UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-4879

Diebold, Incorporated

(Exact name of registrant as specified in its charter)

Ohio		34-0183970
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)
5995 Mayfair Road, PO Box 3077, North Canton, Ohio		44720-8077
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (330) 490-4000

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 þ No o

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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 þ		Accelerated Filer o		Non-Accelerated Filer o		Smaller Reporting Company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Number of shares of common stock outstanding as of July 22, 2011 was 64,206,266.

 

 

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
INDEX

PART I — FINANCIAL INFORMATION			3
ITEM 1: FINANCIAL STATEMENTS			3
CONDENSED CONSOLIDATED BALANCE SHEETS — June 30, 2011 (Unaudited) and December 31, 2010			3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) — Three and Six Months Ended June 30, 2011 and 2010			4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) — Six Months Ended June 30, 2011 and 2010			5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)			6
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			21
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			33
ITEM 4: CONTROLS AND PROCEDURES			33
PART II — OTHER INFORMATION			33
ITEM 1: LEGAL PROCEEDINGS			33
ITEM 1A: RISK FACTORS			35
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			35
ITEM 3: DEFAULTS UPON SENIOR SECURITIES			35
ITEM 4: [REMOVED AND RESERVED]			35
ITEM 5: OTHER INFORMATION			35
ITEM 6: EXHIBITS			36
SIGNATURES			37
EXHIBIT INDEX			38
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

DIEBOLD, INCORPORATED AND SUBSIDIARIES

		June 30,				December 31,
		2011				2010
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	278,740			$	328,658
Short-term investments			261,229				273,123
Trade receivables, less allowances for doubtful accounts of $25,492 and $24,868, respectively			446,402				404,501
Inventories			496,864				444,575
Deferred income taxes			101,982				106,160
Prepaid expenses			29,609				32,111
Other current assets			175,605				124,908
Total current assets			1,790,431				1,714,036
Securities and other investments			74,928				76,138
Property, plant and equipment, at cost			668,940				646,235
Less accumulated depreciation and amortization			466,737				442,773
Property, plant and equipment, net			202,203				203,462
Deferred income taxes			54,127				49,961
Goodwill			278,292				269,398
Other assets			196,617				206,795
Total assets		$	2,596,598			$	2,519,790
LIABILITIES AND EQUITY
Current liabilities
Notes payable		$	43,900			$	15,038
Accounts payable			206,429				214,288
Deferred revenue			216,956				205,173
Payroll and other benefits liabilities			65,297				78,515
Other current liabilities			275,803				296,751
Total current liabilities			808,385				809,765
Long-term debt			644,661				550,368
Pensions and other benefits			79,590				100,152
Postretirement and other benefits			23,702				23,096
Deferred income taxes			33,288				31,126
Other long-term liabilities			24,486				15,469
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, 76,828,844 and 76,365,124 issued shares, 64,460,039 and 65,717,103 outstanding shares, respectively			96,036				95,456
Additional capital			319,821				308,699
Retained earnings			905,511				919,296
Treasury shares, at cost (12,368,805 and 10,648,021 shares, respectively)			(493,513	)			(435,922	)
Accumulated other comprehensive income			123,453				73,626
Total Diebold, Incorporated shareholders’ equity			951,308				961,155
Noncontrolling interests			31,178				28,659
Total equity			982,486				989,814
Total liabilities and equity		$	2,596,598			$	2,519,790

See accompanying notes to condensed consolidated financial statements.

