual claims experience. The Company used healthcare cost
trends of 8.0 percent and 8.0 percent in 2013 and 2012, respectively, decreasing to an ultimate trend of 4.2 percent in 2099 for
both medical and prescription drug benefits using the Society of Actuaries Long Term Trend Model with assumptions based on
the 2008 Medicare Trustees’ projections. Assumed healthcare cost trend rates have a significant effect on the amounts reported
for the healthcare plans.
A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
Effect on total of service and interest cost
Effect on postretirement benefit obligation
One-
Percentage-
Point Increase
51
$
911
One-
Percentage-
Point Decrease
(46)
$
(825)
The Company has a pension investment policy designed to achieve an adequate funded status based on expected benefit payouts
and to establish an asset allocation that will meet or exceed the return assumption while maintaining a prudent level of risk. The
plans' target asset allocation adjusts based on the plan's funded status. As the funded status improves or declines, the debt security
target allocation will increase and decrease, respectively. The Company utilizes the services of an outside consultant in performing
asset / liability modeling, setting appropriate asset allocation targets along with selecting and monitoring professional investment
managers.
The plan assets are invested in equity and fixed income securities, alternative assets and cash. Within the equities asset class, the
investment policy provides for investments in a broad range of publicly-traded securities including both domestic and international
stocks diversified by value, growth and cap size. Within the fixed income asset class, the investment policy provides for investments
in a broad range of publicly-traded debt securities with a substantial portion allocated to a long duration strategy in order to partially
offset interest rate risk relative to the plans’ liabilities. The alternative asset class includes investments in diversified strategies
with a stable and proven track record and low correlation to the U.S. stock market.
The following table summarizes the Company’s target mix for these asset classes in 2013, which are readjusted at least quarterly
within a defined range, and the Company’s actual pension plan asset allocation as of December 31, 2012 and 2011:
Equity securities
Debt securities
Real estate
Other
Total
Target
Allocation
Percentage
2013
45%
40%
5%
10%
100%
Actual Allocation Percentage
2012
44%
39%
5%
12%
100%
2011
35%
51%
4%
10%
100%
Assets are categorized into a three level hierarchy based upon the assumptions (inputs) used to determine the fair value the
assets (refer to note 18).
Level 1 - Fair value of investments categorized as level 1 are determined based on period end closing prices in active markets.
Mutual funds are valued at their net asset value (NAV) on the last day of the period.
Level 2 - Fair value of investments categorized as level 2 are determined based on the latest available ask price or latest trade
price if listed. The fair value of unlisted securities is established by fund managers using the latest reported information for
comparable securities and financial analysis. If the manager believes the fund is not capable of immediately realizing the fair
value otherwise determined, the manager has the discretion to determine an appropriate value. Common collective trusts are
valued at NAV on the last day of the period.
Level 3 - Fair value of investments categorized as level 3 represent the plan’s interest in private equity, hedge and property
funds. The fair value for these assets is determined based on the NAV as reported by the underlying investment managers.
67
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following table summarizes the fair value of the Company’s plan assets as of December 31, 2012:
Cash and other
Mutual funds:
U.S. mid growth
Equity securities:
U.S. mid cap value
U.S. small cap core
International developed markets
Fixed income securities:
U.S. corporate bonds
International corporate bonds
U.S. government
Other fixed income
Emerging markets
Common collective trusts:
Real estate (a)
Other (b)
Alternative investments:
Multi-strategy hedge funds (c)
Private equity funds (d)
Cash and other
Mutual funds:
U.S. mid growth
Equity securities:
U.S. mid cap value
U.S. small cap core
International developed markets
Fixed income securities:
U.S. corporate bonds
International corporate bonds
U.S. government
Other fixed income
Emerging markets
Common collective trusts:
Real estate (a)
Other (b)
Alternative investments:
Multi-strategy hedge funds (c)
Private equity funds (d)
Total
Fair Value
Level 1
Level 2
Level 3
$
2,940
$
2,940
$
— $
18,898
17,106
22,142
47,900
64,835
1,873
2,010
624
23,292
25,162
194,594
28,377
23,344
473,097
$
18,898
17,106
22,142
47,900
—
—
—
—
—
—
—
—
—
108,986
$
$
—
—
—
—
64,835
1,873
2,010
624
23,292
—
194,594
—
—
287,228
25,162
—
28,377
23,344
76,883
$
15,771
14,672
17,253
37,345
68,356
2,316
3,436
598
17,334
16,443
191,421
26,605
23,550
485,489
$
15,771
14,672
17,253
37,345
—
—
—
—
—
—
—
—
—
135,430
$
$
—
—
—
—
68,356
2,316
3,436
598
17,334
—
191,421
—
—
283,461
16,443
—
26,605
23,550
66,598
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The following table summarizes the fair value of the Company’s plan assets as of December 31, 2011:
Fair Value
Level 1
Level 2
Level 3
$
50,389
$
50,389
$
— $
(a) Real estate common collective trust The objective of the real estate common collective trust (CCT) is to achieve long-term returns through
investments in a broadly diversified portfolio of improved properties with stabilized occupancies. As of December 31, 2012, investments
in this CCT include approximately 43 percent office, 21 percent residential, 19 percent industrial, cash and other and 17 percent retail. As
of December 31, 2011 investments in this CCT include approximately 46 percent office, 23 percent residential, 19 percent retail and 12
percent industrial, cash and other. Investments in the real estate CCT can be redeemed once per quarter subject to available cash, with a 45-
day notice.
(b) Other common collective trusts At December 31, 2012, approximately 60 percent of the other CCTs are invested in fixed income securities
including approximately 27 percent in mortgage-backed securities, 42 percent in corporate bonds and 31 percent in U.S. Treasury and other.
Approximately 40 percent of the other CCTs at December 31, 2012 are invested in Russell 1000 Fund large cap index funds. At December 31,
68
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
2011, approximately 64 percent of the other CCTs are invested in fixed-income securities including approximately 35 percent in mortgage-
backed securities, 45 percent in corporate bonds and 20 percent in U.S. Treasury and other. Approximately 36 percent of the other CCTs
at December 31, 2011 are invested in Russell 1000 Fund large cap index funds. Investments in fixed-income securities can be redeemed
daily.
(c) Multi-strategy hedge funds The objective of the multi-strategy hedge funds is to diversify risks and reduce volatility. At December 31,
2012 and 2011, investments in this class include approximately 35 percent long/short equity in both periods, 40 percent and 35 percent,
respectively, arbitrage and event investments and 25 percent and 30 percent, respectively, in directional trading, fixed income and other.
Investments in the multi-strategy hedge fund can be redeemed semi-annually with a 95-day notice.
(d) Private equity funds The objective of the private equity funds is to achieve long-term returns through investments in a diversified portfolio
of private equity limited partnerships that offer a variety of investment strategies, targeting low volatility and low correlation to traditional
asset classes. As of December 31, 2012 and 2011, investments in these private equity funds include approximately 50 percent in both years,
in buyout private equity funds that usually invest in mature companies with established business plans, 25 percent and 30 percent, respectively,
in special situations private equity and debt funds that focus on niche investment strategies and 25 percent and 20 percent, respectively, in
venture private equity funds that invest in early development or expansion of business. Investments in the private equity fund can be
redeemed only with written consent from the general partner, which may or may not be granted. At December 31, 2012 and 2011, the
Company had unfunded commitments of underlying funds of $5,529 and $5,618.
The following table summarizes the changes in fair value of level 3 assets for the years ended December 31:
Balance, January 1
Acquisitions
Dispositions
Realized gain, net
Unrealized gain, net
Balance, December 31
2012
2011
66,598
6,088
(2,479)
3,432
3,244
76,883
$
$
56,775
5,394
(1,536)
537
5,428
66,598
$
$
The following table represents the amortization amounts expected to be recognized during 2013:
Amount of net prior service cost (credit)
Amount of net loss
Pension
Benefits
$
258
21,377
Other Benefits
(488)
$
422
The Company contributed $15,711 to its pension plans, including contributions to the nonqualified plan, and $1,861 to its other
postretirement benefit plan during the year ended December 31, 2012. Also, the Company expects to contribute $3,343 to its
pension plans, including the nonqualified plan, and $1,798 to its other postretirement benefit plan during the year ending
December 31, 2013. The following benefit payments, which reflect expected future service, are expected to be paid:
2013
2014
2015
2016
2017
2018-2022
Other Benefits
before
Medicare
Part D
Subsidy
Other Benefits
after Medicare
Part D
Subsidy
Pension
Benefits
$
$
24,741
27,556
28,051
29,662
31,147
183,750
$
1,798
1,771
1,716
1,660
1,600
6,773
1,607
1,585
1,532
1,484
1,432
6,076
69
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Retirement Savings Plan The Company offers employee 401(k) savings plans (Savings Plans) to encourage eligible employees
to save on a regular basis by payroll deductions. Effective July 1, 2003, a new enhanced benefit to the Savings Plans became
effective. This enhanced benefit is in lieu of participation in the pension plan for salaried employees. The following table represents
the Company's basic match percentage on participant qualified contributions up to a percentage of their compensation:
Effective April 1, 2009 - December 31, 2010
Effective January 1, 2011 - December 31, 2011
Effective January 1, 2012 - December 31, 2012
Employees hired prior
to July 1, 2003
Employees hired on
or after July 1, 2003
None
25% of first 6%
30% of first 6%
30% of first 6%
55% of first 6%
60% of first 6%
The Company match is determined by the Board of Directors and evaluated at least annually. Total Company match was $8,357,
$6,483 and $1,895 for the years ended December 31, 2012, 2011 and 2010, respectively.
Deferred Compensation Plans The Company has deferred compensation plans that enable certain employees to defer receipt of
a portion of their cash bonus or share-based compensation and non-employee directors to defer receipt of director fees at the
participants’ discretion. For deferred cash-based compensation, the Company established a rabbi trust which is recorded at fair
value of the underlying securities within securities and other investments. The related deferred compensation liability is recorded
at fair value within other long-term liabilities. Realized and unrealized gains and losses on marketable securities in the rabbi trust
are recognized in investment income with corresponding changes in the Company’s deferred compensation obligation recorded
as compensation cost within selling and administrative expense.
NOTE 13: LEASES
The Company’s future minimum lease payments due under non-cancellable operating leases for real estate, vehicles and other
equipment at December 31, 2012 are as follows:
2013
2014
2015
2016
2017
Thereafter
Total
Real Estate
41,932
31,432
25,763
20,506
15,153
89,419
224,205
$
$
31,358
26,686
22,655
19,150
14,674
88,553
203,076
$
$
Vehicles and
Equipment (a)
10,574
$
4,746
3,108
1,356
479
866
21,129
$
(a) The Company leases vehicles with contractual terms of 36 to 60 months that are cancellable after 12 months without penalty. Future minimum lease
payments reflect only the minimum payments during the initial 12-month non-cancellable term.
