UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 20102011 |
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o | 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)
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| Ohio | | 34-0183970 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer Identification No.) |
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5995 Mayfair Road,
P.O. Box 3077, North Canton, Ohio
| 44720-8077 |
(Address of principal
executive offices) | | 44720-8077
(Zip Code) |
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODERegistrants telephone number, including area code (330) 490-4000
Securities registered pursuant to Section 12(b) of the Act:
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: |
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| Title of each class | | Name of each exchange on which registered: |
| Common Shares $1.25 Par Value | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
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 o No þx
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 o No þx
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 þx 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 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þx No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation 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 thisForm 10-K or any amendment to thisForm 10-K. 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” inRule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þx | | Accelerated filer o | | Non-accelerated filer o
(Do not check if a smaller reporting company) | | 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 inRule 12b-2 of the Act). Yes o No þx
Approximate aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2010,2011, based upon the closing price on the New York Stock Exchange on June 30, 2010,2011, was $1,779,356,738$1,990,604,029.
Number of shares of common stock outstanding as of February 11, 201110, 2012 was 65,796,701.65,539,124.
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents, portions of which are incorporated by reference, and the parts of thisForm 10-K into which such portions are incorporated:
Diebold, Incorporated Proxy Statement for 20112012 Annual Meeting of Shareholders to be held on April 28, 2011,26, 2012, portions of which are incorporated by reference into Part III of thisForm 10-K.
TABLE OF CONTENTS
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 self-service delivery and security systems and services to primarily the financial, commercial, government and retail markets. 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.
The Company’s vision is “Toto 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 ofto becoming a services-orientedmore software-led services company. Today, servicesServices comprise more than 50 percent of the Company’s revenue and therevenue. The Company expects that this percentage will continue to grow over time as the Company’s integrated services/outsourcing businessCompany continues to gain traction in the marketplace. Financial institutions are eagerbuild on its strong base of maintenance and advanced services to reduce costs and optimize management and productivity of their automated teller machine (ATM) channels — and as a result they are increasingly exploring outsourced solutions. The Company remains uniquely positioned to provide the infrastructure necessary to manage all aspects of an ATM network — hardware, software, maintenance, transaction processing, patch management and cash management — through itsdeliver world-class integrated product and service offerings.services.
PRODUCT AND SERVICE SOLUTIONS
The Company has two core lines of business: Self-Service Solutions and Security Solutions, which the Company can integrateintegrates based on the customers’ needs. Financial information for the product and service solutions can be found in note 19 to the consolidated financial statements, which is contained in Item 8 of this annual report onForm 10-K.
Self-Service Solutions
One popular example of self-service solutions is the ATM.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 HardwareSupport 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. Outsourced and managed services include 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 include 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.
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, branch transformation and distribution channel consulting. Outsourced and managed services include remote monitoring, troubleshooting for self-service customers, transaction processing, currency management, maintenance services and full support via person to person or online communication.
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Security Solutions
From the safes and vaults that the Company first manufactured in 1859 to the full range of advanced security offerings it provides today, the Company’s integrated security solutions containbest-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 facility transaction products that integrate security, software and assisted-serviceassisted transactions, providing total security systems solutions to financial, retail, commercial and government markets.
Physical Security and Facility Products
The Company provides security solutions and facility products, including in-store bank branches, pneumatic tube systems fordrive-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, remote video management and storage, as well as logical security.
Integrated Solutions
The Company providesend-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 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 asa meaningful an 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
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provides financing arrangements to customers that are largely classified and accounted for as sales-type leases. As of December 31, 2010,2011, the Company’s net investment in finance lease receivables was $122,612.$98,296.
The Company’s sales to government markets represent a small portion of total sales. Domestically, the Company’s contracts with its government customers do not contain fiscal funding clauses. In the event that such a clause exists, revenue would not be recognizable until the funding clause was satisfied. Internationally, contracts with Brazil’s government customers are subject to a maximum twenty-five percent quantity adjustment prior to the Company purchasing any raw materials under the contracted purchasing schedule.
SEGMENTS AND FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
In the first quarter of 2010, theThe Company began management ofmanages its businesses on a geographic basis only, changing fromand reports the previous model of sales channel segments. The Company’s segments are comprised of itsfollowing two main sales channels: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 contained in Item 8incorporated herein by reference.
10-K.
Sales to customers outside the United States in relation to total consolidated net sales were $1,560,879$1,494,681 or 52.7 percent in 2011, 1,560,879 or 55.3 percent in 2010 $1,383,132 and 1,383,132 or 50.9 percent in 2009 and $1,603,963 or 52.0 percent in 2008..
Property, plant and equipment, at cost, located in the United States totaled $455,814, $454,666 $436,227 and $437,524$436,227 as of December 31, 2011, 2010 2009 and 2008,2009, respectively, and property, plant and equipment, at cost, located outside the United States totaled $186,442, $191,569 $177,150 and $142,427$177,150 as of December 31, 2011, 2010 2009 and 2008,2009, respectively.
Additional financial information regarding the Company’s international operations is included in note 19 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form10-K.incorporated herein by reference. The Company’snon-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 products and services in competition directly with similar products and services and others with alternative products that have similar uses or produce similar results. The Company believes, based upon outside independent industry surveys, that it is a leading manufacturer of and services provider for financial self-service systems in the United States and is also a market leader internationally. The Company distinguishes itself by providing unique value with a wide range of software-led services tailored to meet customers' needs. 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 Equipment Co. and Nautilus Hyosung in Asia Pacific and Itautec and Perto in Latin America. In serving the security market,product and service markets for the financial services industry, 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 broader spectrum of products. The unavailability of comparative sales information and the large variety of individual products make it difficult to give reasonable estimates of the Company’s competitive ranking in or share of the market in its security product fields of activity. However, the Company is ranked as one of the top integrators in the security market.
The Company provides elections systems product solutions and support to the government in Brazil. 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.
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RESEARCH, DEVELOPMENT AND ENGINEERING
In order to meet customers’ growingCustomer demand for self-service and security technologies faster,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 $74,225, $72,026$78,108, $74,225 and $73,034$72,026 in 2011, 2010 2009, and 2008,2009, respectively. In 2011, the Company introduced its Opteva® ATMs are designed with leading technology Flex PerformanceSM Series that redefines what financial institutions should expect from an ATM. The Flex Performance Series is the Company's most reliable self-service terminals to meet customers’ increasing deposit automation needsdate, bringing together all of today's advanced self-service functionalities – from accepting cash and provide maximum value. All full-function Opteva ATMs support intelligent check deposits and automateddispensing cash deposits. Key features include check imaging with intelligent depository moduletmto full recycling – all in one ATM model., bulk document intelligent depository modules and enhanced note acceptor.
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 20102011 had no material effect upon the Company’s business, financial condition or results of operations.
EMPLOYEES
At December 31, 2010,2011, the Company employed 16,12416,515 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.
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.comwww.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 onForms 10-K,10-Q,10-K, 10-Q, and8-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 receivee-mail alerts when the Company posts news releases and financial information on its web site. 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
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 onForm 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.report on Form 10-K.
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Demand for and supply of our products and services may be adversely affectedby numerous factors, some of which we cannot predict or control. This could adverselyaffect our operating results.
Numerous factors may affect the demand for and supply of our products and services, including:
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| • | changes in the market acceptance of our products and services; |
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| • | customer and competitor consolidation; |
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| • | changes in customer preferences; |
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| • | declines in general economic conditions; |
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| • | changes in environmental regulations that would limit our ability to sell products and services in specific markets; |
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| • | 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 |
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| • | availability of purchased products. |
changes in the market acceptance of our products and services;
customer and competitor consolidation;
changes in customer preferences;
declines in general economic conditions;
changes in environmental regulations that would limit our ability to sell products and services 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 products and services could suffer, and this would adversely affect our results of operations.
Increased raw material and energy costs could reduce our income.
The primary raw materials in our financial self-service, security and election systems product and service 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 long-term supply contracts. However, the price of these materials can fluctuate under these contracts in tandem with the pricing of raw materials.
In addition, 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 Persian GulfMiddle 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. Although we attempt to pass on higher raw material and energy 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 anduncertainty and could be adversely affected during economic downturns.
Demand for our products is affected by general economic conditions and the business conditions of the industries in which we sell our products and services. 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 products and services. 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 products and services, 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 cancelledcanceled sales 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 Persian GulfMiddle 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.
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We may be unable to achieve, or may be delayed in achieving, our cost-cuttinginitiatives, and this may adversely affect our operating results and cashflow.
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 theour goals pursuant toas 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 financialcondition.
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.
Our competitors can be expected to continue to develop and introduce new and enhanced products. This could cause a decline in market acceptance of our products. In addition, our competitors could cause a reduction in the prices for some of our 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 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 variousnon-U.S. jurisdictions, and our domestic and international tax liabilities are dependent upon the distribution of income among these different jurisdictions. Our tax expense includes estimates of additional tax which 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 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 tax exposures. 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.
In international markets, we compete with local service providers that mayhave 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 products and services. 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 products and services 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 countryand/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 sales and service operations conducted outside the United States. Revenue from international operations amounted to approximately 52.7 percent in 2011, 55.3 percent in 2010 and 50.9 percent in 2009 and 52.0 percent in 2008 of total revenue during these respective years.
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Accordingly, international operations are subject to the risks of doing business abroad, including the following:
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| • | fluctuations in currency exchange rates; |
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| • | transportation delays and interruptions; |
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| • | political and economic instability and disruptions; |
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| • | restrictions on the transfer of funds; |
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| • | the imposition of duties and tariffs; |
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| • | import and export controls; |
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| • | changes in governmental policies and regulatory environments; |
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| • | disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act (FCPA); |
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| • | labor unrest and current and changing regulatory environments; |
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| • | the uncertainty of product acceptance by different cultures; |
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| • | the risks of divergent business expectations or cultural incompatibility inherent in establishing joint ventures with foreign partners; |
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| • | difficulties in staffing and managing multi-national operations; |
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| • | limitations on the ability to enforce legal rights and remedies; |
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| • | reduced protection for intellectual property rights in some countries; and |
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| • | potentially adverse tax consequences. |
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 products or decreasing the prices at which we can sell our 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.
The Company’s Venezuelan operations consist of a fifty-percent owned subsidiary, which is consolidated. On January 8, 2010,Additionally, there are ongoing concerns regarding the Venezuelan government announced the devaluation of its currency, the bolivar,short- and the establishment of a two-tier exchange structure. Subsequently, during May 2010, the Venezuelan government seized controllong-term stability of the parallel market, thereby creatingeuro and its ability to serve as a new government-controlled rate. Transitioning from the parallel ratesingle 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 new government-controlled rate did not havedissolution of the euro. Should this occur, the assets we hold in a materialcountry 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 on the Company’s consolidatedour financial statements. In the future,results. Finally, if the Company converts bolivares at a rate other than the new government-controlled rate, the Company may realizeit were necessary for us to conduct our business in additional gains or losses thatcurrencies, we would be recordedsubjected to additional earnings volatility as amounts in the statement of income.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
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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 is conducting anconducted a global internal review and collectingcollected information related to its global FCPA compliance. In the fourth quarter of 2010, the Company identified certain transactions within its Asia Pacific operation whichthat occurred over the past several years that may also potentially implicate the FCPA. The Company’s current assessment indicates that the transactions and payments in questionCompany continues to date do not materially impact or alter the Company’s consolidated financial statements. The Company’s internal review ismonitor its ongoing and accordingly, there can be no assurance that it will not find evidence of additional transactions that potentially implicatecompliance 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 has beenwas previously informed that the SEC’sSEC's inquiry now hashad 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. TheBecause 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. At this time, the Company cannot predict the length, scope or results of its review or thesethe government investigations, orand future resolution of these matters with the impact, if any, on its resultsSEC and the DOJ could result in changes in management's estimates of operations.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 products and services into international markets. We have currently developed, through joint ventures, strategic investments, subsidiaries and branch offices, sales and service 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 products and services 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 products and services, and our operations in international markets may not develop at a rate that supports our level of investment.
Any failureAn inability to effectively manage acquisitions, divestitures and other significanttransactions successfully could harm our operating results, business andprospects.
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
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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:
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| • | combining product and service offerings and entering into new markets in which we are not experienced; |
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| • | 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 (which could result in additional obligations to address customer uncertainty), and coordinating sales, marketing and distribution efforts; |
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| • | consolidating and rationalizing corporate information technology infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code; |
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| • | minimizing the diversion of management attention from ongoing business concerns; |
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| • | 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; |
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| • | coordinating and combining administrative, 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 |
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| • | achieving savings from supply chain and administration integration. |
combining product and service 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 (which could result in additional obligations to address customer uncertainty), and coordinating 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, 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.
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We have a significant amount of long-term assets, including goodwill and other intangible assets, and any future goodwill impairmentcharges 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, 2010,2011, we had $269.4$253.1 million of goodwill. We testassess all existing goodwill at least annually for impairment using the fair value approach 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). Management concluded during the Company’s annual goodwill impairment test for 2010 that all of the Company’s goodwill within the EMEA reporting unit was not recoverable and recorded a $168.7 million non-cash impairment charge during the fourth quarter. Due to the operational challenges experienced in the EMEA region over the past few quarters and the negative business impact related to potential FCPA compliance issues within the region, management has reduced its near-term earnings outlook for the EMEA business unit, resulting in the goodwill impairment.
The valuation techniques used in theour qualitative 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 forecasted 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. 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 ourinternal operations or services provided to customers, and any such disruption couldadversely affect revenue, increase costs, and harm our reputation and stockprice.
Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate our own confidential information or that of third parties,our customers, corrupt data, create system disruptions or cause shutdowns. AsA 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 result, wecoordinated 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.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, weactual or perceived security vulnerabilities in our products and services could cause significant reputational harm, causing us to lose existing or potential customers,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, or lost customers or diminished investor confidence resulting from these disruptions could adversely affect financial results, stock price and reputation.
OurAn inability to attract, retain and motivate key employees could harm currentand 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.
We may not be able to generate sufficient cash flows to fund our operationsand make adequate capital investments.
Our cash flows from operations depend primarily on sales and service margins. To develop new product and service technologies, support future growth, achieve operating efficiencies and maintain product quality, we must make significant capital investments in manufacturing technology, facilities and capital equipment, research and development, and product and service 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
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capital investments. 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 product developments may be unsuccessful.
We are constantly looking to develop new products and services that complement or leverage the underlying design or process technology of our traditional product and service offerings. We make significant investments in product and service technologies and anticipate expending significant resources for new product development over the next several years. There can be no assurance that our product development efforts will be successful, that we will be able to cost effectively manufacture these new products, that we will be able to successfully market these products or that margins generated from sales of these products will recover costs of development efforts.
An adverse determination that our products or manufacturing processes infringethe intellectual property rights of others could have a materially adverse effect onour business, operating results or financial condition.
As is common in any high technology industry, others have asserted from time to time, and may also do soassert in the future, that our products or manufacturing processes infringe their intellectual property rights. A court determination that our products or
manufacturing processes infringe the intellectual property rights of others could result in significant liabilityand/or require us to make material changes to our productsand/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, 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 is required to adopt 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 proposed 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 proposed rules, if adopted, would 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 toacquire 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.
Any actions or other governmental investigations or proceedings related to orarising from the matters that resulted in the 2009 SEC settlement, including the related SEC investigation and Department of Justice investigation, couldresult in substantial costs to defend enforcement or other related actions that couldhave a materially adverse effect on our business, operating results or financialcondition.
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 accrued a $25.0 million penalty in the first quarter of 2009, which was paid in June 2010.
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. 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.
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In addition, these activities have diverted the attention of management from the conduct of our business. The diversion of resources to address issues arising out of the investigations may harm our business, operating results and financial condition in the future.
Our ability to maintain effective internal control over financial reportingmay be insufficient to allow us to accurately report our financial results or preventfraud, and this could cause our financial statements to become materially misleadingand 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 as of December 31, 2009 that constituted material weaknesses. Throughout 2010, we enhanced, and will continue to enhance, our internal controlscontrol over financial reporting and as of December 31, 2010, we havehad remediated the material weaknesses. 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 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 inan increase to our net pension liability and expense, which may require us to fund aportion of our pension obligations and divert funds from other potentialuses.
We sponsor several defined benefit pension plans whichthat 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 the global economic instability in recent years, our pension plan investment portfolio has recently incurred greater volatility.been volatile.
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 stock market prices and interest rates, we plan to make cash contributions totaling approximately $23.9$15.8 million to our pension plans in 2011.2012. Changes in the current assumptions and estimates could result in contributions in years beyond 20112012 that are greater than the projected 20112012 contributions required. We cannot predict
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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.
We are currently subject to a purported class and collective actionsaction and shareholder derivative litigation, the unfavorable outcome of which might have a material adverse effect on our financial condition, operating results and cash flow.
A number of purported class and collective action lawsuitslawsuit and a shareholder derivative lawsuit have been filed against us and certain current and former officers and directors alleging violations of federal and state laws, including with respect to federal securities laws and wage and hour matters.laws. Although we believe that these lawsuits are without merit, and we intend to vigorously defend against these claims, we cannot determine with certainty the outcome or resolution of these claims 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. If the final resolution of this litigation is unfavorable, our financial condition, operating results and cash flows could be materially affected.
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, Czech Republic, Dominican Republic, Ecuador, Egypt, El Salvador, France, Greece, Guatemala, Haiti, Honduras, Hong Kong, Hungary, India, Indonesia, Italy, Jamaica, Kazakhstan, Luxembourg, Malaysia, Mexico, Namibia, Netherlands, Nicaragua, Panama, Paraguay, Peru, Philippines, Portugal, Poland, Romania, Russia, Singapore, Slovakia, 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.
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
(Dollarsdollars in thousands)
At December 31, 2010,2011, 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 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 thesethose 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, 2010:2011:
401(k)Securities and Securities ClassShareholder Actions
The Company has been served with various lawsuits, filed against it and certain current and former officers and directors, by shareholders and participants in the Company’s 401(k) savings plan. These complaints seek compensatory damages in unspecified amounts, fees and expenses related to such lawsuits and the granting of extraordinary equitableand/or injunctive relief. For each of
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these lawsuits, the date each complaint was filed, the name of the plaintiff and the federal court in which such lawsuit is pending are as follows:
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| • | McDermott v. Diebold, Inc., et al., No. 5:06CV170 (N.D. Ohio, filed January 24, 2006). |
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| • | Barnett v. Diebold, Inc., et al., No. 5:06CV361 (N.D. Ohio, filed February 15, 2006). |
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| • | Farrell v. Diebold, Inc., et al., No. 5:06CV307 (N.D. Ohio, filed February 8, 2006). |
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| • | Forbes v. Diebold, Inc., et al., No. 5:06CV324 (N.D. Ohio, filed February 10, 2006). |
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| • | Gromek v. Diebold, Inc., et al., No. 5:06CV579 (N.D. Ohio, filed March 14, 2006). |
TheMcDermott,Barnett,Farrell,ForbesandGromekcases, which allege breaches of fiduciary duties under the Employee Retirement Income Security Act of 1974 with respect to the 401(k) plan, have been consolidated into a single proceeding. In May 2009, the Company agreed to settle the 401(k) class action litigation for $4,500 to be paid out of the Company’s insurance policies. On February 11, 2011, the court entered an order approving the settlement.
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 (SEC Settlement).
On October 19, 2010, an alleged shareholder of the Company filed a shareholder derivative lawsuit in the Stark County, Ohio, Court of Common Pleas, alleging claims on behalf of the Company against certain current and former officers and directors of the Company for breach of fiduciary duty, unjust enrichment and corporate waste (Levine v. Geswein et al., CaseNo. 2010-CV-3848). The complaint generally relates to the matters set forth in the court documents filed by the SEC in June 2010 in connection with the SEC Settlement, and asserts that the defendants are liable to the Company for alleged damages associated with the SEC investigation, settlement, and related litigation. It also asserts that alleged misstatements in the Company’s publicly issued financial statements caused the Company’s common stock to trade at artificially inflated prices between 2004 and 2006, and that defendants harmed the Company by causing it to repurchase its common stock in the open market at inflated prices during that period. The complaint seeks an award of money damages against the defendants and in favor of the Company in an unspecified amount, as well as unspecified equitable and injunctive relief and attorneys’ fees and expenses.
Management is unable to determine the financial statement impact, ifbelieves any possible loss or range of loss associated with the putative federal securities class action andcannot be estimated. The parties to the shareholder derivative lawsuit.lawsuit have agreed to a settlement of that action. The settlement, which requires court approval before it will become effective, is not anticipated to have a material impact on the Company's financial position or results of operations.
Labor and Wage Actions
On August 28, 2009, a purported class action lawsuit was filed in the United States District Court for the Southern District of California alleging that a class of all California technicians employed by the Company who were scheduled to be on standby were: (a) not paid for all hours that they worked; (b) not paid overtime compensation at the correct rate of pay; (c) not properly paid for missed meal and rest breaks and (d) not given correct paycheck stubs (Francisco v. Diebold, Incorporated, Case No. CV 1889 WQH WMC). The complaint seeks additional overtime and other compensation under the California Labor Code, various civil penalties and attorneys’ fees and expenses, and a request for an injunction for future compliance with the California Labor Code provisions that were alleged to have been violated. A mediation was held in the first quarter of 2011, which resulted in a tentative settlement, subject to agreement on final settlement terms and court approval, that is not considered material to the consolidated financial statements.
On May 7, 2010, a purported collective action under the Fair Labor Standards Act was filed in the United States District Court for the Northern District of Florida alleging that field service employees of the Company nationwide were not paid for the time spent logging into the Company’s computer network in the morning, for travel to their first jobs and for meal periods that were supposedly
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automatically deducted from the employees’ pay but, allegedly, not taken (Nichols v. Diebold, Incorporated, Case No. 3:10cv150/RV/MD). The lawsuit seekssought unpaid overtime, liquidated damages equal to the amount of unpaid overtime and attorneys’ attorneys'
fees. In December 2010, the plaintiff voluntarily dismissed the lawsuit, which resulted in a tentative settlement in the amount of $9,500 subject to agreement on final settlement terms and court approval. This tentative settlement was recorded in selling and administrative expense in the fourth quarter of 2010.
Election Business Related Actions
The Company, including certain of its subsidiaries, filed a lawsuit on May 30, 2008 (Premier Election Solutions, Inc., et al. v. Board of Elections of Cuyahoga County, et al., CaseNo. 08-CV-05-7841, (Franklin Cty. Ct Common Pleas)) against Cuyahoga County, In July 2011, the Board of Elections of Cuyahoga County, Ohio,parties agreed upon the Board of County Commissioners of Cuyahoga County, Ohio, (collectively, Cuyahoga County), and Ohio Secretary of State Jennifer Brunner (Secretary) regarding several Ohio contracts under which certainfinal terms of the Company’s subsidiaries provided voting equipment and related services to the State of Ohio and a number of its counties.settlement. The lawsuitcase was precipitated by Cuyahoga County’s threats to sue the Company for unspecified damages. The complaint sought a declarationthen refiled so that the Company met its contractual obligations.
In response, Cuyahoga County and the Secretary filed several claims against the Company and its former subsidiaries alleging that the voting system was defective and seeking declaratory relief and unspecified damages under several theories of recovery. In addition, Cuyahoga County and the Secretary sought to pierce the Company’s “corporate veil” and hold Diebold, Incorporated directly liable for acts and omissions alleged to have been committed by its subsidiaries (even though Diebold, Incorporated is not a party to the contracts). In connection with the Company’s subsequent sale of those subsidiaries, the Company agreed to indemnify the former subsidiaries and their purchaser from any and all liabilities arising outcourt approval of the lawsuit. The Secretary also added orsettlement could be sought, to add to the case all of the Ohio counties using the former subsidiaries’ voting equipment. While many of the Ohio counties opposed the Secretary’s actions, the Butler County Board of Elections joined the Secretary’s claims.
In March 2010, the Company and Cuyahoga County agreed to settle their claims for $7,500, to be paid out of the Company’s insurance policies, and the court has dismissed that portion of the lawsuit
Since then, the Company has also reached settlement agreements with the Secretary and all of the Ohio counties using the former subsidiaries’ voting equipment, except Butler County. The settlements are for immaterial amounts, to be paid out of the Company’s insurance policies, and free or discounted products and services, to be provided by the Company’s former subsidiaries or third parties. On November 1, 2010, all of the claims in the lawsuit, except those of Butler County, were dismissed. For procedural purposes, simultaneously with the dismissal entry on November 1, 2010, the Company and its former subsidiaries filed a claim against Butler County seeking a declaration that it is not entitled to relief on its claims. Settlement discussions with Butler County are ongoing.10, 2011, court approval was obtained.
Global FCPAForeign 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 is conducting anconducted a global internal review and collectingcollected 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 whichthat may also potentially implicate the FCPA. The Company’s current assessment indicates that the transactions and payments in questionCompany continues 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 ismonitor its ongoing and accordingly, there can be no assurance that it will not find evidence of additional transactions that potentially implicatecompliance with the FCPA.
The Company has voluntarily self-reported its findings to the SEC and the DOJU.S. Department of Justice (DOJ) and is cooperating with these agencies in their review. The Company has beenwas previously informed that the SEC’sSEC's inquiry now hashad 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
17
with the investigation. TheBecause 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. At this time, the Company cannot predict the length, scope or results of its review or thesethe government investigations orand future resolution of these matters with the impact, if any, on its resultsSEC and the DOJ could result in changes in management's estimates of operations.losses, which could be material to the Company’s consolidated financial statements.
ITEM 4: (REMOVED AND RESERVED)MINE SAFETY DISCLOSURES
Not applicable.
PART II
| |
ITEM 5: | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
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:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 |
| | | High | | Low | | High | | Low | | High | | Low |
| 1st Quarter | | $ | 32.23 | | | $ | 26.47 | | | $ | 29.75 | | | $ | 19.04 | | | $ | 39.30 | | | $ | 23.07 | |
| 2nd Quarter | | | 35.18 | | | | 24.22 | | | | 27.55 | | | | 20.77 | | | | 40.44 | | | | 35.44 | |
| 3rd Quarter | | | 31.59 | | | | 25.72 | | | | 33.17 | | | | 24.76 | | | | 39.81 | | | | 30.60 | |
| 4th Quarter | | | 33.29 | | | | 29.79 | | | | 33.06 | | | | 25.04 | | | | 34.47 | | | | 22.50 | |
| Full Year | | $ | 35.18 | | | $ | 24.22 | | | $ | 33.17 | | | $ | 19.04 | | | $ | 40.44 | | | $ | 22.50 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| | High | | Low | | High | | Low | | High | | Low |
| 1st Quarter | $ | 36.35 |
| | $ | 30.20 |
| | $ | 32.23 |
| | $ | 26.47 |
| | $ | 29.75 |
| | $ | 19.04 |
|
| 2nd Quarter | 37.12 |
| | 29.26 |
| | 35.18 |
| | 24.22 |
| | 27.55 |
| | 20.77 |
|
| 3rd Quarter | 33.89 |
| | 24.70 |
| | 31.59 |
| | 25.72 |
| | 33.17 |
| | 24.76 |
|
| 4th Quarter | 33.59 |
| | 25.83 |
| | 33.29 |
| | 29.79 |
| | 33.06 |
| | 25.04 |
|
| | | | | | | | | | | | |
| Full Year | $ | 37.12 |
| | $ | 24.70 |
| | $ | 35.18 |
| | $ | 24.22 |
| | $ | 33.17 |
| | $ | 19.04 |
|
There were approximately 48,52746,984 shareholders at December 31, 2010,2011, 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 $1.12, $1.08 and $1.04 in 2011, 2010and $1.00 in 2010, 2009 and 2008,, respectively.
Information concerning the Company’s share repurchases made during the fourth quarter of 2010:2011:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Total Number of
| | | Maximum Number of
| |
| | | Total Number
| | | | | | Shares Purchased as
| | | Shares that May Yet
| |
| | | of Shares
| | | Average Price Paid
| | | Part of Publicly
| | | Be Purchased Under
| |
| Period | | Purchased(1) | | | Per Share | | | Announced Plans | | | the Plans(2) | |
| October | | | 13,887 | | | $ | 31.51 | | | | 13,000 | | | | 2,140,051 | |
| November | | | 16,000 | | | | 32.08 | | | | 16,000 | | | | 2,124,051 | |
| December | | | 1,000 | | | | 32.28 | | | | 1,000 | | | | 2,123,051 | |
| | | | | | | | | | | | | | | | | |
| Total | | | 30,887 | | | $ | 31.83 | | | | 30,000 | | | | | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (2) |
| October | | 114,172 |
| | $ | 26.62 |
| | 113,400 |
| | 556,577 |
|
| November | | 77,900 |
| | 29.96 |
| | 77,900 |
| | 478,677 |
|
| December | | 52,500 |
| | 30.29 |
| | 52,500 |
| | 426,177 |
|
| Total | | 244,572 |
| | $ | 28.47 |
| | 243,800 |
| | |
| | |
| (1) | | Includes 877772 shares in October surrendered or deemed surrendered to the Company in connection with the Company’s stock-based compensation plans. |
| |
| (2) | | The Company repurchased 30,000243,800 common shares in the fourth quarter of 20102011 pursuant to its share repurchase plan. The total number of shares repurchased as part of the publicly announced share repurchase plan was 9,876,94913,450,772 as of December 31, 2010.2011. The plan was approved by the Board of Directors in April 1997 and authorized the repurchase of up to two million shares. The plan was amended in June 2004 to authorize the repurchase of an additional two million shares, and was further amended in August and December 2005 to authorize the repurchase of an additional six million shares. In February 2007, the Board of Directors approved an increase in the Company’s share repurchase program by authorizing the repurchase of up to an additional two million of the Company’s outstanding common shares.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 orRule 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: |
18
|
| | |
| | | Total Number of Shares Approved for Repurchase |
| 1997 | | 2,000,000 |
| 2004 | | 2,000,000 |
| 2005 | | 6,000,000 |
| 2007 | | 2,000,000 |
| 2011 | | 1,876,949 |
| | | 13,876,949 |
PERFORMANCE GRAPH
The graph below matchescompares the cumulative5-year total return of holders ofto shareholders on the Company’sCompany's common shares withstock relative to the cumulative total returns of the S&P 500 index, the S&P Midcap 400 index and atwo customized peer groupgroups of forty-four companies and twenty-five companies, respectively, whose individual companies are listed in footnotefootnotes 1 and 2 below. The Custom Composite Index is the same index used by the Compensation Committee of the Company’s Board of Directors for purposes of benchmarking executive pay. Each year the Compensation Committee reviews the index, as companies may merge or be acquired, liquidated or otherwise disposed of, or may no longer be deemed to adequately represent the Company’s peers in the market. The graph assumes that the value of the investment in the Company’sCompany's common shares, in each index, and in each of the peer groupgroups (including reinvestment of dividends) was $100 on December 31, 20052006 and its relative performance is trackedtracks it through December 31, 2010.
2011COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Diebold, Inc., The S&P 500 Index, The S&P Midcap 400 Index
and a Custom Composite Index (44 Stocks).
| |
* | $100 invested on December 31, 2005 in stock or index, including reinvestment of dividends. |
Fiscal year ending December 31.
Copyright© 2011 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
| | |
| (1) | | TheThere are forty-four companies included in the company's first customized peer group which are: Actuant Corp., Agilent Technologies Inc, AI Claims Solutions PLC, Ametek Inc, Benchmark Electronics Inc, Brady Corp., Brinks Company (The), Cooper Industries PLC, Corning Inc, Crane Company, Curtiss Wright Corp., Deluxe Corp., Donaldson Company Inc, Dover Corp., Fiserv Inc, Flowserve Corp., FMC Technologies Inc, Goodrich Corp., Harman International Industries Inc, Harris Corp., Hubbell Inc, International Game Technology, Itron Inc, Lennox International Inc, Mantech International Corp., Mettler Toledo International Inco, Moog Inc, NCR Corp., Pall Corp., Pentair Inc, Perkinelmer Inc, Pitney-Bowes Inc, Rockwell Automation Inc, Rockwell Collins Inc, Roper Industries Inc, Sauer Danfoss Inc, SPX Corp., Teledyne Technologies Inc, Teleflex Inc, The Brinks Company, The Timken Company, Thomas & Betts Corp., Unisys Corp., Varian Medical Systems Inc and Waters Corp. |
19
| |
| (2) | The twenty-five companies included in the company's second customized peer group are: Actuant Corp., Benchmark Electronics Inc, Brady Corp., Brinks Company (The) Coinstar Inc, Cooper Industries PLC, Dover Corp., Fidelity National Information Services I, Fiserv Inc, Flowserve Corp., Global Payments Inc, Imation Corp., International Game Technology, Logitech International SA, Mastercard Inc, Mettler Toledo International Inco, NCR Corp., Pitney-Bowes Inc, Rockwell Automation Inc, Sensata Technologies Holding NV, SPX Corp., The Timken Company, Unisys Corp., Western Union Company (The) and Woodward Inc. |
The second customized peer group is the same peer group used by the Compensation Committee of our Board of Directors for purposes of benchmarking executive pay. Each year the Compensation Committee reviews the index, as companies may merge or be acquired, liquidated or otherwise disposed of, or may no longer be deemed to adequately represent our peers in the market. The customized peer group was decreased from 44 companies to 25 companies in 2011 because the Compensation Committee determined that the first customized peer group no longer represented an appropriately sized sampling of peer companies.