DIEBOLD, INCORPORATED AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Net sales
Products		$	273,431			$	298,884			$	523,214			$	556,629
Services			388,951				366,296				753,325				727,550
			662,382				665,180				1,276,539				1,284,179
Cost of sales
Products			204,769				221,742				393,632				414,019
Services			288,123				265,294				564,013				534,006
			492,892				487,036				957,645				948,025
Gross profit			169,490				178,144				318,894				336,154
Selling and administrative expense			122,051				110,791				243,162				209,768
Research, development and engineering expense			19,375				16,402				38,799				34,850
Impairment of intangible assets			2,962				4,096				2,962				4,096
			144,388				131,289				284,923				248,714
Operating profit			25,102				46,855				33,971				87,440
Other income (expense)
Investment income			9,669				6,017				20,567				13,489
Interest expense			(9,515	)			(9,301	)			(18,188	)			(18,356	)
Foreign exchange gain (loss), net			1,492				(553	)			446				(5,194	)
Miscellaneous, net			1,434				1,393				1,457				2,101
Income from continuing operations before taxes			28,182				44,411				38,253				79,480
Taxes on income			6,580				13,338				12,505				23,215
Income from continuing operations			21,602				31,073				25,748				56,265
Income (loss) from discontinued operations, net of tax			529				(683	)			518				(1,653	)
Net income			22,131				30,390				26,266				54,612
Net income attributable to noncontrolling interests			1,327				659				2,961				957
Net income attributable to Diebold, Incorporated		$	20,804			$	29,731			$	23,305			$	53,655
Basic weighted-average shares outstanding			65,028				65,936				65,393				66,121
Diluted weighted-average shares outstanding			65,482				66,636				65,842				66,678
Basic earnings per share
Net income from continuing operations		$	0.31			$	0.46			$	0.35			$	0.84
Income (loss) from discontinued operations			0.01				(0.01	)			0.01				(0.03	)
Net income attributable to Diebold, Incorporated		$	0.32			$	0.45			$	0.36			$	0.81
Diluted earnings per share
Net income from continuing operations		$	0.31			$	0.46			$	0.34			$	0.83
Income (loss) from discontinued operations			0.01				(0.01	)			0.01				(0.03	)
Net income attributable to Diebold, Incorporated		$	0.32			$	0.45			$	0.35			$	0.80
Amounts attributable to Diebold, Incorporated
Income from continuing operations, net of tax		$	20,275			$	30,414			$	22,787			$	55,308
Income (loss) from discontinued operations			529				(683	)			518				(1,653	)
Net income attributable to Diebold, Incorporated		$	20,804			$	29,731			$	23,305			$	53,655

See accompanying notes to condensed consolidated financial statements.

DIEBOLD, INCORPORATED AND SUBSIDIARIES

		Six Months Ended
		June 30,
		2011				2010
Cash flow from operating activities:
Net income		$	26,266			$	54,612
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization			39,034				36,261
Share-based compensation			6,617				6,365
Excess tax benefits from share-based compensation			(1,390	)			(202	)
Devaluation of Venezuelan balance sheet			—				6,390
Impairment of intangible assets			2,962				4,096
Equity in earnings of an investee			(859	)			(1,425	)
Cash flow from changes in certain assets and liabilities:
Trade receivables			(28,284	)			(97,317	)
Inventories			(36,452	)			(35,531	)
Prepaid expenses			3,055				1,268
Other current assets			(34,952	)			(34,929	)
Accounts payable			(13,392	)			22,318
Deferred revenue			8,611				(3,462	)
Certain other assets and liabilities			(71,190	)			24,084
Net cash used in operating activities			(99,974	)			(17,472	)
Cash flow from investing activities:
Proceeds from sale of discontinued operations			2,520				1,807
Proceeds from maturities of investments			139,020				157,630
Proceeds from sale of investments			26,761				9,718
Payments for purchases of investments			(135,798	)			(147,394	)
Proceeds from sale of assets			182				—
Capital expenditures			(23,687	)			(26,916	)
Increase in certain other assets			(9,183	)			(11,769	)
Collections on purchased finance receivables			12,976				—
Net cash provided by (used in) investing activities			12,791				(16,924	)
Cash flow from financing activities:
Dividends paid			(37,090	)			(36,076	)
Debt issuance costs			(1,733	)			—
Debt borrowings			350,679				193,438
Debt repayments			(227,563	)			(186,547	)
Distribution of affiliates earnings to noncontrolling interest holders			(1,045	)			(9	)
Excess tax benefits from share-based compensation			1,390				202
Issuance of common shares			4,017				772
Repurchase of common shares			(57,591	)			(21,128	)
Net cash provided by (used in) financing activities			31,064				(49,348	)
Effect of exchange rate changes on cash and cash equivalents			6,201				(13,063	)
Decrease in cash and cash equivalents			(49,918	)			(96,807	)
Cash and cash equivalents at the beginning of the period			328,658				328,426
Cash and cash equivalents at the end of the period		$	278,740			$	231,619

See accompanying notes to condensed consolidated financial statements

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011

NOTE 1: CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements of Diebold, Incorporated and its subsidiaries (collectively, the Company) have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods.