Under lease agreements that contain escalating rent provisions, lease expense is recorded on a straight-line basis over the lease
term. Rental expense under all lease agreements amounted to approximately $74,849, $73,801 and $69,448 for the years ended
December 31, 2012, 2011 and 2010, respectively.
NOTE 14: GUARANTEES AND PRODUCT WARRANTIES
In 1997, industrial development revenue bonds were issued on behalf of the Company. The Company guaranteed repayment of
the bonds (refer to note 11) by obtaining letters of credit. The carrying value of the bonds was $11,900 as of December 31, 2012
and 2011.
The Company provides its global operations guarantees and standby letters of credit through various financial institutions to
suppliers, regulatory agencies and insurance providers. If the Company is not able to make payment, the suppliers, regulatory
agencies and insurance providers may draw on the pertinent bank. At December 31, 2012, the maximum future payment obligations
relative to these various guarantees totaled $80,662, of which $23,435 represented standby letters of credit to insurance providers,
70
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
and no associated liability was recorded. At December 31, 2011, the maximum future payment obligations relative to these various
guarantees totaled $71,321 of which $22,623 represented standby letters of credit to insurance providers, and no associated liability
was recorded.
The Company provides its customers a standard manufacturer’s warranty and records, at the time of the sale, a corresponding
estimated liability for potential warranty costs. Estimated future obligations due to warranty claims are based upon historical
factors such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts.
Changes in the Company’s warranty liability balance are illustrated in the following table:
Balance at January 1
Current period accruals (1)
Current period settlements
Balance at December 31
(1) Includes the impact of foreign exchange rate fluctuations.
NOTE 15: COMMITMENTS AND CONTINGENCIES
2012
2011
$
$
63,355
74,015
(55,619)
81,751
$
$
78,313
49,825
(64,783)
63,355
At December 31, 2012, the Company had purchase commitments due within one year totaling $9,772 for materials through contract
manufacturing agreements at negotiated prices. The amounts purchased under these obligations totaled $4,009 in 2012.
At December 31, 2012, 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 Company’s consolidated financial statements would not be materially affected
by the outcome of those legal proceedings, commitments, or asserted claims.
In addition to the routine legal proceedings noted above the Company was a party to the lawsuits described below at December 31,
2012:
Brazilian Federal Indirect Tax Assessment
In August 2012, one of the Company's Brazilian subsidiaries was notified of a tax assessment of approximately $133,000, including
penalties and interest, regarding certain Brazilian federal indirect taxes (Industrialized Products Tax, Import Tax, Programa de
Integração Social and Contribution to Social Security Financing) for 2008 and 2009. The assessment alleges improper importation
of certain components into the country's free trade zone that would nullify certain indirect tax incentives. On September 10, 2012,
the Company filed its administrative defenses with the tax authorities. This proceeding is currently pending an administrative
level decision, which could negatively impact Brazilian federal indirect taxes in other years that remain open under statute. It is
reasonably possible that the Company could be required to pay taxes, penalties and interest related to this matter, which could be
material to the Company's consolidated financial statements. Management believes that the possible range of loss associated with
the Brazilian federal indirect tax assessment is $0 to $236,000.
Securities Action
On June 30, 2010, a shareholder filed a putative class action complaint in the United States District Court for the Northern District
of Ohio alleging violations of the federal securities laws against the Company, certain current and former officers, and the Company's
independent auditors (Louisiana Municipal Police Employees Retirement System v. KPMG et al., No. 10-CV-1461). The complaint
seeks unspecified compensatory damages on behalf of a class of persons who purchased the Company's stock between June 30,
2005 and January 15, 2008 and fees and expenses related to the lawsuit. The complaint generally relates to the matters set forth
in the court documents filed by the SEC in June 2010 finalizing the settlement of civil charges stemming from the investigation
of the Company conducted by the Division of Enforcement of the SEC. It is reasonably possible that the resolution of this putative
federal securities class action could be material to the Company's consolidated financial statements; however, management believes
that any possible loss or range of loss cannot be estimated.
71
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Global Foreign Corrupt Practices Act (FCPA) Review
During the second quarter of 2010, while conducting due diligence in connection with a potential acquisition in Russia, the Company
identified certain transactions and payments by its subsidiary in Russia (primarily during 2005 to 2008) that potentially implicate
the FCPA, particularly the books and records provisions of the FCPA. As a result, the Company conducted a global internal review
and collected information related to its global FCPA compliance. In the fourth quarter of 2010, the Company identified certain
transactions within its Asia Pacific operation that occurred over the past several years that may also potentially implicate the FCPA.
The Company continues to monitor its ongoing compliance with the FCPA.
The Company has voluntarily self-reported its findings to the SEC and the U.S. Department of Justice (DOJ) and is cooperating
with these agencies in their review. The Company was previously informed that the SEC's inquiry had been converted to a formal,
non-public investigation. The Company also received a subpoena for documents from the SEC and a voluntary request for
documents from the DOJ in connection with the investigation. During the fourth quarter of 2012, the Company recorded $16,750
within miscellaneous, net of estimated pre-tax losses related to the potential outcome of this matter, resulting in a total accrual of
$20,000 as of December 31, 2012. Because the SEC and DOJ investigations are ongoing, there can be no assurance that their
review will not find evidence of additional transactions that potentially implicate the FCPA. The Company is continuing its
discussions with the government toward a resolution to this matter. At this time, the Company cannot predict the results of the
government investigations, and it is reasonably possible that the resolution of these matters with the SEC and the DOJ could result
in changes in management's estimates of losses, which could be material to the Company’s consolidated financial statements.
NOTE 16: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses derivatives to mitigate the economic consequences associated with the fluctuations in currencies and interest
rates. The Company records all derivative instruments on the balance sheet at fair value and the changes in the fair value are
recognized in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows derivative
gains and losses to be reflected in the statement of operations or OCI together with the hedged exposure, and requires that the
Company formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment.
Gains or losses associated with ineffectiveness are reported currently in earnings. The Company does not enter into any speculative
positions with regard to derivative instruments.
The Company periodically evaluates its monetary asset and liability positions denominated in foreign currencies. The impact of
the Company's and the counterparties’ credit risk on the fair value of the contracts is considered as well as the ability of each party
to execute its obligations under the contract. The Company generally uses investment grade financial counterparties in these
transactions and believes that the resulting credit risk under these hedging strategies is not significant.
FOREIGN EXCHANGE
Net Investment Hedges The Company has international subsidiaries with net balance sheet positions that generate cumulative
translation adjustments within OCI. The Company uses derivatives to manage potential changes in value of its net investments
in Brazil. The Company uses the forward-to-forward method for its quarterly retrospective and prospective assessments of hedge
effectiveness. No ineffectiveness results if the notional amount of the derivative matches the portion of the net investment designated
as being hedged because the Company uses derivative instruments with underlying exchange rates consistent with its functional
currency and the functional currency of the hedged net investment. Changes in value that are deemed effective are accumulated
in OCI until complete liquidation of the subsidiary, when they would be reclassified to income together with the gain or loss on
the entire investment. The fair value of the Company’s net investment hedge contracts was $0 and $1,768 as of December 31,
2012 and 2011, respectively. The gain recognized in OCI on net investment hedge contracts was $3,021 and $1,768 for the years
ended December 31, 2012 and 2011, respectively.
Non-Designated Hedges A substantial portion of the Company’s operations and revenues are international. As a result, changes
in foreign exchange rates can create substantial foreign exchange gains and losses from the revaluation of non-functional currency
monetary assets and liabilities. The Company’s policy allows the use of foreign exchange forward contracts with maturities of up
to 24 months to mitigate the impact of currency fluctuations on those foreign currency asset and liability balances. The Company
elected not to apply hedge accounting to its foreign exchange forward contracts. Thus, spot-based gains/losses offset revaluation
gains/losses within foreign exchange loss, net and forward-based gains/losses represent interest expense. The fair value of the
72
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Company’s non-designated foreign exchange forward contracts was $47 and $(1,558) as of December 31, 2012 and 2011,
respectively.
The following table summarizes the gain (loss) recognized on non-designated foreign exchange derivative instruments for the
years ended December 31:
Interest expense
Foreign exchange gain (loss), net
INTEREST RATE
2012
2011
(4,934) $
(2,852)
(7,786) $
(7,441)
8,016
575
$
$
Cash Flow Hedges The Company has variable rate debt and is subject to fluctuations in interest related cash flows due to changes
in market interest rates. The Company’s policy allows derivative instruments designated as cash flow hedges that fix a portion of
future variable-rate interest expense. As of December 31, 2012, the Company has two pay-fixed receive-variable interest rate
swaps, with a notional amount totaling $50,000, to hedge against changes in the LIBOR benchmark interest rate on a portion of
the Company’s LIBOR-based borrowings. Changes in value that are deemed effective are accumulated in OCI and reclassified
to interest expense when the hedged interest is accrued. To the extent that it becomes probable that the Company’s variable rate
borrowings will not occur, the gains or losses on the related cash flow hedges will be reclassified from OCI to interest expense.
The fair value of the Company’s interest rate contracts was $(3,558) and $(3,796) as of December 31, 2012 and 2011, respectively.
In December 2005 and January 2006, the Company executed cash flow hedges by entering into receive-variable and pay-fixed
interest rate swaps, with a total notional amount of $200,000, related to the senior notes issuance in March 2006. Amounts
previously recorded in OCI related to the pre-issuance cash flow hedges will continue to be reclassified to income on a straight-
line basis through February 2016.
The gain or loss recognized on designated cash flow hedge derivative instruments for the years ended December 31, 2012 and
2011 were not material. Gains and losses related to interest rate contracts are reclassified from accumulated OCI are recorded
in interest expenses on the statement of income. The Company anticipates reclassifying $933 from other comprehensive
income to interest expense within the next 12 months.