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.”
| | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| | | (In millions, except per share data) | |
Results of operations | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 2,824 | | | $ | 2,718 | | | $ | 3,082 | | | $ | 2,888 | | | $ | 2,749 | |
| Cost of sales | | | 2,104 | | | | 2,068 | | | | 2,307 | | | | 2,212 | | | | 2,074 | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | $ | 720 | | | $ | 650 | | | $ | 775 | | | $ | 677 | | | $ | 675 | |
| | | | | | | | | | | | | | | | | | | | | |
Amounts attributable to Diebold, Incorporated | | | | | | | | | | | | | | | | | | | | |
| (Loss) income from continuing operations, net of tax | | $ | (21 | ) | | $ | 73 | | | $ | 108 | | | $ | 98 | | | $ | 86 | |
| Income (loss) from discontinued operations, net of tax | | | 1 | | | | (47 | ) | | | (19 | ) | | | (58 | ) | | | 19 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net (loss) income attributable to Diebold, Incorporated | | $ | (20 | ) | | $ | 26 | | | $ | 89 | | | $ | 40 | | | $ | 105 | |
| | | | | | | | | | | | | | | | | | | | | |
Basic earnings per common share: | | | | | | | | | | | | | | | | | | | | |
| (Loss) income from continuing operations, net of tax | | $ | (0.31 | ) | | $ | 1.10 | | | $ | 1.63 | | | $ | 1.49 | | | $ | 1.29 | |
| Income (loss) from discontinued operations, net of tax | | | — | | | | (0.71 | ) | | | (0.29 | ) | | | (0.89 | ) | | | 0.28 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net (loss) income attributable to Diebold, Incorporated | | $ | (0.31 | ) | | $ | 0.39 | | | $ | 1.34 | | | $ | 0.60 | | | $ | 1.57 | |
| | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per common share: | | | | | | | | | | | | | | | | | | | | |
| (Loss) income from continuing operations, net of tax | | $ | (0.31 | ) | | $ | 1.09 | | | $ | 1.62 | | | $ | 1.47 | | | $ | 1.27 | |
| Income (loss) from discontinued operations, net of tax | | | — | | | | (0.70 | ) | | | (0.29 | ) | | | (0.88 | ) | | | 0.28 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net (loss) income attributable to Diebold, Incorporated | | $ | (0.31 | ) | | $ | 0.39 | | | $ | 1.33 | | | $ | 0.59 | | | $ | 1.55 | |
| | | | | | | | | | | | | | | | | | | | | |
Number of weighted-average shares outstanding | | | | | | | | | | | | | | | | | | | | |
| Basic shares | | | 66 | | | | 66 | | | | 66 | | | | 66 | | | | 67 | |
| Diluted shares | | | 66 | | | | 67 | | | | 66 | | | | 67 | | | | 67 | |
Dividends | | | | | | | | | | | | | | | | | | | | |
| Common dividends paid | | $ | 72 | | | $ | 69 | | | $ | 67 | | | $ | 62 | | | $ | 58 | |
| Common dividends paid per share | | $ | 1.08 | | | $ | 1.04 | | | $ | 1.00 | | | $ | 0.94 | | | $ | 0.86 | |
Consolidated balance sheet data(as of period end) | | | | | | | | | | | | | | | | | | | | |
| Current assets | | $ | 1,714 | | | $ | 1,588 | | | $ | 1,614 | | | $ | 1,594 | | | $ | 1,658 | |
| Current liabilities | | | 810 | | | | 743 | | | | 735 | | | | 701 | | | | 746 | |
| Net working capital | | | 904 | | | | 845 | | | | 879 | | | | 893 | | | | 912 | |
| Property, plant and equipment, net | | | 203 | | | | 205 | | | | 204 | | | | 220 | | | | 208 | |
| Total long-term liabilities | | | 720 | | | | 740 | | | | 838 | | | | 765 | | | | 794 | |
| Total assets | | | 2,520 | | | | 2,555 | | | | 2,538 | | | | 2,595 | | | | 2,560 | |
| Total equity | | | 990 | | | | 1,072 | | | | 964 | | | | 1,129 | | | | 1,020 | |
20 |
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2011 | | 2010 | | 2009 | | 2008 | | 2007 |
| | (in millions, except per share data) |
| Results of operations | | | | | | | | | |
| Net sales | $ | 2,836 |
| | $ | 2,824 |
| | $ | 2,718 |
| | $ | 3,082 |
| | $ | 2,888 |
|
| Cost of sales | 2,100 |
| | 2,104 |
| | 2,068 |
| | 2,307 |
| | 2,212 |
|
| Gross profit | $ | 736 |
| | $ | 720 |
| | $ | 650 |
| | $ | 775 |
| | $ | 677 |
|
| | | | | | | | | | |
| Amounts attributable to Diebold, Incorporated | | | | | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 144 |
| | $ | (21 | ) | | $ | 73 |
| | $ | 108 |
| | $ | 98 |
|
| Income (loss) from discontinued operations, net of tax | 1 |
| | 1 |
| | (47 | ) | | (19 | ) | | (58 | ) |
| Net income (loss) attributable to Diebold, Incorporated | $ | 145 |
| | $ | (20 | ) | | $ | 26 |
| | $ | 89 |
| | $ | 40 |
|
| | | | | | | | | | |
| Basic earnings per common share: | | | | | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 2.24 |
| | $ | (0.31 | ) | | $ | 1.10 |
| | $ | 1.63 |
| | $ | 1.49 |
|
| Income (loss) from discontinued operations, net of tax | 0.01 |
| | — |
| | (0.71 | ) | | (0.29 | ) | | (0.89 | ) |
| Net income (loss) attributable to Diebold, Incorporated | $ | 2.25 |
| | $ | (0.31 | ) | | $ | 0.39 |
| | $ | 1.34 |
| | $ | 0.60 |
|
| | | | | | | | | | |
| Diluted earnings per common share: | | | | | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 2.23 |
| | $ | (0.31 | ) | | $ | 1.09 |
| | $ | 1.62 |
| | $ | 1.47 |
|
| Income (loss) from discontinued operations, net of tax | 0.01 |
| | — |
| | (0.70 | ) | | (0.29 | ) | | (0.88 | ) |
| Net income (loss) attributable to Diebold, Incorporated | $ | 2.24 |
| | $ | (0.31 | ) | | $ | 0.39 |
| | $ | 1.33 |
| | $ | 0.59 |
|
| | | | | | | | | | |
| Number of weighted-average shares outstanding | | | | | | | | | |
| Basic shares | 64 |
| | 66 |
| | 66 |
| | 66 |
| | 66 |
|
| Diluted shares | 65 |
| | 66 |
| | 67 |
| | 66 |
| | 67 |
|
| | | | | | | | | | |
| Dividends | | | | | | | | | |
| Common dividends paid | $ | 72 |
| | $ | 72 |
| | $ | 69 |
| | $ | 67 |
| | $ | 62 |
|
| Common dividends paid per share | $ | 1.12 |
| | $ | 1.08 |
| | $ | 1.04 |
| | $ | 1.00 |
| | $ | 0.94 |
|
| | | | | | | | | | |
| Consolidated balance sheet data (as of period end) | | | | | | | | | |
| Current assets | $ | 1,732 |
| | $ | 1,714 |
| | $ | 1,588 |
| | $ | 1,614 |
| | $ | 1,594 |
|
| Current liabilities | 824 |
| | 810 |
| | 743 |
| | 735 |
| | 701 |
|
| Net working capital | 908 |
| | 904 |
| | 845 |
| | 879 |
| | 893 |
|
| Property, plant and equipment, net | 193 |
| | 203 |
| | 205 |
| | 204 |
| | 220 |
|
| Total long-term liabilities | 835 |
| | 720 |
| | 740 |
| | 838 |
| | 765 |
|
| Total assets | 2,517 |
| | 2,520 |
| | 2,555 |
| | 2,538 |
| | 2,595 |
|
| Total equity | 858 |
| | 990 |
| | 1,072 |
| | 964 |
| | 1,129 |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS as of December 31, 2010
(Unaudited)
2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
| |
ITEM 7: | ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
OVERVIEW
The MD&A is provided as a supplementManagement's discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes that appear elsewhere in this annual report.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 more than 16,000 employees with representation in nearly 90 countries worldwide.
During the past five years, the Company’s management continued to execute against its strategic roadmap developed in 2006 to strengthen operations and build a strong foundation for future success in its two core lines of business: financial self-service and security solutions. This roadmap was built around five key priorities: increase customer loyalty; improve quality; strengthen the supply chain; enhance communications and teamwork; and rebuild profitability. In 2010, there were encouraging signs of stabilization and growth in many of the Company’s major geographic areas. The Company’s focus is on capturing this demand and on converting these opportunities into longer-term, services-driven relationships whenever possible. Additionally, the Company remediated its material weaknesses related to internal control over financial reporting as of December 31, 2010. Continuing to operate with the highest degree of integrity will remain paramount for the Company moving forward as it continues to make improvements in its control environment.
During the year, ended December 31, 2010, the Company saw progress in key markets aroundaccelerated its transformation into a world-class, software-led services provider aligned with the world, especially in Latin Americasecurity, convenience and Asia Pacific where customer acceptanceefficiency needs of its solutions is growing. In North America,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 orders grew substantially(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 that market continuesappropriate, share repurchase.
A disciplined risk assessment process, focused on proactively identifying and mitigating potential risks to recover.the Company's continued success.
The Company ended 2011 with strong performance in the fourth quarter, delivering on its goals for revenue and earnings growth, cash flow and fourth-quarter profitability in Europe, however, remains a challenging marketMiddle East and Africa (EMEA). The strategy to leverage the Company's capabilities in services, software and innovation is beginning to pay dividends and is meeting the needs of its rapidly evolving markets. The Company believes this positions it for the Company.continued momentum in 2012 using its software-led services strategy and leading edge technology. While Europe is not a large market for the Company, it is strategically important. Therefore,macroeconomic uncertainties remain, and several of its markets continue to encounter headwinds, the Company is taking decisive actions such as driving further efficiencies through its supply chain and manufacturing processes, lowering overall administrative costs by leveraging an existing shared services center and focusing more resourcesoptimistic about the potential for growth in core markets to become a stronger competitor.the coming year.
(Loss) incomeIncome (loss) from continuing operations attributable to Diebold, Incorporated, net of tax, for the year ended December 31, 20102011 was $(20,527)$144,292 or $(0.31)$2.23 per share, a decreasean increase of $93,629$164,819 and $1.40$2.54 per share, respectively, from the year ended December 31, 2009.2010. In 2010, the Company incurred a non-cash goodwill impairment charge of $168,714 associated with the Company’s Europe, Middle East and Africa (EMEA)EMEA business. Due to the operational challenges experienced in the EMEA region over the past few quarters and the negative business impact related to potential Foreign Corrupt Practices Act (FCPA) compliance issues within the region, management has reduced its near-term earnings outlook for the EMEA business unit, resulting in the goodwill impairment. Total revenue for the year ended December 31, 20102011 was $2,823,793, an increase of 3.9 percent from 2009.$2,835,848, up slightly compared to 2010. Income (loss) from continuing operations attributable to Diebold, Incorporated, net of tax, for the year ended December 31, 20092010 was $73,102$(20,527) or $1.09$(0.31) per share, a decrease of 32.2 percent$93,629 and 32.7 percent,$1.40 per share respectively, from the year ended December 31, 2008.2009.
Vision and strategy
The Company’s vision isto 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 services-orientedmore software-led services company. Today, service comprisesServices 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.
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, we have achieved substantial growth in this business. During 2011, the Company signed new integrated services contracts exceeding $500,000 compared with $150,000 in 2010. For example, during 2010the fourth quarter of 2011, the Company announcedentered into an integrated services agreement with one of the largest financial institutions in North America. The Company will provide support to the financial institution's multivendor network of more than 4,400 automated teller machines (ATMs) in North America. The Company believes that Bellco Credit Union, among the 50agreement is one of the largest North American integrated services agreements in the ATM industry to date, representing its growing services business.
21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
credit unions
In addition to service and integrated services, another demand driver in the United States, chose Diebold Integrated Services®global ATM marketplace continued to enhancebe deposit automation. Among the efficiencylargest U.S. national banks there has been extensive deployment of its operations and providedeposit automation-enabled terminals. Today, approximately 21 percent of ATMs globally are configured for automated deposits.
In addition, during 2011, the latest financial innovations to its members. As partCompany's already strong solution set was further enhanced with the introduction of the agreement,Opteva® Flex Performance Series (Flex), the Company upgraded 65 ATMs for Bellco. Fifty of their Diebold Opteva®most reliable self-service terminals now include advanced deposit automation technology, enhancing the self-service transaction experience for Bellco members. In addition, more recently, Banco Davivienda, Colombia’s third largest bank by assets, has adopted a seven-year ATM outsourcing agreement. The outsourcing agreement includes installation of approximately 1,260 ATMs, Agilis® software, and remote management and maintenance services for the bank’s entire ATM fleet. While these examples represent a relatively small base, management is encouraged by the rate at which the Diebold Integrated Services business is growing. In recognition of the Company’s efforts, it was ranked 15th on the International Association of Outsourcing Professionals’® 2010 Global Outsourcing 100 list.
Another area of focus within the financial self-service business is broadening the Company’s deposit automation solutions set, including check imaging, envelope-free currency acceptance, teller automation, and payment and document imaging solutions. The Company’s ImageWay® check-imaging solution fulfills an industry-wide demand for cutting-edge technologies that enhance efficiencies. To date, the Company has shipped more than 50,000ever offered. Flex combines traditional deposit automation modules. During the third quarter of 2010, the Company announced that Vakifbank, the fifth largest bank in Turkey, had signed a dealcapabilities with the Company to provide 575 image-enabled Opteva ATMs equipped with coin dispensersfull currency recycling - an industry first. Highly adaptable, its configuration options make Flex well suited not only for North America, but also for deposit automation-intense markets such as Latin America, Asia Pacific and the enhanced note acceptor, enabling cash deposit and bill pay functionality, along with customized Agilis software that will operate the bank’s terminals. EMEA.
In addition, during the fourth quarter of 2010, Posta Telgraf Teşkilati (PTT), General Directorate of Turkish Post, chose Opteva ATMs and Agilis software in the expansion of its ATM network. As part of the agreement, the Company will provide 830 Opteva ATMs equipped with coin dispensers, enabling cash deposit and bill-pay functionality, along with customized Agilis software that will operate PTT terminals.
Financial institutions are eager to reduce costs and optimize management and productivity of their ATM channels — and they are increasingly exploring new solutions. The Company remains uniquely positioned to provide the infrastructure necessary to manage all aspects of an ATM network. For example, with the Company’s OpteView® Resolvesm, an industry-leading availability management solution, real-time terminal data and analytics are used to provide optimal network uptime, while allowing financial institutions to leverage their ATM network as a strategic channel, enabling cost reductions, increased efficiencies and an enhanced consumer experience. Also during 2010, the Company introduced a comprehensive portfolio of skimming-protection solutions that help financial institutions mitigate card skimming, one of the largest threats against the ATM channel worldwide. Designed to provide effective countermeasures against known skimming attack vectors, the Company’s ATM Security Protection Suite consists of anti-skimming packages and an industry-leading outsourced monitoring service. The suite offers five levels of protection to proactively guard against increasingly sophisticated card-skimming attacks. The Company earned compliance with two important third-party audits that verify its continuous compliance with industry standards for ATM security. The Company achieved full compliance with ANSI/X9 TR-39-2009 and PCI PIN Review audits for encrypted personal identification number (PIN) pad and remote key loading technologies employed in the Company’s Opteva ATMs. These audits confirm that the Company is following ATM security best practices related to the management PINs and data.
Within the 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 for outsourcing solutions, particularly in the areas of monitoring, services and software. Today the Company is diversifying by expanding and enhancing offerings inbringing its financial, government, enterprise and retail markets. Additional growth strategies include broadening the Company’s solutions portfolio in fire, energy management, remote video surveillance, logical security and integrated enterprise systems, as well as expanding the distribution
22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
model. Many of the Company’s most promising opportunities for growth lie withinexpertise back into the financial sector as financial institutions lookwith a focused effort to improve their security infrastructuresecure large, complex and drive operational efficiencies. During 2010, the Company announced lending of its security expertise as a consultant and integrator for a security infrastructure upgrade at the North American headquarters of world-renowned Christie’s Auction House.technologically demanding projects. The Company designed ahas created new commandcustomer -focused teams that possess the high levels of specialized expertise in logical and control center for Christie’s Rockefeller Center headquartersenterprise security required in New York City. In addition, the Company teamed with McKenney’s, Inc. (McKenney’s), a major design build mechanical contracting and systems integration firm, to provide advanced monitoring services to McKenney’s customer base across the southeastern United States. As a new member of the Diebold Advanced Dealer Program, McKenney’s will leverage the Company’s full line of award-winning advanced monitoring solutions to help its customers reduce costs, enhance security and increase operational efficiencies.
The focus for 2011 is to continue striking an appropriate balance between reducing costs and investing in future growth.this business. The Company is encouragedleveraging best practices, and some of its best talent, from its FSS integrated services business 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 manyworld and further leveraging opportunities thatin the security business. Many opportunities lie ahead, and itthe Company will continue to step up investmentinvest in developing new software, solutions, services and security solutions, arena, particularly as it relates to growth in emerging markets.
Cost savings initiatives, restructuring and other charges
In 2006,Over the Company launchedpast several years, the Company’s SmartBusiness (SB) 100 initiative to deliver $100,000 in cost savings by the end of 2008. In September 2008, the Company announced a new goal to achieve an additional $100,000 in cost savings called SB 200. The SB 200 initiative hasinitiatives have led to rationalization of product development, streamliningstreamlined procurement, realigningrealignment of the Company’s manufacturing footprint and improvingimproved logistics. Building on that success, the Company has launchedCompany's SB 300 which will shiftinitiatives in 2011 shifted the focus from reducing cost of sales to lowering operating expenses and isare targeted to achieve an additional $100,000 in efficiencies duringby the next three years.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, 2011, 2010 2009 and 2008,2009, the Company incurred pre-tax net restructuring charges of $4,183$26,182 or $0.32 per share, $4,183 or $0.05 per share $25,203and $25,203 or $0.27 per share, and $40,948 or $0.50 per share, respectively,respectively. Restructuring charges in 2011 primarily related to strategic global manufacturing realignmentthe Company’s plan for the EMEA reorganization, which realigns resources and reductionsfurther leverages the existing shared services center. Restructuring charges in 2010 and 2009 primarily related to reduction in the Company’s global workforce.
Other charges and expense reimbursements consist of items that the Company determineshas determined are non-routine in nature and are not expected to recur in future operations. Net non-routine expenses of $16,234$14,981 or $0.21$0.16 per share impacted the year ended December 31, 20102011 compared to $15,144$16,234 or $0.27$0.21 per share and $45,145$15,144 or $0.54$0.27 per share in the same period of 20092010 and 2008,2009, respectively. Net non-routine expenses for 20102011 consisted primarily of a settlement and legal fees related to a previously disclosed employmentclass-action lawsuit as well as legal and compliance costs related to the FCPAForeign Corrupt Practices Act (FCPA) investigation. In June 2010, the U.S. Securities and Exchange Commission (SEC) finalized the settlement of civil charges stemming from the SEC and U.S. Department of Justice investigations (government investigations). The Company had previously reached an agreement in principle in 2009 with the staff of the SEC and the Company accrued the $25,000 penalty in the first quarter of 2009, which was paid in June 2010. Net non-routine expenses in 2009 consisted of $1,467 in legal and other consultation fees recorded in selling and administrative expense related to the government investigations and the $25,000 charge, recorded in miscellaneous, net. In addition, in 2009 selling and administrative expense was offset by $11,323 of non-routine income, primarily related to reimbursements from the Company’s director and officer (D&O) insurance carriers related to legal and other expenses incurred as part of the government investigations. Non-routine expenses for the year ended December 31, 2008 were primarily legal, audit and consultation fees related to the internal review of accounting items, restatement of financial statements, government investigations, as well as other advisory fees.
Out-of-Period Adjustment
During 2010, the Company remediated a control weakness in the area of application of accounting policies specific to multiple-deliverable arrangements. As part of remediation, during the third quarter of 2010, the Company recorded anout-of-period
23
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
adjustment to defer revenue previously recognized that was not in accordance with accounting principles generally accepted in the United States of America. The immaterialout-of-period adjustment was recorded within the Company’s operations in China, included in the Diebold International (DI) reporting segment. The adjustment decreased revenue related to multiple-deliverable contracts that included revenue which was contingent upon the installation of the equipment. This deferred revenue will be recognized upon completion of installation. Theout-of-period adjustment represents a decrease in revenue and operating profit of $19,822 and $5,753, respectively.
Business Drivers
The business drivers of the Company’s future performance include, but are not limited to:
| | |
| • | demand for new service offerings, including integrated services and outsourcing; |
|
| • | demand for security products and services for the financial, enterprise, retail and government sectors; |
|
| • | timing of a self-service upgradeand/or replacement cycle, 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. |
24demand for new service offerings, including integrated services and outsourcing;
demand for security products and services for the financial, enterprise, retail and government sectors;
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
2011
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, 2011, 2010 2009 and 2008.2009. Comments on significantyear-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.report on Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | | | | % of
| | | %
| | | | | | % of
| | | %
| | | | | | % of
| |
| | | Dollars | | | Net Sales | | | Change | | | Dollars | | | Net Sales | | | Change | | | Dollars | | | Net Sales | |
Net sales | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Products | | $ | 1,330,368 | | | | 47.1 | | | | 7.4 | | | $ | 1,238,346 | | | | 45.6 | | | | (18.1 | ) | | $ | 1,511,856 | | | | 49.1 | |
| Services | | | 1,493,425 | | | | 52.9 | | | | 0.9 | | | | 1,479,946 | | | | 54.4 | | | | (5.7 | ) | | | 1,569,982 | | | | 50.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2,823,793 | | | | 100.0 | | | | 3.9 | | | | 2,718,292 | | | | 100.0 | | | | (11.8 | ) | | | 3,081,838 | | | | 100.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Products | | | 1,003,923 | | | | 35.6 | | | | 6.3 | | | | 944,090 | | | | 34.7 | | | | (14.1 | ) | | | 1,098,633 | | | | 35.6 | |
| Services | | | 1,100,305 | | | | 39.0 | | | | (2.1 | ) | | | 1,124,202 | | | | 41.4 | | | | (7.0 | ) | | | 1,208,328 | | | | 39.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2,104,228 | | | | 74.5 | | | | 1.7 | | | | 2,068,292 | | | | 76.1 | | | | (10.3 | ) | | | 2,306,961 | | | | 74.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 719,565 | | | | 25.5 | | | | 10.7 | | | | 650,000 | | | | 23.9 | | | | (16.1 | ) | | | 774,877 | | | | 25.1 | |
| Selling and administrative expense | | | 472,956 | | | | 16.7 | | | | 11.3 | | | | 424,875 | | | | 15.6 | | | | (17.4 | ) | | | 514,154 | | | | 16.7 | |
| Research, development and engineering expense | | | 74,225 | | | | 2.6 | | | | 3.1 | | | | 72,026 | | | | 2.6 | | | | (1.4 | ) | | | 73,034 | | | | 2.4 | |
| Impairment of assets | | | 175,849 | | | | 6.2 | | | | N/M | | | | 2,500 | | | | 0.1 | | | | (42.9 | ) | | | 4,376 | | | | 0.1 | |
| (Gain) loss on sale of assets, net | | | (1,663 | ) | | | (0.1 | ) | | | N/M | | | | 7 | | | | — | | | | (98.3 | ) | | | 403 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 721,367 | | | | 25.5 | | | | 44.4 | | | | 499,408 | | | | 18.4 | | | | (15.6 | ) | | | 591,967 | | | | 19.2 | |
Operating (loss) profit | | | (1,802 | ) | | | (0.1 | ) | | | (101.2 | ) | | | 150,592 | | | | 5.5 | | | | (17.7 | ) | | | 182,910 | | | | 5.9 | |
| Other expense, net | | | (595 | ) | | | — | | | | (97.8 | ) | | | (26,785 | ) | | | (1.0 | ) | | | 0.7 | | | | (26,593 | ) | | | (0.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Loss) income from continuing operations before taxes | | | (2,397 | ) | | | (0.1 | ) | | | (101.9 | ) | | | 123,807 | | | | 4.6 | | | | (20.8 | ) | | | 156,317 | | | | 5.1 | |
| Taxes on income | | | 14,561 | | | | 0.5 | | | | (67.3 | ) | | | 44,477 | | | | 1.6 | | | | 7.2 | | | | 41,496 | | | | 1.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Loss) income from continuing operations | | | (16,958 | ) | | | (0.6 | ) | | | (121.4 | ) | | | 79,330 | | | | 2.9 | | | | (30.9 | ) | | | 114,821 | | | | 3.7 | |
| Income (loss) from discontinued operations, net of tax | | | 275 | | | | — | | | | (102.8 | ) | | | (9,884 | ) | | | (0.4 | ) | | | (48.5 | ) | | | (19,198 | ) | | | (0.6 | ) |
| Loss on sale of discontinued operations, net of tax | | | — | | | | — | | | | N/A | | | | (37,192 | ) | | | (1.4 | ) | | | N/A | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income | | | (16,683 | ) | | | (0.6 | ) | | | (151.7 | ) | | | 32,254 | | | | 1.2 | | | | (66.3 | ) | | | 95,623 | | | | 3.1 | |
| Net income attributable to noncontrolling interests | | | 3,569 | | | | 0.1 | | | | (42.7 | ) | | | 6,228 | | | | 0.2 | | | | (11.5 | ) | | | 7,040 | | | | 0.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income attributable to Diebold, Incorporated | | $ | (20,252 | ) | | | (0.7 | ) | | | (177.8 | ) | | $ | 26,026 | | | | 1.0 | | | | (70.6 | ) | | $ | 88,583 | | | | 2.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts attributable to Diebold, Incorporated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Loss) income from continuing operations, net of tax | | $ | (20,527 | ) | | | (0.7 | ) | | | | | | $ | 73,102 | | | | 2.7 | | | | | | | $ | 107,781 | | | | 3.5 | |
| Income (loss) from discontinued operations, net of tax | | | 275 | | | | — | | | | | | | | (47,076 | ) | | | (1.7 | ) | | | | | | | (19,198 | ) | | | (0.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income attributable to Diebold, Incorporated | | $ | (20,252 | ) | | | (0.7 | ) | | | | | | $ | 26,026 | | | | 1.0 | | | | | | | $ | 88,583 | | | | 2.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
25 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2011 | | 2010 | | 2009 |
| | | Dollars | | % of Net Sales | | % Change | | Dollars | | % of Net Sales | | % Change | | Dollars | | % of Net Sales |
| Net sales | | | | | | | | | | | | | | | | |
| Products | | $ | 1,283,490 |
| | 45.3 | | (3.5) | | $ | 1,330,368 |
| | 47.1 | | 7.4 | | $ | 1,238,346 |
| | 45.6 |
| Services | | 1,552,358 |
| | 54.7 | | 3.9 | | 1,493,425 |
| | 52.9 | | 0.9 | | 1,479,946 |
| | 54.4 |
| | | 2,835,848 |
| | 100.0 | | 0.4 | | 2,823,793 |
| | 100.0 | | 3.9 | | 2,718,292 |
| | 100.0 |
| Cost of sales | | | | | | | | | | | | | | | | |
| Products | | 961,706 |
| | 33.9 | | (4.2) | | 1,003,923 |
| | 35.6 | | 6.3 | | 944,090 |
| | 34.7 |
| Services | | 1,138,213 |
| | 40.1 | | 3.4 | | 1,100,305 |
| | 39.0 | | (2.1) | | 1,124,202 |
| | 41.4 |
| | | 2,099,919 |
| | 74.0 | | (0.2) | | 2,104,228 |
| | 74.5 | | 1.7 | | 2,068,292 |
| | 76.1 |
| Gross profit | | 735,929 |
| | 26.0 | | 2.3 | | 719,565 |
| | 25.5 | | 10.7 | | 650,000 |
| | 23.9 |
| Selling and administrative expense | | 501,186 |
| | 17.7 | | 6.0 | | 472,956 |
| | 16.7 | | 11.3 | | 424,875 |
| | 15.6 |
Research, development and engineering expense | | 78,108 |
| | 2.8 | | 5.2 | | 74,225 |
| | 2.6 | | 3.1 | | 72,026 |
| | 2.6 |
| Impairment of assets | | 2,962 |
| | 0.1 | | N/M | | 175,849 |
| | 6.2 | | N/M | | 2,500 |
| | 0.1 |
| (Gain) loss on sale of assets, net | | (1,921 | ) | | (0.1) | | 15.5 | | (1,663 | ) | | (0.1) | | N/M | | 7 |
| | — |
| | | 580,335 |
| | 20.5 | | (19.6) | | 721,367 |
| | 25.5 | | 44.4 | | 499,408 |
| | 18.4 |
| Operating profit (loss) | | 155,594 |
| | 5.5 | | N/M | | (1,802 | ) | | (0.1) | | (101.2) | | 150,592 |
| | 5.5 |
| Other expense, net | | 8,798 |
| | 0.3 | | N/M | | (595 | ) | | — | | 97.8 | | (26,785 | ) | | (1.0) |
Income (loss) from continuing operations before taxes | | 164,392 |
| | 5.8 | | N/M | | (2,397 | ) | | (0.1) | | (101.9) | | 123,807 |
| | 4.6 |
| Taxes on income | | 12,815 |
| | 0.5 | | (12.0) | | 14,561 |
| | 0.5 | | (67.3) | | 44,477 |
| | 1.6 |
Income (loss) from continuing operations | | 151,577 |
| | 5.3 | | N/M | | (16,958 | ) | | (0.6) | | (121.4) | | 79,330 |
| | 2.9 |
Income (loss) from discontinued operations, net of tax | | 523 |
| | — | | 90.2 | | 275 |
| | — | | (102.8) | | (9,884 | ) | | (0.4) |
Loss on sale of discontinued operations, net of tax | | — |
| | — | | N/A | | — |
| | — | | N/A | | (37,192 | ) | | (1.4) |
| Net income (loss) | | 152,100 |
| | 5.4 | | N/M | | (16,683 | ) | | (0.6) | | (151.7) | | 32,254 |
| | 1.2 |
Net income attributable to noncontrolling interests | | 7,285 |
| | 0.3 | | 104.1 | | 3,569 |
| | 0.1 | | (42.7) | | 6,228 |
| | 0.2 |
Net income (loss) attributable to Diebold, Incorporated | | $ | 144,815 |
| | 5.1 | | N/M | | $ | (20,252 | ) | | (0.7) | | (177.8) | | $ | 26,026 |
| | 1.0 |
| | | | | | | | | | | | | | | | | |
Amounts attributable to Diebold, Incorporated | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations, net of tax | | $ | 144,292 |
| | 5.1 | | | | $ | (20,527 | ) | | (0.7) | | | | $ | 73,102 |
| | 2.7 |
Income (loss) from discontinued operations, net of tax | | 523 |
| | — | | | | 275 |
| | — | | | | (47,076 | ) | | (1.7) |
Net income (loss) attributable to Diebold, Incorporated | | $ | 144,815 |
| | 5.1 | | | | $ | (20,252 | ) | | (0.7) | | | | $ | 26,026 |
| | 1.0 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
RESULTS OF OPERATIONS
20102011 comparison with 20092010
Net Sales
The following table represents information regarding our net sales:sales for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| | | Year ended
| | | | |
| | | December 31, | | | | |
| | | 2010 | | 2009 | | $ Change | | % Change |
| Net sales | | $ | 2,823,793 | | | $ | 2,718,292 | | | $ | 105,501 | | | | 3.9 | |
Financial self-service |
| | | | | | | | | | | | | |
| | 2011 | | 2010 | | $ Change | | % Change |
| Net sales | $ | 2,835,848 |
| | $ | 2,823,793 |
| | $ | 12,055 |
| | 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. Diebold North America (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. Diebold International (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.