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s annual report on Form 10-K for the year ended December 31, 2010. In addition, some of the Company’s statements in this quarterly report on Form 10-Q may involve risks and uncertainties that could significantly impact expected future results. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of results to be expected for the full year.

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

RECENTLY ISSUED ACCOUNTING GUIDANCE

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05 (ASU 2011-05), Presentation of Comprehensive Income, that 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. Under either method, adjustments must be displayed for items that are reclassified from OCI to net income, in both net income and OCI. The standard does not change the current option for presenting components of OCI gross or net of the effect of income taxes, provided that such tax effects are presented in the statement in which OCI is presented or disclosed in the notes to the financial statements. Additionally, the standard does not affect the calculation or reporting of earnings per share. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and is to be applied retrospectively, with early adoption permitted. The adoption of this update will not have a material impact on the financial statements of the Company. The Company is in the process of determining its method of presentation.

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 (ASC) 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance in U.S. GAAP and International Financial Reporting Standards (IFRSs). Some of the amendments clarify the application of existing fair value measurement requirements, while other amendments change a particular principle in ASC 820. In addition, ASU 2011-04 requires additional fair value disclosures. The amendments are to be applied prospectively and are effective for annual periods beginning after December 15, 2011. The Company is currently evaluating the effect that the provisions of ASU 2011-04 will have on the disclosures within the financial statements of the Company.

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

NOTE 2: EARNINGS PER SHARE

Basic earnings per share is based on the weighted-average number of common shares outstanding. Diluted earnings per share is based on the weighted-average number of common shares outstanding and all potential dilutive common shares. 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), deferred shares and shares that were vested, but deferred by the employee. The Company calculated basic and diluted earnings per share under both the treasury stock method and the two-class method. For the three and six months ended June 30, 2011 and 2010, there was no impact in the per share amounts calculated under the two methods; therefore, the treasury stock method is disclosed.

The following represents amounts used in computing earnings per share and the effect on the weighted-average number of shares of dilutive common stock:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Numerator:
Income used in basic and diluted earnings per share:
Income from continuing operations, net of tax		$	20,275			$	30,414			$	22,787			$	55,308
Income (loss) from discontinued operations			529				(683	)			518				(1,653	)
Net income attributable to Diebold, Incorporated		$	20,804			$	29,731			$	23,305			$	53,655
Denominator (in thousands):
Weighted-average number of common shares used in basic earnings per share			65,028				65,936				65,393				66,121
Effect of dilutive shares			454				700				449				557
Weighted-average number of shares used in diluted earnings per share			65,482				66,636				65,842				66,678
Basic earnings per share:
Net income from continuing operations		$	0.31			$	0.46			$	0.35			$	0.84
Income (loss) from discontinued operations			0.01				(0.01	)			0.01				(0.03	)
Net income attributable to Diebold, Incorporated		$	0.32			$	0.45			$	0.36			$	0.81
Diluted earnings per share:
Net income from continuing operations		$	0.31			$	0.46			$	0.34			$	0.83
Income (loss) from discontinued operations			0.01				(0.01	)			0.01				(0.03	)
Net income attributable to Diebold, Incorporated		$	0.32			$	0.45			$	0.35			$	0.80
Anti-dilutive shares (in thousands):
Anti-dilutive shares not used in calculating diluted weighted-average shares			2,092				2,078				2,057				2,089