NOTE 17: RESTRUCTURING AND OTHER CHARGES
The following table summarizes the impact of Company’s restructuring charges (accrual adjustments) on the consolidated
statements of operations for the years ended December 31:
Cost of sales - services
Cost of sales - products
Selling and administrative expense
Research, development and engineering expense
Gain on sale of real estate
2012
2011
2010
$
$
6,226
(1,849)
9,037
1,827
—
15,241
$
$
10,678
3,905
11,607
(8)
—
26,182
$
$
540
1,163
3,809
(143)
(1,186)
4,183
73
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following table summarizes the Company’s restructuring charges (accrual adjustments) within continuing operations by
reporting segment for the years ended December 31:
DNA
Severance
Other
Gain on sale of real estate
DI
Severance
Other (1)
Total
2012
2011
2010
$
$
10,773
—
—
4,112
356
15,241
$
$
4,000
239
—
19,284
2,659
26,182
$
$
3,226
368
(1,186)
1,315
460
4,183
(1) Other costs in the DI segment for the year ended December 31, 2011 include legal fees, accelerated depreciation and lease termination fees.
Restructuring charges of $15,633 for the year ended December 31, 2012 related to the Company’s global realignment plan, including
realignment of resources and certain international facilities to better support opportunities in target markets and leverage software-
led services technology to support customers in efforts to optimize overall operational performance. As of December 31, 2012,
the Company anticipates additional restructuring costs of $4,000. As management concludes on certain aspects of the global
shared services plan, the anticipated future costs related to this plan are subject to change.
Restructuring charges of $3,097 for the year ended December 31, 2012 related to the Company’s global shared services plan,
which entails expanding the Company's current information technology (IT) center in India to create a global shared services
center that provides centralized IT and financial services for the Company. Expanding the shared services center requires
transferring IT and financial services-related jobs residing in other geographies. As of December 31, 2012, the Company anticipates
additional restructuring costs of $6,000. As management concludes on certain aspects of the global shared services plan, the
anticipated future costs related to this plan are subject to change.
Restructuring (accrual adjustments) charges, net of $(2,986) and $19,450 for the year ended December 31, 2012 and 2011,
respectively, related to the Company’s plan for the EMEA reorganization, which realigns resources and further leverages the
existing shared services center. As of December 31, 2012, the Company does not expect any material remaining costs related to
this plan.
Restructuring charges of $0, $1,057 and $4,059 for the years ended December 31, 2012, 2011 and 2010, respectively, related to
reductions in the Company’s global workforce, including realignment of the organization and resources to better support
opportunities in emerging growth markets and consolidation of certain international facilities in efforts to optimize overall
operational performance. Company does not expect any material remaining costs related to this workforce reduction.
Other net restructuring (accrual adjustments) charges, net were $(503), $5,675 and $124 for the years ended December 31, 2012,
2011 and 2010, respectively. Other restructuring charges for 2011 related primarily to realignment in North American operations.
The following table summarizes the Company’s cumulative total restructuring costs for the significant plans:
Costs incurred to date:
DNA
DI
Total costs incurred to date
Global
Realignment
Global Shared
Services
EMEA
Reorganization
$
$
8,774
6,859
15,633
$
$
2,808
289
3,097
$
$
—
16,464
16,464
74
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following table summarizes the Company’s restructuring accrual balances and related activity:
Balance at January 1, 2010
Liabilities incurred
Liabilities paid/settled
Balance at December 31, 2010
Liabilities incurred
Liabilities paid/settled
Balance at December 31, 2011
Liabilities incurred
Liabilities paid/settled
Balance at December 31, 2012
Other Charges
$
$
$
$
21,917
5,369
(23,946)
3,340
26,182
(19,386)
10,136
15,241
(13,533)
11,844
Other charges consist of items that the Company has determined are non-routine in nature and are not expected to recur in future
operations. Net non-routine expenses of $42,328, $14,981 and $16,234 impacted the years ended December 31, 2012, 2011 and
2010, respectively. Net non-routine expenses for 2012 primarily related to the FCPA investigation, including $16,750 within
miscellaneous, net of estimated pre-tax losses related to the potential outcome of this matter. In addition, the Company incurred
$21,907 of pre-tax non-routine expenses related to early pension buy-out payments made to certain deferred terminated vested
participants (refer to note 12) recorded within selling and administrative expense. Net non-routine expenses for 2011 consisted
primarily of legal and compliance costs related to the FCPA investigation and were recorded in selling and administrative expense
and miscellaneous, net. Net non-routine expenses for 2010 consisted primarily of a settlement and legal fees related to a previously
disclosed employment class-action lawsuit as well as legal and compliance costs related to the FCPA investigation.
NOTE 18: FAIR VALUE OF ASSETS AND LIABILITIES
The Company measures its financial assets and liabilities using one or more of the following three valuation techniques:
Market approach — Prices and other relevant information generated by market transactions involving identical or comparable
assets or liabilities.
Cost approach — Amount that would be required to replace the service capacity of an asset (replacement cost).
Income approach — Techniques to convert future amounts to a single present amount based upon market expectations.
The hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical
or similar assets or liabilities in markets that are not active or inputs, other than quoted prices in active markets, that are
observable either directly or indirectly.
Level 3 — Unobservable inputs for which there is little or no market data.
75
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Summary of Assets and Liabilities Recorded at Fair Market Value
Refer to note 12 for assets held in the Company’s defined pension plans, which are measured at fair value. Assets and liabilities
subject to fair value measurement are as follows:
Assets
Short-term investments:
Certificates of deposit
U.S. dollar indexed bond funds
Assets held in a rabbi trust
Foreign exchange forward contracts
Total
Liabilities
Deferred compensation
Foreign exchange forward contracts
Interest rate swaps
Total
December 31, 2012
December 31, 2011
Fair Value
Measurements Using
Level 1
Level 2
Fair Value
Measurements Using
Level 1
Level 2
Fair
Value
Fair
Value
$ 258,518
$ 258,518
$
— $ 269,033
$ 269,033
$
—
3,368
6,783
960
$ 269,629
—
6,783
—
$ 265,301
$
6,783
913
3,558
$ 11,254
$
$
6,783
—
—
6,783
$
$
$
3,368
—
960
4,328
17,820
7,170
2,193
$ 296,216
—
7,170
—
$ 276,203
17,820
—
2,193
$ 20,013
— $
913
3,558
4,471
7,170
1,983
3,796
$ 12,949
$
$
7,170
—
—
7,170
$
$
—
1,983
3,796
5,779
Short-Term Investments The Company has investments in certificates of deposit that are recorded at cost, which approximates
fair value. Additionally, the Company has investments in U.S. dollar indexed bond funds that are classified as available-for-sale
and stated at fair value. U.S. dollar indexed bond funds are reported at net asset value, which is the practical expedient for fair
value as determined by banks where funds are held.
Assets Held in a Rabbi Trust / Deferred Compensation The fair value of the assets held in a rabbi trust (refer to notes 5 and
12) is derived from investments in a mix of money market, fixed income and equity funds managed by Vanguard. The related
deferred compensation liability is recorded at fair value.
Foreign Exchange Forward Contracts A substantial portion of the Company’s operations and revenues are international. As a
result, changes in foreign exchange rates can create substantial foreign exchange gains and losses from the revaluation of non-
functional currency monetary assets and liabilities. The foreign exchange contracts are valued using the market approach based
on observable market transactions of forward rates.
Interest Rate Swaps The Company has variable rate debt and is subject to fluctuations in interest related cash flows due to changes
in market interest rates. The Company’s policy allows it to periodically enter into derivative instruments designated as cash flow
hedges to fix some portion of future variable rate based interest expense. The Company executed two pay-fixed receive-variable
interest rate swaps to hedge against changes in the LIBOR benchmark interest rate on a portion of the Company’s LIBOR-based
borrowings. The fair value of the swap is determined using the income approach and is calculated based on LIBOR rates at the
reporting date.
76
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Summary of Assets and Liabilities Recorded at Carrying Value
The fair value of the Company’s cash and cash equivalents, trade receivables and accounts payable, approximates the carrying
value due to the relative short maturity of these instruments. Refer to note 10 related to the Company's investment in a non-
consolidated affiliate. The fair value and carrying value of the Company’s debt instruments are summarized as follows:
Notes payable
Long-term debt
Total debt instruments
December 31, 2012
December 31, 2011
Fair Value
Carrying
Value
Fair Value
Carrying
Value
$
$
34,212
630,450
664,662
$
$
34,212
617,534
651,746
$
$
21,722
612,551
634,273
$
$
21,722
606,154
627,876
The fair value of the Company’s industrial development revenue bonds are measured using unadjusted quoted prices in active
markets for identical assets categorized as level 1 inputs. The fair value of the Company’s current notes payable and credit facility
debt instruments approximates the carrying value due to the relative short maturity of the revolving borrowings under these
instruments. The fair values of the Company’s long-term senior notes were estimated using market observable inputs for the
Company’s comparable peers with public debt, including quoted prices in active markets, market indices and interest rate
measurements, considered level 2 inputs.
NOTE 19: SEGMENT INFORMATION
The Company manages its businesses on a geographic basis and reports the following two segments: DNA and DI. The Company’s
chief operating decision maker regularly assesses information relating to these segments to make decisions, including the allocation
of resources. Management evaluates the performance of the segments based on revenue and operating profit.
The DNA segment services and sells financial and retail systems in the United States and Canada. The DI segment services and
sells financial and retail systems over the remainder of the globe as well as voting and lottery solutions in Brazil. Each segment
buys the goods it sells from the Company’s manufacturing plants or through external suppliers. Each year, intercompany pricing
is agreed upon which drives operating profit contribution.
The reconciliation between segment information and the consolidated financial statements is disclosed. Revenue summaries by
geographic area and service and product solutions are also disclosed. Certain information not routinely used in the management
of the DNA and DI segments, information not allocated back to the segments or information that is impractical to report is not
shown. Items not allocated are as follows: investment income; interest expense; equity in the net income of investees accounted
for by the equity method; miscellaneous, net; foreign exchange gains and losses; income tax expense or benefit; and discontinued
operations.