Gross Profit
The following table represents information regarding our gross profit for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2011 | | 2010 | | $ Change | | % Change |
| Gross profit - products | $ | 321,784 |
| | $ | 326,445 |
| | $ | (4,661 | ) | | (1.4) |
| Gross profit - services | 414,145 |
| | 393,120 |
| | 21,025 |
| | 5.3 |
| Total gross profit | $ | 735,929 |
| | $ | 719,565 |
| | $ | 16,364 |
| | 2.3 |
| | | | | | | | |
| Gross margin - products | 25.1 | % | | 24.5 | % | |
| | |
| Gross margin - services | 26.7 | % | | 26.3 | % | |
|
| | |
| Total gross margin | 26.0 | % | | 25.5 | % | |
|
| | |
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.
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Operating Expenses
The following table represents information regarding our operating expenses for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2011 | | 2010 | | $ Change | | % Change |
| Selling and administrative expense | $ | 501,186 |
| | $ | 472,956 |
| | $ | 28,230 |
| | 6.0 |
| Research, development and engineering expense | 78,108 |
| | 74,225 |
| | 3,883 |
| | 5.2 |
| Impairment of assets | 2,962 |
| | 175,849 |
| | (172,887 | ) | | (98.3) |
| Gain on sale of assets, net | (1,921 | ) | | (1,663 | ) | | (258 | ) | | 15.5 |
| Total operating expenses | $ | 580,335 |
| | $ | 721,367 |
| | $ | (141,032 | ) | | (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.
Operating Profit (Loss)
The following table represents information regarding our operating profit (loss) for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2011 | | 2010 | | $ Change | | % Change |
| Operating profit (loss) | $ | 155,594 |
| | $ | (1,802 | ) | | $ | 157,396 |
| | NM |
| Operating profit (loss) margin | 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:
|
| | | | | | | | | | | | | |
| | 2011 | | 2010 | | $ Change | | % Change |
| Investment income | $ | 41,663 |
| | $ | 34,545 |
| | $ | 7,118 |
| | 20.6 |
| Interest expense | (34,456 | ) | | (37,887 | ) | | (3,431 | ) | | (9.1) |
| Foreign exchange gain (loss), net | 3,095 |
| | (1,301 | ) | | 4,396 |
| | N/M |
| Miscellaneous, net | (1,504 | ) | | 4,048 |
| | (5,552 | ) | | N/M |
| Other income (expense) | $ | 8,798 |
| | $ | (595 | ) | | $ | 9,393 |
| | 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Income (Loss) from Continuing Operations
The following table represents information regarding our income (loss) from continuing operations for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2011 | | 2010 | | $ Change | | % Change |
| Income (loss) from continuing operations, net of tax | $ | 151,577 |
| | $ | (16,958 | ) | | $ | 168,535 |
| | N/M |
| Percent of net sales | 5.3 | % | | (0.6 | )% | |
| | |
| Effective tax rate | 7.8 | % | | 607.5 | % | |
|
| | |
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:
|
| | | | | | | | | | | | | |
| | 2011 | | 2010 | | $ Change | | % Change |
| DNA | $ | 1,405,018 |
| | $ | 1,320,581 |
| | $ | 84,437 |
| | 6.4 |
| DI | 1,430,830 |
| | 1,503,212 |
| | (72,382 | ) | | (4.8) |
| Total net sales | $ | 2,835,848 |
| | $ | 2,823,793 |
| | $ | 12,055 |
| | 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.
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:
|
| | | | | | | | | | | | | |
| | 2011 | | 2010 | | $ Change | | % Change |
| DNA | $ | 128,151 |
| | $ | 81,444 |
| | $ | 46,707 |
| | 57.3 |
| DI | 27,443 |
| | (83,246 | ) | | 110,689 |
| | N/M |
| Total operating profit (loss) | $ | 155,594 |
| | $ | (1,802 | ) | | $ | 157,396 |
| | N/M |
DNA operating profit for 2011 increased by $46,707 or 57.3 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 $110,689 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 geographies.
Refer to note 19 to the consolidated financial statements for further details of segment revenue and operating profit.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
2010 comparison with 2009
Net Sales
The following table represents information regarding our net sales for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2010 | | 2009 | | $ Change | | % Change |
| Net sales | $ | 2,823,793 |
| | $ | 2,718,292 |
| | $ | 105,501 |
| | 3.9 |
FSS sales in 2010 decreased by $22,761 or 1.1 percent compared to 2009. The decrease in financial self-serviceFSS sales included a net favorable currency impact of $68,929, of which $55,896 related to the Brazilian real. North America decreased $34,249 or 4.3 percent due to reduced volume in the U.S. national bank business as 2009 included a large project for a customer that upgraded the majority of its ATM install base with our deposit automation solution. The project began in the second half of 2008 and was completed in the second quarter of 2009. Latin America including Brazil increased by $19,050 or 3.4%,3.4 percent due to a net favorable currency impact partially offset by declines in volume. EMEA increased slightly year over year as the poor economic conditions experienced in 2009 continuecontinued into 2010.
Security solutions sales in 2010 decreased by $13,244 or 2.1 percent compared to 2009. North America decreased $27,631 or 4.7 percent due primarily to the lack of new bank branch construction as a result of the continued weakness in the U.S. financial market. In addition, the decrease in North America resulted from smaller volume declines in the government and retail markets. Asia Pacific and Latin America increased $7,698 and $7,586, respectively, from 2009 due to continued business development and favorable currency impact in Asia Pacific.
Brazilian-based election systems sales were $123,215 in 2010 compared to none in 2009. This business has historically been cyclical, recurring every other year. Lottery systems sales increased $18,291 in 2010 compared to 2009.
Gross Profit
The following table represents information regarding our gross profit:profit for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| | | Year ended
| | | | | | | |
| | | December 31, | | | $ Change/
| | | | |
| | | 2010 | | | 2009 | | | % Point Change | | | % Change | |
| Gross profit — products | | | 326,445 | | | | 294,256 | | | | 32,189 | | | | 10.9 | |
| Gross profit — services | | | 393,120 | | | | 355,744 | | | | 37,376 | | | | 10.5 | |
| | | | | | | | | | | | | | | | | |
| Total gross profit | | $ | 719,565 | | | $ | 650,000 | | | $ | 69,565 | | | | 10.7 | |
| | | | | | | | | | | | | | | | | |
| Gross profit margin | | | 25.5 | % | | | 23.9 | % | | | 1.6 | | | | | |
|
| | | | | | | | | | | | | |
| | 2010 | | 2009 | | $ Change | | % Change |
| Gross profit - products | 326,445 |
| | 294,256 |
| | 32,189 |
| | 10.9 |
| Gross profit - services | 393,120 |
| | 355,744 |
| | 37,376 |
| | 10.5 |
| Total gross profit | $ | 719,565 |
| | $ | 650,000 |
| | $ | 69,565 |
| | 10.7 |
| | | | | | | | |
| Gross margin - products | 24.5 | % | | 23.8 | % | |
| | |
| Gross margin - services | 26.3 | % | | 24.0 | % | |
| | |
| Total gross margin | 25.5 | % | | 23.9 | % | |
| | |
Product gross margin was 24.5 percent in 2010 compared to 23.8 percent in 2009. The increase in product margin resulted from favorable product solution and customer mix primarily attributed to Brazil voting and lottery solutions, which tend to have a higher margin than financial self-serviceFSS solutions in Brazil and the U.S. national bank customer mix. Additionally, product gross margin in 2010 included restructuring charges of $1,163 compared to $5,348 in 2009. Restructuring charges in 2010 and 2009 primarily related to global manufacturing realignment and workforce reductions.
26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
Service gross margin was 26.3 percent in 2010 compared to 24.0 percent in 2009. The service margin improvement was driven by improved productivity and lower service parts scrap expense in the United States. Service margin was also favorably impacted by increased part sales and higher margin performance in Asia Pacific. Additionally, 2010 included restructuring charges of $540 compared to restructuring charges of $7,488 in 2009. Restructuring charges in 2010 related primarily to workforce reductions and charges in 2009 related to workforce reductions and service branch consolidation, as well as employee severance costs in connection with the Company’s sale of certain assets and liabilities in Argentina.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Operating Expenses
The following table represents information regarding our operating expenses:expenses for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | | | | |
| | | | December 31, | | | | | | | | |
| | | | 2010 | | | | 2009 | | | | $ Change | | | % Change | |
| Selling and administrative expense | | | $ | 472,956 | | | | $ | 424,875 | | | | $ | 48,081 | | | | 11.3 | |
| Research, development, and engineering expense | | | | 74,225 | | | | | 72,026 | | | | | 2,199 | | | | 3.1 | |
| Impairment of assets | | | | 175,849 | | | | | 2,500 | | | | | 173,349 | | | | N/M | |
| (Gain) loss on sale of assets, net | | | | (1,663 | ) | | | | 7 | | | | | (1,670 | ) | | | N/M | |
| | | | | | | | | | | | | | | | | | | | |
| Total operating expenses | | | $ | 721,367 | | | | $ | 499,408 | | | | $ | 221,959 | | | | 44.4 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| | 2010 | | 2009 | | $ Change | | % Change |
| Selling and administrative expense | $ | 472,956 |
| | $ | 424,875 |
| | $ | 48,081 |
| | 11.3 |
| Research, development and engineering expense | 74,225 |
| | 72,026 |
| | 2,199 |
| | 3.1 |
| Impairment of assets | 175,849 |
| | 2,500 |
| | 173,349 |
| | N/M |
| (Gain) loss on sale of assets, net | (1,663 | ) | | 7 |
| | (1,670 | ) | | N/M |
| Total operating expenses | $ | 721,367 |
| | $ | 499,408 |
| | $ | 221,959 |
| | 44.4 |
Selling and administrative expense in 2010 included an unfavorable currency impact of $8,644, as well as increased healthcare and other employee related expenses. Selling and administrative expenses were adversely affected by non-routine expenses of $20,382 and $1,467 in 2010 and 2009, respectively. Net non-routine expenses in 2010 included a settlement and legal fees related to an employment class action lawsuit and higher legal and professional fees driven by the FCPA investigation. Selling and administrative expense in 2010 and 2009 included expense reimbursements of $4,148 and $11,323, respectively, from the Company’s D&Odirector and officer insurance carriers related to legal and other expenses incurred as part of the civil charges levied during the SEC investigation, which were settled in June 2010. In addition, selling and administrative expense included $3,809 and $10,276 of restructuring charges in 2010 and 2009, respectively. The 2010 restructuring charges related mainly to workforce reductions that focused on North America to align the backoffice support with the market changes and the 2009 restructuring charges primarily related to workforce reductions, employee severance costs in connection with the Company’s sale of certain assets and liabilities in Argentina and service branch consolidation.
Research, development and engineering expense as a percent of net sales in 2010 and 2009 was flat at 2.6 percent in both years. Additionally, research, development and engineering expense included an unfavorable currency impact of $1,489. A net restructuring benefit of $143 resulted in 2010, while restructuring charges of $2,091 occurred in 2009 related to product development rationalization.
A non-cash goodwill impairment charge of $168,714 was incurred in 2010 associated with the Company’s EMEA business. Due to the operational challenges experienced in the EMEA region over the past few quarters and the negative business impact related to potential FCPA compliance issues within the region, management has reduced its near-term earnings outlook for the EMEA business unit, resulting in the goodwill impairment. In the third quarter of 2010, the Company recorded a $3,000 other than temporary impairment related to a cost method investment. The Company determined this investment was fully impaired as of September 30, 2010 due to a decline in fair value. In addition, an impairment charge of approximately $4,100 was incurred in 2010 related to intangible assets of TFE Technology Holdings (TFE). The intangible assets for a customer contract at the time of acquisition were fully impaired in
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
the second quarter of 2010. An impairment charge of $2,500 was incurred in the fourth quarter of 2009 related to the discontinuation of the brand nameFirstline, Incorporated.
Operating (Loss) Profit
The following table represents information regarding our operating (loss) profit:profit for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | | | | |
| | | | December 31, | | | | $ Change/
| | | | |
| | | | 2010 | | | | 2009 | | | | % Point Change | | | % Change | |
| Operating (loss) profit | | | $ | (1,802 | ) | | | $ | 150,592 | | | | $ | (152,394 | ) | | | (101.2 | ) |
| Operating (loss) profit margin | | | | −0.1 | % | | | | 5.5 | % | | | | (5.6 | ) | | | | |
|
| | | | | | | | | | | | | |
| | 2010 | | 2009 | | $ Change | | % Change |
| Operating (loss) profit | $ | (1,802 | ) | | $ | 150,592 |
| | $ | (152,394 | ) | | (101.2) |
| Operating (loss) profit margin | (0.1 | )% | | 5.5 | % | |
| | |
The decrease in operating profit was due to a non-cash goodwill impairment charge of $168,714 incurred in 2010 associated with the Company’s EMEA business and increased operating expenses. These were partially offset by increased sales volume, favorable product revenue mix, higher service gross profit due in part to productivity improvements in U.S. service and higher margin performance in Asia Pacific.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
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:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | | | | |
| | | | December 31, | | | | | | | | |
| | | | 2010 | | | | 2009 | | | | $ Change | | | % Change | |
| Investment income | | | $ | 34,545 | | | | $ | 29,016 | | | | $ | 5,529 | | | | 19.1 | |
| Interest expense | | | | (37,887 | ) | | | | (35,452 | ) | | | | (2,435 | ) | | | 6.9 | |
| Foreign exchange loss, net | | | | (1,301 | ) | | | | (922 | ) | | | | (379 | ) | | | 41.1 | |
| Miscellaneous, net | | | | 4,048 | | | | | (19,427 | ) | | | | 23,475 | | | | (120.8 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Other income (expense) | | | $ | (595 | ) | | | $ | (26,785 | ) | | | $ | 26,190 | | | | (97.8 | ) |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| | 2010 | | 2009 | | $ Change | | % Change |
| Investment income | $ | 34,545 |
| | $ | 29,016 |
| | $ | 5,529 |
| | 19.1 |
| Interest expense | (37,887 | ) | | (35,452 | ) | | 2,435 |
| | 6.9 |
| Foreign exchange loss, net | (1,301 | ) | | (922 | ) | | 379 |
| | 41.1 |
| Miscellaneous, net | 4,048 |
| | (19,427 | ) | | 23,475 |
| | 120.8 |
| Other income (expense) | $ | (595 | ) | | $ | (26,785 | ) | | $ | 26,190 |
| | (97.8) |
The increase in investment income resulted from higher investment volume and leasing interest income in Brazil. Interest expense increased due to higher interest rates between years and credit facility fees in 2010, partially offset by lower hedging expense. While foreign exchange was flat, there were gains in EMEA offset by losses in Latin America resulting from the currency revaluation in Venezuela during 2010. The change in miscellaneous, net was due to a charge of $25,000 in 2009 as the Company reached an agreement in principle with the staff of the SEC to settle civil charges. In June 2010, the SEC settlement was finalized and paid.
28
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
(Loss) Income from Continuing Operations
The following table represents information regarding our (loss) income from continuing operations:operations for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | | | | |
| | | | December 31, | | | | $ Change/
| | | | |
| | | | 2010 | | | | 2009 | | | | % Point Change | | | % Change | |
| (Loss) income from continuing operations, net of tax | | | $ | (16,958 | ) | | | $ | 79,330 | | | | $ | (96,288 | ) | | | (121.4 | ) |
| Percent of net sales | | | | (0.6 | ) | | | | 2.9 | | | | | (3.5 | ) | | | | |
| Effective tax rate | | | | 607.5 | % | | | | 35.9 | % | | | | N/M | | | | | |
|
| | | | | | | | | | |
| | 2010 | | 2009 | | $ Change | | % Change |
| (Loss) income from continuing operations, net of tax | (16,958 | ) | | 79,330 |
| | (96,288 | ) | | (121.4) |
| Percent of net sales | (0.6 | ) | | 2.9 |
| |
|
| | |
| Effective tax rate | 607.5 | % | | 35.9 | % | |
| | |
The decrease in net (loss) income from continuing operations was related to higher operating expenses inclusive of the impairment charges in 2010, partially offset by the SEC charge of $25,000 in 2009 and higher gross profit in 2010. The increase in the effective tax rate was due to the impairment of nondeductible goodwill and was partially offset by a benefit resulting from the release of a valuation allowance at a foreign subsidiary and foreign rate differential.
Income (Loss) from Discontinued Operations
The following table represents information regarding our income (loss) from discontinued operations:operations for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | |
| | | | December 31, | | | | | |
| | | | 2010 | | | 2009 | | | $ Change | | % Change |
| Income (loss) from discontinued operations, net of tax | | | $ | 275 | | | | $ | (47,076 | ) | | | $ | 47,351 | | | | (100.6 | ) |
|
| | | | | | | | | | | | | |
| | 2010 | | 2009 | | $ Change | | % Change |
Income (loss) from discontinued operations, net of tax | $ | 275 |
| | $ | (47,076 | ) | | $ | 47,351 |
| | 100.6 |
Included in the 2010 income (loss) from discontinued operations, net of tax, were costs related to the sale of theU.S.-based elections systems business and the December 2008 discontinuance of the Company’s EMEA-based enterprise security business. In addition, 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 the income (loss) from discontinued operations. Included in the 2009 income (loss) from discontinued operations, net of tax, were the $37,192 loss on the sale of theU.S.-based elections systems business, the results of the U.S. elections systems business and costs related to the December 2008 discontinuance of the Company’s EMEA-based enterprise security business. Refer to note 20 to the condensed consolidated financial statements for further details of discontinued operations.
Net (Loss) Income Attributable to Diebold, Incorporated
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Segment Revenue and Operating Profit Summary
The following table represents information regarding our net (loss) income:revenue by reporting segment for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | |
| | | | December 31, | | | | | |
| | | | 2010 | | | 2009 | | | $ Change | | % Change |
| Net (loss) income attributable to Diebold, Incorporated | | | $ | (20,252 | ) | | | $ | 26,026 | | | | $ | (46,278 | ) | | | (177.8 | ) |
Based on the results from continuing and discontinued operations discussed above, the Company reported net (loss) income attributable to Diebold, Incorporated of $(20,252) and $26,026 for 2010 and 2009, respectively. |
| | | | | | | | | | | | | |
| | 2010 | | 2009 | | $ Change | | % Change |
| DNA | $ | 1,320,581 |
| | $ | 1,382,461 |
| | $ | (61,880 | ) | | (4.5) |
| DI | 1,503,212 |
| | 1,335,831 |
| | 167,381 |
| | 12.5 |
| Total net sales | $ | 2,823,793 |
| | $ | 2,718,292 |
| | $ | 105,501 |
| | 3.9 |
Segment Revenue and Operating Profit Summary
Diebold North America (DNA)DNA net sales of $1,320,581 in 2010 decreased $61,880 or 4.5 percent compared to 2009. The decrease in DNA net sales was due to decreased product volume in the national and regional bank businesses, as well as the corresponding
29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
installation revenue, partially offset by increased U.S. service volume and higher sales in Canada.
DI net sales of $1,503,212 in 2010 increased by $167,381 or 12.5 percent compared to the same period of 2009, which included a net favorable currency fluctuation of $68,632, of which $56,543 related to the Brazilian real. The increase in DI net sales was driven by higher volume in Brazil primarily due to election systems revenue as well as increased sales in Latin America.
The following table represents information regarding our operating profit (loss) by reporting segment for the years ended December 31:
|
| | | | | | | | | | |
| | 2010 | | 2009 | | $ Change | | % Change |
| DNA | 81,444 |
| | 77,109 |
| | 4,335 |
| | 5.6 |
| DI | (83,246 | ) | | 73,483 |
| | (156,729 | ) | | (213.3) |
| Total operating (loss) profit | (1,802 | ) | | 150,592 |
| | (152,394 | ) | | (101.2) |
DNA operating profit in 2010 increased by $4,335 or 5.6 percent compared to the same period of 2009. Operating profit was favorably affected by higher service profitability attributable to continued productivity gains and lower service parts scrap expense. DNA operating profit was also favorably affected by higher product margin in the national bank business. DNA operating profit was unfavorably impacted by higher operating expenses including $9,786 in settlement and legal fees related to an employmentclass-action lawsuit and $7,096 of impairment charges related to a cost-method investment and customer contract intangible assets of TFE.
DI operating profit in 2010 decreased by $156,729 compared to 2009 primarily due to a non-cash goodwill impairment charge of $168,714 incurred in 2010 associated with the Company’s EMEA business and other increases in operating expenses. The goodwill impairment was partially offset by increased product gross profit resulting from Brazilian election systems and lottery volume in 2010 as well as higher volume in Latin America. These increases in product gross profit were partially offset by lower financial self-service revenue in Brazil and Asia Pacific. Additionally, service gross profit increased due to improved performance in Asia Pacific partially offset by lower managed service volume in Brazil mainly attributed to the insourcing of a large Brazilian government contract.
Refer to note 19 to the consolidated financial statements for further details of segment revenue and operating profit.
2009 comparison with 2008
Net Sales
The following table represents information regarding our net sales:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | |
| | | | December 31, | | | | | |
| | | | 2009 | | | 2008 | | | $ Change | | % Change |
| Net sales | | | $ | 2,718,292 | | | | $ | 3,081,838 | | | | $ | (363,546 | ) | | | (11.8 | ) |
Financial self-service sales in 2009 decreased by $171,420 or 7.7 percent compared to 2008. The decrease in financial self-service sales included a net negative currency impact of $42,668, of which approximately $18,100 and $14,500 related to European currencies and the Brazilian real, respectively. North America decreased $43,281 or 5.0 percent largely due to spend reductions in U.S. regional bank businesses. Latin America including Brazil decreased by $14,754 or 2.6 percent, primarily due to the negative currency impact in Brazil. EMEA decreased $123,159 or 26.3 percent from 2008 driven predominantly by decreased volume in the Company’s distributor business as poor economic conditions persist. Asia Pacific increased $9,797 or 2.8 percent due to strong performance in India, partially offset by a decrease in China related to 2008 Summer Olympic sales that did not recur in 2009.
Security solutions sales in 2009 decreased by $131,813 or 17.0 percent compared to 2008. North America decreased $110,249 or 15.7 percent due to weakness in the North American banking business, related to lack of new branch construction. Market weakness in the commercial and government businesses also contributed to the overall decrease in security solutions sales. Asia Pacific decreased $23,236 or 50.9 percent from 2008 due to projects in Australia in 2008 that did not recur in 2009.
There were no election systems sales in 2009 compared to $61,558 of Brazilian-based sales in 2008. This business has historically been cyclical, recurring every other year. The Brazilian lottery systems sales increased $1,245 in 2009 compared to 2008.
30
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
Gross Profit
The following table represents information regarding our gross profit:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | | | | |
| | | | December 31, | | | | $ Change/
| | | | |
| | | | 2009 | | | | 2008 | | | | % Point Change | | | % Change | |
| Gross profit — products | | | $ | 294,256 | | | | $ | 413,223 | | | | $ | (118,967 | ) | | | (28.8 | ) |
| Gross profit — services | | | | 355,744 | | | | | 361,654 | | | | | (5,910 | ) | | | (1.6 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Total gross profit | | | $ | 650,000 | | | | $ | 774,877 | | | | $ | (124,877 | ) | | | (16.1 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Gross profit margin | | | | 23.9 | % | | | | 25.1 | % | | | | (1.2 | ) | | | | |
Product gross margin was 23.8 percent in 2009 compared to 27.3 percent in 2008. Benefits realized from the Company’s cost savings initiatives in 2009 were more than offset by unfavorable sales mix within North America, sales weakness in Europe and no Brazilian-based election systems sales in 2009. The unfavorable sales mix within North America was driven by a significant reduction in U.S. regional bank sales with a smaller deterioration in U.S. national bank sales. Product gross margin was also adversely affected by the lower volumes in the Company’s distributor business in EMEA, as well as unfavorable absorption in the Hungary manufacturing plant due to lower production volume. Additionally, product gross margin included $5,348 and $15,936 of restructuring charges in 2009 and 2008, respectively, related to manufacturing realignment.
Service gross margin was 24.0 percent in 2009 compared to 23.0 percent in 2008. Theyear-over-year improvement in service margin was driven by lower fuel prices and continued productivity gains in the United States as well as increased sales in Asia Pacific and favorable currency impact in Latin America. These improvements were partially offset by higher scrap expense in North America. Restructuring charges included in service cost of sales were $7,488 in 2009 and $9,663 in 2008.
Operating Expenses
The following table represents information regarding our operating expenses:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | | | | |
| | | | December 31, | | | | | | | | |
| | | | 2009 | | | | 2008 | | | | $ Change | | | % Change | |
| Selling and administrative expense | | | $ | 424,875 | | | | $ | 514,154 | | | | $ | (89,279 | ) | | | (17.4 | ) |
| Research, development, and engineering expense | | | | 72,026 | | | | | 73,034 | | | | | (1,008 | ) | | | (1.4 | ) |
| Impairment of assets | | | | 2,500 | | | | | 4,376 | | | | | (1,876 | ) | | | N/A | |
| Loss on sale of assets, net | | | | 7 | | | | | 403 | | | | | (396 | ) | | | N/M | |
| | | | | | | | | | | | | | | | | | | | |
| Total operating expenses | | | $ | 499,408 | | | | $ | 591,967 | | | | $ | (92,559 | ) | | | (15.6 | ) |
| | | | | | | | | | | | | | | | | | | | |
Selling and administrative expense decreased in 2009 due to lower net non-routine expenses and impairment charges, non-routine income, continued focus on cost reduction initiatives, declines in sales contributing to lower commission and strengthening of the U.S. dollar. Selling and administrative expense in 2009 included $11,323 of non-routine income, including $10,616 of reimbursements from the Company’s D&O insurance carriers related to legal and other expenses incurred as part of the government investigations and non-routine expenses of $1,467 which consisted of legal, audit and consultation fees primarily related to the internal review of other accounting items, restatement of financial statements and the ongoing government investigations compared to
31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
$45,145 of non-routine expenses and impairment charges in 2008. Included in the non-routine expenses for 2008 was a $13,500 financial advisor fee as a result of the withdrawal of the unsolicited takeover bid from United Technologies Corp. In addition, selling and administrative expense included $10,276 of restructuring charges in 2009 compared to $11,265 of restructuring charges in 2008.
Research, development, and engineering expense as a percent of net sales in 2009 and 2008 was 2.6 and 2.4 percent, respectively. The increase as a percent of net sales was due to lower sales volume in 2009. Restructuring charges related to product development rationalization of $2,091 were included in research, development, and engineering expense for 2009 as compared to $3,649 of restructuring charges in 2008.
An impairment charge of $2,500 was incurred in 2009 related to the discontinuation of the brand nameFirstline, Incorporated.The Company also incurred a charge of $4,376 in 2008 related to the write-down of intangible assets from the 2004 acquisition of TFE Technology.
Operating Profit
The following table represents information regarding our operating profit:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | |
| | | | December 31, | | | $ Change/
| | |
| | | | 2009 | | | 2008 | | | % Point Change | | % Change |
| Operating profit | | | $ | 150,592 | | | | $ | 182,910 | | | | $ | (32,318 | ) | | | (17.7 | ) |
| Operating profit margin | | | | 5.5 | % | | | | 5.9 | % | | | | (0.4 | ) | | | | |
The decrease in operating profit resulted from lower gross profit related to lower product revenue volume and unfavorable customer sales mix within North America and EMEA. This was partially offset by lower operating expense in 2009 resulting from lower non-routine expenses, continued focus on cost reduction initiatives, and strengthening of the U.S. dollar.
Other Income (Expense)
The following table represents information regarding our other income (expense):
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | | | | |
| | | | December 31, | | | | | | | | |
| | | | 2009 | | | | 2008 | | | | $ Change | | | % Change | |
| Investment income | | | $ | 29,016 | | | | $ | 25,218 | | | | $ | 3,798 | | | | 15.1 | |
| Interest expense | | | | (35,452 | ) | | | | (45,367 | ) | | | | 9,915 | | | | (21.9 | ) |
| Foreign exchange loss, net | | | | (922 | ) | | | | (8,785 | ) | | | | 7,863 | | | | (89.5 | ) |
| Miscellaneous, net | | | | (19,427 | ) | | | | 2,341 | | | | | (21,768 | ) | | | N/M | |
| | | | | | | | | | | | | | | | | | | | |
| Other income (expense) | | | $ | (26,785 | ) | | | $ | (26,593 | ) | | | $ | (192 | ) | | | 0.7 | |
| | | | | | | | | | | | | | | | | | | | |
Investment income in 2009 included a gain of $2,225 on assets held in a rabbi trust under a deferred compensation arrangement. The change in interest expense was due to lower interest rates and a lower overall average debt balance in 2009. The change in foreign exchange loss, net was primarily due to the Company hedging more of its foreign currency exposure in 2009 compared to 2008. The change in miscellaneous, net between years was due to a charge of $25,000 in 2009 as the Company reached an agreement in principle with the staff of the SEC to settle the civil charges stemming from the staff’s enforcement inquiry.
32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
Income from Continuing Operations
The following table represents information regarding our income from continuing operations:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | | | | |
| | | | December 31, | | | | $ Change/
| | | | |
| | | | 2009 | | | | 2008 | | | | % Point Change | | | % Change | |
| Income from continuing operations, net of tax | | | $ | 79,330 | | | | $ | 114,821 | | | | $ | (35,491 | ) | | | (30.9 | ) |
| Percent of net sales | | | | 2.9 | | | | | 3.7 | | | | | (0.8 | ) | | | | |
| Effective tax rate | | | | 35.9 | % | | | | 26.5 | % | | | | 9.4 | | | | | |
The decrease in income from continuing operations, net of tax was related to lower gross profit and an unfavorable change in the effective tax rate, partially offset by lower operating expenses. The 9.4 percent increase in the effective tax rate for 2009 was primarily attributable to:out-of-period adjustments totaling approximately $9,000, the non-deductible SEC charge and an increase in a deferred tax asset valuation allowance related to the Company’s operations in Brazil offset by changes in mix of income from various tax jurisdictions. Refer to Note 1 to the consolidated financial statements for details related to theout-of-period adjustments which the Company determined were immaterial in all prior interim and annual periods and to 2009 results.
Loss from Discontinued Operations
The following table represents information regarding our loss from discontinued operations:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | |
| | | | December 31, | | | | | |
| | | | 2009 | | | 2008 | | | $ Change | | % Change |
| Loss from discontinued operations, net of tax | | | $ | (47,076 | ) | | | $ | (19,198 | ) | | | $ | (27,878 | ) | | | 145.2 | |
The 2009 sale of the U.S. elections systems business resulted in a loss, net of tax, of $37,192. Losses from discontinued operations, net of tax were $9,884 and $19,198 in 2009 and 2008, respectively. Included in the 2008 discontinued operations was a non-cash pre-tax asset impairment charge of $16,658 related to the discontinuance of the Company’s EMEA-based enterprise security business.
Net Income Attributable to Diebold, Incorporated
The following table represents information regarding our net income:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year ended
| | | | | |
| | | | December 31, | | | | | |
| | | | 2009 | | | 2008 | | | $ Change | | % Change |
| Net income attributable to Diebold, Incorporated | | | $ | 26,026 | | | | $ | 88,583 | | | | $ | (62,557 | ) | | | (70.6 | ) |
Based on the results from continuing and discontinued operations discussed above, the Company reported net income attributable to Diebold, Incorporated of $26,026 and $88,583 for the years ended December 31, 2009 and 2008, respectively.
Segment Revenue and Operating Profit Summary
DNA net sales of $1,382,461 for 2009 decreased $153,530 or 10.0 percent from 2008 net sales of $1,535,991. The decrease in DNA net sales was due to decreased volume from the regional product business as well as the security solutions product and service offerings. DI net sales of $1,335,831 for 2009 decreased by $210,016 or 13.6 percent over 2008 net sales of $1,545,847. The
33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
decrease in DI net sales was due to lower volume across most operating units, led by revenue reductions of $123,771 in EMEA and $50,405 in Brazil. The decrease in Brazil was due to no voting revenue in 2009, due to its cyclical nature compared to $61,558 in 2008.
DNA operating profit for 2009 decreased by $19,758 or 20.4 percent compared to 2008. Operating profit was unfavorably affected by revenue mix between the regional and strategic accounts within the product business as well as unfavorable security performance. This was partially offset by higher service profitability and the Company’s ongoing cost reduction efforts. DI operating profit for 2009 decreased by $12,560 or 14.6 percent compared to 2008. The decrease resulted mainly from lower revenue volume in EMEA and the Brazilian election systems business.