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

NOTE 3: EQUITY

The following tables present changes in shareholders’ equity attributable to Diebold, Incorporated and the noncontrolling interests:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Diebold, Incorporated shareholders’ equity
Balance at beginning of the period		$	947,030			$	1,038,358			$	961,155			$	1,046,379
Net income attributable to Diebold, Incorporated			20,804				29,731				23,305				53,655
Other comprehensive income (loss):
Foreign currency translation			33,817				(24,226	)			48,491				(36,445	)
Interest rate hedges			(340	)			(633	)			(389	)			(820	)
Pensions and other postretirement benefits			1,532				1,335				2,261				2,698
Unrealized (loss) gain, net on available for sale securities			137				130				(536	)			655
Comprehensive income attributable to Diebold, Incorporated			55,950				6,337				73,132				19,743
Common shares			43				44				580				211
Additional capital			2,865				3,252				11,122				11,108
Treasury shares			(36,140	)			(9,773	)			(57,591	)			(21,128	)
Dividends declared			(18,440	)			(17,981	)			(37,090	)			(36,076	)
Balance at end of the period		$	951,308			$	1,020,237			$	951,308			$	1,020,237
Noncontrolling interests
Balance at beginning of the period		$	30,254			$	25,808			$	28,659			$	25,647
Net income attributable to noncontrolling interests			1,327				659				2,961				957
Other comprehensive income (loss):
Foreign currency translation			332				123				603				(14	)
Comprehensive income attributable to noncontrolling interests			1,659				782				3,564				943
Distributions to noncontrolling interest holders			(735	)			(9	)			(1,045	)			(9	)
Balance at end of the period		$	31,178			$	26,581			$	31,178			$	26,581

NOTE 4: SHARE-BASED COMPENSATION

The Company’s share-based compensation payments to employees are recognized in the statement of income based on their grant-date fair values during the period in which the employee is required to provide services in exchange for the award. Share-based compensation is recognized as a component of selling and administrative expense. Total share-based compensation expense for the three and six months ended June 30, 2011 was $3,181 and $6,617, respectively. Total share-based compensation expense for the three and six months ended June 30, 2010 was $3,139 and $6,365, respectively.

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

Options outstanding and exercisable as of June 30, 2011 under the Company’s 1991 Equity and Performance Incentive Plan (as Amended and Restated as of April 13, 2009) and changes during the six months ended June 30, 2011, were as follows:

										Weighted-
						Weighted-				Average
						Average				Remaining				Aggregate
		Number of				Exercise				Contractual				Intrinsic
		Shares				Price				Term				Value (1)
		(in thousands)				(per share)				(in years)
Outstanding at January 1, 2011			3,152			$	36.67
Expired or forfeited			(197	)			35.49
Exercised			(148	)			27.06
Granted			432				33.20
Outstanding at June 30, 2011			3,239			$	36.69				5			$	4,754
Options exercisable at June 30, 2011			2,182			$	39.89				4			$	2,331
Options vested and expected to vest (2) at June 30, 2011			3,214			$	36.74				5			$	4,696

The following tables summarize information on non-vested RSUs, performance shares and deferred shares for the six months ended June 30, 2011:

		Number of				Weighted-Average
		Shares				Grant-Date Fair Value
		(in thousands)
RSUs:
Non-vested at January 1, 2011			594			$	29.06
Forfeited			(33	)			46.70
Vested			(112	)			28.13
Granted			280				32.93
Non-vested at June 30, 2011			729			$	30.63
Performance Shares (1):
Non-vested at January 1, 2011			742			$	31.15
Forfeited			(84	)			30.18
Vested			(176	)			29.00
Granted			246				39.77
Non-vested at June 30, 2011			728			$	34.71
Director Deferred Shares:
Non-vested at January 1, 2011			14			$	33.28
Vested			(14	)			33.28
Granted			31				33.98
Non-vested at June 30, 2011			31			$	33.98
Vested at June 30, 2011			83			$	33.87
Outstanding at June 30, 2011			114			$	33.90

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

NOTE 5: INCOME TAXES

The effective tax rate on continuing operations for the three months ended June 30, 2011 was 23.3 percent compared to 30.0 percent for the same period of 2010. The 6.7 percentage point decrease is due mainly to various discrete items in the periods.

The effective tax rate on continuing operations for the six months ended June 30, 2011 was 32.7 percent compared to 29.2 percent for the same period of 2010. The 3.5 percentage point increase is due mainly to operating losses in certain Europe, Middle East and Africa (EMEA) jurisdictions for which no tax benefit is recognized, partially offset by various discrete items in the periods.