77
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following table represents information regarding the Company’s segment information for the years ended December 31:
SEGMENT INFORMATION BY CHANNEL
DNA
Customer revenues
Intersegment revenues
Operating profit
Capital expenditures
Depreciation and amortization
Property, plant and equipment, at cost
Total assets
DI
Customer revenues
Intersegment revenues
Operating profit (loss)
Capital expenditures
Depreciation and amortization
Property, plant and equipment, at cost
Total assets
TOTAL
Customer revenues
Intersegment revenues
Operating profit (loss)
Capital expenditures
Depreciation and amortization
Property, plant and equipment, at cost
Total assets
$
2012
2011
2010
$
1,590,532
57,240
103,596
29,554
55,260
471,835
992,977
1,401,161
48,121
21,116
20,188
23,384
190,075
1,600,010
2,991,693
105,361
124,712
49,742
78,644
661,910
2,592,987
$
1,405,018
73,399
123,033
23,131
52,109
461,452
1,018,907
1,430,830
63,318
32,561
31,622
27,746
180,804
1,498,536
2,835,848
136,717
155,594
54,753
79,855
642,256
2,517,443
1,320,581
93,600
81,022
33,043
50,638
460,429
1,016,138
1,503,212
44,445
(82,824)
18,255
28,615
185,806
1,503,652
2,823,793
138,045
(1,802)
51,298
79,253
646,235
2,519,790
78
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following table represents information regarding the Company’s revenue by geographic region and by service and product
solution for the years ended December 31:
Revenue summary by geography
Diebold North America
Diebold International:
Latin America including Brazil
Asia Pacific
Europe, Middle East and Africa
Total Diebold International
Total customer revenues
Total customer revenues
domestic vs. international
Domestic
Percentage of total revenue
International
Percentage of total revenue
Total customer revenues
Revenue summary
by service and product solution
Financial self-service:
Services
Products
Total financial self-service
Security:
Services
Products
Total security
Total financial self-service &
security
Election and lottery systems
Total customer revenues
2012
2011
2010
$
1,590,532
$
1,405,018
$
1,320,581
648,130
427,542
325,489
662,805
422,491
345,534
770,691
380,970
351,551
1,401,161
2,991,693
1,430,830
2,835,848
$
1,503,212
2,823,793
$
$
$
1,533,674
$
1,341,167
$
1,262,914
51.3%
47.3%
44.7%
1,458,019
1,494,681
1,560,879
48.7%
52.7%
55.3%
$
2,991,693
$
2,835,848
$
2,823,793
$
1,199,325
$
1,140,872
$
1,086,569
1,112,576
2,311,901
996,673
2,137,545
959,820
2,046,389
427,007
196,630
623,637
411,474
194,028
605,502
406,831
223,514
630,345
2,935,538
56,155
2,743,047
92,801
2,676,734
147,059
$
2,991,693
$
2,835,848
$
2,823,793
The Company had no customers that accounted for more than 10 percent of total net sales in 2012, 2011 and 2010.
NOTE 20: ACQUISITION
In August 2012, the Company acquired 100 percent of the equity interest in GAS Tecnologia (GAS), a Brazilian Internet banking,
online payment and mobile banking security company for a total purchase price of approximately $39,000. Total purchase price
included holdback payments to be made over the next three years of approximately $12,000, which was recorded in other long-
term liabilities at December 31, 2012. The GAS solutions aim to prevent various types of fraud, such as phishing, pharming and
key logging. GAS also offers clients a security information database service – a consulting service that allows clients to stay up-
to-date and educated on current threats in the industry. Upon acquisition, GAS was integrated into the Company's DI security
business. At December 31, 2012, the Company was still in the process of finalizing purchase accounting with respect to opening
balance sheet valuations, amortizable intangible assets and goodwill resulting from the acquisition were estimated to be $16,000
and $26,000, respectively.
79
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Annual net sales for GAS in 2011 were approximately $14,000. Net sales and earnings of GAS included in the consolidated
statements of operations for the year ended December 31, 2012 were not significant.
NOTE 21: DISCONTINUED OPERATIONS
Included in (loss) income from discontinued operations in 2012 was the realization of the currency translation adjustment balance
on the Company's liquidated EMEA-based security business which was discontinued in 2008. Included in (loss) income from
discontinued operations in 2011 and 2010 were accrual adjustment benefits and costs related to the Company's U.S.-based election
systems business. During the third quarter of 2010, the Company finalized and filed its 2009 consolidated U.S. federal tax return
and recorded an additional tax benefit of $2,147 included within discontinued operations.
NOTE 22: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents selected unaudited quarterly financial information for the years ended December 31:
Net sales
Gross profit
Income (loss) from continuing
operations
(Loss) income from discontinued
operations, net of tax
Net income (loss)
Net income attributable to
noncontrolling interests
Net income (loss) attributable to
Diebold, Incorporated
Basic earnings per share:
Income (loss) from continuing
operations, net of tax
Income (loss) from discontinued
operations, net of tax
Net income (loss) attributable to
Diebold, Incorporated
Diluted earnings per share:
Income (loss) from continuing
operations, net of tax
Income (loss) from discontinued
operations, net of tax
Net income (loss) attributable to
Diebold, Incorporated
Basic weighted-average shares
outstanding (in thousands)
Diluted weighted-average shares
outstanding (in thousands) (1)
First Quarter
2011
2012
Second Quarter
2011
2012
Third Quarter
2011
2012
Fourth Quarter
2011
2012
$ 698,491
$ 614,157
$743,188
$ 662,382
$ 709,919
$ 709,322
$ 840,095
$ 849,987
193,240
149,404
185,569
169,490
173,210
194,386
184,134
222,649
45,965
4,146
27,792
21,602
18,064
42,782
(4,300)
83,047
—
(11)
—
529
—
—
45,965
4,135
27,792
22,131
18,064
42,782
(3,125)
(7,425)
5
83,052
802
1,634
1,290
1,327
630
1,027
3,220
3,297
$ 45,163
$
2,501
$ 26,502
$ 20,804
$ 17,434
$ 41,755
$ (10,645) $ 79,755
0.72
0.04
0.42
—
—
—
0.31
0.01
0.28
0.66
(0.12)
1.27
—
—
(0.05)
—
0.72
$
0.04
$
0.42
$
0.32
$
0.28
$
0.66
$
(0.17) $
1.27
0.71
$
0.04
$
0.41
$
0.31
$
0.27
$
0.65
$
(0.12) $
1.26
—
—
—
0.01
—
—
(0.05)
—
$
$
$
0.71
$
0.04
$
0.41
$
0.32
$
0.27
$
0.65
$
(0.17) $
1.26
62,725
65,762
63,064
65,028
63,211
63,626
63,230
62,599
63,333
66,230
64,035
65,482
64,134
64,186
63,230
63,300
(1) incremental shares of 786,000 were excluded from the computation of diluted EPS for the quarter ended December 31, 2012 because their effect is anti-
dilutive due to the loss from continuing operations.
Loss from continuing operations for the fourth quarter 2012 was negatively impacted by $21,907 related to early pension buyouts
(refer to note 12) and $16,750 of pre-tax FCPA losses (refer to note 15). Income from continuing operations for the fourth quarter
2011 was positively impacted by an approximately $28,000 tax valuation allowance released in Brazil (refer to note 4).
80
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
NOTE 23: SUBSEQUENT EVENTS
Departure of Executive Officers Effective January 19, 2013, Thomas W. Swidarski stepped down from his positions as the
President and Chief Executive Officer of the Company and resigned from the Company's Board of Directors. Effective January
23, 2013, the Board of Directors of the Company and Charles E. Ducey, Jr. agreed that Mr. Ducey would step down as Executive
Vice President, North American Operations. As a result of these actions, the Company anticipates recording executive severance
costs of approximately $9,000 within selling and administrative expense during the quarter ended March 31, 2013, including
accelerated share-based compensation expense of approximately $3,000.
81
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A: CONTROLS AND PROCEDURES
This annual report on Form 10-K includes the certifications of our principal executive officer (PEO) and principal financial officer
(PFO) required by Rule 13a-14 of the Exchange Act. See Exhibits 31.1 and 31.2. This Item 9A includes information concerning
the controls and control evaluations referred to in those certifications.
(a) DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) are designed
to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated
and communicated to management, including the PEO and PFO as appropriate, to allow timely decisions regarding required
disclosures.
In connection with the preparation of this annual report on Form 10-K, Diebold's management, under the supervision and with
the participation of the PEO and PFO, conducted an evaluation of disclosure controls and procedures as of the end of the period
covered by this report. Based on this evaluation, the PEO and PFO have concluded that such disclosure controls and procedures
were not effective as of December 31, 2012 because of the material weakness in our internal control over financial reporting
discussed below.
(b) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management, under the supervision of the PEO and PFO, is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) promulgated under
the Exchange Act, is a process designed by, or under the supervision of, the PEO and PFO and effected by the Board of Directors,
management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP). Internal control over financial reporting includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. GAAP;
• provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with appropriate
authorization of management and the Board of Directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the financial statements.
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves
human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal
control over financial reporting can also be circumvented by collusion or improper override. Because of such limitations, there
is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into
the process safeguards to reduce, though not eliminate, the risk.
A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim
financial statements will not be prevented or detected on a timely basis.
In connection with the preparation of this annual report on Form 10-K, management, under the supervision and with the participation
of the PEO and PFO, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31,
82
2012, based on the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Because of the following control deficiencies that constitute a material weakness, the PEO and PFO concluded that the Company
did not maintain effective internal control over financial reporting as of December 31, 2012.
The Company concluded that controls pertaining to manufacturing and supply chain processes that could materially impact indirect
tax incentives in its Brazilian subsidiary and roles and responsibilities within this Brazilian subsidiary pertaining to the operation
of these controls, including reporting relationships for division tax and accounting associates to applicable corporate management
with respect to the management of the indirect tax compliance program were not designed and/or operating effectively.
Furthermore, controls designed to ensure adequate and effective communication by operational management to regional and
corporate management were not operating effectively.
Because of the material weakness identified above, a reasonable possibility exists that a material misstatement in the Company's
consolidated financial statements will not be prevented or detected on a timely basis.
KPMG LLP, the Company's independent registered public accounting firm, has issued an auditor's report on management's
assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2012. This report
is included in Item 8 of this annual report on Form 10-K.
(c) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the quarter ended December 31, 2012, changes in our internal control over financial reporting occurred related to beginning
the remediation of the identified material weakness:
Management conducted training, distributed internal communications and emphasized the importance of financial controls
including information and communication controls during leadership meetings. The training and internal communications
reinforced the importance of communicating relevant information in a timely manner to the appropriate operational, regional and
corporate management.
During the quarter ended December 31, 2012, there have been no other changes to the Company's internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
(d) REMEDIATION STEPS TO ADDRESS MATERIAL WEAKNESS
The remediation efforts outlined below are intended to address the identified material weakness in internal control over financial
reporting.
To address the material weakness discussed above, management will complete an evaluation to facilitate development of detailed
remediation plans pertaining to: (a) design and operating effectiveness of control procedures pertaining to manufacturing and
supply chain processes that could materially impact indirect tax incentives in its Brazilian subsidiary; (b) roles and responsibilities
within its Brazilian subsidiary, including the reporting structure, with respect to the indirect tax compliance program; and (c)
communication by operational management to regional and corporate management.
ITEM 9B: OTHER INFORMATION
None.