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. Refer to note 11 to the consolidated financial statements regarding information on outstanding and available credit facilities, senior notes and bonds. 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. A substantial portionAt December 31, 2011, approximately $597,467 or 96.2 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 offeringsand/or the issuance of common shares.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
The following table summarizes the results of our consolidated statement of cash flows:flows for the years ended December 31:
| | | | | | | | | | | | | | | | |
| | | | Year ended December 31, | |
| | | | 2010 | | | | 2009 | | | | 2008 | |
Net cash flow provided by (used in): | | | | | | | | | | | | | | | |
| Operating activities | | | $ | 273,353 | | | | $ | 296,882 | | | | $ | 282,221 | |
| Investing activities | | | | (164,756 | ) | | | | (90,778 | ) | | | | (140,014 | ) |
| Financing activities | | | | (111,100 | ) | | | | (130,988 | ) | | | | (87,689 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | | | 2,735 | | | | | 11,874 | | | | | (19,416 | ) |
| | | | | | | | | | | | | | | | |
| Net increase in cash and cash equivalents | | | $ | 232 | | | | $ | 86,990 | | | | $ | 35,102 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| Net cash flow provided by (used in): | 2011 | | 2010 | | 2009 |
| Operating activities | $ | 215,397 |
| | $ | 273,353 |
| | $ | 296,882 |
|
| Investing activities | (90,706 | ) | | (164,756 | ) | | (90,778 | ) |
| Financing activities | (123,535 | ) | | (111,100 | ) | | (130,988 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 4,106 |
| | 2,735 |
| | 11,874 |
|
| Net increase in cash and cash equivalents | $ | 5,262 |
| | $ | 232 |
| | $ | 86,990 |
|
During 2010,2011, the Company generated $273,353$215,397 in cash from operating activities, a decrease of $23,529$57,956 from 2009.2010. 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, 20102011 were negatively affected by a $48,937 decrease in net income, payment of the $25,000 SEC settlement, as well as changes in trade receivables, inventories and other current assets, partially offset by favorable changes$69,066 change in refundable income taxes related to significant 2010 refunds that did not recur at the same level in 2011, as well as unfavorable changes in inventories, prepaid expenses, accounts payable, deferred revenue, pension and other postretirement benefits and certain other assets and liabilities. These changes were partially offset by the sale of finance receivables, favorable changes in trade receivables, other current assets, deferred revenue and deferred income taxes.
Net cash used for investing activities was $164,756$90,706 in 2010, an increase2011, a decrease of $73,978$74,050 from 2009.2010. The increasedecrease was primarily due to a $66,204 increase$41,797 decrease in net payments for purchases of investments, an increase of $9,865 in payments for purchases of finance
34$3,401
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
receivables an increase of $7,011 in capital expenditures and a decrease of $8,093 in proceeds from sale of discontinued operations.fixed assets and a change of $32,110 in purchases of finance receivables, net of cash collected. These activities were partially offset by changesan increase of $3,455 in certain other assets of $9,760 and a $5,364 decrease in payments for acquisitions.capital expenditures.
Net cash used for financing activities was $111,100$123,535 in 2010, a decrease2011, an increase of $19,888$12,435 from 2009.2010. The decreaseincrease was primarily due to a $40,954 decreasean increase of common share repurchases of $86,046 and an increase of $4,642 in net debt repayments.distributions to noncontrolling interest holders. This was partially offset by $24,386a change of common share repurchases$79,154 in 2010.net debt activity.
Benefit PlansThe Company expects to contribute $23,881$15,814 to its pension plans during the year ending December 31, 2011.2012. Beyond 2011,2012, minimum statutory funding requirements for the Company’sCompany'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’sCompany'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 $1,848$1,735 in 20112012, net of thea benefit of approximately $235$205 from the Medicare prescription subsidy. Refer to note 12 to the consolidated financial statements for further discussion of the Company’sCompany's pension and other postretirement benefit plans.
Under the Company’s share repurchase program, 2,123,051 shares remained available as of December 31, 2010 for additional share repurchases. In February 2011, the Board of Directors authorized the Company to repurchase additional common shares which increases the shares available for repurchase to 4,000,000. The Company anticipates repurchasing these shares in 2011 depending on market conditions and the level of operating and other investing activities.
Dividends The Company paid dividends of $71,900, $69,451$72,901, $71,900 and $66,563$69,451 in the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively. Annualized dividends per share were $1.08, $1.04$1.12, $1.08 and $1.00$1.04 for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively. The Company declared a first-quarter 2011 cash dividend of $0.28 per share. The newquarterly 2012 cash dividend, which represents $1.12$1.14 per share on an annualannualized basis, is an increase of 3.7 percent over the cash dividend paid in 2010 and marks the Company’s 58thCompany's 59th consecutive annual dividend increase.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Contractual Obligations The following table summarizes the Company’s approximate obligations and commitments to make future payments under contractual obligations as of December 31, 2010:2011: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Payment due by period | |
| | | | | | | | Less than
| | | | | | | | | | | | More than
| |
| | | | Total | | | | 1 year | | | | 1-3 years | | | | 3-5 years | | | | 5 years | |
| Minimum operating lease obligations | | | $ | 124,084 | | | | $ | 37,092 | | | | $ | 43,233 | | | | $ | 24,846 | | | | $ | 18,913 | |
| Debt | | | | 565,406 | | | | | 15,038 | | | | | 312,095 | | | | | 810 | | | | | 237,463 | |
| Interest on debt(1) | | | | 102,817 | | | | | 24,196 | | | | | 37,922 | | | | | 30,361 | | | | | 10,338 | |
| Purchase commitments | | | | 3,672 | | | | | 3,672 | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | $ | 795,979 | | | | $ | 79,998 | | | | $ | 393,250 | | | | $ | 56,017 | | | | $ | 266,714 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | Payment due by period |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| Minimum operating lease obligations | $ | 143,794 |
| | $ | 43,192 |
| | $ | 56,330 |
| | $ | 33,034 |
| | $ | 11,238 |
|
| Debt | 627,876 |
| | 21,722 |
| | 76,767 |
| | 467,347 |
| | 62,040 |
|
| Interest on debt (1) | 94,143 |
| | 23,922 |
| | 37,881 |
| | 27,847 |
| | 4,493 |
|
| Purchase commitments | 3,091 |
| | 3,091 |
| | — |
| | — |
| | — |
|
| Total | $ | 868,904 |
| | $ | 91,927 |
| | $ | 170,978 |
| | $ | 528,228 |
| | $ | 77,771 |
|
| | |
| (1) | | Amounts represent estimated contractual interest payments on outstanding long-term debt and notes payable. Rates in effect as of December 31, 20102011 are used for variable rate debt. |
TheAt December 31, 2011, the Company also hashad uncertain tax positions of $9,842,$12,636, 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).
35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS asAs of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)2011
As of December 31, 2010,, the Company had various international short-term uncommitted lines of credit with borrowing limits of $102,885.$101,530. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of December 31, 2011 and 2010 was 4.23 percent and 3.01 percent, respectively. Short-term uncommitted lines mature in less than one year.year. The amount available under the short-term uncommitted lines at December 31, 20102011 was $87,490.$79,958.
In October 2009,June 2011, the Company entered into a three-yearnew five-year credit facility, which replaced its previous credit facility. The Company used borrowings of approximately $330,000 under the new credit facility to repay all amounts outstanding under (and terminated) the previous credit facility. As of December 31, 2010,2011, the Company had borrowing limits under the new credit facility totaling $500,380 ($400,000 and €75,000, translated)$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 $200,000 and €37,500.$250,000. Up to $30,000 and €15,000$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, 2011 and 2010 was 1.49 percent and 2.71 percent, respectively, which is variable based on the London Interbank Offered Rate (LIBOR). The amount available under the new credit facility at as of December 31, 20102011 was $265,380.$209,000. The Company incurred $1,876 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$300,000 with a weighted-average fixed interest rate of 5.50 percent.percent. The maturity dates of the senior notes are staggered, with $75,000, $175,000$75,000, $175,000 and $50,000$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$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.
The Company’s financing agreements contain various restrictive financial covenants, including net debt to capitalization and net interest coverage ratios. As of December 31, 2010,2011, the Company was in compliance with the financial covenants in its debt agreements.
Off-Balance Sheet ArrangementsThe Company doesenters into various arrangements not participaterecognized in transactionsthe consolidated balance sheets that facilitatehave or could have an effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources. The principal off-balance sheet arrangements.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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
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.America (U.S. GAAP). The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.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 value of purchase consideration, valuation of trade receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, guarantee obligations, indemnifications 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, including the current economic difficulties in the United States credit markets and the global markets.factors. Management monitors the economic conditions and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile foreign currency and equity, and declines in the global economic environment have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
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 doubtful accounts, 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.
36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
Revenue RecognitionIn general, the Company records revenue when it is realized, or realizable and earned. InThe 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 involvecontain multiple deliverables, which can include products, servicesand/or software, revenue recognized for each deliverable is based upon the relative selling prices of each deliverable. The Company determines the selling price of deliverables within a multiple-deliverable arrangement based on vendor specific objective evidence (VSOE) (price when sold on stand-alone basis) or the estimated selling price where VSOE is not established for undelivered items. Totaltotal arrangement consideration is allocated at the inception of the arrangement to all deliverables usingeach 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 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 allocates any discountis 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 the arrangement proportionately to each deliverable on the basis of each deliverable’s selling price.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.
In contracts that involveFor 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 servicesoftware-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 are based upon VSOE of the value of the deliverables, which requires judgment about whether the deliverables can be divided into more than one unit of accounting and whether the separate units of accountingdeliverables 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 Doubtful AccountsThe 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
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
Company’s credit evaluation process and the geographical dispersion of sales transactions from a large number of individual customers.
Inventory ReservesAt each reporting period, the Company identifies and writes down its excess and obsolete inventoryinventories to its net realizable value based on forecasted usage ordersforecasts, 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.
GoodwillThe Company tests all existing goodwill at least annually for impairment using the fair value approach on a reporting unit basis. The Company’s reporting units are defined as Domestic and Canada, Brazil, Latin America, Asia Pacific and EMEA. TheIn 2011, the Company usesadopted the discounted cash flow methodprovisions of FASB Accounting Standards Update (ASU) 2011-08, Testing Goodwill for Impairment, and the guideline company method for determining the fair value of its reporting units. The determination of implied fair value of the goodwill forperformed a particular reporting unitqualitative assessment to determine whether it is the excess ofmore likely than not that the fair value of a reporting unit over the amounts assigned tois less than its assets and liabilities, whichcarrying value. In evaluating whether it is the same manner as the allocation in a business combination. Implied fair value goodwill is determined as the excess of the fair value of the reporting unit over the fair value of its assets and liabilities.
The Company uses the most current information available and performs the annual impairment analysis as of November 30 each year. However, actual circumstances could differ significantly from assumptions and estimates made and could result in future goodwill impairment. The Company tests for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the carryingfair 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, the two-step impairment test described below its reported amount.is used to identify potential goodwill impairment and measure the amount of any impairment loss to be recognized.
Goodwill isIn 2010 and 2009, goodwill was reviewed for impairment based on a two-step test. In the first step, the Company compares the fair value of each reporting unit with its net bookcarrying 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 (November 30). 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.
37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
The valuation techniques used in the Company's qualitative assessments, Step 1 impairment test and if necessary, Step 2 impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect forecasted 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 of 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.
The annual goodwill impairment tests for 2011 and 2009 resulted in no impairment in any of the Company’s reporting units. Management concluded during the Company’s annual goodwill impairment test for 2010 that all of the Company’s goodwill within the EMEA reporting unit was fully impairednot recoverable and the Company recorded a $168,714$168,714 non-cash impairment charge during the fourth quarter. Due to the operational challenges experienced in the EMEA region over the past few quarters and the negative business impact related to potential FCPA compliance issues within the region, management has reduced its near-term earnings outlook for the EMEA business unit, resulting in the goodwill impairment. The annual goodwill impairment tests for 2009 and 2008 resulted in no impairment in any of the Company’s reporting units.quarter 2010.
The valuation techniques used in the impairment tests incorporate a number of estimates and assumptions that are subject to change; although the Company believes these estimates and assumptions are reasonable and reflect forecasted market conditions 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. Because actual results may vary from our forecasts and such variations may be material and unfavorable, the Company may need to record future impairment charges with respect to the goodwill attributed to any reporting unit.
Taxes on IncomeDeferred 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
The Company operates in numerous taxing jurisdictions and is subject to examination by various U.S., 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, according to the principles of Accounting Standards Codification (ASC)ASC 740. 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.
38
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)
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 strategies. 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.
Pensions and Other Postretirement BenefitsAnnual 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. Annually, management and the Investment Committee of the Board of Directors 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 theyear-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. PostretirementOther 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:
| | | | | | | | | |
| | | 2010 | | 2009 |
| Healthcare cost trend rate assumed for next year | | | 7.40 | % | | | 8.20 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | | | 4.20 | % | | | 4.20 | % |
| Year that rate reaches ultimate trend rate | | | 2099 | | | | 2099 | |
|
| | | | | |
| | 2011 | | 2010 |
| Healthcare cost trend rate assumed for next year | 8.0 | % | | 7.4 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.2 | % | | 4.2 | % |
| Year that rate reaches ultimate trend rate | 2099 |
| | 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 7.4 percent in 2012and 8.2 percent in 2011 and 2010,, 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:
| | | | | | | | | |
| | | One-Percentage-
| | One-Percentage-
|
| | | Point Increase | | Point Decrease |
| Effect on total of service and interest cost | | $ | 61 | | | $ | (56 | ) |
| Effect on postretirement benefit obligation | | $ | 995 | | | $ | (899 | ) |
|
| | | | | | | |
| | One-Percentage-Point Increase | | One-Percentage-Point Decrease |
| Effect on total of service and interest cost | $ | 58 |
| | $ | (52 | ) |
| Effect on other postretirement benefit obligation | 1,010 |
| | (914 | ) |
RECENTLY ISSUED ACCOUNTING GUIDANCE
With the exception of those stated below, there have been no recent accounting guidance or changes in accounting guidance during the year ended December 31, 2010, as compared to the recent accounting guidance described in the annual report onForm 10-K as of December 31, 2009 that are of material significance, or have potential material significance. Refer to the notesnote 1 to the consolidated financial statements of this annual report on Form 10-K for information on recently issued accounting guidance adopted during the year ended December 31, 2010.guidance.
In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)2010-28,Intangibles — Goodwill and Other (Topic 350): When to Perform Step 233
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
2011
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in thousands, except per share amounts)
2010-28, when the carrying amount of a reporting unit is zero or negative an entity must assume that it is more likely than not that a goodwill impairment exists, perform an additional test to determine whether goodwill has been impaired and calculate the amount of that impairment. The modifications to ASC Topic 350 resulting from the issuance of ASU2010-28 are effective for fiscal years beginning after December 15, 2010 and interim periods within those years. Early adoption is not permitted. The adoption of ASU2010-08 is not expected to have an impact on the financial statements of the Company.
FORWARD-LOOKING STATEMENT DISCLOSURE
In this annual report onForm 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,” “expects,” “intends”"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, distributorsand/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; |
|
| • | the Company’s ability to take actions to mitigate the effect of the Venezuelan currency devaluation, further devaluation, actions of the Venezuelan government, and economic conditions in Venezuela; |
|
| • | the continuing effects of the economic downturn and the disruptions in the financial markets, including the bankruptcies, restructurings or consolidations of financial institutions, which could reduce our customer baseand/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 impact of any current or pending lawsuits; |
40competitive 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;
the amount of cash and non-cash charges in connection with the restructuring of the Company’s EMEA operations;
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 impact of any current or pending lawsuits;
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 SEC investigation;
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.”
MANAGEMENT’S DISCUSSION34
ITEM 7A: QUANTITATIVE AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS as of December 31, 2010 (Continued)
(Unaudited)
(dollars in thousands, except per share amounts)QUALITATIVE DISCLOSURES ABOUT MARKET RISK
| | |
| • | 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 us to increase the Company’s pension contributions, and significant changes in health care costs, including those that may result from government action such as the recently enacted U.S. health care legislation; |
|
| • | the amount and timing of repurchases of the Company’s common shares; |
|
| • | 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 SEC investigation; |
|
| • | the Company’s ability to achieve benefits from its cost-reduction initiatives and other strategic changes; and |
|
| • | the risk factors described above under “Item 1A. Risk Factors.” |
41
| |
ITEM 7A: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (dollars in thousands) |
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 2011 and 2010 and2009 year-to-date operating profit of approximately $13,603$7,909 and $9,988,$13,603, 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, British pound/U.S.dollarU.S. dollar, U.S. dollar/Brazilian real, and Australian dollar/U.S. dollar/Swiss franc.dollar. There were no significant changes in the Company’s foreign exchange risks in 20102011 compared with 2009.2010.
The Company’s Venezuelan operations consist of a fifty-percent owned subsidiary, which is consolidated. On January 8, 2010,Venezuela is measured using the U.S. dollar as its functional currency because its economy is considered highly inflationary. In recent years, the Venezuelan government announced the devaluation of its currency, the bolivar and the establishment of a two-tier exchange structure. Subsequently, during May 2010, the Venezuelan government seized control of the parallel market, thereby creating a new government-controlled rate. Transitioning from the parallel rate to the new government-controlled rate did not have a material impact on the Company’s consolidated financial statements.has devalued. In the future, iffluctuations in the Company converts bolivares at a rate other than the new government-controlled rate, the Companybolivar may realize additionalresult in gains or losses that would be recorded in the statement of income.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 $324,472 and $262,769 and $268,815 at December 31, 20102011 and 2009,2010, respectively, of which $25,000 and $50,000, 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 $2,896 and $2,392 for 2011and $2,703 for 2010 and 2009,, 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. As discussed in note 16 to the consolidated financial statements, the Company hedged $200,000
| |
ITEM 8: | ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | |
| FINANCIAL STATEMENTS |
| | | | | |
FINANCIAL STATEMENTS
| | | | |
| |
| | | 44 |
| |
| |
| | | 46 |
| |
| |
| | | 47 |
| |
| |
| | | 48 |
| |
| |
| | | 49 |
| |
| | | 50 | |
FINANCIAL STATEMENTS SCHEDULES
| | | | |
| FINANCIAL STATEMENTS SCHEDULES |
| | |
| | | 104 | |
All other schedules are omitted because they are not applicable. | | | | |
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, 20102011 and 2009,2010, and the related consolidated statements of operations, equity, and cash flows for each of the years in the three-yearthree‑year period ended December 31, 2010.2011. 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’sCompany'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, 20102011 and 2009,2010, and the results of their operations and their cash flows for each of the years in the three-yearthree‑year period ended December 31, 2010,2011, 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’sCompany's internal control over financial reporting as of December 31, 2010,2011, based on criteria established inInternal Control —- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 22, 201117, 2012 expressed an unqualified opinion on the effectiveness of the Company’sCompany's internal control over financial reporting.reporting
Cleveland, Ohio
February 22, 201117, 2012
44
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Diebold, Incorporated:
We have audited Diebold, Incorporated’sIncorporated's (the Company) internal control over financial reporting as of December 31, 2010,2011, based on criteria established inInternal Control —- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’sCompany'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’sManagement's Report on Internal Control over Financial Reporting appearing under Item 9A(b) of the Company’sCompany's December 31, 20102011 annual report onForm 10-K. Our responsibility is to express an opinion on the Company’sCompany'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’scompany'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’scompany'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’scompany'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.
In our opinion, Diebold Incorporated maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,2011, based on criteria established inInternal Control —- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
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, 20102011 and 2009,2010, and the related consolidated statements of operations, equity, and cash flows for each of the years in the three-year period ended December 31, 2010,2011, and our report dated February 22, 201117, 2012 expressed an unqualified opinion on those consolidated financial statements.
Cleveland, Ohio
February 22, 201117, 2012
45
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(dollars in thousands)
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| |
ASSETS |
| Current assets | | | | | | | | |
| Cash and cash equivalents | | $ | 328,658 | | | $ | 328,426 | |
| Short-term investments | | | 273,123 | | | | 177,442 | |
| Trade receivables, less allowances for doubtful accounts of $24,868 and $26,648, respectively | | | 404,501 | | | | 330,982 | |
| Inventories | | | 444,575 | | | | 448,243 | |
| Deferred income taxes | | | 106,160 | | | | 84,950 | |
| Prepaid expenses | | | 32,111 | | | | 37,370 | |
| Refundable income taxes | | | 19,654 | | | | 93,907 | |
| Other current assets | | | 105,254 | | | | 86,765 | |
| | | | | | | | | |
| Total current assets | | | 1,714,036 | | | | 1,588,085 | |
| | | | | | | | | |
| Securities and other investments | | | 76,138 | | | | 73,989 | |
| Property, plant and equipment at cost | | | 646,235 | | | | 613,377 | |
| Less accumulated depreciation and amortization | | | 442,773 | | | | 408,557 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 203,462 | | | | 204,820 | |
| Goodwill | | | 269,398 | | | | 450,937 | |
| Deferred income taxes | | | 49,961 | | | | 32,834 | |
| Other assets | | | 206,795 | | | | 204,200 | |
| | | | | | | | | |
Total assets | | $ | 2,519,790 | | | $ | 2,554,865 | |
| | | | | | | | | |
| |
| LIABILITIES AND EQUITY |
| Current liabilities | | | | | | | | |
| Notes payable | | $ | 15,038 | | | $ | 16,915 | |
| Accounts payable | | | 214,288 | | | | 147,496 | |
| Deferred revenue | | | 205,173 | | | | 198,989 | |
| Payroll and benefits liabilities | | | 78,515 | | | | 77,934 | |
| Other current liabilities | | | 296,751 | | | | 301,757 | |
| | | | | | | | | |
| Total current liabilities | | | 809,765 | | | | 743,091 | |
| | | | | | | | | |
| Long-term debt | | | 550,368 | | | | 553,008 | |
| Pensions and other benefits | | | 100,152 | | | | 90,021 | |
| Postretirement and other benefits | | | 23,096 | | | | 29,174 | |
| Deferred income taxes | | | 31,126 | | | | 45,060 | |
| Other long-term liabilities | | | 15,469 | | | | 22,485 | |
| Commitments and contingencies | | | — | | | | — | |
| Equity | | | | | | | | |
| Diebold, Incorporated shareholders’ equity | | | | | | | | |
| Preferred shares, no par value, 1,000,000 authorized shares, none issued | | | — | | | | — | |
| Common shares, 125,000,000 authorized shares, 76,365,124 and 76,093,101 issued shares, 65,717,103 and 66,327,627 outstanding shares, respectively | | | 95,456 | | | | 95,116 | |
| Additional capital | | | 308,699 | | | | 290,689 | |
| Retained earnings | | | 919,296 | | | | 1,011,448 | |
| Treasury shares, at cost (10,648,021 and 9,765,474 shares, respectively) | | | (435,922 | ) | | | (410,153 | ) |
| Accumulated other comprehensive income | | | 73,626 | | | | 59,279 | |
| | | | | | | | | |
| Total Diebold, Incorporated shareholders’ equity | | | 961,155 | | | | 1,046,379 | |
| Noncontrolling interests | | | 28,659 | | | | 25,647 | |
| | | | | | | | | |
Total equity | | | 989,814 | | | | 1,072,026 | |
| | | | | | | | | |
Total liabilities and equity | | $ | 2,519,790 | | | $ | 2,554,865 | |
| | | | | | | | | |
|
| | | | | | | | |
| | | December 31, |
| | | 2011 | | 2010 |
| ASSETS | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 333,920 |
| | $ | 328,658 |
|
| Short-term investments | | 286,853 |
| | 273,123 |
|
Trade receivables, less allowances for doubtful accounts of
$22,128 and $24,868, respectively | | 414,969 |
| | 404,501 |
|
| Inventories | | 440,900 |
| | 444,575 |
|
| Deferred income taxes | | 114,250 |
| | 106,160 |
|
| Prepaid expenses | | 31,452 |
| | 32,111 |
|
| Refundable income taxes | | 14,467 |
| | 19,654 |
|
| Other current assets | | 95,544 |
| | 105,254 |
|
| Total current assets | | 1,732,355 |
| | 1,714,036 |
|
| Securities and other investments | | 74,869 |
| | 76,138 |
|
| Property, plant and equipment at cost | | 642,256 |
| | 646,235 |
|
| Less accumulated depreciation and amortization | | 449,562 |
| | 442,773 |
|
| Property, plant and equipment, net | | 192,694 |
| | 203,462 |
|
| Goodwill | | 253,063 |
| | 269,398 |
|
| Deferred income taxes | | 91,090 |
| | 49,961 |
|
| Other assets | | 173,372 |
| | 206,795 |
|
| Total assets | | $ | 2,517,443 |
| | $ | 2,519,790 |
|
| | | | | |
| LIABILITIES AND EQUITY | | | | |
| Current liabilities | | | | |
| Notes payable | | $ | 21,722 |
| | $ | 15,038 |
|
| Accounts payable | | 221,964 |
| | 214,288 |
|
| Deferred revenue | | 241,992 |
| | 205,173 |
|
| Payroll and benefits liabilities | | 79,854 |
| | 78,515 |
|
| Other current liabilities | | 258,685 |
| | 296,751 |
|
| Total current liabilities | | 824,217 |
| | 809,765 |
|
| Long-term debt | | 606,154 |
| | 550,368 |
|
| Pensions and other benefits | | 148,399 |
| | 100,152 |
|
| Other postretirement benefits | | 23,196 |
| | 23,096 |
|
| Deferred income taxes | | 32,029 |
| | 31,126 |
|
| Other long-term liabilities | | 25,188 |
| | 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,
76,840,956 and 76,365,124 issued shares,
62,513,615 and 65,717,103 outstanding shares, respectively | | 96,051 |
| | 95,456 |
|
| Additional capital | | 327,805 |
| | 308,699 |
|
| Retained earnings | | 991,210 |
| | 919,296 |
|
| Treasury shares, at cost (14,327,341 and 10,648,021 shares, respectively) | | (547,737 | ) | | (435,922 | ) |
| Accumulated other comprehensive (loss) income | | (40,343 | ) | | 73,626 |
|
| Total Diebold, Incorporated shareholders' equity | | 826,986 |
| | 961,155 |
|
| Noncontrolling interests | | 31,274 |
| | 28,659 |
|
| Total equity | | 858,260 |
| | 989,814 |
|
| Total liabilities and equity | | $ | 2,517,443 |
| | $ | 2,519,790 |
|
See accompanying notes to consolidated financial statements.
46
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(in thousands, except per share amounts)
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
Net sales | | | | | | | | | | | | |
| Products | | $ | 1,330,368 | | | $ | 1,238,346 | | | $ | 1,511,856 | |
| Services | | | 1,493,425 | | | | 1,479,946 | | | | 1,569,982 | |
| | | | | | | | | | | | | |
| | | | 2,823,793 | | | | 2,718,292 | | | | 3,081,838 | |
| | | | | | | | | | | | | |
Cost of sales | | | | | | | | | | | | |
| Products | | | 1,003,923 | | | | 944,090 | | | | 1,098,633 | |
| Services | | | 1,100,305 | | | | 1,124,202 | | | | 1,208,328 | |
| | | | | | | | | | | | | |
| | | | 2,104,228 | | | | 2,068,292 | | | | 2,306,961 | |
| | | | | | | | | | | | | |
Gross profit | | | 719,565 | | | | 650,000 | | | | 774,877 | |
| Selling and administrative expense | | | 472,956 | | | | 424,875 | | | | 514,154 | |
| Research, development and engineering expense | | | 74,225 | | | | 72,026 | | | | 73,034 | |
| Impairment of assets | | | 175,849 | | | | 2,500 | | | | 4,376 | |
| (Gain) loss on sale of assets, net | | | (1,663 | ) | | | 7 | | | | 403 | |
| | | | | | | | | | | | | |
| | | | 721,367 | | | | 499,408 | | | | 591,967 | |
| | | | | | | | | | | | | |
Operating (loss) profit | | | (1,802 | ) | | | 150,592 | | | | 182,910 | |
| Other income (expense) | | | | | | | | | | | | |
| Investment income | | | 34,545 | | | | 29,016 | | | | 25,218 | |
| Interest expense | | | (37,887 | ) | | | (35,452 | ) | | | (45,367 | ) |
| Foreign exchange loss, net | | | (1,301 | ) | | | (922 | ) | | | (8,785 | ) |
| Miscellaneous, net | | | 4,048 | | | | (19,427 | ) | | | 2,341 | |
| | | | | | | | | | | | | |
(Loss) income from continuing operations before taxes | | | (2,397 | ) | | | 123,807 | | | | 156,317 | |
| Taxes on income | | | 14,561 | | | | 44,477 | | | | 41,496 | |
| | | | | | | | | | | | | |
| (Loss) income from continuing operations | | | (16,958 | ) | | | 79,330 | | | | 114,821 | |
| Income (loss) from discontinued operations, net of tax | | | 275 | | | | (9,884 | ) | | | (19,198 | ) |
| Loss on sale of discontinued operations, net of tax | | | — | | | | (37,192 | ) | | | — | |
| | | | | | | | | | | | | |
| Net (loss) income | | | (16,683 | ) | | | 32,254 | | | | 95,623 | |
| Net income attributable to noncontrolling interests | | | 3,569 | | | | 6,228 | | | | 7,040 | |
| | | | | | | | | | | | | |
Net (loss) income attributable to Diebold, Incorporated | | $ | (20,252 | ) | | $ | 26,026 | | | $ | 88,583 | |
| | | | | | | | | | | | | |
| Basic weighted-average shares outstanding | | | 65,907 | | | | 66,257 | | | | 66,081 | |
| Diluted weighted-average shares outstanding | | | 65,907 | | | | 66,867 | | | | 66,492 | |
Basic earnings per share: | | | | | | | | | | | | |
| Net (loss) income from continuing operations, net of tax | | $ | (0.31 | ) | | $ | 1.10 | | | $ | 1.63 | |
| Loss from discontinued operations, net of tax | | | — | | | | (0.71 | ) | | | (0.29 | ) |
| | | | | | | | | | | | | |
Net (loss) income attributable to Diebold, Incorporated | | $ | (0.31 | ) | | $ | 0.39 | | | $ | 1.34 | |
| | | | | | | | | | | | | |
Diluted earnings per share: | | | | | | | | | | | | |
| Net (loss) income from continuing operations, net of tax | | $ | (0.31 | ) | | $ | 1.09 | | | $ | 1.62 | |
| Loss from discontinued operations, net of tax | | | — | | | | (0.70 | ) | | | (0.29 | ) |
| | | | | | | | | | | | | |
Net (loss) income attributable to Diebold, Incorporated | | $ | (0.31 | ) | | $ | 0.39 | | | $ | 1.33 | |
| | | | | | | | | | | | | |
Amounts attributable to Diebold, Incorporated | | | | | | | | | | | | |
| (Loss) income from continuing operations, net of tax | | $ | (20,527 | ) | | $ | 73,102 | | | $ | 107,781 | |
| Income (loss) from discontinued operations, net of tax | | | 275 | | | | (47,076 | ) | | | (19,198 | ) |
| | | | | | | | | | | | | |
Net (loss) income attributable to Diebold, Incorporated | | $ | (20,252 | ) | | $ | 26,026 | | | $ | 88,583 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2011 | | 2010 | | 2009 |
| Net sales | | | | | |
| Products | $ | 1,283,490 |
| | $ | 1,330,368 |
| | $ | 1,238,346 |
|
| Services | 1,552,358 |
| | 1,493,425 |
| | 1,479,946 |
|
| | 2,835,848 |
| | 2,823,793 |
| | 2,718,292 |
|
| Cost of sales | | | | | |
| Products | 961,706 |
| | 1,003,923 |
| | 944,090 |
|
| Services | 1,138,213 |
| | 1,100,305 |
| | 1,124,202 |
|
| | 2,099,919 |
| | 2,104,228 |
| | 2,068,292 |
|
| Gross profit | 735,929 |
| | 719,565 |
| | 650,000 |
|
| Selling and administrative expense | 501,186 |
| | 472,956 |
| | 424,875 |
|
| Research, development and engineering expense | 78,108 |
| | 74,225 |
| | 72,026 |
|
| Impairment of assets | 2,962 |
| | 175,849 |
| | 2,500 |
|
| (Gain) loss on sale of assets, net | (1,921 | ) | | (1,663 | ) | | 7 |
|
| | 580,335 |
| | 721,367 |
| | 499,408 |
|
| Operating profit (loss) | 155,594 |
| | (1,802 | ) | | 150,592 |
|
| Other income (expense) | | | | | |
| Investment income | 41,663 |
| | 34,545 |
| | 29,016 |
|
| Interest expense | (34,456 | ) | | (37,887 | ) | | (35,452 | ) |
| Foreign exchange gain (loss), net | 3,095 |
| | (1,301 | ) | | (922 | ) |
| Miscellaneous, net | (1,504 | ) | | 4,048 |
| | (19,427 | ) |
| Income (loss) from continuing operations before taxes | 164,392 |
| | (2,397 | ) | | 123,807 |
|
| Taxes on income | 12,815 |
| | 14,561 |
| | 44,477 |
|
| Income (loss) from continuing operations | 151,577 |
| | (16,958 | ) | | 79,330 |
|
| Income (loss) from discontinued operations, net of tax | 523 |
| | 275 |
| | (9,884 | ) |
| Loss on sale of discontinued operations, net of tax | — |
| | — |
| | (37,192 | ) |
| Net income (loss) | 152,100 |
| | (16,683 | ) | | 32,254 |
|
| Net income attributable to noncontrolling interests | 7,285 |
| | 3,569 |
| | 6,228 |
|
| Net income (loss) attributable to Diebold, Incorporated | $ | 144,815 |
| | $ | (20,252 | ) | | $ | 26,026 |
|
| | | | | | |
| Basic weighted-average shares outstanding | 64,244 |
| | 65,907 |
| | 66,257 |
|
| Diluted weighted-average shares outstanding | 64,792 |
| | 65,907 |
| | 66,867 |
|
| | | | | | |
| Basic earnings per share: | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 2.24 |
| | $ | (0.31 | ) | | $ | 1.10 |
|
| Income (loss) from discontinued operations, net of tax | 0.01 |
| | — |
| | (0.71 | ) |
| Net income (loss) attributable to Diebold, Incorporated | $ | 2.25 |
| | $ | (0.31 | ) | | $ | 0.39 |
|
| | | | | | |
| Diluted earnings per share: | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 2.23 |
| | $ | (0.31 | ) | | $ | 1.09 |
|
| Income (loss) from discontinued operations, net of tax | 0.01 |
| | — |
| | (0.70 | ) |
| Net income (loss) attributable to Diebold, Incorporated | $ | 2.24 |
| | $ | (0.31 | ) | | $ | 0.39 |
|
| | | | | | |
| Amounts attributable to Diebold, Incorporated | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 144,292 |
| | $ | (20,527 | ) | | $ | 73,102 |
|
| Income (loss) from discontinued operations, net of tax | 523 |
| | 275 |
| | (47,076 | ) |
| Net income (loss) attributable to Diebold, Incorporated | $ | 144,815 |
| | $ | (20,252 | ) | | $ | 26,026 |
|
See accompanying notes to consolidated financial statements.