NOTE 6: INVESTMENTS

The Company’s investments, primarily in Brazil, consist of certificates of deposit and U.S. dollar indexed bond funds, which 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 (losses) gains, net from the sale of securities were $(1,304) and $33 for the three months ended June 30, 2011 and 2010, respectively. Realized (losses) gains, net from the sale of securities were $(1,468) and $33 for the six months ended June 30, 2011 and 2010, respectively. Proceeds from the sale of available-for-sale securities were $26,761 and $9,718 during the six months ended June 30, 2011 and 2010, 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 that is recorded at the 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 $66,528 and $67,975 as of June 30, 2011 and December 31, 2010, respectively, consist of the following:

						Unrealized
		Cost Basis				Gain (Loss)				Fair Value
As of June 30, 2011
Short-term investments:
Certificates of deposit		$	229,532			$	—			$	229,532
U.S. dollar indexed bond funds			33,530				(1,833	)			31,697
		$	263,062			$	(1,833	)		$	261,229
Long-term investments:
Assets held in a rabbi trust		$	7,920			$	480			$	8,400
As of December 31, 2010
Short-term investments:
Certificates of deposit		$	221,706			$	—			$	221,706
U.S. dollar indexed bond funds			52,714				(1,297	)			51,417
		$	274,420			$	(1,297	)		$	273,123
Long-term investments:
Assets held in a rabbi trust		$	8,068			$	95			$	8,163

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

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) based on a specific customer circumstances, 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.

The following table summarizes the Company’s allowance for credit losses and recorded investment in financing receivables:

		Finance				Notes
		Leases				Receivable				Total
Allowance for credit losses
Balance January 1, 2011		$	378			$	470			$	848
Provision for credit losses			9				1,652				1,661
Recoveries			94				5,454				5,548
Write-offs			(354	)			(5,956	)			(6,310	)
Balance individually evaluated for impairment		$	127			$	1,620			$	1,747
Balance collectively evaluated for impairment			—				—				—
Balance June 30, 2011		$	127			$	1,620			$	1,747
Recorded investment in financing receivables
Balance individually evaluated for impairment		$	117,205			$	16,540			$	133,745
Balance collectively evaluated for impairment			—				—				—
Balance June 30, 2011		$	117,205			$	16,540			$	133,745

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 greater than 60 days past due are reviewed and may be placed on nonaccrual status based on customer specific circumstances. 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 June 30, 2011 and December 31, 2010, the recorded investment in past-due finance lease receivables on nonaccrual status was $214 and $531, respectively. The recorded investment in finance lease receivables past due 90 days or more and still accruing interest was $659 and $560 as of June 30, 2011 and December 31, 2010, respectively. The recorded investment in impaired notes receivable and the related allowance was $1,620 and $1,620, respectively, as of June 30, 2011. The recorded investment in impaired notes receivable and the related allowance was $7,513 and $470, respectively, as of December 31, 2010. The net investment in impaired notes receivable is expected to be recovered from insurance claims. The following table summarizes the Company’s aging of past-due notes receivable balances as of June 30, 2011:

31-60 days past due		$	—
61-90 days past due			—
> 90 days past due			1,357
Total past due		$	1,357

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

NOTE 8: INVENTORIES

Major classes of inventories are summarized as follows:

		June 30, 2011				December 31, 2010
Finished goods		$	204,648			$	184,944
Service parts			170,042				166,317
Raw materials and work in process			122,174				93,314
Total inventories		$	496,864			$	444,575

NOTE 9: OTHER ASSETS

Included in other assets are net capitalized software development costs of $54,493 and $55,575 as of June 30, 2011 and December 31, 2010, respectively. Amortization expense on capitalized software of $4,832 and $9,408 was included in product cost of sales for the three and six months ended June 30, 2011, respectively, and $3,849 and $7,930 for the three and six months ended June 30, 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. 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 group, an impairment loss may be recognized at that time to reduce the asset to the lower of its fair value or its net book value.

The Company recorded $2,962 and $4,096 of intangible asset impairment charges within Diebold North America (DNA) continuing operations in the second quarter of 2011 and 2010, respectively. The 2011 impairment related to a software intangible and the 2010 impairment related to customer contract intangible assets.