83
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to directors of the Company, including the audit committee and the designated audit committee financial
experts, is included in the Company’s proxy statement for the 2013 Annual Meeting of Shareholders (2013 Annual Meeting) and
is incorporated herein by reference. Information with respect to any material changes to the procedures by which security holders
may recommend nominees to the Company’s board of directors is included in the Company’s proxy statement for the 2013 Annual
Meeting and is incorporated herein by reference. The following table summarizes information regarding executive officers of the
Company:
Name, Age, Title and Year Elected to Present Office
Henry D.G. Wallace — 67
Executive Chairman of the Board
Year elected: 2013
George S. Mayes, Jr. — 54
Executive Vice President, Chief Operating Officer
Year elected: 2013
Bradley C. Richardson — 54
Executive Vice President, Chief Financial Officer
Year elected: 2009
Frank A. Natoli — 48
Executive Vice President, Chief Innovation Officer
Year elected: 2012
Other Positions Held Last Five Years
2001: Former Group Vice President and Chief Financial Officer,
Ford Motor Company, Dearborn, Michigan (automotive)
2006-2013: Senior Vice President, Supply Chain Management
2003-2009: Executive Vice President, Corporate Strategy and Chief
Financial Officer, Modine Manufacturing Company (auto, heavy-
duty parts and specialty heating and air conditioning manufacturer)
2010-2011: Vice President, Chief Technology Officer; 2009-2010:
Vice President, Global Engineering and Reliability; Chief
Technology Officer, 2008-2009: Vice President, Operational
Excellence; July 2006-2008: Vice President, Lean Manufacturing
2005-2011: Partner, Marakon Associates (management consulting)
D. Alex Brown — 45
Vice President, Corporate Strategy and Development
Year elected: 2011
Christopher A. Chapman — 38
Vice President, Global Finance
Year elected: 2011
Chad F. Hesse — 40
Vice President, General Counsel and Secretary
Year elected: 2011
2004- Feb 2010: Vice President, Controller, International
Operations
Jan 2011-Nov 2011: Vice President, Interim General Counsel and
Secretary; 2008-Jan 2011: Senior Corporate Counsel and Secretary;
2004-2008: Corporate Counsel and Assistant Secretary
M. Scott Hunter — 51
Vice President, Treasurer and Chief Tax Officer
Year elected: 2011
John D. Kristoff — 45
Vice President, Chief Communications Officer
Year elected: 2006
Christopher Macey — 40
Vice President, Corporate Controller
Year elected: 2012
Miguel A. Mateo — 61
Vice President, Latin America Division
Year elected: 2004
David H. Ramsey — 43
Vice President, Chief Information Officer
Year elected: 2012
Sheila M. Rutt — 44
Vice President, Chief Human Resources Officer
Year elected: 2005
2006 - May 2011: Vice President, Chief Tax Officer
Oct 2009-Apr 2012: Vice President, Corporate Accounting and
External Reporting; 2004-Oct 2009: Senior Manager,
Pricewaterhouse Coopers LLP (audit, tax and consulting)
2009-2012: Managing Director in the global IT and global business
services transformation practice, The Hackett Group (business
consulting); 2007-2009: CIO, Kinetic Concepts, Inc (medical
technologies)
There is no family relationship, either by blood, marriage or adoption, between any of the executive officers of the Company.
84
CODE OF ETHICS
All of the directors, executive officers and employees of the Company are required to comply with certain policies and protocols
concerning business ethics and conduct, which we refer to as our Business Ethics Policy. The Business Ethics Policy applies not
only to the Company, but also to all of those domestic and international companies in which the Company owns or controls a
majority interest. The Business Ethics Policy describes certain responsibilities that the directors, executive officers and employees
have to the Company, to each other and to the Company’s global partners and communities including, but not limited to, compliance
with laws, conflicts of interest, intellectual property and the protection of confidential information. The Business Ethics Policy
is available on the Company’s web site at www.diebold.com or by written request to the Corporate Secretary.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Information with respect to Section 16(a) Beneficial Ownership Reporting Compliance is included in the Company’s proxy
statement for the 2013 Annual Meeting and is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information with respect to executive officer and director’s compensation is included in the Company’s proxy statement for the
2013 Annual Meeting and is incorporated herein by reference. Information with respect to compensation committee interlocks
and insider participation and the compensation committee report is included in the Company’s proxy statement for the 2013 Annual
Meeting and is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management is included in the Company’s proxy
statement for the 2013 Annual Meeting and is incorporated herein by reference.
Equity Compensation Plan Information
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights (b)
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a)) (c)
$
2,668,191
731,892
728,782
135,600
59,996
4,324,461
$
34,789
34,789
4,359,250
$
$
$
37.56
N/A
N/A
N/A
N/A
37.56
46.00
46.00
37.67
N/A
N/A
N/A
N/A
N/A
2,342,109
N/A
N/A
2,342,109
Plan Category
Equity compensation plans approved by
security holders:
Stock options
Restricted stock units
Performance shares
Non-employee director deferred
shares
Deferred compensation
Total equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders:
Warrants
Total equity compensation plans not
approved by security holders
Total
In column (b), the weighted-average exercise price is only applicable to stock options. In column (c), the number of securities
remaining available for future issuance for stock options, restricted stock units, performance shares and non-employee
director deferred shares is approved in total and not individually.
85
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to certain relationships and related transactions and director independence is included in the Company’s
proxy statement for the 2013 Annual Meeting and is incorporated herein by reference.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to principal accountant fees and services is included in the Company’s proxy statement for the 2013
Annual Meeting and is incorporated herein by reference.
PART IV
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Documents filed as a part of this annual report on Form 10-K.
• Consolidated Balance Sheets at December 31, 2012 and 2011
• Consolidated Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010
• Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2012, 2011 and 2010
• Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010
• Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010
• Notes to Consolidated Financial Statements
• Reports of Independent Registered Public Accounting Firm
(a) 2. Financial statement schedule
The following schedule is included in this Part IV, and is found in this annual report on Form 10-K:
• Valuation and Qualifying Accounts
All other schedules are omitted, as the required information is inapplicable or the information is presented in the Consolidated
Financial Statements or related notes.
(a) 3. Exhibits
3.1(i)
3.1(ii)
3.2
3.3
Amended and Restated Articles of Incorporation of Diebold, Incorporated — incorporated by reference to Exhibit 3.1(i) to
Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994 (Commission File No. 1-4879)
Amended and Restated Code of Regulations — incorporated by reference to Exhibit 3.1(ii) to Registrant’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2007 (Commission File No. 1-4879)
Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated — incorporated by
reference to Exhibit 3.2 to Registrant’s Form 10-Q for the quarter ended March 31, 1996 (Commission File No. 1-4879)
Certificate of Amendment to Amended Articles of Incorporation of Diebold, Incorporated — incorporated by reference to
Exhibit 3.3 to Registrant’s Form 10-K for the year ended December 31, 1998 (Commission File No. 1-4879)
*10.1
Form of Amended and Restated Employment Agreement — incorporated by reference to Exhibit 10.1 to Registrant’s Form
10-K for the year ended December 31, 2008 (Commission File No. 1-4879)
*10.5(i)
*10.5(ii)
*10.5(iii)
*10.5(iv)
*10.5(v)
*10.5(vi)
*10.7(i)
Supplemental Employee Retirement Plan I as amended and restated January 1, 2008 — incorporated by reference to Exhibit
10.5(i) to Registrant’s Form 10-K for the year ended December 31, 2008 (Commission File No. 1-4879)
Supplemental Employee Retirement Plan II as amended and restated July 1, 2002 — incorporated by reference to Exhibit
10.5(ii) to Registrant’s Form 10-Q for the quarter ended September 30, 2002 (Commission File No. 1-4879)
Pension Restoration Supplemental Executive Retirement Plan — incorporated by reference to Exhibit 10.5(iii) to Registrant’s
Form 10-K for the year ended December 31, 2008 (Commission File No. 1-4879)
Pension Supplemental Executive Retirement Plan — incorporated by reference to Exhibit 10.5(iv) to Registrant’s Form 10-K
for the year ended December 31, 2008 (Commission File No. 1-4879)
401(k) Restoration Supplemental Executive Retirement Plan — incorporated by reference to Exhibit 10.5(v) to Registrant’s
Form 10-K for the year ended December 31, 2008 (Commission File No. 1-4879)
401(k) Supplemental Executive Retirement Plan — incorporated by reference to Exhibit 10.5(vi) to Registrant’s Form 10-K
for the year ended December 31, 2008 (Commission File No. 1-4879)
1985 Deferred Compensation Plan for Directors of Diebold, Incorporated — incorporated by reference to Exhibit 10.7 to
Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992 (Commission File No. 1-4879)
86
*10.7(ii)
Amendment No. 1 to the Amended and Restated 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated —
incorporated by reference to Exhibit 10.7 (ii) to Registrant’s Form 10-Q for the quarter ended March 31, 1998 (Commission
File No. 1-4879)
*10.7(iii) Amendment No. 2 to the Amended and Restated 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated —
incorporated by reference to Exhibit 10.7 (ii) to Registrant’s Form 10-Q for the quarter ended March 31, 2003 (Commission
File No. 1-4879)
*10.7(iv) Deferred Compensation Plan No. 2 for Directors of Diebold, Incorporated — incorporated by reference to Exhibit 10.7(iv) to
Registrant’s Form 10-K for the year ended December 31, 2008 (Commission File No. 1-4879)
*10.8(i)
*10.8(ii)
1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001 — incorporated by reference
to Exhibit 4(a) to Form S-8 Registration Statement No. 333-60578
Amendment No. 1 to the 1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001 —