47
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Accumulated
| | | Total
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Other
| | | Diebold,
| | | | | | | |
| | | | | | | | | | | | | | | | | | Comprehensive
| | | Comprehensive
| | | Incorporated
| | | | | | | |
| | | Common Shares | | | Additional
| | | Retained
| | | Treasury
| | | Income
| | | Income
| | | Shareholders’
| | | Noncontrolling
| | | Total
| |
| | | Number | | | Par Value | | | Capital | | | Earnings | | | Shares | | | (Loss) | | | (Loss) | | | Equity | | | Interests | | | Equity | |
| |
Balance, January 1, 2008 | | | 75,579,237 | | | $ | 94,474 | | | $ | 261,364 | | | $ | 1,036,824 | | | $ | (406,182 | ) | | | | | | $ | 128,354 | | | $ | 1,114,834 | | | $ | 13,757 | | | $ | 1,128,591 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension measurement date adjustment (note 12) | | | | | | | | | | | | | | | (1,387 | ) | | | | | | | | | | | (1,916 | ) | | | (3,303 | ) | | | | | | | (3,303 | ) |
| Split-dollar life insurance beginning retained earnings adjustment (note 1) | | | | | | | | | | | | | | | (2,584 | ) | | | | | | | | | | | | | | | (2,584 | ) | | | | | | | (2,584 | ) |
| Net income | | | | | | | | | | | | | | | 88,583 | | | | | | | $ | 88,583 | | | | | | | | 88,583 | | | | 7,040 | | | | 95,623 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency hedges and translation | | | | | | | | | | | | | | | | | | | | | | | (99,689 | ) | | | | | | | (99,689 | ) | | | 383 | | | | (99,306 | ) |
| Interest rate hedges | | | | | | | | | | | | | | | | | | | | | | | (4,910 | ) | | | | | | | (4,910 | ) | | | | | | | (4,910 | ) |
| Pensions | | | | | | | | | | | | | | | | | | | | | | | (94,763 | ) | | | | | | | (94,763 | ) | | | | | | | (94,763 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | (199,362 | ) | | | (199,362 | ) | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | $ | (110,779 | ) | | | | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock options exercised | | | 665 | | | | 1 | | | | 16 | | | | | | | | | | | | | | | | | | | | 17 | | | | | | | | 17 | |
| Restricted shares | | | 121,985 | | | | 152 | | | | 5,861 | | | | | | | | | | | | | | | | | | | | 6,013 | | | | | | | | 6,013 | |
| Restricted stock units issued | | | 49,526 | | | | 62 | | | | (62 | ) | | | | | | | | | | | | | | | | | | | — | | | | | | | | — | |
| Performance shares issued | | | 50,021 | | | | 63 | | | | 719 | | | | | | | | | | | | | | | | | | | | 782 | | | | | | | | 782 | |
| Tax expense from employee stock plans | | | | | | | | | | | (2,122 | ) | | | | | | | | | | | | | | | | | | | (2,122 | ) | | | | | | | (2,122 | ) |
| Share-based compensation expense | | | | | | | | | | | 12,189 | | | | | | | | | | | | | | | | | | | | 12,189 | | | | | | | | 12,189 | |
| Colombia acquisition earnout | | | | | | | | | | | 170 | | | | | | | | 230 | | | | | | | | | | | | 400 | | | | | | | | 400 | |
| Dividends declared and paid | | | | | | | | | | | | | | | (66,563 | ) | | | | | | | | | | | | | | | (66,563 | ) | | | | | | | (66,563 | ) |
| Treasury shares | | | | | | | | | | | | | | | | | | | (2,283 | ) | | | | | | | | | | | (2,283 | ) | | | | | | | (2,283 | ) |
| Distributions to noncontrolling interest holders, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | (3,523 | ) | | | (3,523 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2008 | | | 75,801,434 | | | $ | 94,752 | | | $ | 278,135 | | | $ | 1,054,873 | | | $ | (408,235 | ) | | | | | | $ | (72,924 | ) | | $ | 946,601 | | | $ | 17,657 | | | $ | 964,258 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 26,026 | | | | | | | $ | 26,026 | | | | | | | | 26,026 | | | | 6,228 | | | | 32,254 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency hedges and translation | | | | | | | | | | | | | | | | | | | | | | | 107,773 | | | | | | | | 107,773 | | | | 1,759 | | | | 109,532 | |
| Interest rate hedges | | | | | | | | | | | | | | | | | | | | | | | 3,112 | | | | | | | | 3,112 | | | | | | | | 3,112 | |
| Pensions | | | | | | | | | | | �� | | | | | | | | | | | | 21,318 | | | | | | | | 21,318 | | | | | | | | 21,318 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 132,203 | | | | 132,203 | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | $ | 158,229 | | | | | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock options exercised | | | 66,400 | | | | 83 | | | | 1,442 | | | | | | | | | | | | | | | | | | | | 1,525 | | | | | | | | 1,525 | |
| Restricted shares | | | 13,328 | | | | 16 | | | | 583 | | | | | | | | | | | | | | | | | | | | 599 | | | | | | | | 599 | |
| Restricted stock units issued | | | 96,300 | | | | 120 | | | | (120 | ) | | | | | | | | | | | | | | | | | | | — | | | | | | | | — | |
| Performance shares issued | | | 111,939 | | | | 140 | | | | (96 | ) | | | | | | | | | | | | | | | | | | | 44 | | | | | | | | 44 | |
| Deferred shares | | | 3,700 | | | | 5 | | | | (5 | ) | | | | | | | | | | | | | | | | | | | — | | | | | | | | — | |
| Tax expense from employee stock plans | | | | | | | | | | | (1,160 | ) | | | | | | | | | | | | | | | | | | | (1,160 | ) | | | | | | | (1,160 | ) |
| Share-based compensation expense | | | | | | | | | | | 11,910 | | | | | | | | | | | | | | | | | | | | 11,910 | | | | | | | | 11,910 | |
| Dividends declared and paid | | | | | | | | | | | | | | | (69,451 | ) | | | | | | | | | | | | | | | (69,451 | ) | | | | | | | (69,451 | ) |
| Treasury shares | | | | | | | | | | | | | | | | | | | (1,918 | ) | | | | | | | | | | | (1,918 | ) | | | | | | | (1,918 | ) |
| Contributions from noncontrolling interest holders, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 3 | | | | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2009 | | | 76,093,101 | | | $ | 95,116 | | | $ | 290,689 | | | $ | 1,011,448 | | | $ | (410,153 | ) | | | | | | $ | 59,279 | | | $ | 1,046,379 | | | $ | 25,647 | | | $ | 1,072,026 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net (loss) income | | | | | | | | | | | | | | | (20,252 | ) | | | | | | $ | (20,252 | ) | | | | | | | (20,252 | ) | | | 3,569 | | | | (16,683 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency hedges and translation | | | | | | | | | | | | | | | | | | | | | | | 27,867 | | | | | | | | 27,867 | | | | 669 | | | | 28,536 | |
| Interest rate hedges | | | | | | | | | | | | | | | | | | | | | | | (793 | ) | | | | | | | (793 | ) | | | | | | | (793 | ) |
| Pensions | | | | | | | | | | | | | | | | | | | | | | | (11,430 | ) | | | | | | | (11,430 | ) | | | | | | | (11,430 | ) |
Unrealized loss, net onavailable-for-sale investments | | | | | | | | | | | | | | | | | | | | | | | (1,297 | ) | | | | | | | (1,297 | ) | | | | | | | (1,297 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 14,347 | | | | 14,347 | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | $ | (5,905 | ) | | | | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock options exercised | | | 123,091 | | | | 154 | | | | 3,269 | | | | | | | | | | | | | | | | | | | | 3,423 | | | | | | | | 3,423 | |
| Restricted shares | | | 1,668 | | | | 2 | | | | 2,390 | | | | | | | | | | | | | | | | | | | | 2,392 | | | | | | | | 2,392 | |
| Restricted stock units issued | | | 88,366 | | | | 110 | | | | (110 | ) | | | | | | | | | | | | | | | | | | | — | | | | | | | | — | |
| Performance shares issued | | | 58,898 | | | | 74 | | | | 1,625 | | | | | | | | | | | | | | | | | | | | 1,699 | | | | | | | | 1,699 | |
| Tax expense from employee stock plans | | | | | | | | | | | (1,705 | ) | | | | | | | | | | | | | | | | | | | (1,705 | ) | | | | | | | (1,705 | ) |
| Share-based compensation expense | | | | | | | | | | | 12,541 | | | | | | | | | | | | | | | | | | | | 12,541 | | | | | | | | 12,541 | |
| Dividends declared and paid | | | | | | | | | | | | | | | (71,900 | ) | | | | | | | | | | | | | | | (71,900 | ) | | | | | | | (71,900 | ) |
| Treasury shares | | | | | | | | | | | | | | | | | | | (25,769 | ) | | | | | | | | | | | (25,769 | ) | | | | | | | (25,769 | ) |
| Distributions to noncontrolling interest holders, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | (1,226 | ) | | | (1,226 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2010 | | | 76,365,124 | | | $ | 95,456 | | | $ | 308,699 | | | $ | 919,296 | | | $ | (435,922 | ) | | | | | | $ | 73,626 | | | $ | 961,155 | | | $ | 28,659 | | | $ | 989,814 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Shares Number Par Value | | Additional Capital | | Retained Earnings | | Treasury Shares | | Comprehensive Income (Loss) | | Accumulated Other Comprehensive Income (Loss) | | Total Diebold, Incorporated Shareholders' Equity | | Noncontrolling Interests | | Total Equity |
| Balance, January 1, 2009 | 75,801,434 |
| | $ | 94,752 |
| | $ | 278,135 |
| | $ | 1,054,873 |
| | $ | (408,235 | ) | | | | $ | (72,924 | ) | | $ | 946,601 |
| | $ | 17,657 |
| | $ | 964,258 |
|
| Net income | | | | | | | 26,026 |
| | | | $ | 26,026 |
| | | | 26,026 |
| | 6,228 |
| | 32,254 |
|
| Foreign currency hedges and translation | | | | | | | | | | | 107,773 |
| | | | 107,773 |
| | 1,759 |
| | 109,532 |
|
| Interest rate hedges | | | | | | | | | | | 3,112 |
| | | | 3,112 |
| | | | 3,112 |
|
| Pensions | | | | | | | | | | | 21,318 |
| | | | 21,318 |
| | | | 21,318 |
|
| Other comprehensive income | | | | | | | | | | | 132,203 |
| | 132,203 |
| |
|
| | | |
|
|
| Comprehensive income | | | | | | | | | | | $ | 158,229 |
| | | |
|
| | | |
|
|
| Stock options exercised | 65,975 |
| | 83 |
| | 1,431 |
| | | | | | | | | | 1,514 |
| | | | 1,514 |
|
| Restricted shares | 13,753 |
| | 16 |
| | 594 |
| | | | | | | | | | 610 |
| | | | 610 |
|
| Restricted stock units issued | 96,300 |
| | 120 |
| | (120 | ) | | | | | | | | | | — |
| | | | — |
|
| Performance shares issued | 111,939 |
| | 140 |
| | (96 | ) | | | | | | | | | | 44 |
| | | | 44 |
|
| Deferred shares | 3,700 |
| | 5 |
| | (5 | ) | | | | | | | | | | — |
| | | | — |
|
Net excess tax detriment from share-based
compensation | | | | | (1,160 | ) | | | | | | | | | | (1,160 | ) | | | | (1,160 | ) |
| Share-based compensation expense | | | | | 11,910 |
| | | | | | | | | | 11,910 |
| | | | 11,910 |
|
| Dividends declared and paid | | | | | | | (69,451 | ) | | | | | | | | (69,451 | ) | | | | (69,451 | ) |
| Treasury shares | | | | | | | | | (1,918 | ) | | | | | | (1,918 | ) | | | | (1,918 | ) |
Contributions from noncontrolling interest
holders, net | | | | | | | | | | | | | | | — |
| | 3 |
| | 3 |
|
| Balance, December 31, 2009 | 76,093,101 |
| | $ | 95,116 |
| | $ | 290,689 |
| | $ | 1,011,448 |
| | $ | (410,153 | ) | | | | $ | 59,279 |
| | $ | 1,046,379 |
| | $ | 25,647 |
| | $ | 1,072,026 |
|
| Net (loss) income | | | | | | | (20,252 | ) | | | | $ | (20,252 | ) | | | | (20,252 | ) | | 3,569 |
| | (16,683 | ) |
| Foreign currency hedges and translation | | | | | | | | | | | 27,867 |
| | | | 27,867 |
| | 669 |
| | 28,536 |
|
| Interest rate hedges | | | | | | | | | | | (793 | ) | | | | (793 | ) | | | | (793 | ) |
| Pensions | | | | | | | | | | | (11,430 | ) | | | | (11,430 | ) | | | | (11,430 | ) |
Unrealized loss, net on available-for-sale
investments | | | | | | | | | | | (1,297 | ) | | | | (1,297 | ) | | | | (1,297 | ) |
| Other comprehensive income | | | | | | | | | | | 14,347 |
| | 14,347 |
| |
|
| | | |
|
|
| Comprehensive loss | | | | | | | | | | | $ | (5,905 | ) | | | |
|
| | | |
|
|
| Stock options exercised | 123,091 |
| | 154 |
| | 3,178 |
| | | | | | | | | | 3,332 |
| | | | 3,332 |
|
| Restricted shares | 5,828 |
| | 7 |
| | 2,182 |
| | | | | | | | | | 2,189 |
| | | | 2,189 |
|
| Restricted stock units issued | 88,366 |
| | 110 |
| | (110 | ) | | | | | | | | | | — |
| | | | — |
|
| Performance shares issued | 54,738 |
| | 69 |
| | 1,924 |
| | | | | | | | | | 1,993 |
| | | | 1,993 |
|
Net excess tax detriment from share-based
compensation | | | | | (1,705 | ) | | | | | | | | | | (1,705 | ) | | | | (1,705 | ) |
| Share-based compensation expense | | | | | 12,541 |
| | | | | | | | | | 12,541 |
| | | | 12,541 |
|
| Dividends declared and paid | | | | | | | (71,900 | ) | | | | | | | | (71,900 | ) | | | | (71,900 | ) |
| Treasury shares | | | | | | | | | (25,769 | ) | | | | | | (25,769 | ) | | | | (25,769 | ) |
Distributions to noncontrolling interest
holders, net | | | | | | | | | | | | | | | — |
| | (1,226 | ) | | (1,226 | ) |
| Balance, December 31, 2010 | 76,365,124 |
| | $ | 95,456 |
| | $ | 308,699 |
| | $ | 919,296 |
| | $ | (435,922 | ) | | | | $ | 73,626 |
| | $ | 961,155 |
| | $ | 28,659 |
| | $ | 989,814 |
|
| Net income | | | | | | | 144,815 |
| | | | $ | 144,815 |
| | | | 144,815 |
| | 7,285 |
| | 152,100 |
|
| Foreign currency hedges and translation | | | | | | | | | | | (75,974 | ) | | | | (75,974 | ) | | 1,198 |
| | (74,776 | ) |
| Interest rate hedges | | | | | | | | | | | (693 | ) | | | | (693 | ) | | | | (693 | ) |
| Pensions | | | | | | | | | | | (39,937 | ) | | | | (39,937 | ) | | | | (39,937 | ) |
Unrealized gain, net on available-for-sale
investments | | | | | | | | | | | 2,635 |
| | | | 2,635 |
| | | | 2,635 |
|
| Other comprehensive loss | | | | | | | | | | | (113,969 | ) | | (113,969 | ) | |
|
| | | |
|
|
| Comprehensive income | | | | | | | | | | | $ | 30,846 |
| | | |
|
| | | |
|
|
| Stock options exercised | 150,769 |
| | 189 |
| | 3,854 |
| | | | | | | | | | 4,043 |
| | | | 4,043 |
|
| Restricted shares | 9,878 |
| | 12 |
| | (12 | ) | | | | | | | | | | — |
| | | | — |
|
| Restricted stock units issued | 121,462 |
| | 152 |
| | (152 | ) | | | | | | | | | | — |
| | | | — |
|
| Performance shares issued | 186,523 |
| | 233 |
| | (233 | ) | | | | | | | | | | — |
| | | | — |
|
| Deferred shares | 7,200 |
| | 9 |
| | (9 | ) | | | | | | | | | | — |
| | | | — |
|
Net excess tax benefit from stock-based
compensation | | | | | 1,362 |
| | | | | | | | | | 1,362 |
| | | | 1,362 |
|
| Share-based compensation expense | | | | | 14,296 |
| | | | | | | | | | 14,296 |
| | | | 14,296 |
|
| Dividends declared and paid | | | | | | | (72,901 | ) | | | | | | | | (72,901 | ) | | | | (72,901 | ) |
| Treasury shares | | | | | | | | | (111,815 | ) | | | | | | (111,815 | ) | | | | (111,815 | ) |
Distributions to noncontrolling interest
holders, net | | | | | | | | | | | | | | | — |
| | (5,868 | ) | | (5,868 | ) |
| Balance, December 31, 2011 | 76,840,956 |
| | $ | 96,051 |
| | $ | 327,805 |
| | $ | 991,210 |
| | $ | (547,737 | ) | | | | $ | (40,343 | ) | | $ | 826,986 |
| | $ | 31,274 |
| | $ | 858,260 |
|
DIEBOLD INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2011 | | 2010 | | 2009 |
| Cash flow from operating activities: | | | | | |
| Net income (loss) | $ | 152,100 |
| | $ | (16,683 | ) | | $ | 32,254 |
|
| Adjustments to reconcile net income (loss) to cash provided by operating activities: | | | | | |
| Depreciation and amortization | 79,855 |
| | 79,253 |
| | 77,693 |
|
| Share-based compensation | 14,296 |
| | 12,541 |
| | 11,910 |
|
| Excess tax benefits from share-based compensation | (1,691 | ) | | (426 | ) | | (320 | ) |
| Impairment of assets | 2,962 |
| | 175,849 |
| | 2,500 |
|
| Devaluation of Venezuelan balance sheet | — |
| | 5,148 |
| | — |
|
| (Gain) loss on sale of assets, net | (1,921 | ) | | (1,663 | ) | | 7 |
|
| Equity in earnings of an investee | (1,813 | ) | | (2,982 | ) | | (2,456 | ) |
| Loss on sale of discontinued operations | — |
| | — |
| | 37,192 |
|
| Cash flow from changes in certain assets and liabilities: | | | | | |
| Trade receivables | (22,790 | ) | | (69,377 | ) | | 123,400 |
|
| Inventories | (12,602 | ) | | 3,136 |
| | 76,001 |
|
| Prepaid expenses | (119 | ) | | 5,057 |
| | 6,354 |
|
| Refundable income taxes | 5,187 |
| | 74,253 |
| | (67,404 | ) |
| Other current assets | (389 | ) | | (7,402 | ) | | 36,705 |
|
| Accounts payable | 11,741 |
| | 65,768 |
| | (54,193 | ) |
| Deferred revenue | 41,610 |
| | 8,568 |
| | 6,322 |
|
| Deferred income taxes | (29,338 | ) | | (47,777 | ) | | 50,379 |
|
| Pension and other postretirement benefits | (14,187 | ) | | (7,450 | ) | | (11,557 | ) |
| Certain other assets and liabilities | (7,504 | ) | | (2,460 | ) | | (27,905 | ) |
| Net cash provided by operating activities | 215,397 |
| | 273,353 |
| | 296,882 |
|
| Cash flow from investing activities: | | | | | |
| Proceeds from sale of discontinued operations | 2,520 |
| | 1,815 |
| | 9,908 |
|
| Payments for acquisitions, net of cash acquired | — |
| | — |
| | (5,364 | ) |
| Proceeds from maturities of investments | 259,145 |
| | 345,911 |
| | 221,411 |
|
| Proceeds from sale of investments | 52,292 |
| | 38,016 |
| | — |
|
| Payments for purchases of investments | (356,354 | ) | | (470,641 | ) | | (241,921 | ) |
| Proceeds from sale of fixed assets | 5,585 |
| | 2,184 |
| | 113 |
|
| Capital expenditures | (54,753 | ) | | (51,298 | ) | | (44,287 | ) |
| Increase in certain other assets | (21,386 | ) | | (20,878 | ) | | (30,638 | ) |
| Purchase of finance receivables, net of cash collections | 22,245 |
| | (9,865 | ) | | — |
|
| Net cash used in investing activities | (90,706 | ) | | (164,756 | ) | | (90,778 | ) |
| Cash flow from financing activities: | | | | | |
| Dividends paid | (72,901 | ) | | (71,900 | ) | | (69,451 | ) |
| Debt issuance costs | (1,876 | ) | | — |
| | (4,539 | ) |
| Debt borrowings | 713,327 |
| | 553,965 |
| | 326,017 |
|
| Debt repayments | (650,136 | ) | | (569,928 | ) | | (382,934 | ) |
| (Distribution to) contribution from noncontrolling interest holders, net | (5,868 | ) | | (1,226 | ) | | 3 |
|
| Excess tax benefits from share-based compensation | 1,691 |
| | 426 |
| | 320 |
|
| Issuance of common shares | 4,043 |
| | 3,332 |
| | 1,514 |
|
| Repurchase of common shares | (111,815 | ) | | (25,769 | ) | | (1,918 | ) |
| Net cash used in financing activities | (123,535 | ) | | (111,100 | ) | | (130,988 | ) |
| Effect of exchange rate changes on cash | 4,106 |
| | 2,735 |
| | 11,874 |
|
| Increase in cash and cash equivalents | 5,262 |
| | 232 |
| | 86,990 |
|
| Cash and cash equivalents at the beginning of the year | 328,658 |
| | 328,426 |
| | 241,436 |
|
| Cash and cash equivalents at the end of the year | $ | 333,920 |
| | $ | 328,658 |
| | $ | 328,426 |
|
| Cash (paid) received for: | | | | | |
| Income taxes | $ | (27,468 | ) | | $ | 15,860 |
| | $ | (34,287 | ) |
| Interest | $ | (24,277 | ) | | $ | (26,239 | ) | | $ | (24,486 | ) |
| Significant noncash investing and financing activities: | | | | | |
| Finance receivables acquired | $ | — |
| | $ | 33,843 |
| | $ | — |
|
| Liabilities assumed related to acquisition of finance receivables | $ | — |
| | $ | 20,861 |
| | $ | — |
|
See accompanying notes to consolidated financial statements.
48
DIEBOLD INCORPORATED AND SUBSIDIARIES
(in thousands)
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
Cash flow from operating activities: | | | | | | | | | | | | |
| Net (loss) income | | $ | (16,683 | ) | | $ | 32,254 | | | $ | 95,623 | |
| Adjustments to reconcile net (loss) income to cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | 79,253 | | | | 77,693 | | | | 80,470 | |
| Share-based compensation | | | 12,541 | | | | 11,910 | | | | 12,189 | |
| Excess tax benefits from share-based compensation | | | (426 | ) | | | (320 | ) | | | (168 | ) |
| Deferred income taxes | | | (47,777 | ) | | | 50,379 | | | | (22,592 | ) |
| Impairment of assets | | | 175,849 | | | | 2,500 | | | | 21,037 | |
| Devaluation of Venezuelan balance sheet | | | 5,148 | | | | — | | | | — | |
| (Gain) loss on sale of assets, net | | | (1,663 | ) | | | 7 | | | | 403 | |
| Equity in earnings of an investee | | | (2,982 | ) | | | (2,456 | ) | | | (2,470 | ) |
| Loss on sale of discontinued operations | | | — | | | | 37,192 | | | | — | |
| Cash (used in) provided by changes in certain assets and liabilities: | | | | | | | | | | | | |
| Trade receivables | | | (69,377 | ) | | | 123,400 | | | | 10,633 | |
| Inventories | | | 3,136 | | | | 76,001 | | | | (53,650 | ) |
| Prepaid expenses | | | 5,057 | | | | 6,354 | | | | 1,183 | |
| Refundable income taxes | | | 74,253 | | | | (67,404 | ) | | | 6,440 | |
| Other current assets | | | (7,402 | ) | | | 36,705 | | | | (14,706 | ) |
| Accounts payable | | | 65,768 | | | | (54,193 | ) | | | 36,480 | |
| Deferred revenue | | | 8,568 | | | | 6,322 | | | | (49,668 | ) |
| Pension and postretirement benefits | | | (7,450 | ) | | | (11,557 | ) | | | (2,900 | ) |
| Certain other assets and liabilities | | | (2,460 | ) | | | (27,905 | ) | | | 163,917 | |
| | | | | | | | | | | | | |
Net cash provided by operating activities | | | 273,353 | | | | 296,882 | | | | 282,221 | |
Cash flow from investing activities: | | | | | | | | | | | | |
| Proceeds from sale of discontinued operations | | | 1,815 | | | | 9,908 | | | | — | |
| Payments for acquisitions, net of cash acquired | | | — | | | | (5,364 | ) | | | (4,461 | ) |
| Proceeds from maturities of investments | | | 345,911 | | | | 221,411 | | | | 303,410 | |
| Proceeds from sale of investments | | | 38,016 | | | | — | | | | — | |
| Payments for purchases of investments | | | (470,641 | ) | | | (241,921 | ) | | | (357,091 | ) |
| Proceeds from sale of fixed assets | | | 2,184 | | | | 113 | | | | 42 | |
| Capital expenditures | | | (51,298 | ) | | | (44,287 | ) | | | (57,932 | ) |
| Increase in certain other assets | | | (20,878 | ) | | | (30,638 | ) | | | (23,982 | ) |
| Purchase of finance receivables, net of cash collections | | | (9,865 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
Net cash used in investing activities | | | (164,756 | ) | | | (90,778 | ) | | | (140,014 | ) |
Cash flow from financing activities: | | | | | | | | | | | | |
| Dividends paid | | | (71,900 | ) | | | (69,451 | ) | | | (66,563 | ) |
| Debt issuance costs | | | — | | | | (4,539 | ) | | | — | |
| Debt borrowings | | | 553,965 | | | | 326,017 | | | | 606,269 | |
| Debt repayments | | | (569,928 | ) | | | (382,934 | ) | | | (624,040 | ) |
| (Distribution to) contribution from noncontrolling interest holders, net | | | (1,226 | ) | | | 3 | | | | (3,523 | ) |
| Excess tax benefits from share-based compensation | | | 426 | | | | 320 | | | | 168 | |
| Issuance of common shares | | | 3,332 | | | | 1,514 | | | | — | |
| Repurchase of common shares | | | (25,769 | ) | | | (1,918 | ) | | | — | |
| | | | | | | | | | | | | |
Net cash used in financing activities | | | (111,100 | ) | | | (130,988 | ) | | | (87,689 | ) |
| | | | | | | | | | | | | |
Effect of exchange rate changes on cash | | | 2,735 | | | | 11,874 | | | | (19,416 | ) |
Increase in cash and cash equivalents | | | 232 | | | | 86,990 | | | | 35,102 | |
Cash and cash equivalents at the beginning of the year | | | 328,426 | | | | 241,436 | | | | 206,334 | |
| | | | | | | | | | | | | |
Cash and cash equivalents at the end of the year | | $ | 328,658 | | | $ | 328,426 | | | $ | 241,436 | |
| | | | | | | | | | | | | |
Cash received (paid) for: | | | | | | | | | | | | |
| Income taxes | | $ | 15,860 | | | $ | (34,287 | ) | | $ | (42,154 | ) |
| Interest | | $ | (26,239 | ) | | $ | (24,486 | ) | | $ | (30,747 | ) |
Significant noncash investing and financing activities: | | | | | | | | | | | | |
| Finance receivables acquired | | $ | 33,843 | | | $ | — | | | $ | — | |
| Liabilities assumed related to acquisition of finance receivables | | $ | 20,861 | | | $ | — | | | $ | — | |
See accompanying notes to consolidated financial statements.
49
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
| |
NOTE 1: | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES
Principles of ConsolidationThe 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 StatementsThe 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 value of purchase consideration, valuation of trade receivables, inventories, goodwill, intangible assets, and other long-lived assets, legal contingencies, guarantee obligations, indemnifications 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, including the economic difficulties in the United States credit markets and the global markets.factors. Management monitors the economic condition and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile foreign currency and equity, and declines in the global economic environment have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
International OperationsThe 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 itsnon-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 52.7 percent, 55.3 percent and 50.9 percent in 2011, 2010 and 52.0 percent in 2010, 2009 and 2008,, respectively.
ReclassificationsThe Company has reclassified the presentation of certain prior-year information to conform to the current presentation.
Out-of-Period Adjustments AdjustmentsIn 2010, the Company remediated a control weakness in the area of application of accounting policies specific to multiple-deliverable arrangements. As part of remediation, during 2010, the Company recorded anout-of-period adjustment to defer revenue previously recognized that was not in accordance with U.S. GAAP. The immaterialout-of-period adjustment was recorded within the Company’s operations in China, included in the Diebold International (DI) reporting segment. The adjustment decreased revenue related to multiple-deliverable contracts that included revenue which was contingent upon the installation of the equipment. This deferred revenue will bewas recognized upon completion of installation. Theout-of-period adjustment represented a decrease in revenue and operating profit in 2010 of $19,822$19,822 and $5,753,$5,753, respectively.
In 2009, and 2008, the Company recordedout-of-period adjustments to increase income tax expense on continuing operations by approximately $9,000 and $5,300, respectively,$8,765 relating to immaterial errors originating in prior years (refer to note 4).
50
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
Revenue RecognitionOn January 1, 2010, the Company elected to early adopt FASB Accounting Standards Update (ASU)2009-13,Multiple-Deliverable Revenue Arrangements(ASU2009-13), and FASB ASU2009-14,Certain Arrangements That Include Software Elements(ASU2009-14). The adoption of ASU2009-13 and ASU2009-14 did not have a material impact on the Company’s consolidated financial statements. ASU2009-14 amended software revenue recognition guidance in FASBASC 985-605Software — Revenue Recognition(ASC985-605), to exclude from its scope the Company’s tangible products that contain both software and non-software components that function together to deliver a product’s essential functionality. ASU2009-13 modifies the requirements that must be met for the Company to recognize revenue from the sale of a delivered item that is part of a multiple-deliverable arrangement when other items have not yet been delivered. ASU2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable in a multiple-deliverable arrangement. The selling price must be based on vendor specific objective evidence (VSOE), if available, or third-party evidence (TPE), if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available.Also, the residual method of allocating arrangement consideration has been eliminated. ASU 2009- 13 and ASU2009-14 were applied on a prospective basis for revenue arrangements entered into or materially modified after adoption. There were no changes to the Company’s units of accounting within its multiple-deliverable arrangements, how the Company allocates arrangement consideration or in the pattern or timing of revenue recognition as a result of the adoption of these updates.