Investment in Affiliate Investment in the Company’s non-consolidated affiliate is 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 June 30, 2011 and December 31, 2010 was $12,977 and $12,118, respectively, and fluctuated based on equity earnings. Equity earnings from the non-consolidated affiliate are included in miscellaneous, net in the condensed consolidated statements of income and were $434 and $859 for the three and six months ended June 30, 2011, respectively, and $672 and $1,425 for the three and six months ended June 30, 2010, respectively.

NOTE 10: DEBT

Outstanding debt balances were as follows:

		June 30, 2011				December 31, 2010
Notes payable — current:
Uncommitted lines of credit		$	43,784			$	15,038
Other			116				—
		$	43,900			$	15,038
Long-term debt:
Credit facility		$	330,000			$	235,000
Senior notes			300,000				300,000
Industrial development revenue bonds			11,900				11,900
Other			2,761				3,468
		$	644,661			$	550,368

As of June 30, 2011, the Company had various international short-term uncommitted lines of credit with borrowing limits of $93,447. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of June 30, 2011 and December 31, 2010 was 2.74 and 3.01 percent, respectively. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at June 30, 2011 was $49,663.

In June 2011, the Company entered into a new five-year credit facility, which replaced its existing credit facility. The Company used borrowings of approximately $330,000 under the new credit facility to repay all amounts outstanding under (and terminated) the

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

existing credit facility. As of June 30, 2011, the Company had borrowing limits under the new 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 June 30, 2011 and December 31, 2010 was 1.26 and 2.71 percent, respectively, which is variable based on the London Interbank Offered Rate (LIBOR). The amount available under the new credit facility as of June 30, 2011 was $170,000. The Company incurred $1,733 of fees to its creditors in conjunction with the new credit facility, which will be 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 derivative transaction to hedge interest rate risk on $200,000 of the senior notes, which was treated as a cash flow hedge. This reduced the effective interest rate by 14 basis points from 5.50 to 5.36 percent.

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 0.83 and 0.57 percent as of June 30, 2011 and December 31, 2010, respectively.

The Company’s debt agreements contain various restrictive financial covenants, including net debt to capitalization and net interest coverage ratios. As of June 30, 2011, the Company was in compliance with the financial covenants in its debt agreements.

NOTE 11: BENEFIT PLANS

The Company has pension plans covering certain U.S. employees. Plans that cover certain 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. Plans covering certain 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.

In addition to providing pension benefits, the Company provides 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. There are no plan assets and the Company funds the benefits as the claims are paid.

The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans and other benefits:

		Three Months Ended
		June 30,
		Pension Benefits								Other Benefits
		2011				2010				2011				2010
Components of net periodic benefit cost
Service cost		$	2,713			$	2,499			$	—			$	—
Interest cost			7,872				7,681				232				248
Expected return on plan assets			(10,184	)			(9,603	)			—				—
Amortization of prior service cost			64				49				(129	)			(129	)
Recognized net actuarial loss			2,394				1,344				97				71
Net periodic pension benefit cost		$	2,859			$	1,970			$	200			$	190

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

		Six Months Ended
		June 30,
		Pension Benefits								Other Benefits
		2011				2010				2011				2010
Components of net periodic benefit cost
Service cost		$	5,426			$	4,998			$	—			$	—
Interest cost			15,744				15,362				465				496
Expected return on plan assets			(20,367	)			(19,206	)			—				—
Amortization of prior service cost			129				97				(258	)			(258	)
Recognized net actuarial loss			4,800				2,717				194				142
Net periodic pension benefit cost		$	5,732			$	3,968			$	401			$	380

Cash Flows

There have been no significant changes to the 2011 plan year contribution amounts previously disclosed. For the six months ended June 30, 2011 and 2010, contributions of $21,500 and $13,381, respectively, were made to the qualified and non-qualified pension plans.

NOTE 12: GUARANTEES AND PRODUCT WARRANTIES

In 1997, industrial development revenue bonds were issued on behalf of the Company. The Company guaranteed the payments of principal and interest on the bonds (refer to note 10) by obtaining letters of credit. The carrying value of the bonds was $11,900 as of June 30, 2011 and December 31, 2010.