incorporated by reference to Exhibit 10.8 (ii) to Registrant’s Form 10-Q for the quarter ended March 31, 2004 (Commission
File No. 1-4879)
*10.8(iii) Amendment No. 2 to the 1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001 —
incorporated by reference to Exhibit 10.8 (iii) to Registrant’s Form 10-Q for the quarter ended March 31, 2004 (Commission
File No. 1-4879)
*10.8(iv) Amendment No. 3 to the 1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001 —
incorporated by reference to Exhibit 10.8 (iv) to Registrant’s Form 10-Q for the quarter ended June 30, 2004 (Commission
File No. 1-4879)
*10.8(v)
Amended and Restated 1991 Equity and Performance Incentive Plan as Amended and Restated as of April 13, 2009 —
incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on April 29, 2009 (Commission File No. 1-4879)
*10.9
*10.10
*10.11
*10.13(i)
Long-Term Executive Incentive Plan — incorporated by reference to Exhibit 10.9 to Registrant’s Annual Report on Form 10-
K for the year ended December 31, 1993 (Commission File No. 1-4879)
Deferred Incentive Compensation Plan No. 2 — incorporated by reference to Exhibit 10.10 to Registrant’s Form 10-K for the
year ended December 31, 2008 (Commission File No. 1-4879)
Annual Incentive Plan — incorporated by reference to Exhibit 10.11 to Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2000 (Commission File No. 1-4879)
Forms of Deferred Compensation Agreement and Amendment No. 1 to Deferred Compensation Agreement — incorporated
by reference to Exhibit 10.13 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 1-4879)
*10.13(ii)
Section 162(m) Deferred Compensation Agreement (as amended and restated January 29, 1998) — incorporated by reference
to Exhibit 10.13 (ii) to Registrant’s Form 10-Q for the quarter ended March 31, 1998 (Commission File No. 1-4879)
*10.14
10.17
10.20(i)
10.20(ii)
*10.22
*10.23
*10.24
*10.25
*10.26
10.27
*10.28
*10.29
Deferral of Stock Option Gains Plan — incorporated by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form
10-K for the year ended December 31, 1998 (Commission File No. 1-4879)
Credit Agreement, dated as of June 30, 2011, by and among Diebold, Incorporated, the Subsidiary Borrowers (as defined
therein) party thereto, JPMorgan Chase Bank, N.A., as administrative agent and a lender, and the other lender party thereto —
incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on July 6, 2011 (Commission File No. 1-4879)
Transfer and Administration Agreement, dated as of March 30, 2001 by and among DCC Funding LLC, Diebold Credit
Corporation, Diebold, Incorporated, Receivables Capital Corporation and Bank of America, National Association and the
financial institutions from time to time parties thereto — incorporated by reference to Exhibit 10.20(i) to Registrant’s Form
10-Q for the quarter ended March 31, 2001 (Commission File No. 1-4879)
Amendment No. 1 to the Transfer and Administration Agreement, dated as of May 2001, by and among DCC Funding LLC,
Diebold Credit Corporation, Diebold, Incorporated, Receivables Capital Corporation and Bank of America, National
Association and the financial institutions from time to time parties thereto — incorporated by reference to Exhibit 10.20 (ii)
to Registrant’s Form 10-Q for the quarter ended March, 31, 2001 (Commission File No. 1-4879)
Form of Non-Qualified Stock Option Agreement — incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed
on September 21, 2009 (Commission File No. 1-4879)
Form of Restricted Share Agreement — incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K filed on
September 21, 2009 (Commission File No. 1-4879)
Form of RSU Agreement — incorporated by reference to Exhibit 10.3 to Registrant’s Form 8-K filed on September 21, 2009
(Commission File No. 1-4879)
Form of Performance Share Agreement — incorporated by reference to Exhibit 10.4 to Registrant’s Form 8-K filed on
September 21, 2009 (Commission File No. 1-4879)
Diebold, Incorporated Annual Cash Bonus Plan — incorporated by reference to Exhibit A to Registrant’s Proxy Statement on
Schedule 14A filed on March 16, 2010 (Commission File No. 1-4879)
Form of Note Purchase Agreement — incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on March 8,
2006 (Commission File No. 1-4879)
Amended and Restated Employment Agreement between Diebold, Incorporated and Thomas W. Swidarski, as amended as of
December 29, 2008 — incorporated by reference to Exhibit 10.28 to Registrant’s Form 10-K for the year ended December
31, 2008 (Commission File No. 1-4879)
Amended and Restated Employment [Change in Control] Agreement between Diebold, Incorporated and Thomas W.
Swidarski, as amended as of December 29, 2008 — incorporated by reference to Exhibit 10.29 to Registrant’s Form 10-K for
the year ended December 31, 2008 (Commission File No. 1-4879)
87
*10.30
*10.31
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Form of Deferred Shares Agreement — incorporated by reference to Exhibit 10.5 to Registrant’s Form 8-K filed on
September 21, 2009 (Commission File No. 1-4879)
Diebold, Incorporated Senior Leadership Severance Plan (For Tier I, Tier II, and Tier III Executives) — incorporated by
reference to Exhibit 10.31 to Registrant’s Form 10-Q filed on April 30, 2012 (Commission File No. 1-4879)
Subsidiaries of the Registrant as of December 31, 2012
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
*
Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 15(b) of this annual report.
(b) Refer to page 91 of this annual report on Form 10-K for an index of exhibits, which is incorporated herein by reference.
88
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 15, 2013
DIEBOLD, INCORPORATED
By: /s/ Henry D.G. Wallace
Henry D.G. Wallace
Executive Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Henry D.G. Wallace
Henry D.G. Wallace
Executive Chairman of the Board and Director
(Principal Executive Officer)
February 15, 2013
/s/ Bradley C. Richardson
Bradley C. Richardson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 15, 2013
/s/ Christopher Macey
Christopher Macey
/s/ Patrick W. Allender
Patrick W. Allender
/s/ Bruce L. Byrnes
Bruce L. Byrnes
/s/ Mei-Wei Cheng
Mei-Wei Cheng
*
Phillip R. Cox
*
Richard L. Crandall
*
Gale S. Fitzgerald
*
John N. Lauer
*
Rajesh K. Soin
/s/ Alan J. Weber
Alan J. Weber
Vice President and Corporate Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 15, 2013
February 15, 2013
February 15, 2013
February 15, 2013
February 15, 2013
February 15, 2013
February 15, 2013
February 15, 2013
February 15, 2013
February 15, 2013
* The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant
to the Powers of Attorney executed by the above-named officers and directors of the Registrant and filed with
the Securities and Exchange Commission on behalf of such officers and directors.
Date: February 15, 2013
*By: /s/ Bradley C. Richardson
Bradley C. Richardson
Attorney-in-Fact
89
DIEBOLD, INCORPORATED AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
(in thousands)
Balance at
beginning of year
Additions
Deductions
Balance at
end of year
Year ended December 31, 2012
Allowance for doubtful accounts
Year ended December 31, 2011
Allowance for doubtful accounts
Year ended December 31, 2010
Allowance for doubtful accounts
$
$
$
22,128
13,597
7,871
$
27,854
24,868
10,928
13,668
$
22,128
26,648
13,849
15,629
$
24,868
90
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT DESCRIPTION
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Significant Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
91
LIST OF SIGNIFICANT SUBSIDIARIES
EXHIBIT 21.1
The following are the subsidiaries of the Registrant included in the Registrant’s consolidated financial statements at December 31,
2012. Other subsidiaries are not listed because such subsidiaries are inactive. Subsidiaries are listed alphabetically under either
the domestic or international categories.
Domestic
Diebold Australia Holding Company, Inc.
Diebold Enterprise Security Systems, Inc.
Diebold Eras, Incorporated
Diebold Finance Company, Inc.
Diebold Global Finance Corporation
Diebold Holding Company, Inc.
Diebold Investment Company
Diebold Latin America Holding Company, LLC
Diebold Mexico Holding Company, Inc.
Diebold Self-Service Systems
Diebold Software Solutions, Inc.
Diebold Southeast Manufacturing, Inc.
Diebold SST Holding Company, Inc.
Impexa LLC
FirstLine, Inc.
Mayfair Software Distribution, Inc.
VDM Holding Company, Inc.
Verdi & Associates, Inc.
International
Altus Bilisim Hizmetleri Anonim Sirketi
Bitelco Diebold Chile Limitada
C.R. Panama, Inc.
Cable Print B.V.B.A.
Caribbean Self Service and Security LTD.
Central de Alarmas Adler, S.A. de C.V.
D&G ATMS y Seguridad de Costa Rica Ltda.
D&G Centroamerica y GBM de Nicaragua y Compañia Ltda.
D&G Centroamerica, S. de R.L.
D&G Dominicana S.A.
D&G Honduras S. de R.L.
D&G Panama S. de R.L.
DB & GB de El Salvador Limitada
DB&G ATMs Seguridad de Guatemala, Limitada
DCHC, S.A.
Diebold (Thailand) Company Limited
Diebold Africa (Pty) Ltd.
Diebold Africa Investment Holdings Pty. Ltd.
Diebold Argentina, S.A.
Jurisdiction under which
organized
Delaware
New York
Ohio
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New York
Delaware
Delaware
Delaware
Texas
California
Delaware
Delaware
New York
Jurisdiction under which
organized
Turkey
Chile
Panama
Belgium
Barbados
Mexico
Costa Rica
Nicaragua
Panama
Dominican Republic
Honduras
Panama
El Salvador
Guatemala
Panama
Thailand
South Africa
South Africa
Argentina
Percent of voting
securities owned by
Registrant
100%
100%
100%
100%(1)
100%
100%
100%
100%
100%
100%(2)
100%
100%
100%
100%(3)
100%
100%
100%
100%
Percent of voting
securities owned by
Registrant
100%(36)
100%(21)
100%(11)
100%(38)
50%(10)
100%(20)
99.99%(34)
99%(32)
51%(30)
99.85%(33)
99%(32)
99.99%(34)
99%(32)
99%(32)
100%(11)
100%
100%(18)
100%(27)
100%(11)
Diebold ATM Cihazlari Sanayi Ve Ticaret A.S.
Diebold Australia Pty. Ltd.
Diebold Belgium B.V.B.A
Diebold Bolivia S.R. L.
Diebold Brasil LTDA
Diebold Brasil Servicos de Tecnologia e Participacoes Ltda
Diebold Canada Holding Company Inc.
Diebold Colombia S.A.
Diebold Ecuador SA
Diebold EMEA Processing Centre Limited
Diebold Financial Equipment Company (China), Ltd.
Diebold France SARL
Diebold Hungary Ltd.
Diebold Hungary Self-Service Solutions, Ltd.
Diebold India Private Limited
Diebold International Limited
Diebold Italia S.p.A.
Diebold Kazakhstan LLP
Diebold Mexico, S.A. de C.V.
Diebold Netherlands B.V.
Diebold OLTP Systems, C.A.
Diebold One UK Limited
Diebold Osterreich Selbstbedienungssysteme GmbH
Diebold Pacific, Limited
Diebold Panama, Inc.
Diebold Paraguay S.A.
Diebold Peru S.r.l
Diebold Philippines, Inc.
Diebold Physical Security Pty. Ltd.
Diebold Poland S.p. z.o.o.
Diebold Portugal — Solucoes de Automatizacao, Limitada
Diebold Selbstbedienyngssysteme (Schweiz) GmbH
Diebold Self Service Solutions Limited Liability Company
Diebold Self-Service Ltd.
Diebold Singapore Pte. Ltd.