The Company’s revenue recognition policy is consistent with the requirements of FASB ASCFinancial 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 viaafter delivery and/or installation acceptance;acceptance or performance of services; the sales price is fixed or determinable within the contract; and collectability is reasonably assured. ForThe 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 theDiebold North America business segment,(DNA), this occurs upon customer acceptance. Where the Company is contractually responsible for installation, customer acceptance occurs upon completion of the installation of all itemsequipment at a job site and the Company’s demonstration that the items areequipment is in operable condition. Where the Company is not contractually responsible for installation, revenue recognition of these items is upon shipment or delivery to
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
a customer location depending on the terms in the contract. Within the international business segment,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 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, pertainwhich includes both hardware and the software required for the equipment to operate as intended, are primarily automated teller machines (ATMs). Included with and other equipment primarily used in the ATM is a software component and a non-software component that function together to deliver the ATM’s essential functionality.banking industry. The Company also provides service contracts on ATMs.financial self-service products. Service contracts typically cover a12-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. The contracts also may provideCompany provides customers with integrated services such as outsourced and managed services which may include remote monitoring, trouble-shooting, for self-service customers, training, transaction processing, currency management, maintenance services andor full support via person to person or online communication.
Revenue is recognized in accordance with ASC 605, the application of which requires judgment including the determination of whether an arrangement includes multiple deliverables. For service contracts, revenue is recognized ratably over the life of the contract period. In contracts that involve multiple-deliverable arrangements, product maintenance services are typically accounted for at the separately priced contract amount in accordance with FASBASC 605-20,Separately Priced Extended Warranty and Product
51
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
Maintenance Contracts(ASC605-20). Amounts deferred for all other undelivered items are determined based upon the selling price of the deliverables as prescribed in FASBASC 605-25,Revenue Recognition — Multiple-Element Arrangements(ASC605-25). The Company determines the selling price of deliverables within a multiple-deliverable arrangement based on VSOE (price when sold on stand-alone basis) or the estimated selling price where VSOE is not established for undelivered items. Total arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement proportionately to each deliverable on the basis of each deliverable’s selling price.
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 (OEM) 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. Revenue is recognized in accordance with ASC 605. Revenue on sales of the products described above is recognized upon shipment, installation or customer acceptance of the product as defined in the customer contract. In contracts that involve multiple deliverables, product maintenance services are typically accounted for underASC 605-20. Amounts deferred for all other undelivered items are based upon the selling price of the deliverables as prescribed inASC 605-25. The Company determines the selling price of deliverables within a multiple-deliverable arrangement based on the price charged when each deliverable is sold separately or estimated selling price. Total arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement proportionately to each deliverable on the basis of each deliverable’s selling price.
Physical Security & Facility Revenue The Company designs, manufactures and/or procures and manufactures several of itsinstalls 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. Revenue on sales of the products described above is recognized when the revenue recognition requirements of ASC 605 have been met.
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.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. The election and lottery systems contracts can contain multiple deliverables and custom terms and conditions. For contracts that do not contain multiple deliverables, revenue is recognized upon customer acceptance. In contracts that involve multiple deliverables, amounts deferred for undelivered items are based upon the selling price
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as prescribedof December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars inASC 605-25. The Company determines the selling price of deliverables within a multiple-deliverable arrangement based on the estimated selling price. Total arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement proportionately to each deliverable on the basis of each deliverable’s selling price. thousands, except per share amounts)
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 and revenue is recognized in accordance withASC 985-605.network. Included within service revenue is revenue from software support agreements, which are typically 12 months in duration and pertain to networking software. For software support, revenue is recognized ratably over the life of the contract period. In contracts that involve multiple deliverables, amounts deferred for support are based upon VSOE of the value of the deliverables.
52
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
Depreciation and AmortizationDepreciation 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 its amortizable intangible assets and capitalized computer software, is computed using the straight-line method over the life of the asset.
Advertising CostsAdvertising costs are expensed as incurred and were $8,782, $8,890$10,474, $8,782 and $14,417$8,890 in 2011, 2010 2009 and 2008,2009, respectively.
Shipping and Handling CostsThe 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 IncomeDeferred 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.
Sales TaxThe Company collects sales taxes from customers and accounts for sales taxes on a net basis.
Cash EquivalentsThe Company considers highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
Financial InstrumentsThe 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.
InventoriesThe Company primarily values inventories at the lower of cost or market applied on afirst-in, first-out (FIFO) basis. At each reporting period, the Company identifies and writes down its excess and obsolete inventoryinventories to its net realizable value based on forecasted usage ordersforecasts, 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 RevenueDeferred revenue is recorded for any services that are billed to customers prior to revenue being realizable related toand not yet recognizable if the service being provided.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 amounts for any products and other deliverables that are billed to and collected from customers prior to revenue being recognizable.
Split-Dollar Life InsuranceOn January 1, 2008, theThe Company adopted guidance included in FASB ASC 715,Compensation — Retirement Benefits,which applies to entities that participate in collateral assignment split-dollar life insurance arrangements that extend into an employee’s retirement period (often referred to as “key person” life insurance) and life insurance arrangements that provide an employee with a specified benefit that is not limited to the employee’s active service period. This updated guidance requires employers to recognizerecognizes a liability for the postretirement obligation associated with a collateral assignment arrangement if, based on an agreement with an employee, the employerCompany has agreed to maintain a life insurance policy during the postretirement period or to provide
53
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
a death benefit. In addition, this updated guidance requires employers to recognizethe Company recognizes a liability and related compensation costs for future benefits that extend to postretirement periods. The cumulative effect
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of equity on January 1, 2008.December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
GoodwillGoodwill is the cost in excess of the net assets of acquired businesses. The Company tests all existing goodwill at least annually for impairment using the fair value approach on a “reporting unit” basis. The Company’s reporting units are defined as Domestic and Canada, Brazil, Latin America, Asia Pacific, and Europe, Middle East and Africa (EMEA). TheIn 2011, the Company usesadopted the provisions of FASB Accounting Standards Update (ASU) 2011-08, Testing Goodwill for Impairment (ASU 2011-08), and 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 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, the two-step impairment test described in note 10 is used to identify potential goodwill impairment and measure the amount of any impairment loss to be recognized.
In 2010 and 2009, the Company used the discounted cash flow method and the guideline company method for determining the fair value of its reporting units. TheUnder 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 Company’s
These fair value model usesmodels and qualitative assessments use inputs such as estimated future performance. The Company uses the most current information available and performs the annual impairment analysis as of November 30 each year. However, actual circumstances could differ significantly from assumptions and estimates made and could result in future goodwill impairment. 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 (refer to note 10).
Pensions and Other Postretirement BenefitsAnnual 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. Annually, management and the Investment Committee of the Board of Directors 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 theyear-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. PostretirementOther 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 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 (Loss)The Company displays comprehensive income (loss) in the consolidated statements of equity and accumulated other comprehensive income (loss) separately from retained earnings and additional capital in the consolidated balance sheets and statements of equity. Items included in other comprehensive income (loss) primarily represent adjustments made for foreign currency translation,pension and other postretirement benefit plans (refer to note 12) unrealized gains and losses onavailable-for-sale securities and hedging activities (refer to note 16).
54
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
Accumulated other comprehensive income (loss) consists of the following:following as of December 31:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
| Foreign currency hedges and translation | | $ | 168,935 | | | $ | 141,064 | | | $ | 38,319 | |
| Interest rate hedges | | | (927 | ) | | | (952 | ) | | | (2,877 | ) |
| Pensions and other postretirement benefits | | | (158,079 | ) | | | (138,853 | ) | | | (172,939 | ) |
Unrealized loss, net onavailable-for-sale securities | | | (1,297 | ) | | | — | | | | — | |
| Other | | | (225 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| | | | 8,407 | | | | 1,259 | | | | (137,497 | ) |
| Income tax benefit | | | 65,219 | | | | 58,020 | | | | 64,573 | |
| | | | | | | | | | | | | |
| Total accumulated other comprehensive income (loss) | | $ | 73,626 | | | $ | 59,279 | | | $ | (72,924 | ) |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Foreign currency hedges and translation | $ | 93,669 |
| | $ | 168,935 |
| | $ | 141,064 |
|
| Interest rate hedges | (2,088 | ) | | (927 | ) | | (952 | ) |
| Pensions and other postretirement benefits | (220,081 | ) | | (158,079 | ) | | (138,853 | ) |
| Unrealized gain (loss), net on available-for-sale securities | 1,338 |
| | (1,297 | ) | | — |
|
| Other | (714 | ) | | (225 | ) | | — |
|
| | (127,876 | ) | | 8,407 |
| | 1,259 |
|
| Income tax benefit | 87,533 |
| | 65,219 |
| | 58,020 |
|
| Total accumulated other comprehensive (loss) income | $ | (40,343 | ) | | $ | 73,626 |
| | $ | 59,279 |
|
Foreign currency translation adjustments are not booked net of tax. Those adjustments are accounted for under the indefinite reversal criterion of FASBASC 740-30,Income Taxes — Other Considerations or SpecialAreas.
Recently AdoptedIssued Accounting Guidance
In July 2010,December 2011, the FASB issued ASU 2011-11 (ASU 2011-11), 2010-20,Disclosures about the Credit Quality of Financing ReceivablesOffsetting Assets and the AllowanceLiabilities, which requires certain additional disclosure requirements about financial instruments and derivatives instruments that are subject to netting arrangements. The new disclosures are required for Credit Losses(ASU2010-20), which amends FASB ASC 310,Receivables. This ASU requires disclosures related to financing receivables and the allowance for credit losses by portfolio segment. The ASU also requires disclosures of information regarding the credit quality, aging, nonaccrual status and impairments by class of receivable. Trade accounts receivable with maturities of one yearannual reporting periods beginning on or less are excluded from the disclosure requirements. The newly required disclosures as of the end of the reporting period are included in note 7. The effective date for disclosures for activity during the reporting period is the first quarter of 2011.
In May 2010, the FASB issued ASU2010-19,Foreign Currency Issues: Multiple Foreign Currency Exchange Rates(ASU2010-19). ASU2010-19 is effective as of the announcement date of March 18, 2010. ASU2010-19 provides the U.S. Securities and Exchange Commision (SEC) staff’s views on certain foreign currency issues related to investments in Venezuela. These issues relate to Venezuela’s highly inflationary status. The adoption of the provisions of ASU2010-19 did not have a material impact on the Company’s consolidated financial statements.
Onafter January 1, 2010, the Company elected to early adopt ASU2009-13 and ASU2009-14, which did not have a material impact on the Company’s consolidated financial statements. However, the adoption of ASU2009-13 and ASU2009-14 modifies the Company’s previously disclosed revenue recognition policy. ASU2009-14 amends software revenue recognition guidance inASC 985-605, to exclude from its scope the Company’s tangible products that contain both software and non-software components that function together to deliver a product’s essential functionality. ASU2009-13 modifies the requirements that must be met for the Company to recognize revenue from the sale of a delivered item that is part of a multiple-deliverable arrangement when other items have not yet been delivered. ASU2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable in a multiple-deliverable arrangement. The selling price must be based on VSOE, if available, or TPE, if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. Also, the residual method of allocating arrangement consideration has been eliminated. ASU2009-13 and ASU2009-14 were applied on a prospective basis for revenue arrangements entered into or materially modified after adoption. There were no changes to the Company’s units of accounting within its multiple-deliverable arrangements, how the Company allocates arrangement consideration or in the pattern or timing of revenue recognition as a result of the adoption of these updates.
55
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
On January 1, 2010, the Company adopted FASB ASU2010-06,Fair Value Measurements and Disclosures(ASU2010-06). ASU2010-06 updates FASB ASC 820,Fair Value Measurements. ASU2010-06 requires additional disclosures about fair value measurements including transfers in and out of levels 1 and 2 and a higher level of disaggregation for the different types of financial instruments. On January 1, 2010, the Company early adopted ASU2010-06 related to the reconciliation of level 3 fair value measurements, requiring information about purchases, sales, issuances and settlements to be presented separately. There was no material impact on the Company’s consolidated financial statements related to the adoption of this guidance.
On January 1, 2010, the Company adopted updated guidance included in FASBASC 860-10,Transfers and Servicing — Overall.This guidance requires additional disclosures about the transfer and de-recognition of financial assets and eliminates the concept of qualifying special-purpose entities. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.
On January 1, 2010, the Company adopted updated guidance included in FASB ASC 810,Consolidation(ASC 810), related to the consolidation of variable interest entities. This guidance requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. In addition, this updated guidance amends the quantitative approach for determining the primary beneficiary of a variable interest entity. ASC 810 amends certain guidance for determining whether an entity is a variable interest entity and adds additional reconsideration events for determining whether an entity is a variable interest entity. Further, this guidance requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.
Recently Issued Accounting Guidance In December 2010, the FASB issued ASU2010-28,Intangibles — Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts(ASU2010-28). ASU2010-28 clarifies the requirement to test for impairment of goodwill. ASC Topic 350 has required that goodwill be tested for impairment if the carrying amount of a reporting unit exceeds its fair value. Under ASU2010-28, when the carrying amount of a reporting unit is zero or negative an entity must assume that it is more likely than not that a goodwill impairment exists, perform an additional test to determine whether goodwill has been impaired and calculate the amount of that impairment. The modifications to ASC Topic 350 resulting from the issuance of ASU2010-28 are effective for fiscal years beginning after December 15, 20102013, and interim periods within those years. Early adoption is not permitted.periods. The adoption of ASU2010-08 isthis update will not expected to have an impact on the financial statements of the Company.
In June 2011, the FASB issued 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. 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. 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 amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU 2011-05 and ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are to be applied retrospectively. The Company is in the process of determining its method of presentation, however, it does not anticipate the adoption of these updates to have a material impact on its financial statements.
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 ASC 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 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-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
| |
NOTE 2: | EARNINGS PER SHARE |
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 onincludes the weighted-average numberdilutive effect of common shares outstanding and all dilutive potential common shares outstanding. Under the two-class method of computing earnings per shares,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 the employee.employees. The Company calculated basic and diluted earnings per share under both the treasury stock method and the two-class method. For the years ended December 31, 2010, 2009 and 2008,
56
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
presented there waswere no differencedifferences 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 stock:shares for the years ended December 31:
| | | | | | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
Numerator: | | | | | | | | | | | | |
(Loss) income used in basic and diluted earnings per share: | | | | | | | | | | | | |
| (Loss) income from continuing operations, net of tax | | $ | (20,527 | ) | | $ | 73,102 | | | $ | 107,781 | |
| Income (loss) from discontinued operations, net of tax | | | 275 | | | | (47,076 | ) | | | (19,198 | ) |
| | | | | | | | | | | | | |
| Net (loss) income attributable to Diebold, Incorporated | | $ | (20,252 | ) | | $ | 26,026 | | | $ | 88,583 | |
| | | | | | | | | | | | | |
Denominator (in thousands): | | | | | | | | | | | | |
| Weighted-average number of common shares used in basic earnings per share | | | 65,907 | | | | 66,257 | | | | 66,081 | |
| Effect of dilutive shares(a) | | | — | | | | 610 | | | | 411 | |
| | | | | | | | | | | | | |
| Weighted-average number of shares used in diluted earnings per share | | | 65,907 | | | | 66,867 | | | | 66,492 | |
| | | | | | | | | | | | | |
Basic earnings per share: | | | | | | | | | | | | |
| (Loss) income from continuing operations, net of tax | | $ | (0.31 | ) | | $ | 1.10 | | | $ | 1.63 | |
| Income (loss) from discontinued operations, net of tax | | | — | | | | (0.71 | ) | | | (0.29 | ) |
| | | | | | | | | | | | | |
| Net (loss) income attributable to Diebold, Incorporated | | $ | (0.31 | ) | | $ | 0.39 | | | $ | 1.34 | |
| | | | | | | | | | | | | |
Diluted earnings per share: | | | | | | | | | | | | |
| (Loss) income from continuing operations, net of tax | | $ | (0.31 | ) | | $ | 1.09 | | | $ | 1.62 | |
| Income (loss) from discontinued operations, net of tax | | | — | | | | (0.70 | ) | | | (0.29 | ) |
| | | | | | | | | | | | | |
| Net (loss) income attributable to Diebold, Incorporated | | $ | (0.31 | ) | | $ | 0.39 | | | $ | 1.33 | |
| | | | | | | | | | | | | |
Anti-dilutive shares (in thousands): | | | | | | | | | | | | |
| Anti-dilutive shares not used in calculating diluted weighted-average shares | | | 2,658 | | | | 2,360 | | | | 2,469 | |
|
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Numerator: | | | | | |
| Income (loss) used in basic and diluted earnings per share: | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 144,292 |
| | $ | (20,527 | ) | | $ | 73,102 |
|
| Income (loss) from discontinued operations, net of tax | 523 |
| | 275 |
| | (47,076 | ) |
| Net income (loss) attributable to Diebold, Incorporated | $ | 144,815 |
| | $ | (20,252 | ) | | $ | 26,026 |
|
| Denominator (in thousands): | | | | | |
Weighted-average number of common shares used in basic earnings per share | 64,244 |
| | 65,907 |
| | 66,257 |
|
| Effect of dilutive shares (a) | 548 |
| | — |
| | 610 |
|
Weighted-average number of shares used in diluted earnings per share | 64,792 |
| | 65,907 |
| | 66,867 |
|
| Basic earnings per share: | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 2.24 |
| | $ | (0.31 | ) | | $ | 1.10 |
|
| Income (loss) from discontinued operations, net of tax | 0.01 |
| | — |
| | (0.71 | ) |
| Net income (loss) attributable to Diebold, Incorporated | $ | 2.25 |
| | $ | (0.31 | ) | | $ | 0.39 |
|
| Diluted earnings per share: | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 2.23 |
| | $ | (0.31 | ) | | $ | 1.09 |
|
| Income (loss) from discontinued operations, net of tax | 0.01 |
| | — |
| | (0.70 | ) |
| Net income (loss) attributable to Diebold, Incorporated | $ | 2.24 |
| | $ | (0.31 | ) | | $ | 0.39 |
|
| | | | | | |
| Anti-dilutive shares (in thousands): | | | | | |
Anti-dilutive shares not used in calculating diluted weighted-average shares | 2,270 |
| | 2,658 |
| | 2,360 |
|
| | |
| (a) | | Incremental shares of 632632,000 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. |
| |
NOTE 3: SHARE-BASED COMPENSATION ANDNOTE 3: | SHARE-BASED COMPENSATION AND EQUITY |
DividendsOn the basis of amounts declared and paid, the annualized dividends per share were $1.08, $1.04$1.12, $1.08 and $1.00$1.04 for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively.
Share-Based Compensation CostThe 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 granted after December 31, 2005 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 8,291,407,7,873,644, of which 4,236,4063,045,311 shares were available for issuance at December 31, 2010.2011.
57
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
The following table summarizes the components of the Company’s employee and non-employee share-based compensation programs recognized as selling and administrative expense:expense for the years ended December 31:
| | | | | | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
| Stock options: | | | | | | | | | | | | |
| Pre-tax compensation expense | | $ | 3,540 | | | $ | 3,127 | | | $ | 3,371 | |
| Tax benefit | | | (1,310 | ) | | | (1,157 | ) | | | (1,247 | ) |
| | | | | | | | | | | | | |
| Stock option expense, net of tax | | $ | 2,230 | | | $ | 1,970 | | | $ | 2,124 | |
| | | | | | | | | | | | | |
| Restricted Stock Units (RSUs): | | | | | | | | | | | | |
| Pre-tax compensation expense | | $ | 4,355 | | | $ | 3,775 | | | $ | 3,683 | |
| Tax benefit | | | (1,611 | ) | | | (1,397 | ) | | | (1,363 | ) |
| | | | | | | | | | | | | |
| RSU expense, net of tax | | $ | 2,744 | | | $ | 2,378 | | | $ | 2,320 | |
| | | | | | | | | | | | | |
| Performance shares: | | | | | | | | | | | | |
| Pre-tax compensation expense | | $ | 3,820 | | | $ | 4,192 | | | $ | 4,267 | |
| Tax benefit | | | (1,413 | ) | | | (1,551 | ) | | | (1,579 | ) |
| | | | | | | | | | | | | |
| Performance share expense, net of tax | | $ | 2,407 | | | $ | 2,641 | | | $ | 2,688 | |
| | | | | | | | | | | | | |
| Deferred shares: | | | | | | | | | | | | |
| Pre-tax compensation expense | | $ | 826 | | | $ | 816 | | | $ | 861 | |
| Tax benefit | | | (306 | ) | | | (302 | ) | | | (319 | ) |
| | | | | | | | | | | | | |
| Deferred share expense, net of tax | | $ | 520 | | | $ | 514 | | | $ | 542 | |
| | | | | | | | | | | | | |
| Restricted shares: | | | | | | | | | | | | |
| Pre-tax compensation expense | | $ | — | | | $ | — | | | $ | 7 | |
| Tax benefit | | | — | | | | — | | | | (3 | ) |
| | | | | | | | | | | | | |
| Restricted share expense, net of tax | | $ | — | | | $ | — | | | $ | 4 | |
| | | | | | | | | | | | | |
| Total share-based compensation: | | | | | | | | | | | | |
| Pre-tax compensation expense | | $ | 12,541 | | | $ | 11,910 | | | $ | 12,189 | |
| Tax benefit | | | (4,640 | ) | | | (4,407 | ) | | | (4,511 | ) |
| | | | | | | | | | | | | |
| Total share-based compensation, net of tax | | $ | 7,901 | | | $ | 7,503 | | | $ | 7,678 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | 2011 | | 2010 | | 2009 |
| Stock options: | | | | | | |
| Pre-tax compensation expense | | $ | 3,486 |
| | $ | 3,540 |
| | $ | 3,127 |
|
| Tax benefit | | (1,238 | ) | | (1,310 | ) | | (1,157 | ) |
| Stock option expense, net of tax | | $ | 2,248 |
| | $ | 2,230 |
| | $ | 1,970 |
|
| | | | | | | |
| Restricted Stock Units: | | | | | | |
| Pre-tax compensation expense | | $ | 5,734 |
| | $ | 4,355 |
| | $ | 3,775 |
|
| Tax benefit | | (1,845 | ) | | (1,611 | ) | | (1,397 | ) |
| RSU expense, net of tax | | $ | 3,889 |
| | $ | 2,744 |
| | $ | 2,378 |
|
| | | | | | | |
| Performance shares: | | | | | | |
| Pre-tax compensation expense | | $ | 4,076 |
| | $ | 3,820 |
| | $ | 4,192 |
|
| Tax benefit | | (1,459 | ) | | (1,413 | ) | | (1,551 | ) |
| Performance share expense, net of tax | | $ | 2,617 |
| | $ | 2,407 |
| | $ | 2,641 |
|
| | | | | | | |
| Deferred shares: | | | | | | |
| Pre-tax compensation expense | | $ | 1,000 |
| | $ | 826 |
| | $ | 816 |
|
| Tax benefit | | (370 | ) | | (306 | ) | | (302 | ) |
| Deferred share expense, net of tax | | $ | 630 |
| | $ | 520 |
| | $ | 514 |
|
| | | | | | | |
| Total share-based compensation: | | | | | | |
| Pre-tax compensation expense | | $ | 14,296 |
| | $ | 12,541 |
| | $ | 11,910 |
|
| Tax benefit | | (4,912 | ) | | (4,640 | ) | | (4,407 | ) |
| Total share-based compensation, net of tax | | $ | 9,384 |
| | $ | 7,901 |
| | $ | 7,503 |
|
The following table summarizes information related to unrecognized share-based compensation costs as of December 31, 2010:2011:
| | | | | | | | | |
| | | Unrecognized
| | | Weighted-Average
| |
| | | Cost | | | Period | |
| | | | | | (years) | |
| |
| Stock options | | $ | 5,537 | | | | 2.3 | |
| RSUs | | | 7,459 | | | | 2.0 | |
| Performance shares | | | 4,503 | | | | 1.1 | |
| Deferred shares | | | 152 | | | | 0.3 | |
| | | | | | | | | |
| | | $ | 17,651 | | | | | |
| | | | | | | | | |
|
| | | | | | |
| | | Unrecognized Cost | | Weighted-Average Period |
| | | | | (years) |
| Stock options | | $ | 6,463 |
| | 2.2 |
| RSUs | | 9,646 |
| | 1.7 |
| Performance shares | | 4,749 |
| | 1.0 |
| Deferred shares | | 206 |
| | 0.3 |
| | | $ | 21,064 |
| | |
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
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.
58
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
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 stock on the date of grant. The estimated fair value of the options granted was calculated using a Black-Scholes option pricing model using thesethe following assumptions:
| | | | | | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
| Expected life (in years) | | | 6-7 | | | | 5-6 | | | | 5-7 | |
| Weighted-average volatility | | | 40 | % | | | 40 | % | | | 27 | % |
| Risk-free interest rate | | | 2.77 – 3.15 | % | | | 1.76 – 2.55 | % | | | 2.71 – 3.14 | % |
| Expected dividend yield | | | 2.44 – 2.63 | % | | | 2.23 – 2.43 | % | | | 1.97 – 1.86 | % |
|
| | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Expected life (in years) | 6-7 |
| | 6-7 |
| | 5-6 |
|
| Weighted-average volatility | 40 | % | | 40 | % | | 40 | % |
| Risk-free interest rate | 1.15 - 3.05% |
| | 2.77 - 3.15% |
| | 1.76 - 2.55% |
|
| Expected dividend yield | 2.74 - 2.97% |
| | 2.44 - 2.63% |
| | 2.23 - 2.43% |
|
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, 20102011 and changes during the year ended were as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted-Average
| | | | |
| | | | | | Weighted-Average
| | | Remaining
| | | Aggregate Intrinsic
| |
| | | Number of Shares | | | Exercise Price | | | Contractual Term | | | Value(1) | |
| | | (in thousands) | | | (per share) | | | (in years) | | | | |
| |
Outstanding at January 1, 2010 | | | 3,103 | | | $ | 37.84 | | | | | | | | | |
| Expired or forfeited | | | (239 | ) | | | 41.91 | | | | | | | | | |
| Exercised | | | (123 | ) | | | 27.16 | | | | | | | | | |
| Granted | | | 411 | | | | 27.88 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2010 | | | 3,152 | | | $ | 36.67 | | | | 4.9 | | | $ | 6,969 | |
| | | | | | | | | | | | | | | | | |
Options exercisable at December 31, 2010 | | | 2,162 | | | $ | 40.50 | | | | 3.5 | | | $ | 2,099 | |
| | | | | | | | | | | | | | | | | |
Options vested and expected to vest (2) at December 31, 2010 | | | 3,127 | | | $ | 36.72 | | | | 4.8 | | | $ | 6,840 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term | | Aggregate Intrinsic Value (1) |
| | (in thousands) | | (per share) | | (in years) | | |
| Outstanding at January 1, 2011 | 3,152 |
| | $ | 36.67 |
| | | | |
| Expired or forfeited | (239 | ) | | 35.46 |
| | | | |
| Exercised | (150 | ) | | 33.30 |
| | | | |
| Granted | 438 |
| | 33.06 |
| | | | |
| Outstanding at December 31, 2011 | 3,201 |
| | $ | 36.70 |
| | 5 | | $ | 3,805 |
|
| Options exercisable at December 31, 2011 | 2,166 |
| | $ | 39.86 |
| | 3 | | $ | 1,940 |
|
Options vested and expected to vest (2) at
December 31, 2011 | 3,177 |
| | $ | 36.75 |
| | 5 | | $ | 3,760 |
|
| | |
| (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 20102011 and the exercise price, multiplied by the number of“in-the-money” “in-the-money” options) that would have been received by the option holders had all option holders exercised their options on December 31, 2010.2011. 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. |
The aggregate intrinsic value of options exercised for the years ended December 31, 2011, 2010 2009 and 20082009 was $510, $422$936, $510 and $0,$422, respectively. The weighted-average grant-date fair value of stock options granted for the years ended December 31, 2011, 2010 2009 and 20082009 was $9.46, $7.85$10.90, $9.46 and $6.61,$7.85, respectively. Total fair value of stock options vested during the years ended December 31, 2011, 2010 2009 and 20082009 was $3,059, $3,045$2,967, $3,059 and $2,918$3,045, respectively. Exercise of options during the year ended December 31, 2011, 2010
59
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
2009 and 20082009 resulted in cash receipts of $3,332, $1,514$4,043, $3,332 and $0,$1,514, respectively. The tax (benefit) expense during the years ended December 31, 2011, 2010 2009 and 20082009 related to the exercise of employee stock options were $1,750, $1,160$(1,362), $1,705 and $2,122,$1,160, respectively.
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Restricted Stock Units
RSUs provideEach RSU provides for the issuance of aone common share of the Company at no cost to the holder and generally vestvests 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, 20102011 and changes during the year ended were as follows:
| | | | | | | | | |
| | | | | | Weighted-Average
| |
| | | | | | Grant-Date Fair
| |
| | | Number of Shares | | | Value | |
| | | (in thousands) | | | | |
| |
Non-vested at January 1, 2010 | | | 470 | | | $ | 32.64 | |
| Forfeited | | | (37 | ) | | | 35.46 | |
| Vested | | | (88 | ) | | | 45.14 | |
| Granted | | | 249 | | | | 27.16 | |
| | | | | | | | | |
Non-vested at December 31, 2010 | | | 594 | | | $ | 29.06 | |
| | | | | | | | | |
|
| | | | | | | |
| | | Number of Shares | | Weighted-Average Grant-Date Fair Value |
| | | (in thousands) | | |
| Non-vested at January 1, 2011 | | 594 |
| | $ | 29.06 |
|
| Forfeited | | (48 | ) | | 41.09 |
|
| Vested | | (115 | ) | | 28.10 |
|
| Granted | | 286 |
| | 32.86 |
|
| Non-vested at December 31, 2011 | | 717 |
| | $ | 30.69 |
|
The weighted-average grant-date fair value of RSUs granted for the years ended December 31, 2011, 2010 2009 and 20082009 was $27.16, $24.99$32.86, $27.16 and $28.13,$24.99, respectively. The total fair value of RSUs vested during the years ended December 31, 2011, 2010 2009 and 20082009 was $3,989, $3,830$3,226, $3,989 and $2,627,$3,830, 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.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. To cover the exerciseand/or vesting of its share-based payments, the Company generally issues new shares from its authorized, unissued share pool.
Non-vested performance shares outstanding as of December 31, 20102011 and changes during the year ended were as follows:
| | | | | | | | | |
| | | | | | Weighted-Average
| |
| | | | | | Grant-Date Fair
| |
| | | Number of Shares | | | Value | |
| | | (in thousands) | | | | |
| |
Non-vested at January 1, 2010 | | | 719 | | | $ | 36.70 | |
| Forfeited | | | (162 | ) | | | 57.16 | |
| Vested | | | (52 | ) | | | 58.65 | |
| Granted | | | 237 | | | | 35.89 | |
| | | | | | | | | |
Non-vested at December 31, 2010 | | | 742 | | | $ | 31.15 | |
| | | | | | | | | |
|
| | | | | | | |
| | | Number of Shares | | Weighted-Average Grant-Date Fair Value |
| | | (in thousands) | | |
| Non-vested at January 1, 2011 | | 742 |
| | $ | 31.15 |
|
| Forfeited | | (89 | ) | | 30.12 |
|
| Vested | | (174 | ) | | 29.04 |
|
| Granted | | 248 |
| | 39.74 |
|
| Non-vested at December 31, 2011 | | 727 |
| | $ | 34.70 |
|
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, 2011, 2010 2009 and 20082009 was $35.89, $29.25$39.74, $35.89 and $28.91,$29.25, respectively. The total fair value of performance shares vested during the years ended December 31, 2011, 2010 2009 and 20082009 was $3,026, $5,327$5,041, $3,026 and $857,$5,327, respectively.
60
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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 Company’s 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-orsix- 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, 20102011 and changes during the year ended were as follows:
| | | | | | | | | |
| | | | | | Weighted-Average
| |
| | | | | | Grant-Date
| |
| | | Number of Shares | | | Fair Value | |
| | | (In thousands) | | | | |
| |
Non-vested at January 1, 2010 | | | 18 | | | $ | 25.52 | |
| Granted | | | 25 | | | | 33.28 | |
| Vested | | | (29 | ) | | | 28.55 | |
| | | | | | | | | |
Non-vested at December 31, 2010 | | | 14 | | | $ | 33.28 | |
| | | | | | | | | |
Vested at December 31, 2010 | | | 76 | | | $ | 34.02 | |
| | | | | | | | | |
Outstanding at December 31, 2010 | | | 90 | | | $ | 33.91 | |
| | | | | | | | | |
|
| | | | | | | |
| | | Number of Shares | | Weighted-Average Grant-Date Fair Value |
| | | (in thousands) | | |
| Non-vested at January 1, 2011 | | 14 |
| | $ | 33.28 |
|
| Vested | | (26 | ) | | 33.61 |
|
| Granted | | 31 |
| | 33.98 |
|
| Non-vested at December 31, 2011 | | 19 |
| | $ | 33.98 |
|
| Vested at December 31, 2011 | | 96 |
| | $ | 33.88 |
|
| Outstanding at December 31, 2011 | | 115 |
| | $ | 33.90 |
|
The weighted-average grant-date fair value of deferred shares granted for the years ended December 31, 2011, 2010 2009 and 20082009 was $33.28, $25.52$33.98, $33.28 and $38.52,$25.52, respectively. The aggregate intrinsic value of deferred shares released during the years ended December 31, 2011, 2010 2009 and 20082009 was $0, $158$247, $0 and $0,$158, respectively. Total fair value of deferred shares vested for the years ended December 31, 2011, 2010 2009 and 20082009 was $819, $843$887, $819 and $790$843, respectively.