The Company provides its global operations guarantees and standby letters of credit through various financial institutions to suppliers, customers, regulatory agencies and insurance providers. If the Company is not able to make payment or fulfill contractual obligations, the suppliers, customers, regulatory agencies and insurance providers may draw on the pertinent bank. At June 30, 2011, the maximum future payment obligations related to these various guarantees totaled $77,690, of which $22,735 represented standby letters of credit to insurance providers, and no associated liability was recorded. At December 31, 2010, the maximum future payment obligations relative to these various guarantees totaled $74,629, of which $23,202 represented standby letters of credit to insurance providers, and no associated liability was recorded.

The Company provides its customers a 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:

		2011				2010
Balance at January 1		$	78,313			$	62,673
Current period accruals (a)			30,066				24,609
Current period settlements			(34,058	)			(23,694	)
Balance at June 30		$	74,321			$	63,588

NOTE 13: COMMITMENTS AND CONTINGENCIES

At June 30, 2011, 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 are considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the condensed consolidated financial statements would not be materially affected by the outcome of these legal proceedings, commitments or asserted claims. In addition to these routine legal proceedings, the Company was a party to 401(k) and securities class actions, labor and wage actions, and election systems actions which are described in note 15 of the consolidated financial statements contained in the Company’s annual report on Form 10-K for the year ended December 31, 2010. The Company’s global Foreign Corrupt Practices Act (FCPA) review remains on schedule with no material developments during the three months ended June 30, 2011:

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 is conducting an internal review and collecting information related to its global FCPA compliance.

In the fourth quarter of 2010, the Company identified certain transactions within its Asia Pacific operation over the past several years which may also potentially implicate the FCPA. The Company’s current assessment indicates that the transactions and payments in question to date do not materially impact or alter the Company’s consolidated financial statements in any year or in the aggregate. The Company’s internal review is ongoing, and accordingly, there can be no assurance that this review will not find evidence of additional transactions that potentially implicate the FCPA.

The Company has voluntarily self-reported its findings to the SEC and the DOJ and is cooperating with these agencies in their review. The Company was previously informed that the SEC’s inquiry has 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. The Company expects to complete its internal review of these matters by the end of 2011. Once the Company completes its internal review, it will begin discussions with the SEC and the DOJ to resolve this matter. At this time, the Company cannot predict the results of the government investigations and therefore cannot estimate the potential loss or range of loss it may incur with respect to these investigations or their potential impact on the consolidated financial statements. Future resolution of these matters with the DOJ and SEC could result in a material impact to the Company’s consolidated financial statements.

NOTE 14: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company uses derivatives to mitigate the economic consequences associated with the fluctuations in currencies and interest rates.

FOREIGN EXCHANGE

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 Company’s non-designated foreign exchange forward contracts was $300 and ($3,135) as of June 30, 2011 and December 31, 2010, respectively.

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

The following table summarizes the (loss) gain recognized on non-designated foreign-exchange derivative instruments:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
Income Statement Location		2011				2010				2011				2010
Interest expense		$	(2,028	)		$	(1,573	)		$	(3,876	)		$	(3,059	)
Foreign exchange gain (loss), net			4,478				15,211				(1,738	)			22,155
		$	2,450			$	13,638			$	(5,614	)		$	19,096

INTEREST RATE

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 June 30, 2011, the Company has a pay-fixed receive-variable interest rate swap, with a total notional amount of $25,000, 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.

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 on a straight-line basis through February 2016.

The fair value of the Company’s interest rate contracts was ($3,441) and ($3,371) as of June 30, 2011 and December 31, 2010, respectively.

The gain (loss) recognized on designated derivative instruments for the three and six months ended June 30, 2011 and 2010 was not material. Gains and losses related to interest rate contracts that are reclassified from accumulated OCI are recorded in interest expense on the statement of income. The Company anticipates reclassifying $781 from OCI to interest expense within the next 12 months.