Diebold Software Services Private Limited
Diebold Software Solutions UK Ltd.
Diebold South Africa (Pty) Ltd.
Diebold Spain, S.L.
Diebold Switzerland Holding Company, LLC
Diebold Systems Private Limited
Diebold Uruguay S.A.
Diebold Vietnam Company Limited
Diebold — Corp Systems Sdn. Bhd.
GAS Tecnologia
J.J.F. Panama, Inc.
P.T. Diebold Indonesia
Procomp Amazonia Industria Eletronica S.A.
Procomp Industria Eletronica LTDA
The Diebold Company of Canada, Ltd.
Turkey
Australia
Belgium
Bolivia
Brazil
Brazil
Canada
Colombia
Ecuador
United Kingdom
Peoples Republic of China
France
Hungary
Hungary
India
United Kingdom
Italy
Kazakhstan
Mexico
Netherlands
Venezuela
United Kingdom
Austria
Hong Kong
Panama
Paraguay
Peru
Philippines
Australia
Poland
Portugal
Switzerland
Switzerland
Russia
Singapore
India
United Kingdom
South Africa
Spain
Switzerland
India
Uruguay
Vietnam
Malaysia
Brazil
Panama
Indonesia
Brazil
Brazil
Canada
100%(16)
100%(4)
100%(17)
100%(31)
100%(29)
100%(23)
100%
100%(14)
100%(19)
100%
85%(25)
100%(5)
100%(37)
100%
100%(28)
100%(5)
100%(13)
100%(5)
100%(3)
100%(5)
50%(10)
100%
100%(5)
100%
100%(11)
100%(21)
100%(11)
100%
100%(7)
100%(5)
100%(5)
100%(5)
100%(15)
100%(5)
100%
100%(8)
100%(9)
74.9%(26)
100%(22)
100%
100%
100%(11)
100%
100%
100%(35)
100%(11)
100%(6)
100%(12)
100%(24)
100%
(1) 100 percent of voting securities are owned by Diebold Investment Company, which is 100 percent owned by
Registrant.
(2) 70 percent of partnership interest is owned by Diebold Holding Company, Inc., which is 100 percent owned by
Registrant, while the remaining 30 percent partnership interest is owned by Diebold SST Holding Company, Inc.,
which is 100 percent owned by Registrant.
(3) 100 percent of voting securities are owned by Diebold Mexico Holding Company, Inc., which is 100 percent
owned by Registrant.
(4) 100 percent of voting securities are owned by Diebold Australia Holding Company, Inc., which is 100 percent
owned by Registrant.
(5) 100 percent of voting securities are owned by Diebold Self-Service Solutions Limited Liability Company, which is
100 percent owned by Diebold Switzerland Holding Company, LLC, which is 100 percent owned by Registrant.
(6) 88.9 percent of voting securities are owned by Registrant, and 11.1 percent of voting securities are owned by
Diebold Pacific, Limited, which is 100 percent owned by Registrant.
(7) 100 percent of voting securities are owned by Diebold Australia Pty. Ltd., which is 100 percent owned by Diebold
Australia Holding Company, Inc., which is 100 percent owned by Registrant.
(8) 99.99 percent of voting securities are owned by Diebold Self-Service Solutions Limited Liability Company, which
is 100 percent owned by Diebold Switzerland Holding Company, LLC, which is 100 percent owned by Registrant,
while the remaining .01 percent of voting securities is owned by Registrant.
(9) 100 percent of voting securities are owned by Diebold Software Solutions, Inc., which is 100 percent owned by
Registrant.
(10) 50 percent of voting securities are owned by Diebold Latin America Holding Company, LLC, which is 100 percent
owned by Registrant.
(11) 100 percent of voting securities are owned by Diebold Latin America Holding Company, LLC, which is
100 percent owned by Registrant.
(12) 99.99 percent of voting securities are owned by Diebold Brasil LTDA, which is 100 percent owned by Diebold
Latin America Holding Company, LLC, which is 100 percent owned by Registrant, while the remaining .01
percent is owned by Registrant.
(13) 100 percent of voting securities are owned by Diebold International Limited, which is 100 percent owned by
Diebold Self-Service Solutions Limited Liability Company, which is 100 percent owned by Diebold Switzerland
Holding Company, LLC., which is 100 percent owned by Registrant.
(14) 21.44 percent of voting securities are owned by Diebold Latin America Holding Company, LLC, which is
100 percent owned by Registrant; 16.78 percent of voting securities are owned by Diebold Panama, Inc., which is
100 percent owned by Diebold Latin America Holding Company, Inc., which is 100 percent owned by Registrant;
16.78 percent of voting securities are owned by DCHC SA, which is 100 percent owned by Diebold Latin America
Holding Company, LLC, which is 100 percent owned by Registrant; 13.5 percent of voting securities are owned by
J.J.F. Panama, Inc, which is 100 percent owned by Diebold Latin America Holding Company, LLC, which is
100 percent owned by Registrant; and the remaining 31.5 percent of voting securities are owned by C.R. Panama,
Inc., which is 100 percent owned by Diebold Latin America Holding Company, LLC, which is 100 percent owned
by Registrant.
(15) 100 percent of voting securities are owned by Diebold Switzterland Holding Company, LLC, which is 100 percent
owned by Registrant.
(16) 50 percent of voting securities are owned by Diebold Netherlands B.V., which is 100 percent owned by Diebold
Self-Service Solutions Limited Liability Company, while the remaining 50 percent of voting securities are owned
by Diebold Self-Service Solutions Limited Liability Company, which is 100 percent owned by Diebold
Switzerland Holding Company, LLC, which is 100 percent owned by Registrant.
(17) 10 percent of voting securities are owned by Diebold Selbstbedienungssysteme GmbH, which is 100 percent
owned by Diebold Self Service Solutions Limited Liability Company, while the remaining 90 percent of voting
securities are owned by Diebold Self -Service Solutions Limited Liability Company, which is 100 percent owned
by Diebold Switzerland Holding Company, LLC, which is 100 percent owned by Registrant.
(18) 100 percent of voting securities are owned by Diebold Africa Investment Holdings Pty. Ltd., which is 100 percent
owned by Diebold Switzerland Holding Company, LLC, which is 100 percent owned by Registrant.
(19) 99.99 percent of voting securities are owned by Diebold Colombia SA (refer to 14 for ownership), while the
remaining 0.01 percent of voting securities are owned by Diebold Latin America Holding Company, Inc., which is
100 percent owned by Registrant.
(20) .01 percent of voting securities are owned by Registrant, while 99.99 percent of voting securities are owned by
Impexa LLC, which is 100 percent owned by Diebold Mexico Holding Company, Inc., which is 100 percent
owned by Registrant.
(21) 1 percent of voting securities are owned by Registrant, while 99 percent of voting securities are owned by Diebold
Latin America Holding Company, LLC, which is 100 percent owned by Registrant.
(22) 100 percent of voting securities are owned by VDM Holding Company, Inc., which is 100 percent owned by
Registrant.
(23) 99.99 percent of voting securities are owned by Diebold Canada Holding Company Inc., which is 100 percent
owned by Registrant, while the remaining .01 percent is owned by Procomp Amazonia Industria Eletronica S.A.
(refer to 12 for ownership).
(24) 99.99 percent of voting securities are owned by Diebold Brasil Servicos e Participacoes Limitada (refer to 23 for
ownership), while the remaining .01 percent are owned by Registrant.
(25) 85 percent of voting securities are owned by Diebold Switzerland Holding Company, LLC, which is 100 percent
owned by Registrant.
(26) 74.9 percent of voting securities are owned by Diebold Africa Investment Holdings Pty. Ltd., which is 100 percent
owned by Diebold Switzerland Holding Company, LLC, which is 100 percent owned by Registrant.
(27) 100 percent of voting securities are owned by Diebold Switzerland Holding Company, LLC, which is 100 percent
owned by Registrant.
(28) 94.72 percent of voting securities are owned by Diebold Switzerland Holding Company, which is 100 percent
owned by Registrant, 5.23 percent is owned by Registrant, and the remaining .05 percent is owned by Diebold
Holding Company Inc., which is 100 percent owned by Registrant.
(29) 99.99 percent of voting securities are owned by Diebold Latin America Holding Company, LLC,
which is 100 percent owned by Registrant, while the remaining .01 percent are owned by Registrant.
(30) 51 percent of voting securities are owned by Diebold Latin America Holding Company, Inc., which is 100 percent
owned by Registrant.
(31) 60 percent of voting securities are owned by Diebold Columbia, S.A. (refer to 14 for ownership) and 40 percent
owned by Diebold Peru, S.r.L. (refer to 11 for ownership).
(32) 99 percent of voting securities are owned by D&G Centroamerica, S. de R. L. (refer to 30 for ownership).
(33) 99.85 percent of voting securities are owned by D&G Centroamerica, S. de R. L. (refer to 30 for ownership).
(34) 99.99 percent of voting securities are owned by D&G Centroamerica, S. de R. L. (refer to 30 for ownership).
(35) 100 percent of voting securities are owned by Procomp Industria Eletronica Ltda (refer to 24 for ownership).
(36) 100 percent of voting securities are owned by Diebold ATM Cihazlari Sanayi Ve Ticaret A.S. (refer to 16 for
ownership).
(37) 99.98 percent of voting securities are owned by Diebold Self-Service Solutions Limited Liability Company (refer
to 15 for ownership), while the remaining .02 percent is owned by Diebold Poland S.p. z.o.o. (refer to 5 for
ownership).
(38) 99.99 percent of voting securities are owned by Registrant, while the remaining .01 percent is owned by Diebold
Holding Company, Inc., which is 100 percent owned by Registrant.
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Diebold, Incorporated:
We consent to the incorporation by reference in the registration statements (Nos. 33-32960, 33-39988, 33-55452,
33-54677, 33-54675, 333-32187, 333-60578, 333-162036, 333-162037 and 333-162049) on Form S-8 of Diebold,
Incorporated and subsidiaries, of our reports dated February 15, 2013, with respect to the consolidated balance sheets
of Diebold, Incorporated and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements
of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended
December 31, 2012, and the related financial statement schedule, and the effectiveness of internal control over financial
reporting as of December 31, 2012, which reports appear in the December 31, 2012 annual report on Form 10-K of
Diebold, Incorporated and subsidiaries.
Our report dated February 15, 2013, on the effectiveness of internal control over financial reporting as of December 31,
2012, expresses our opinion that Diebold, Incorporated did not maintain effective internal control over financial
reporting as of December 31, 2012, because of the effects of a material weakness on the achievement of the objectives
of the control criteria and contains an explanatory paragraph that states a material weakness related to Diebold,
Incorporated's controls over indirect taxes and communication to corporate management has been identified and
included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A(b) of Diebold,
Incorporated and subsidiaries' December 31, 2012 annual report on Form 10-K.