Other Non-employee Share-Based Compensation
In connection with the acquisition of Diebold Colombia, S.A. in December 2006, the Company issued 6,652 restricted shares with a grant-date fair value of $46.00$46.00 per share. These restricted shares vestvested in November 2011. In December 2006,2005, the Company also issued warrants to purchase 34,789 common shares with an exercise price of $46.00$46.00 per share and grant-date fair value of $14.66$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 were as follows:for the years ended December 31:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| Domestic | | $ | (28,344 | ) | | $ | (16,108 | ) | | $ | 4,105 | |
| Foreign | | | 25,947 | | | | 139,915 | | | | 152,212 | |
| | | | | | | | | | | | | |
| Total | | $ | (2,397 | ) | | $ | 123,807 | | | $ | 156,317 | |
| | | | | | | | | | | | | |
61 |
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Domestic | $ | 16,173 |
| | $ | (28,344 | ) | | $ | (16,108 | ) |
| Foreign | 148,219 |
| | 25,947 |
| | 139,915 |
|
| Total | $ | 164,392 |
| | $ | (2,397 | ) | | $ | 123,807 |
|
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
IncomeThe following table presents the components of income tax expense (benefit) from continuing operations is comprised offor the following components:years ended December 31:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| Current: | | | | | | | | | | | | |
| U.S. Federal | | $ | 649 | | | $ | (24,688 | ) | | $ | 18,440 | |
| Foreign | | | 52,783 | | | | 47,044 | | | | 40,336 | |
| State and local | | | 1,812 | | | | 3,849 | | | | 4,620 | |
| | | | | | | | | | | | | |
| Total current | | | 55,244 | | | | 26,205 | | | | 63,396 | |
| Deferred: | | | | | | | | | | | | |
| U.S. Federal | | | (9,431 | ) | | | 26,972 | | | | (21,354 | ) |
| Foreign | | | (30,368 | ) | | | (6,267 | ) | | | (477 | ) |
| State and local | | | (884 | ) | | | (2,433 | ) | | | (69 | ) |
| | | | | | | | | | | | | |
| Total deferred | | | (40,683 | ) | | | 18,272 | | | | (21,900 | ) |
| | | | | | | | | | | | | |
| Taxes on income | | $ | 14,561 | | | $ | 44,477 | | | $ | 41,496 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Current: | | | | | |
| U.S. Federal | $ | (921 | ) | | $ | 649 |
| | $ | (24,688 | ) |
| Foreign | 41,244 |
| | 52,783 |
| | 47,044 |
|
| State and local | 932 |
| | 1,812 |
| | 3,849 |
|
| Total current | 41,255 |
| | 55,244 |
| | 26,205 |
|
| Deferred: | | | | | |
| U.S. Federal | 9,727 |
| | (9,431 | ) | | 26,972 |
|
| Foreign | (35,318 | ) | | (30,368 | ) | | (6,267 | ) |
| State and local | (2,849 | ) | | (884 | ) | | (2,433 | ) |
| Total deferred | (28,440 | ) | | (40,683 | ) | | 18,272 |
|
| Taxes on income | $ | 12,815 |
| | $ | 14,561 |
| | $ | 44,477 |
|
In addition to the income tax expense listed above for the years ended December 31, 2011, 2010 2009,, and 2008,2009, income tax (benefit) expense (benefit) allocated directly to shareholders equity for the same periods was $(5,512)$(23,695), $8,066,$(5,512) and $(55,782)$8,066, respectively.
Income tax benefit recognized as an adjustment to goodwill for the year ended December 31, 2010 was $3,922.$3,922.
Income tax benefit allocated to discontinued operations for the years ended December 31, 2011, 2010 2009, and 20082009 was $(2,836)$116, $(7,374)$2,836, and $(12,744)$7,374, respectively. Income tax benefit allocated to the loss on sale of discontinued operations for the year ended December 31, 2009 was $(13,558)$13,558.
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 operationsoperations. The following table presents these differences for the years ended December 31:
|
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Statutory tax expense (benefit) | $ | 57,537 |
| | $ | (839 | ) | | $ | 43,332 |
|
| Brazil nontaxable incentive | (10,652 | ) | | (14,600 | ) | | (14,420 | ) |
| Change in valuation allowance | (32,315 | ) | | (6,631 | ) | | 11,173 |
|
| Brazil tax goodwill amortization | (5,231 | ) | | (4,938 | ) | | (4,656 | ) |
| Foreign tax rate differential | (11,001 | ) | | 4,043 |
| | (8,473 | ) |
| U.S. taxed foreign income | 8,542 |
| | 3,265 |
| | 1,015 |
|
| Subsidiary losses | — |
| | 189 |
| | (3,553 | ) |
| Life insurance | (2,784 | ) | | (1,072 | ) | | (2,659 | ) |
| Goodwill impairment | — |
| | 27,647 |
| | — |
|
| SEC charge | — |
| | — |
| | 8,750 |
|
| Out-of-period adjustments | — |
| | — |
| | 8,765 |
|
| Other (1) | 8,719 |
| | 7,497 |
| | 5,203 |
|
| Taxes on income | $ | 12,815 |
| | $ | 14,561 |
| | $ | 44,477 |
|
(1) Other consists of state and local income taxes, net of federal benefit, nondeductible expenses, changes to uncertain tax position liabilities and other items, none of which are a result of the following:individually significant.
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| Statutory tax (benefit) expense | | $ | (839 | ) | | $ | 43,332 | | | $ | 54,711 | |
| State and local income taxes, net of federal tax benefit | | | 539 | | | | 920 | | | | 2,958 | |
| Foreign income taxes | | | (17,664 | ) | | | (11,882 | ) | | | (13,415 | ) |
| U.S. taxed foreign income | | | 3,265 | | | | 1,015 | | | | (3,773 | ) |
| Subsidiary losses | | | 189 | | | | (3,553 | ) | | | (1,578 | ) |
| Life insurance | | | (1,072 | ) | | | (2,659 | ) | | | (1,312 | ) |
| Goodwill impairment | | | 27,647 | | | | — | | | | — | |
| SEC charge | | | — | | | | 8,750 | | | | — | |
Out-of-period adjustments | | | — | | | | 8,765 | | | | 5,304 | |
| Other | | | 2,496 | | | | (211 | ) | | | (1,399 | ) |
| | | | | | | | | | | | | |
| Taxes on income | | $ | 14,561 | | | $ | 44,477 | | | $ | 41,496 | |
| | | | | | | | | | | | | |
In the fourth quarter of 2009, the Company recorded adjustments to increase income tax expense on continuing operations by $8,765$8,765 relating to immaterial errors originating in prior years. The adjustments were composed primarily
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
investment income; (3) an increase to income tax expense of $5,196 due to an understatement of income tax expense in the years 2003 through 2008 relating to corporate income taxes on the Company’s foreign subsidiaries’ passive investment income; and (4) an increase to income tax expense of $2,604 due to an understatement of income tax expense primarily in the years 2004 through 2007 relating to previously unreconciled accounts in the Company’s subsidiary in Spain. The Company determined that the impact of these corrections in all prior interim and annual periods and to 2009 results was immaterial to the consolidated financial statements.
In the fourth quarter of 2008, the Company recorded an adjustment to increase income tax expense on continuing operations by $5,304 relating to immaterial errors originating in prior years. The adjustment was due to an understatement of income tax expense in 2004 relating to the reconciliation of the book basis to the tax basis of the Company’s finance lease receivables.
The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent)percent) that the position will be sustained upon 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:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
Balance at January 1 | | $ | 10,116 | | | $ | 9,009 | |
| Increases related to prior year tax positions | | | 3,180 | | | | 1,092 | |
| Decreases related to prior year tax positions | | | (3,022 | ) | | | (248 | ) |
| Increases related to current year tax positions | | | 171 | | | | 546 | |
| Settlements | | | (167 | ) | | | (116 | ) |
| Reduction due to lapse of applicable statute of limitations | | | (436 | ) | | | (167 | ) |
| | | | | | | | | |
Balance at December 31 | | $ | 9,842 | | | $ | 10,116 | |
| | | | | | | | | |
|
| | | | | | | |
| | 2011 | | 2010 |
| Balance at January 1 | $ | 9,842 |
| | $ | 10,116 |
|
Increases related to prior year tax positions | 4,431 |
| | 3,180 |
|
Decreases related to prior year tax positions | (162 | ) | | (3,022 | ) |
Increases related to current year tax positions | 3,297 |
| | 171 |
|
| Settlements | (4,442 | ) | | (167 | ) |
Reduction due to lapse of applicable statute of limitations | (330 | ) | | (436 | ) |
| Balance at December 31 | $ | 12,636 |
| | $ | 9,842 |
|
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, 20102011 and 2009,2010, accrued interest and penalties related to unrecognized tax benefits totaled approximately $2,516$2,387 and $3,318,$2,516, 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 position or results of operations.statements. The expected timing of payments cannot be determined with any degree of certainty.
AtDuring the year ended December 31, 2010,2011, the Company is under audit bysettled the IRS exam for tax years ended December 31, 2007, 2006, and 2005. All federal tax years prior to 20022003 are closed by statute. The Company is subject to tax examination in various U.S. state jurisdictions for tax years 20022003 to the present, as well as various foreign jurisdictions for tax years 1997 to the present.
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
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.
63
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
Significant components of the Company’sCompany's deferred tax assets and liabilities at December 31 are as follows:
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
Deferred tax assets: | | | | | | | | |
| Accrued expenses | | $ | 44,254 | | | $ | 44,304 | |
| Warranty accrual | | | 24,305 | | | | 18,394 | |
| Deferred compensation | | | 17,365 | | | | 16,936 | |
| Bad debts | | | 7,740 | | | | 6,926 | |
| Inventory | | | 13,534 | | | | 15,922 | |
| Deferred revenue | | | 15,422 | | | | 6,095 | |
| Pension and postretirement benefits | | | 35,285 | | | | 34,015 | |
| Research and development credit | | | 7,548 | | | | 6,228 | |
| Foreign tax credit | | | 42,416 | | | | 36,722 | |
| Net loss carryforward | | | 98,798 | | | | 95,606 | |
| Capital losses | | | 2,973 | | | | 4,323 | |
| State deferred taxes | | | 6,646 | | | | 5,613 | |
| Other | | | 7,515 | | | | 7,581 | |
| | | | | | | | | |
| | | | 323,801 | | | | 298,665 | |
| Valuation allowance | | | (105,175 | ) | | | (112,839 | ) |
| | | | | | | | | |
| Net deferred tax assets | | $ | 218,626 | | | $ | 185,826 | |
| | | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
| Property, plant and equipment | | $ | 24,201 | | | $ | 21,707 | |
| Goodwill | | | 38,182 | | | | 58,620 | |
| Finance lease receivables | | | 8,395 | | | | 8,110 | |
| Investment in partnership | | | 18,377 | | | | 19,486 | |
| Undistributed earnings | | | 3,419 | | | | 2,512 | |
| Other | | | 3,881 | | | | 2,667 | |
| | | | | | | | | |
| Net deferred tax liabilities | | | 96,455 | | | | 113,102 | |
| | | | | | | | | |
| Net deferred tax asset | | $ | 122,171 | | | $ | 72,724 | |
| | | | | | | | | |
|
| | | | | | | |
| | 2011 | | 2010 |
| Deferred tax assets: | | | |
| Accrued expenses | $ | 39,881 |
| | $ | 44,254 |
|
| Warranty accrual | 18,386 |
| | 24,305 |
|
| Deferred compensation | 18,659 |
| | 17,365 |
|
| Allowance for doubtful accounts | 7,189 |
| | 7,740 |
|
| Inventory | 11,610 |
| | 13,534 |
|
| Deferred revenue | 14,669 |
| | 15,422 |
|
| Pension and postretirement benefits | 54,990 |
| | 35,285 |
|
| Research and development credit | 7,467 |
| | 7,548 |
|
| Foreign tax credit | 38,863 |
| | 42,416 |
|
| Net operating loss carryforwards | 86,918 |
| | 98,798 |
|
| Capital loss carryforwards | 3,604 |
| | 2,973 |
|
| State deferred taxes | 13,061 |
| | 6,646 |
|
| Other | 5,779 |
| | 7,515 |
|
| | 321,076 |
| | 323,801 |
|
| Valuation allowance | (66,988 | ) | | (105,175 | ) |
| Net deferred tax assets | $ | 254,088 |
| | $ | 218,626 |
|
| | | | |
| Deferred tax liabilities: | | | |
| Property, plant and equipment | $ | 20,116 |
| | $ | 24,201 |
|
| Goodwill | 36,712 |
| | 38,182 |
|
| Finance lease receivables | 3,655 |
| | 8,395 |
|
| Investment in partnership | 18,372 |
| | 18,377 |
|
| Other | 6,435 |
| | 7,300 |
|
| Net deferred tax liabilities | 85,290 |
| | 96,455 |
|
| Net deferred tax asset | $ | 168,798 |
| | $ | 122,171 |
|
Deferred income taxes are reported in the consolidated balance sheets as of December 31 are as follows:
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| Deferred income taxes — current assets | | $ | 106,160 | | | $ | 84,950 | |
| Deferred income taxes — long-term assets | | | 49,961 | | | | 32,834 | |
| Other current liabilities | | | (2,824 | ) | | | — | |
| Deferred income taxes — long term liability | | | (31,126 | ) | | | (45,060 | ) |
| | | | | | | | | |
| Net deferred tax asset | | $ | 122,171 | | | $ | 72,724 | |
| | | | | | | | | |
|
| | | | | | | |
| | 2011 | | 2010 |
| Deferred income taxes - current assets | $ | 114,250 |
| | $ | 106,160 |
|
| Deferred income taxes - long-term assets | 91,090 |
| | 49,961 |
|
| Other current liabilities | (4,513 | ) | | (2,824 | ) |
| Deferred income taxes - long-term liabilities | (32,029 | ) | | (31,126 | ) |
| Net deferred tax asset | $ | 168,798 |
| | $ | 122,171 |
|
At December 31, 2010,2011, the Company’sCompany had domestic and international subsidiaries had deferred tax assets relating to net operating loss (NOL) carryforwards of $98,798.$568,229, resulting in an NOL deferred tax asset of $86,918. Of these NOL carryforwards, $43,893$411,220 expires at various times between 20112012 and 2030. The remaining NOL carryforwards of approximately $54,905 do2031 and $157,009 does not expire.
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 valuation allowance relates primarily to
64
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
certain international and state NOLs. The net change in total valuation allowance for the years ended December 31, 20102011 and 20092010 was a (decrease) increasedecrease of $(7,664)$38,187 and $15,651,$7,664, respectively. The 2011 and 2010 reduction in valuation allowance is primarily related to a change in circumstances, including improvedsustained profitability in core operations and a favorable outlook that caused a change in judgment about the realization of athe deferred tax assetassets in Brazil.
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
For the years ended December 31, 20102011 and 2009,2010, provisions were made for 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 the $715,738approximately $850,000 of book retainedundistributed earnings at December 31, 20102011 in foreign subsidiaries and corporate joint ventures whichthat 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.
The Company’s investments, primarily in Brazil, consist of certificates of deposit and U.S. dollar indexed bond funds that are classified asavailable-for-sale and stated at fair value based upon quoted market prices and net asset values, respectively. Unrealized gains and losses are recorded in other comprehensive income (OCI).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 for the year ended December 31, 2011 and 2010 were $33.$(1,505) and $33, respectively. Proceeds from the sale ofavailable-for-sale securities were $38,016$52,292 and $38,016 during the yearyears ended December 31, 2010.2011 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 (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.
65
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
The Company’s investments, excluding cash surrender value of insurance contracts of $67,976$67,699 and $65,489$67,975 as of December 31, 20102011 and 2009,2010, respectively, consist of the following:
| | | | | | | | | | | | | |
| | | | | | Unrealized
| | | | |
| | | Cost Basis | | | Gain/(Loss) | | | Fair Value | |
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 | |
| | | | | | | | | | | | | |
As of December 31, 2009 | | | | | | | | | | | | |
| Short-term investments: | | | | | | | | | | | | |
| Certificates of deposit | | $ | 157,216 | | | $ | — | | | $ | 157,216 | |
| U.S. dollar indexed bond funds | | | 20,226 | | | | — | | | | 20,226 | |
| | | | | | | | | | | | | |
| | | $ | 177,442 | | | $ | — | | | $ | 177,442 | |
| | | | | | | | | | | | | |
| Long-term investments: | | | | | | | | | | | | |
| Assets held in a rabbi trust | | $ | 9,400 | | | $ | (900 | ) | | $ | 8,500 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Cost Basis | | Unrealized Gain/(Loss) | | Fair Value |
| As of December 31, 2011 | | | | | |
| Short-term investments: | | | | | |
| Certificates of deposit | $ | 269,033 |
| | $ | — |
| | $ | 269,033 |
|
| U.S. dollar indexed bond funds | 16,482 |
| | 1,338 |
| | 17,820 |
|
| | $ | 285,515 |
| | $ | 1,338 |
| | $ | 286,853 |
|
| Long-term investments: | | | | | |
| Assets held in a rabbi trust | $ | 7,428 |
| | $ | (258 | ) | | $ | 7,170 |
|
| | | | | | |
| 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 |
|
| |
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. As of December 31, 20102011 and 2009,2010, the Company’s finance lease receivables balance included $60,742$33,199 and $40,856,$60,742, respectively, related to a customer financing arrangement in Brazil. Included in this amount are finance lease receivables purchased in 2010 of $33,843. The componentsIn 2011, the Company sold $14,987 of finance lease receivables are as follows:receivables. In 2010, the Company purchased $33,843 of finance lease receivables.
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| Total minimum lease receivable | | $ | 133,028 | | | $ | 105,080 | |
| Estimated unguaranteed residual values | | | 5,942 | | | | 5,274 | |
| | | | | | | | | |
| | | | 138,970 | | | | 110,354 | |
| Less: | | | | | | | | |
| Unearned interest income | | | (15,151 | ) | | | (17,942 | ) |
| Unearned residuals | | | (1,207 | ) | | | (1,182 | ) |
| | | | | | | | | |
| | | | (16,358 | ) | | | (19,124 | ) |
| | | | | | | | | |
| Total | | $ | 122,612 | | | $ | 91,230 | |
| | | | | | | | | |
66
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
The following table presents the components of finance lease receivables as of December 31:
|
| | | | | | | |
| | 2011 | | 2010 |
| Total minimum lease receivable | $ | 99,598 |
| | $ | 133,028 |
|
| Estimated unguaranteed residual values | 6,048 |
| | 5,942 |
|
| | 105,646 |
| | 138,970 |
|
| Less: | | | |
| Unearned interest income | (6,190 | ) | | (15,151 | ) |
| Unearned residuals | (1,160 | ) | | (1,207 | ) |
| | (7,350 | ) | | (16,358 | ) |
| Total | $ | 98,296 |
| | $ | 122,612 |
|
Future minimum payments due from customers under financingfinance lease receivables as of December 31, 20102011 are as follows:
| | | | | |
| 2011 | | $ | 48,388 | |
| 2012 | | | 48,505 | |
| 2013 | | | 19,992 | |
| 2014 | | | 9,180 | |
| 2015 | | | 4,523 | |
| Thereafter | | | 2,440 | |
| | | | | |
| | | $ | 133,028 | |
| | | | | |
|
| | | |
| 2012 | $ | 47,624 |
|
| 2013 | 21,087 |
|
| 2014 | 13,471 |
|
| 2015 | 9,709 |
|
| 2016 | 5,697 |
|
| Thereafter | 2,010 |
|
| | $ | 99,598 |
|
| |
NOTE 7: | ALLOWANCE FOR CREDIT LOSSES |
Trade ReceivablesThe Company evaluates the collectability of trade receivables based on (1) a percentage of sales based onrelated 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 ReceivablesThe Company evaluates the collectability of notes and finance lease receivables (collectively, financing receivables) based 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.
The following table summarizes the Company’s allowance for credit losses and recorded investmentamount of financing receivables evaluated for impairment:
|
| | | | | | | | | | | | |
| | | Finance Leases | | Notes Receivable | | Total |
| Allowance for credit losses | | | | | | |
| Balance at January 1, 2011 | | $ | 378 |
| | $ | 470 |
| | $ | 848 |
|
| Provision for credit losses | | 107 |
| | 2,078 |
| | 2,185 |
|
| Recoveries | | 138 |
| | 5,455 |
| | 5,593 |
|
| Write-offs | | (413 | ) | | (5,956 | ) | | (6,369 | ) |
| Balance at December 31, 2011 | | $ | 210 |
| | $ | 2,047 |
| | $ | 2,257 |
|
| | | | | | | |
| Allowance resulting from individual impairment evaluation | | $ | 210 |
| | $ | 2,047 |
| | $ | 2,257 |
|
| Allowance resulting from collective impairment evaluation | | — |
| | — |
| | — |
|
| | | | | | | |
| Financing receivables individually evaluated for impairment | | $ | 98,506 |
| | $ | 13,869 |
| | $ | 112,375 |
|
| Financing receivables collectively evaluated for impairment | | — |
| | — |
| | — |
|
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in financing receivable:thousands, except per share amounts)
| | | | | | | | | | | | | |
| | | Finance
| | | Notes
| | | | |
| | | Leases | | | Receivable | | | Total | |
Allowance for credit losses | | | | | | | | | | | | |
| Balance individually evaluated for impairment | | $ | 378 | | | $ | 470 | | | $ | 848 | |
| Balance collectively evaluated for impairment | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Balance December 31, 2010 | | $ | 378 | | | $ | 470 | | | $ | 848 | |
| | | | | | | | | | | | | |
Recorded investment in financing receivables | | | | | | | | | | | | |
| Balance individually evaluated for impairment | | $ | 122,612 | | | $ | 18,723 | | | $ | 141,335 | |
| Balance collectively evaluated for impairment | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Balance December 31, 2010 | | $ | 122,612 | | | $ | 18,723 | | | $ | 141,335 | |
| | | | | | | | | | | | | |
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 specificcustomer-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 December 31, 2011 and 2010, the recorded investment in past-due finance lease receivables on nonaccrual status was $531.$1,740 and $531, respectively. The recorded investment in finance lease receivables past due 90 days or more and still accruing interest was $560$114 and $560 as of December 31, 2010.2011 and 2010, respectively. The recorded investment in impaired notes receivable was $2,047 and was fully reserved as of December 31, 2011. The recorded investment in impaired notes receivable and the related allowance was $7,513$7,513 and $470,$470, respectively, as of
67
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
December 31, 2010.. The following table summarizes the Company’s aging of past-due notes receivable balances as of December 31, 2010:2011:
| | | | | |
31-60 days past due | | $ | — | |
61-90 days past due | | | 708 | |
| > 91 days past due | | | 5,428 | |
| | | | | |
| Total past due | | $ | 6,136 | |
| | | | | |
Major |
| | | | |
| 30-59 days past due | | $ | — |
|
| 60-89 days past due | | — |
|
| > 89 days past due | | 1,495 |
|
| Total past due | | $ | 1,495 |
|
NOTE 8: INVENTORIES
The following table summarizes the major classes of inventories are summarized as follows:of December 31:
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| |
| Finished goods | | $ | 184,944 | | | $ | 196,110 | |
| Service parts | | | 166,317 | | | | 168,281 | |
| Raw materials and work in process | | | 93,314 | | | | 83,852 | |
| | | | | | | | | |
| Total inventories | | $ | 444,575 | | | $ | 448,243 | |
| | | | | | | | | |
|
| | | | | | | |
| | 2011 | | 2010 |
| Finished goods | $ | 188,571 |
| | $ | 184,944 |
|
| Service parts | 152,597 |
| | 166,317 |
|
| Raw materials and work in process | 99,732 |
| | 93,314 |
|
| Total inventories | $ | 440,900 |
| | $ | 444,575 |
|
| |
NOTE 9: | PROPERTY, PLANT AND EQUIPMENT |
NOTE 9: PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment, at cost less accumulated depreciation and amortization:amortization as of December 31:
| | | | | | | | | | | | | |
| | | Estimated
| | | | | | | |
| | | Useful Life
| | | December 31, | |
| | | (years) | | | 2010 | | | 2009 | |
| |
| Land and land improvements | | | 0-15 | | | $ | 5,446 | | | $ | 6,292 | |
| Buildings and building equipment | | | 15 | | | | 61,100 | | | | 61,403 | |
| Machinery, tools and equipment | | | 5-12 | | | | 131,686 | | | | 119,378 | |
| Leasehold improvements(1) | | | 10 | | | | 24,300 | | | | 23,607 | |
| Computer equipment | | | 3-5 | | | | 82,532 | | | | 80,274 | |
| Computer software | | | 5-10 | | | | 164,708 | | | | 158,303 | |
| Furniture and fixtures | | | 5-8 | | | | 77,125 | | | | 74,446 | |
| Tooling | | | 3-5 | | | | 80,255 | | | | 76,834 | |
| Construction in progress | | | | | | | 19,083 | | | | 12,840 | |
| | | | | | | | | | | | | |
| Total property plant and equipment, at cost | | | | | | | 646,235 | | | | 613,377 | |
| Less accumulated depreciation and amortization | | | | | | | 442,773 | | | | 408,557 | |
| | | | | | | | | | | | | |
| Total property plant and equipment, net | | | | | | $ | 203,462 | | | $ | 204,820 | |
| | | | | | | | | | | | | |
| | |
(1) | | The estimated useful life for leasehold improvements is the lesser of 10 years or the term of the lease. |
|
| | | | | | | | | |
| | Estimated Useful Life | |
|
| | (years) | | 2011 | | 2010 |
| Land and land improvements | 0-15 | | $ | 7,855 |
| | $ | 5,446 |
|
| Buildings and building equipment | 15 | | 66,261 |
| | 61,100 |
|
| Machinery, tools and equipment | 5-12 | | 119,780 |
| | 131,686 |
|
| Leasehold improvements (1) | 10 | | 24,243 |
| | 24,300 |
|
| Computer equipment | 3-5 | | 78,543 |
| | 82,532 |
|
| Computer software | 5-10 | | 170,614 |
| | 164,708 |
|
| Furniture and fixtures | 5-8 | | 76,962 |
| | 77,125 |
|
| Tooling | 3-5 | | 80,979 |
| | 80,255 |
|
| Construction in progress | | | 17,019 |
| | 19,083 |
|
| Total property plant and equipment, at cost | | | 642,256 |
| | 646,235 |
|
| Less accumulated depreciation and amortization | | | 449,562 |
| | 442,773 |
|
| Total property plant and equipment, net | | | $ | 192,694 |
| | $ | 203,462 |
|
(1) The estimated useful life for leasehold improvements is the lesser of 10 years or the term of the lease.
During 2011, 2010 2009 and 2008,2009, depreciation expense, computed on a straight-line basis over the estimated useful lives of the related assets, was $51,425, $50,085$50,549, $51,425 and $55,295,$50,085, respectively.
68
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
| |
NOTE 10: | GOODWILL AND OTHER ASSETS |
NOTE 10: GOODWILL AND OTHER ASSETS
The changes in carrying amounts of goodwill within the Company’s Diebold North America (DNA)DNA and DI segments are summarized as follows:
| | | | | | | | | | | | | |
| | | DNA | | | DI | | | Total | |
| |
| Goodwill | | $ | 109,536 | | | $ | 350,797 | | | $ | 460,333 | |
| Accumulated impairment losses | | | (13,171 | ) | | | (38,859 | ) | | | (52,030 | ) |
| | | | | | | | | | | | | |
Balance at January 1, 2009 | | $ | 96,365 | | | $ | 311,938 | | | $ | 408,303 | |
| | | | | | | | | | | | | |
| Goodwill acquired | | | 2,326 | | | | 55 | | | | 2,381 | |
| Currency translation adjustment | | | 258 | | | | 39,995 | | | | 40,253 | |
| | | | | | | | | | | | | |
| Goodwill | | | 112,120 | | | | 390,847 | | | | 502,967 | |
| Accumulated impairment losses | | | (13,171 | ) | | | (38,859 | ) | | | (52,030 | ) |
| | | | | | | | | | | | | |
Balance at December 31, 2009 | | $ | 98,949 | | | $ | 351,988 | | | $ | 450,937 | |
| | | | | | | | | | | | | |
| Goodwill acquired | | | — | | | | — | | | | — | |
| Impairment loss | | | — | | | | (168,714 | ) | | | (168,714 | ) |
| Tax benefit (note 4) | | | — | | | | (3,922 | ) | | | (3,922 | ) |
| Currency translation adjustment | | | 43 | | | | (8,946 | ) | | | (8,903 | ) |
| | | | | | | | | | | | | |
| Goodwill | | | 112,163 | | | | 377,979 | | | | 490,142 | |
| Accumulated impairment losses | | | (13,171 | ) | | | (207,573 | ) | | | (220,744 | ) |
| | | | | | | | | | | | | |
Balance at December 31, 2010 | | $ | 98,992 | | | $ | 170,406 | | | $ | 269,398 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | DNA | | DI | | Total |
| | | | | | |
| Goodwill | $ | 112,120 |
| | $ | 390,847 |
| | $ | 502,967 |
|
| Accumulated impairment losses | (13,171 | ) | | (38,859 | ) | | (52,030 | ) |
| Balance at January 1, 2010 | $ | 98,949 |
| | $ | 351,988 |
| | $ | 450,937 |
|
| Impairment loss | — |
| | (168,714 | ) | | (168,714 | ) |
| Tax benefit (note 4) | — |
| | (3,922 | ) | | (3,922 | ) |
| Currency translation adjustment | 43 |
| | (8,946 | ) | | (8,903 | ) |
| Goodwill | 112,163 |
| | 377,979 |
| | 490,142 |
|
| Accumulated impairment losses | (13,171 | ) | | (207,573 | ) | | (220,744 | ) |
| Balance at December 31, 2010 | $ | 98,992 |
| | $ | 170,406 |
| | $ | 269,398 |
|
| Currency translation adjustment | (50 | ) | | (16,285 | ) | | (16,335 | ) |
| Goodwill | 112,113 |
| | 361,694 |
| | 473,807 |
|
| Accumulated impairment losses | (13,171 | ) | | (207,573 | ) | | (220,744 | ) |
| Balance at December 31, 2011 | $ | 98,942 |
| | $ | 154,121 |
| | $ | 253,063 |
|
The Company uses the most current information available and performs the annual impairment analysis as of November 30 each year. However, actual circumstances could differ significantly from assumptions and estimates made and could result in future goodwill impairment. 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.
In 2011, the Company adopted the provisions of FASB ASU 2011-08, Testing Goodwill for Impairment (ASU 2011-08), and 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 (refer to note 1). In 2010 and 2009, goodwill was reviewed for impairment based on a two-step test. In the first step, the Company compares the fair value of each reporting unit with its net bookcarrying 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 (November 30). 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.
The valuation techniques used in the Company's qualitative assessment, Step 1 impairment test and if necessary, Step 2 impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect forecasted 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.
69
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
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.
The annual goodwill impairment tests for 2011 and 2009 resulted in no impairment in any of the Company’s reporting units. Management concluded during the Company’s annual goodwill impairment test for 2010 that all of the Company’s goodwill within the EMEA reporting unit was fully impairednot recoverable and the Company recorded a $168,714$168,714 non-cash impairment charge during the fourth quarter. Due to the operational challenges experienced in the EMEA region over the past few quarters and the negative business impact related to potential FCPA compliance issues within the region, management has reduced its near-term earnings outlook for the EMEA business unit, resulting in the goodwill impairment. The annual goodwill impairment tests for 2009 and 2008 resulted in no impairment in anyquarter 2010.