NOTE 15: RESTRUCTURING AND OTHER CHARGES

The following table summarizes the impact of the Company’s restructuring charges (benefits) on the condensed consolidated statements of income:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Cost of sales — products		$	251			$	696			$	374			$	482
Cost of sales — services			2,555				(524	)			8,629				(210	)
Selling and administrative expense			1,667				1,079				7,271				2,236
Research, development and engineering expense			12				(57	)			12				(198	)
Total		$	4,485			$	1,194			$	16,286			$	2,310

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

The following table summarizes the Company’s restructuring charges (benefits) within continuing operations for its DNA and Diebold International (DI) reporting segments:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
DNA
Severance		$	802			$	518			$	795			$	1,883
Other			—				447				—				(117	)
DI
Severance			2,844				194				14,449				378
Other (1)			839				35				1,042				166
Total		$	4,485			$	1,194			$	16,286			$	2,310

Restructuring charges of $3,452 and $15,032 for the three and six months ended June 30, 2011 related to the Company’s plan for the EMEA reorganization, which realigns resources and further leverages the existing shared services center. As of June 30, 2011, the Company anticipates additional restructuring costs in the range of $10,000 to $13,000 to be incurred into 2012 related to its EMEA restructuring plan. As management concludes on certain aspects of the EMEA restructuring plan, the anticipated future costs related to this plan are subject to change.

Restructuring charges related to reductions in the Company’s global workforce were $172 and $552 for the three months ended June 30, 2011 and 2010, respectively and $279 and $1,930 for the six months ended June 30, 2011 and 2010, respectively. These charges included realignment of the organization and resources to better support opportunities in emerging growth markets as well as consolidation of certain international facilities in efforts to optimize overall operational performance. This plan resulted in a workforce reduction which primarily affected Canton, Ohio area facilities. The Company does not expect any material remaining costs related to this workforce reduction.

Restructuring charges related to the Company’s strategic global manufacturing realignment plans were $230 and $648 for the three months ended June 30, 2011 and 2010, respectively and $344 and $356 for the six months ended June 30, 2011 and 2010, respectively.

The following table summarizes the Company’s cumulative total restructuring costs for the significant plans:

						Global				Global
		EMEA				Workforce				Manufacturing
		Reorganization				Reductions				Realignment
Costs incurred to date:
DNA		$	—			$	22,227			$	11,579
DI			15,032				20,571				25,409
Total costs incurred to date		$	15,032			$	42,798			$	36,988

The following table summarizes the Company’s restructuring accrual balances and related activity:

Balance as of January 1, 2011		$	3,340
Liabilities incurred			16,286
Liabilities paid			(7,664	)
Balance as of June 30, 2011		$	11,962

Other Charges and Expense Reimbursements

Other charges and expense reimbursements consist of items that the Company determines are non-routine in nature. Net non-routine expense of $13,441 impacted the six months ended June 30, 2011 compared to net non-routine income of $3,073 in the same period of 2010. 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. Net non-routine income for 2010 consisted

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2011
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share amounts)

primarily of reimbursements from the Company’s director and officer (D&O) insurance carriers and was recorded in selling and administrative expense, partially offset by costs related to the FCPA investigation.

NOTE 16: 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.

Assets and Liabilities Recorded at Fair Value

Assets and liabilities subject to fair value measurement are as follows:

		June 30, 2011																December 31, 2010
						Fair Value Measurements Using																Fair Value Measurements Using
		Fair Value				Level 1				Level 2				Level 3				Fair Value				Level 1				Level 2				Level 3
Assets
Short-term investments:
Certificates of deposit		$	229,532			$	229,532			$	—			$	—			$	221,706			$	221,706			$	—			$	—
U.S. dollar indexed bond funds			31,697				—				31,697				—				51,417				—				51,417				—
Assets held in a rabbi trust			8,400				8,400				—				—				8,163				8,163				—				—
Foreign exchange forward contracts			1,541				—				1,541				—				925				—				925				—
Contingent consideration on sale of business			—				—				—				—				2,030				—				—				2,030
Total		$	271,170			$	237,932			$	33,238			$	—			$	284,241			$	229,869			$	52,342			$	2,030
Liabilities
Deferred compensation		$	8,400			$	8,400			$	—			$	—			$	8,163			$	8,163			$	—			$	—
Foreign exchange forward contracts			1,241				—				1,241				—				4,060				—				4,060				—
Interest rate swaps			3,441				—				3,441				—				3,371				—				3,371				—
Total		$	13,082			$	8,400			$	4,682			$	—			$	15,594			$	8,163			$	7,431			$	—