/s/ KPMG LLP
Cleveland, Ohio
February 15, 2013
POWER OF ATTORNEY
EXHIBIT 24.1
KNOW ALL MEN BY THESE PRESENTS, That the undersigned directors of Diebold, Incorporated, a corporation organized
and existing under the laws of the State of Ohio, do for themselves and not for another, constitute and appoint Chad F. Hesse and
Bradley C. Richardson, or any one of them, a true and lawful attorney-in-fact in their names, place and stead, to sign their names
to the report on Form 10-K for the year ended December 31, 2012, or to any and all amendments to such reports, and to cause the
same to be filed with the Securities and Exchange Commission; it being intended to give and grant unto said attorneys-in-fact and
each of them full power and authority to do and perform any act and thing necessary and proper to be done in the premises as fully
and to all intents and purposes as the undersigned by themselves could do if personally present. The undersigned directors ratify
and confirm all that said attorneys-in-fact or either of them shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date set opposite their signature.
Signed in the presence of:
Signature
Date
/s/ Mary M. Swann
/s/ Phillip R. Cox
February 15, 2013
Phillip R. Cox, Director
/s/ Mary M. Swann
/s/ Richard L. Crandall
February 15, 2013
Richard L. Crandall, Director
/s/ Mary M. Swann
/s/ Gale S. Fitzgerald
February 15, 2013
Gale S. Fitzgerald, Director
/s/ Mary M. Swann
/s/ John N. Lauer
February 15, 2013
John N. Lauer, Director
/s/ Mary M. Swann
/s/ Rajesh K. Soin
February 15, 2013
Rajesh K. Soin, Director
EXHIBIT 31.1
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Henry D.G. Wallace, certify that:
1)
I have reviewed this annual report on Form 10-K of Diebold, Incorporated;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 15, 2013
By: /s/ Henry D.G. Wallace
Henry D.G. Wallace
Executive Chairman of the Board
(Principal Executive Officer)
EXHIBIT 31.2
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bradley C. Richardson, certify that:
1)
I have reviewed this annual report on Form 10-K of Diebold, Incorporated;
2)
3)
4)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 15, 2013
By: /s/ Bradley C. Richardson
Bradley C. Richardson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 32.1
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350
In connection with the Annual Report on Form 10-K of Diebold, Incorporated and subsidiaries (the Company) for the year ended
December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Henry D.G. Wallace,
Executive Chairman of the Board, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
that, to my knowledge:
1)
2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company as of the dates and for the periods expressed in the Report.
February 15, 2013
/s/ Henry D.G. Wallace
Henry D.G. Wallace
Executive Chairman of the Board
(Principal Executive Officer)
EXHIBIT 32.2
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350
In connection with the Annual Report on Form 10-K of Diebold, Incorporated and subsidiaries (the Company) for the year ended
December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Bradley C. Richardson,
Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, 18 U.S.C. Section 1350, that, to my knowledge:
1)
2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company as of the dates and for the periods expressed in the Report.
/s/ Bradley C. Richardson
Bradley C. Richardson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 15, 2013
Other Information
The Company has included as Exhibit 31 to its Annual Report on Form 10-K for fiscal year 2012 filed with the Securities and Exchange
Commission certificates of the Executive Chairman of the Board and Chief Financial Officer of the Company certifying the quality of the
Company’s public disclosure, and the Company has submitted to the New York Stock Exchange a certificate of the Executive Chairman
of the Board of the Company certifying that he is not aware of any violation by the Company of New York Stock Exchange corporate
governance standards.
10-K Last 2 Pages.indd 1
2/21/13 10:12 AM
DIRECTORS
Patrick W. Allender 2,3
Retired Executive Vice President,
Chief Financial Officer and Secretary,
Danaher Corporation
Washington, D.C.
(Diversified Manufacturing)
Director since 2011
Bruce L. Byrnes 2,3
Retired Vice Chairman of the Board,
Procter & Gamble, Inc.
Cincinnati, Ohio
(Consumer Goods)
Director since 2010
Mei-Wei Cheng 2,3
President and Chief Executive Officer,
Siemens Ltd. China and
Chief Executive Officer,
Siemens Northeast Asia
Beijing, China
(Electrical and Electronics)
Director since 2009
Phillip R. Cox 1,4
President and Chief Executive Officer,
Cox Financial Corporation
Cincinnati, Ohio
(Financial Planning and
Wealth Management Services)
Director since 2005
OFFICERS
Henry D.G. Wallace
Executive Chairman of the Board
George S. Mayes, Jr.
Executive Vice President and
Chief Operating Officer
Bradley C. Richardson
Executive Vice President and
Chief Financial Officer
Frank A. Natoli, Jr.
Executive Vice President,
Chief Innovation Officer
D. Alexander Brown
Vice President,
Corporate Strategy and Development
Richard L. Crandall 1,4
Managing Partner,
Aspen Venture LLC
Aspen, Colorado
(Venture Capital and Private Equity)
Director since 1996
Henry D.G. Wallace
Executive Chairman of the Board,
Diebold, Incorporated
North Canton, Ohio
Former Group Vice President
and Chief Financial Officer,
Ford Motor Company
Dearborn, Michigan
(Automotive Industry)
Director since 2003
Alan J. Weber 2,4
Chief Executive Officer,
Weber Group LLC
Greenwich, Connecticut
(Investment Advisory)
Director since 2005
1 Member of the Compensation Committee
2 Member of the Audit Committee
3 Member of the Board Governance Committee
4 Member of the Investment Committee
Gale S. Fitzgerald 1,3
Retired President and Director,
TranSpend, Inc.
Bernardsville, New Jersey
(Total Spend Optimization)
Director since 1999
John N. Lauer 1,3
Former Non-executive
Chairman of the Board,
Diebold, Incorporated
North Canton, Ohio
Retired Chairman of the Board,
Oglebay Norton Co.
Cleveland, Ohio
(Industrial Minerals)
Director since 1992
Rajesh K. Soin 1
Chairman of the Board and
Chief Executive Officer,
Soin International, LLC
Beavercreek, Ohio
(IT and Management Consulting Services)
Director since 2012
Christopher A. Chapman
Vice President,
Global Finance
Chad F. Hesse
Vice President,
Miguel A. Mateo
Vice President,
Latin America Division
David H. Ramsey
Vice President,
General Counsel and Secretary
Chief Information Officer
M. Scott Hunter
Vice President,
Sheila M. Rutt
Vice President,
Treasurer and Chief Tax Officer
Chief Human Resources Officer
John D. Kristoff
Vice President,
Chief Communications Officer
Christopher Macey
Vice President,
Corporate Controller
Shareholder InformatIon
Corporate Offices
Diebold, Incorporated
5995 Mayfair Road
P.O. Box 3077
North Canton, OH, USA 44720-8077
+1 330-490-4000
www.diebold.com
Stock Exchange
The company’s common shares are listed under
the symbol DBD on the New York Stock Exchange.
Transfer Agent and Registrar
Wells Fargo Shareowner Services
+1 855-598-5492 or +1 651-450-4064
Website: www.shareowneronline.com
General Correspondence:
P.O. Box 64874
St. Paul, MN 55164-0874
Or Overnight Delivery:
1110 Centre Point Curve, Suite 101
Mendota Heights, MN 55120
Dividend Reinvestment/Optional Cash:
Dividend Reinvestment Department
P.O. Box 64856
St. Paul, MN 55164-0856
Publications
Our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and all amendments to
those reports are available, free of charge, on or through
the website, www.diebold.com, as soon as reasonably
practicable after such material is electronically filed with
or furnished to the Securities and Exchange Commission.
Additionally, these reports will be furnished free of charge
to shareholders upon written request to Diebold Corporate
Communications or Investor Relations at the corporate
address, or call +1 330-490-3790 or 800-766-5859.
Information Sources
Communications concerning share transfer, lost certificates
or dividends should be directed to the transfer agent.
Investors, financial analysts and media may contact the
following at the corporate address:
Jamie Finefrock
Manager, Investor Relations
+1 330-490-6319
Email: jamie.finefrock@diebold.com
Michael Jacobsen, APR
Sr. Director, Corporate Communications
+1 330-490-3796
Email: michael.jacobsen@diebold.com
Direct Purchase, Sale and
Dividend Reinvestment Plan
Diebold’s Direct Stock Purchase Plan, administered by Wells Fargo
Shareowner Services, offers current and prospective shareholders
a convenient alternative for buying and selling Diebold shares.
Once enrolled in the plan, shareholders may elect to make
optional cash investments.
For first-time share purchase by nonregistered holders, the minimum
initial investment amount is $500. The minimum amount for
subsequent investments is $50. The maximum annual investment is
$120,000. Shareholders may also choose to reinvest the dividends
paid on shares of Diebold Common Stock through the plan.
Some fees may apply. For more information, contact Wells Fargo
Shareowner Services (see information in opposite column) or visit
Diebold’s website at www.diebold.com.
Annual Meeting
The next meeting of shareholders will take place at 11:30 a.m. ET
on April 25, 2013, at the Sheraton Suites, 1989 Front Street,
Cuyahoga Falls, Ohio 44221. A proxy statement and form of proxy
is available for shareholders to review on or about March 11. The
company’s independent auditors will be in attendance to respond
to appropriate questions.
Price ranges of
Common
ShareS
2012
2011
HigH
$40.38
$42.93
$38.49
$34.33
Low
$29.21
$35.03
$31.48
$27.66
HigH
$36.35
$37.12
$33.89
$33.59
Low
$30.20
$29.26
$24.70
$25.83
2010
HigH
$32.23
$35.18
$31.59
$33.29
Low
$26.47
$24.22
$25.72
$29.79
$42.93
$27.66
$37.12
$24.70
$35.18
$24.22
Q1
Q2
Q3
Q4
Y r
Forward-Looking Statements
Certain statements in this annual report, particularly the statements made by management and those that are not historical facts, are “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events. They are not guarantees of future performance and are
subject to risks and uncertainties, many of which are beyond the control of Diebold. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those
expressed in or implied by the forward-looking statements are detailed in the company’s 2012 Annual Report on Form 10-K. A copy of that Form, which is on file with the Securities and Exchange
Commission and is available at www.diebold.com or upon request, is included in this report.
Diebold, Incorporated
5995 Mayfair Road, P.O. Box 3077
North Canton, Ohio 44720-8077 USA