DIEBOLD INCORPORATED AND SUBSIDIARIES
In addition, the Company’s fourth quarter 2008 decision to close its security business in the EMEA region resulted in an impairmentFORM 10-K as of $13,171 to the Domestic and Canada reporting unit goodwill. This impairment charge is reflected in loss from discontinued operations for the year ended December 31, 2008. Upon initial acquisition, the goodwill related to the EMEA security business was classified within the Company’s Domestic and Canada reporting unit for goodwill impairment testing.2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Other AssetsIncluded in other assets are net capitalized computer software development costs of $55,575$51,117 and $57,143$55,575 as of December 31, 20102011 and 2009,2010, respectively. Amortization expense on capitalized software of $17,315, $16,768$18,742, $17,315 and $14,332$16,768 was included in product cost of sales for 2011, 2010 2009 and 2008,2009, 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, 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 yearyears ended December 31, 2011, 2010 and 2009, the Company recorded a $3,000other-than-temporary impairment within DNA continuing operations related to a cost method investment. The Company determined this investment was fully impaired as of September 30, 2010 due to a decline in fair value. In addition, the Company recorded approximately $4,100 intangible assetother asset-related impairment charges within DNA continuing operations of $2,962, $7,135 and $2,500, respectively. The 2011 impairment charge related to a software intangible asset, the 2004 acquisition of TFE Technology Holdings, a maintenance provider of network and hardware service solutions2010 impairment charges related primarily to federal and state government agencies and commercial firms. The impairment was a result of negative cash flows which were projected to persist related to this business due to non-renewal of certain contracts. Based on an analysis of the discounted and undiscounted future cash flows related to this business, the Company determined these customer contract intangible assets were fully impaired asand an other than temporary impairment of June 30, 2010.
Fora cost-method investment and the year ended December 31, 2009 the Company impaired $2,500impairment charge related to the tradenameFirstline, Incorporatedin the DNA segment. For the year ended December 31, 2008, the Company impaired $4,376 of intangible assets in continuing operations of the DNA segment and $3,487 of intangible assets within loss from discontinued operations..
Investment in AffiliateInvestment 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 December 31, 20102011 and 20092010 was $12,118$11,461 and $11,308,$12,118, respectively, and fluctuated based on equity earnings and dividends. Equity earnings from the non-consolidated affiliate are included in miscellaneous, net in the consolidated statements of operations and were $2,982, $2,456$1,813, $2,982 and $2,470$2,456 for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively. The non-consolidated affiliate declared dividends of $2,172, $2,610$2,470, $2,172 and $1,642$2,610 for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively.
70
NOTE 11: DEBT
Outstanding debt balances were as follows:
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
Outstanding debt balances were as follows: |
| | | | | | | |
| | December 31, |
| | 2011 | | 2010 |
| Notes payable – current: | | | |
| Uncommitted lines of credit | $ | 21,572 |
| | $ | 15,038 |
|
| Other | 150 |
| | — |
|
| | $ | 21,722 |
| | $ | 15,038 |
|
| Long-term debt: | | | |
| Credit facility | $ | 291,000 |
| | $ | 235,000 |
|
| Senior notes | 300,000 |
| | 300,000 |
|
| Industrial development revenue bonds | 11,900 |
| | 11,900 |
|
| Other | 3,254 |
| | 3,468 |
|
| | $ | 606,154 |
| | $ | 550,368 |
|
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| |
| Notes payable — current: | | | | | | | | |
| Uncommitted lines of credit | | $ | 15,038 | | | $ | 16,915 | |
| | | | | | | | | |
| Long-term debt: | | | | | | | | |
| Credit facility | | $ | 235,000 | | | $ | 240,000 | |
| Senior notes | | | 300,000 | | | | 300,000 | |
| Industrial development revenue bonds | | | 11,900 | | | | 11,900 | |
| Other | | | 3,468 | | | | 1,108 | |
| | | | | | | | | |
| | | $ | 550,368 | | | $ | 553,008 | |
| | | | | | | | | |
As of December 31, 2010,2011, the Company had various international short-term uncommitted lines of credit with borrowing limits of $102,885.$101,530. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of December 31, 20102011 and 20092010 was 4.23 percent and 3.01 and 9.15 percent, respectively. Short-term uncommitted lines mature in less than one year.year. The amount available under the short-term uncommitted lines at December 31, 20102011 was $87,490.$79,958.
In October 2009,June 2011, the Company entered into a new five-year credit facility, which replaced its previous three-year credit facility. The Company used borrowings of approximately $330,000 under the new credit facility to repay all amounts outstanding under (and terminated) the previous credit facility. As of December 31, 2010,2011, the Company had borrowing limits under thisthe new credit facility totaling $500,380 ($400,000 and €75,000, translated)$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 $200,000 and €37,500.$250,000. Up to $30,000 and €15,000$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, 20102011 and 20092010 was 1.49 percent and 2.71 and 2.63 percent, respectively, which is variable based on the London Interbank Offered Rate (LIBOR)(LIBOR). The amount available under the new credit facility as of December 31, 20102011 was $265,380.$209,000. The Company incurred $1,876 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$300,000 with a weighted-average fixed interest rate of 5.50 percent.percent. The maturity dates of the senior notes are staggered, with $75,000, $175,000$75,000, $175,000 and $50,000$50,000 becoming due in 2013, 2016 and 2018, respectively. Additionally, the Company entered into a derivative transactionpre-issuance cash flow hedge to hedgeoffset interest rate risk on $200,000$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.
Maturities of debt as of December 31, 20102011 are as follows: $15,038 in 2011, $236,615$21,722 in 2012, $75,480$76,054 in 2013, $479$713 in 2014, $331$630 in 2015, $466,717 in 2016 and $237,463$62,040 thereafter. Interest charged to expense foron the Company’s debt instruments for the years ended December 31, 2011, 2010 and 2009 was $26,002, $27,520and 2008 was $27,520, $23,796 and $32,748,$23,796, 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 a20-year original term and are scheduled to mature in 2017.2017. 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 0.77 percent and 0.57 and 0.80 percent as of December 31, 20102011 and 2009,2010, respectively. Interest expense on the bonds charged to expense for the years ended December 31, 2011, 2010 2009 and 20082009 was $72, $122$88, $72 and $329,$122, 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, 2010,2011, the Company was in compliance with the financial covenants in its debt agreements.
71
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
Qualified Pension BenefitsPlans 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. 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. In addition to the qualified and non-qualified pension plans, union employees in one of the Company’s U.S. manufacturing facilities participated in the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers-Communications Workers of America multi-employer pension fund. This facility was closed in 2008 which triggered a withdrawal liability from the pension fund. The withdrawal liability was settled for $5,632 and was paid in 2010.
Supplemental Executive Retirement BenefitsThe 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 BenefitsIn 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.
Prior to 2008, the Company used a September 30, measurement date to report its pension and other benefits at fiscal year-end. The Company remeasured its plan assets and benefit obligations on January 1, 2008 in order to transition to a fiscal year-end measurement date. This resulted in a cumulative beginning
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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:
| | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Other Benefits | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| |
Change in benefit obligation | | | | | | | | | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 490,544 | | | $ | 461,131 | | | $ | 16,585 | | | $ | 18,571 | |
| Service cost | | | 9,994 | | | | 10,902 | | | | — | | | | 1 | |
| Interest cost | | | 30,723 | | | | 28,947 | | | | 993 | | | | 1,127 | |
| Actuarial loss (gain) | | | 41,848 | | | | 9,178 | | | | 1,311 | | | | (1,369 | ) |
| Plan participant contributions | | | — | | | | — | | | | 159 | | | | 96 | |
| Medicare retiree drug subsidy reimbursements | | | — | | | | — | | | | 219 | | | | 240 | |
| Benefits paid | | | (21,037 | ) | | | (19,637 | ) | | | (2,382 | ) | | | (2,081 | ) |
| Other | | | 688 | | | | 23 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Benefit obligation at end of year | | $ | 552,760 | | | $ | 490,544 | | | $ | 16,885 | | | $ | 16,585 | |
| | | | | | | | | | | | | | | | | |
Change in plan assets | | | | | | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | 398,657 | | | $ | 327,333 | | | $ | — | | | $ | — | |
| Actual return on plan assets | | | 57,507 | | | | 75,307 | | | | — | | | | — | |
| Employer contributions | | | 15,505 | | | | 15,654 | | | | 2,223 | | | | 1,985 | |
| Plan participant contributions | | | — | | | | — | | | | 159 | | | | 96 | |
| Benefits paid | | | (21,037 | ) | | | (19,637 | ) | | | (2,382 | ) | | | (2,081 | ) |
| | | | | | | | | | | | | | | | | |
| Fair value of plan assets at end of year | | $ | 450,632 | | | $ | 398,657 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Funded status | | | | | | | | | | | | | | | | |
| Funded status | | $ | (102,128 | ) | | $ | (91,887 | ) | | $ | (16,885 | ) | | $ | (16,585 | ) |
| Unrecognized net actuarial loss(1) | | | 152,854 | | | | 135,723 | | | | 4,996 | | | | 3,969 | |
| Unrecognized prior service cost (benefit)(1) | | | 2,196 | | | | 1,645 | | | | (1,967 | ) | | | (2,484 | ) |
| | | | | | | | | | | | | | | | | |
| Prepaid (accrued) pension cost | | $ | 52,922 | | | $ | 45,481 | | | $ | (13,856 | ) | | $ | (15,100 | ) |
| | | | | | | | | | | | | | | | | |
Amounts recognized in Balance Sheets | | | | | | | | | | | | | | | | |
| Current liabilities | | $ | (2,711 | ) | | $ | (2,684 | ) | | $ | (1,797 | ) | | $ | (1,742 | ) |
| Noncurrent liabilities(2) | | | (99,417 | ) | | | (89,203 | ) | | | (15,088 | ) | | | (14,843 | ) |
| Accumulated other comprehensive income | | | 155,050 | | | | 137,368 | | | | 3,029 | | | | 1,485 | |
| | | | | | | | | | | | | | | | | |
| Net amount recognized | | $ | 52,922 | | | $ | 45,481 | | | $ | (13,856 | ) | | $ | (15,100 | ) |
| | | | | | | | | | | | | | | | | |
Change in accumulated other comprehensive income | | | | | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 137,368 | | | $ | 170,161 | | | $ | 1,485 | | | $ | 2,778 | |
| Prior service (cost) credit recognized during the year | | | (197 | ) | | | (271 | ) | | | 517 | | | | 517 | |
| Net actuarial losses recognized during the year | | | (5,688 | ) | | | (3,345 | ) | | | (284 | ) | | | (442 | ) |
| Prior service cost occurring during the year | | | 748 | | | | — | | | | — | | | | — | |
| Net actuarial losses (gains) losses occurring during the year | | | 22,819 | | | | (29,177 | ) | | | 1,311 | | | | (1,368 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at end of year | | $ | 155,050 | | | $ | 137,368 | | | $ | 3,029 | | | $ | 1,485 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2011 | | 2010 | | 2011 | | 2010 |
| Change in benefit obligation | | | | | | | |
| Benefit obligation at beginning of year | $ | 552,760 |
| | $ | 490,544 |
| | $ | 16,885 |
| | $ | 16,585 |
|
| Service cost | 10,854 |
| | 9,994 |
| | — |
| | — |
|
| Interest cost | 31,491 |
| | 30,723 |
| | 930 |
| | 993 |
|
| Actuarial loss | 63,079 |
| | 41,848 |
| | 1,277 |
| | 1,311 |
|
| Plan participant contributions | — |
| | — |
| | 114 |
| | 159 |
|
| Medicare retiree drug subsidy reimbursements | — |
| | — |
| | 177 |
| | 219 |
|
| Benefits paid | (21,932 | ) | | (21,037 | ) | | (2,361 | ) | | (2,382 | ) |
| Other | (42 | ) | | 688 |
| | — |
| | — |
|
| Benefit obligation at end of year | $ | 636,210 |
| | $ | 552,760 |
| | $ | 17,022 |
| | $ | 16,885 |
|
| | | | | | | | |
| Change in plan assets | | | | | | | |
| Fair value of plan assets at beginning of year | $ | 450,632 |
| | $ | 398,657 |
| | $ | — |
| | $ | — |
|
| Actual return on plan assets | 33,471 |
| | 57,507 |
| | — |
| | — |
|
| Employer contributions | 23,318 |
| | 15,505 |
| | 2,247 |
| | 2,223 |
|
| Plan participant contributions | — |
| | — |
| | 114 |
| | 159 |
|
| Benefits paid | (21,932 | ) | | (21,037 | ) | | (2,361 | ) | | (2,382 | ) |
| Fair value of plan assets at end of year | $ | 485,489 |
| | $ | 450,632 |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
| Funded status | | | | | | | |
| Funded status | $ | (150,721 | ) | | $ | (102,128 | ) | | $ | (17,022 | ) | | $ | (16,885 | ) |
| Unrecognized net actuarial loss (1) | 213,712 |
| | 152,854 |
| | 5,884 |
| | 4,996 |
|
| Unrecognized prior service cost (benefit) (1) | 1,935 |
| | 2,196 |
| | (1,450 | ) | | (1,967 | ) |
| Prepaid (accrued) pension cost | $ | 64,926 |
| | $ | 52,922 |
| | $ | (12,588 | ) | | $ | (13,856 | ) |
| | | | | | | | |
| Amounts recognized in balance sheets | | | | | | | |
| Current liabilities | $ | (2,846 | ) | | $ | (2,711 | ) | | $ | (1,693 | ) | | $ | (1,797 | ) |
| Noncurrent liabilities (2) | (147,875 | ) | | (99,417 | ) | | (15,329 | ) | | (15,088 | ) |
| Accumulated other comprehensive income | 215,647 |
| | 155,050 |
| | 4,434 |
| | 3,029 |
|
| Net amount recognized | $ | 64,926 |
| | $ | 52,922 |
| | $ | (12,588 | ) | | $ | (13,856 | ) |
| | | | | | | | |
Change in accumulated other comprehensive income | | | | | | | |
| Balance at beginning of year | $ | 155,050 |
| | $ | 137,368 |
| | $ | 3,029 |
| | $ | 1,485 |
|
| Prior service (cost) credit recognized during the year | (259 | ) | | (197 | ) | | 517 |
| | 517 |
|
| Net actuarial losses recognized during the year | (9,497 | ) | | (5,688 | ) | | (389 | ) | | (284 | ) |
| Prior service cost occurring during the year | — |
| | 748 |
| | — |
| | — |
|
| Net actuarial losses occurring during the year | 70,353 |
| | 22,819 |
| | 1,277 |
| | 1,311 |
|
| Balance at end of year | $ | 215,647 |
| | $ | 155,050 |
| | $ | 4,434 |
| | $ | 3,029 |
|
| | |
| (1) | | Represents amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit costs. |
| |
| (2) | | Included in the consolidated balance sheets in pensions and other benefits and other postretirement and other benefits are international and multi-employer plans. |
73
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Other Benefits | |
| | | 2010 | | | 2009 | | | 2008 | | | 2010 | | | 2009 | | | 2008 | |
Components of net periodic benefit cost | | | | | | | | | | | | | | | | | | | | | | | | |
| Service cost | | $ | 9,994 | | | $ | 10,902 | | | $ | 9,839 | | | $ | — | | | $ | 1 | | | $ | 2 | |
| Interest cost | | | 30,723 | | | | 28,947 | | | | 28,046 | | | | 993 | | | | 1,127 | | | | 1,221 | |
| Expected return on plan assets | | | (38,412 | ) | | | (36,973 | ) | | | (35,747 | ) | | | — | | | | — | | | | — | |
| Amortization of prior service cost(1) | | | 197 | | | | 271 | | | | 381 | | | | (517 | ) | | | (517 | ) | | | (517 | ) |
| Recognized net actuarial loss | | | 5,688 | | | | 3,345 | | | | 804 | | | | 284 | | | | 442 | | | | 432 | |
| Curtailment gain | | | — | | | | — | | | | (52 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net periodic pension benefit cost | | $ | 8,190 | | | $ | 6,492 | | | $ | 3,271 | | | $ | 760 | | | $ | 1,053 | | | $ | 1,138 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2011 | | 2010 | | 2009 | | 2011 | | 2010 | | 2009 |
Components of net periodic benefit cost | | | | | | | | | | | |
| Service cost | $ | 10,854 |
| | $ | 9,994 |
| | $ | 10,902 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
| Interest cost | 31,491 |
| | 30,723 |
| | 28,947 |
| | 930 |
| | 993 |
| | 1,127 |
|
| Expected return on plan assets | (40,735 | ) | | (38,412 | ) | | (36,973 | ) | | — |
| | — |
| | — |
|
| Amortization of prior service cost (1) | 259 |
| | 197 |
| | 271 |
| | (517 | ) | | (517 | ) | | (517 | ) |
| Recognized net actuarial loss | 9,497 |
| | 5,688 |
| | 3,345 |
| | 389 |
| | 284 |
| | 442 |
|
| Net periodic pension benefit cost | $ | 11,366 |
| | $ | 8,190 |
| | $ | 6,492 |
| | $ | 802 |
| | $ | 760 |
| | $ | 1,053 |
|
| | |
| (1) | | The annual amortization of pension benefits 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 for the years endedat December 31:
| | | | | | | | | | |
| | | | 2010 | | | 2009 | |
| Projected benefit obligation | | | $ | 552,760 | | | $ | 490,544 | |
| Accumulated benefit obligation | | | | 501,685 | | | | 449,034 | |
| Fair value of plan assets | | | | 450,632 | | | | 398,657 | |
|
| | | | | | | |
| | 2011 | | 2010 |
| Projected benefit obligation | $ | 636,210 |
| | $ | 552,760 |
|
| Accumulated benefit obligation | 580,200 |
| | 501,685 |
|
| Fair value of plan assets | 485,489 |
| | 450,632 |
|
The following table represents the weighted-average assumptions used to determine benefit obligations at December 31:
| | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits |
| | | 2010 | | 2009 | | 2010 | | 2009 |
| Discount rate | | | 5.83 | % | | | 6.33 | % | | | 5.83 | % | | | 6.33 | % |
| Rate of compensation increase | | | 3.25 | % | | | 3.25 | % | | | | | | | | |
|
| | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2011 | | 2010 | | 2011 | | 2010 |
| Discount rate | 5.04 | % | | 5.83 | % | | 5.04 | % | | 5.83 | % |
| Rate of compensation increase | 3.25 | % | | 3.25 | % | | N/A |
| | N/A |
|
The following table represents the weighted-average assumptions used to determine periodic benefit cost at December 31:
| | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Other Benefits | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Discount rate | | | 6.33 | % | | | 6.41 | % | | | 6.33 | % | | | 6.41 | % |
| Expected long-term return on plan assets | | | 8.50 | % | | | 8.50 | % | | | | | | | | |
| Rate of compensation increase | | | 3.25 | % | | | 3.25 | % | | | | | | | | |
|
| | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2011 | | 2010 | | 2011 | | 2010 |
| Discount rate | 5.83 | % | | 6.33 | % | | 5.83 | % | | 6.33 | % |
| Expected long-term return on plan assets | 8.50 | % | | 8.50 | % | | N/A |
| | N/A |
|
| Rate of compensation increase | 3.25 | % | | 3.25 | % | | 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 theyear-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.
74
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
The following table represents assumed health care cost trend rates at December 31:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Healthcare cost trend rate assumed for next year | | | 7.40 | % | | | 8.20 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | | | 4.20 | % | | | 4.20 | % |
| Year that rate reaches ultimate trend rate | | | 2099 | | | | 2099 | |
|
| | | | | |
| | 2011 | | 2010 |
| Healthcare cost trend rate assumed for next year | 8.0 | % | | 7.4 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.2 | % | | 4.2 | % |
| Year that rate reaches ultimate trend rate | 2099 |
| | 2099 |
|
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
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 7.4 percent in 2012and 8.2 percent in 2011 and 2010,, 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:
| | | | | | | | | |
| | | One-Percentage-
| | One-Percentage-
|
| | | Point Increase | | Point Decrease |
| Effect on total of service and interest cost | | $ | 61 | | | $ | (56 | ) |
| Effect on postretirement benefit obligation | | $ | 995 | | | $ | (899 | ) |
|
| | | | | | | |
| | One-Percentage-Point Increase | | One-Percentage-Point Decrease |
| Effect on total of service and interest cost | $ | 58 |
| | $ | (52 | ) |
| Effect on postretirement benefit obligation | 1,010 |
| | (914 | ) |
The Company has adopted a pension investment policy designed to achieve an adequate fundingfunded 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. 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 allows for 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 2011,2012, which are readjusted at least quarterly within a defined range, and the Company’s actual pension plan asset allocation as of December 31, 20102011 and 2009:2010:
| | | | | | | | | | | | | |
| | | Target
| | | | |
| | | Allocation
| | | | |
| | | Percentage | | | Actual Allocation Percentage | |
| | | 2011 | | | 2010 | | | 2009 | |
| |
| Equity securities | | | 45 | | | | 45 | | | | 48 | |
| Debt securities | | | 40 | | | | 43 | | | | 42 | |
| Real estate | | | 5 | | | | 3 | | | | — | |
| Other | | | 10 | | | | 9 | | | | 10 | |
| | | | | | | | | | | | | |
| Total | | | 100 | | | | 100 | | | | 100 | |
| | | | | | | | | | | | | |
|
| | | | | | |
| | | Target Allocation Percentage | | Actual Allocation Percentage |
| | | 2012 | | 2011 | | 2010 |
| Equity securities | | 45% | | 35% | | 45% |
| Debt securities | | 40% | | 51% | | 43% |
| Real estate | | 5% | | 4% | | 3% |
| Other | | 10% | | 10% | | 9% |
| Total | | 100% | | 100% | | 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
75
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
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’splan’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.
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
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, 2010:2011:
| | | | | | | | | | | | | | | | | |
| | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | |
| Cash and other | | $ | 55 | | | $ | 55 | | | $ | — | | | $ | — | |
| Mutual funds: | | | | | | | | | | | | | | | | |
| U.S. mid growth | | | 18,240 | | | | 18,240 | | | | — | | | | — | |
| Equity securities: | | | | | | | | | | | | | | | | |
| U.S. large cap index | | | 74,905 | | | | 74,905 | | | | — | | | | — | |
| U.S. mid cap value | | | 16,640 | | | | 16,640 | | | | — | | | | — | |
| U.S. small cap core | | | 21,610 | | | | 21,610 | | | | — | | | | — | |
| International developed markets | | | 43,816 | | | | 43,816 | | | | — | | | | — | |
| Fixed income securities: | | | | | | | | | | | | | | | | |
| U.S. corporate bonds | | | 68,108 | | | | — | | | | 68,108 | | | | — | |
| International corporate bonds | | | 2,568 | | | | — | | | | 2,568 | | | | — | |
| U.S. government | | | 734 | | | | | | | | 734 | | | | | |
| Mortgage-backed securities | | | 73 | | | | — | | | | 73 | | | | — | |
| Other fixed income | | | 1,909 | | | | — | | | | 1,909 | | | | — | |
| Common collective trusts(a) | | | 145,199 | | | | — | | | | 145,199 | | | | — | |
| Alternative investments: | | | | | | | | | | | | | | | | |
| Multi-strategy hedge funds(b) | | | 22,107 | | | | — | | | | — | | | | 22,107 | |
| Private equity funds(c) | | | 20,488 | | | | — | | | | — | | | | 20,488 | |
| Real estate(d) | | | 14,180 | | | | — | | | | — | | | | 14,180 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 450,632 | | | $ | 175,266 | | | $ | 218,591 | | | $ | 56,775 | |
| | | | | | | | | | | | | | | | | |
76
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | |
| | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Cash and other | | $ | 50,389 |
| | $ | 50,389 |
| | $ | — |
| | $ | — |
|
| Mutual funds: | | | | | | | | |
| U.S. mid growth | | 15,771 |
| | 15,771 |
| | — |
| | — |
|
| Equity securities: | | | | | | | | |
| U.S. mid cap value | | 14,672 |
| | 14,672 |
| | — |
| | — |
|
| U.S. small cap core | | 17,253 |
| | 17,253 |
| | — |
| | — |
|
| International developed markets | | 37,345 |
| | 37,345 |
| | — |
| | — |
|
| Fixed income securities: | | | | | | | | |
| U.S. corporate bonds | | 68,356 |
| | — |
| | 68,356 |
| | — |
|
| International corporate bonds | | 2,316 |
| | — |
| | 2,316 |
| | — |
|
| U.S. government | | 3,436 |
| | — |
| | 3,436 |
| | |
| Other fixed income | | 598 |
| | — |
| | 598 |
| | — |
|
| Emerging markets | | 17,334 |
| | — |
| | 17,334 |
| | — |
|
| Common collective trusts: | | | | | | | | |
| Real estate (a) | | 16,443 |
| | — |
| | — |
| | 16,443 |
|
| Other (b) | | 191,421 |
| | — |
| | 191,421 |
| | — |
|
| Alternative investments: | | | | | | | | |
| Multi-strategy hedge funds (c) | | 26,605 |
| | — |
| | — |
| | 26,605 |
|
| Private equity funds (d) | | 23,550 |
| | — |
| | — |
| | 23,550 |
|
| | | $ | 485,489 |
| | $ | 135,430 |
| | $ | 283,461 |
| | $ | 66,598 |
|
The following table summarizes the fair value of the Company’s plan assets as of December 31, 2009:2010:
| | | | | | | | | | | | | | | | | |
| | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | |
| Cash and other | | $ | 2,382 | | | $ | 2,382 | | | $ | — | | | $ | — | |
| Short-term investments | | | 3,855 | | | | 3,855 | | | | — | | | | — | |
| Mutual funds: | | | | | | | | | | | | | | | | |
| U.S. mid growth | | | 21,803 | | | | 21,803 | | | | — | | | | — | |
| Equity securities: | | | — | | | | | | | | | | | | | |
| U.S. large cap value | | | 37,203 | | | | 37,203 | | | | — | | | | — | |
| U.S. large cap growth | | | 37,170 | | | | 37,170 | | | | — | | | | — | |
| U.S. mid cap value | | | 17,937 | | | | 17,937 | | | | — | | | | — | |
| U.S. small cap core | | | 17,588 | | | | 17,588 | | | | — | | | | — | |
| International developed markets | | | 36,365 | | | | 36,365 | | | | — | | | | — | |
| Fixed income securities: | | | | | | | | | | | | | | | | |
| U.S. corporate bonds | | | 61,030 | | | | — | | | | 61,030 | | | | — | |
| International corporate bonds | | | 2,203 | | | | — | | | | 2,203 | | | | — | |
| Mortgage-backed securities | | | 1,166 | | | | — | | | | 1,166 | | | | — | |
| U.S. government treasuries | | | 312 | | | | — | | | | 312 | | | | — | |
| Other fixed income | | | 77 | | | | — | | | | 77 | | | | — | |
| Common collective trusts(a) | | | 123,093 | | | | — | | | | 123,093 | | | | — | |
| Alternative investments: | | | | | | | | | | | | | | | | |
| Multi-strategy hedge funds(b) | | | 20,481 | | | | — | | | | — | | | | 20,481 | |
| Private equity funds(c) | | | 15,992 | | | | — | | | | — | | | | 15,992 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 398,657 | | | $ | 174,303 | | | $ | 187,881 | | | $ | 36,473 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Cash and other | | $ | 55 |
| | $ | 55 |
| | $ | — |
| | $ | — |
|
| Mutual funds: | | | | | | | | |
| U.S. mid growth | | 18,240 |
| | 18,240 |
| | — |
| | — |
|
| Equity securities: | | | | | | | | |
| U.S. mid cap value | | 16,640 |
| | 16,640 |
| | — |
| | — |
|
| U.S. small cap core | | 21,610 |
| | 21,610 |
| | — |
| | — |
|
| International developed markets | | 43,816 |
| | 43,816 |
| | — |
| | — |
|
| Fixed income securities: | | | | | | | | |
| U.S. corporate bonds | | 68,108 |
| | — |
| | 68,108 |
| | — |
|
| International corporate bonds | | 2,568 |
| | — |
| | 2,568 |
| | — |
|
| U.S. government | | 734 |
| | | | 734 |
| | |
| Other fixed income | | 1,982 |
| | — |
| | 1,982 |
| | — |
|
| Emerging markets | | 25,666 |
| | — |
| | 25,666 |
| | — |
|
| Common collective trusts: | | | | | | | | |
| Real estate (a) | | 14,180 |
| | — |
| | — |
| | 14,180 |
|
| Other (b) | | 194,438 |
| | — |
| | 194,438 |
| | — |
|
| Alternative investments: | | | | | | | | |
| Multi-strategy hedge funds (c) | | 22,107 |
| | — |
| | — |
| | 22,107 |
|
| Private equity funds (d) | | 20,488 |
| | — |
| | — |
| | 20,488 |
|
| Total | | $ | 450,632 |
| | $ | 100,361 |
| | $ | 293,496 |
| | $ | 56,775 |
|
| | |
| (a) | | CommonReal estate common collective truststrust At 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, 2011, investments in this CCT include approximately 46 percent office, 23 percent residential, 19 percent retail and 12 percent industrial, cash and other. As of December 31, 2010 investments in this CCT include approximately 8233 percent of the common collective trusts (CCTs) are invested in fixed income securities including approximately 40 office, 21 percent in mortgage-backed securities, 35 residential, 23 percent in corporate bonds retail and 2523 percent in U.S. Treasury industrial, cash and other. Approximately 18 percent of the CCTs at December 31, 2010 are invested in international emerging market equity strategies. Investments in fixed income securitiesthe real estate CCT can be redeemed daily.once per quarter subject to available cash, with a 45-day notice.
|
| |
| (b) | Other common collective trusts At December 31, 2009,2011, approximately 8464 percent of the other CCTs are invested in fixed income securities including approximately 5035 percent in mortgage-backed securities, 3043 percent in corporate bonds and 20 percent in U.S. Treasury and other. Approximately 1636 percent of the other CCTs at December 31, 20092011 are invested in international emerging market equity strategies. Investments in fixed income securities can be redeemed daily. Investments in emerging market equity can be redeemed semi-monthly with aRussell 1000 Fund large cap index funds. At 15-dayDecember 31, notice. |
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
2010, approximately 61 percent of the other CCTs are invested in fixed-income securities including approximately 40 percent in mortgage-backed securities, 35 percent in corporate bonds and 25 percent in U.S. Treasury and other. Approximately 39 percent of the other CCTs at December 31, 2010 are invested in Russell 1000 Fund large cap index funds. Investments in fixed-income securities can be redeemed daily.
| |
|
(b)(c) | | Multi-strategy hedge fundsThe objective of the multi-strategy hedge funds is to diversify risks and reduce volatility. At December 31, 2011 and 2010, investments in this class include approximately 35 percent long/short equity, 35 percent arbitrage and event investments and 30 percent in directional trading, and fixed income. At December 31, 2009, investments in this class include approximately 30 percent long/short equity, 40 percent arbitrage and event investments and 30 percent in directional trading and fixed income and other. Investments in the multi-strategy hedge fund can be redeemed semi-annually with a 95-day notice95-day. notice. |
| |
|
(c)(d) | | Private equity fundsThe 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, 20102011 and 2009,2010, investments in these private equity funds include approximately 50 percent and 45 percent, respectively, in buyout private equity funds that usually invest in mature companies with established |
77
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
| | |
| | business plans, 30 percent and 35 percent, respectively, in special situations private equity and debt funds that focus on niche investment strategies and 20 percent in both years, 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, 20102011 and 2009,2010, the Company had unfunded commitments of underlying funds of $6,012$5,618 and $8,552. |
|
(d) | | Real Estate$6,012The objective of the real estate fund is to achieve long-term returns through investments in a broadly diversified portfolio of improved properties with stabilized occupancies. As of December 31, 2010 investments in this fund include approximately 33 percent office, 23 percent retail, 21 percent residential, 11 percent industrial and 12 percent cash and other. Investments in the real estate fund can be redeemed once per quarter subject to available cash, with a 45 day notice.. |
The following table summarizes the changes in fair value of level 3 assets for the yearyears ended December 31:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Balance, January 1 | | $ | 36,473 | | | $ | 35,075 | |
| Acquisitions | | | 15,540 | | | | 2,245 | |
| Dispositions | | | (383 | ) | | | (242 | ) |
| Realized gain (loss), net | | | 1,907 | | | | 2,336 | |
| Unrealized gain (loss), net | | | 3,238 | | | | (2,941 | ) |
| | | | | | | | | |
| Balance, December 31 | | $ | 56,775 | | | $ | 36,473 | |
| | | | | | | | | |
|
| | | | | | | | |
| | | 2011 | | 2010 |
| Balance, January 1 | | $ | 56,775 |
| | $ | 36,473 |
|
| Acquisitions | | 5,394 |
| | 15,540 |
|
| Dispositions | | (1,536 | ) | | (383 | ) |
| Realized gain, net | | 537 |
| | 1,907 |
|
| Unrealized gain, net | | 5,428 |
| | 3,238 |
|
| Balance, December 31 | | $ | 66,598 |
| | $ | 56,775 |
|
The following table represents the amortization amounts expected to be recognized during 2011:2012:
| | | | | | | | | |
| | | Pension Benefits | | Other Benefits |
| Amount of net prior service cost (credit) | | $ | 258 | | | $ | (517 | ) |
| Amount of net loss | | | 9,445 | | | | 389 | |
|
| | | | | | | |
| | Pension Benefits | | Other Benefits |
| Amount of net prior service cost (credit) | $ | 258 |
| | $ | (517 | ) |
| Amount of net loss | 15,798 |
| | 488 |
|
The Company contributed $15,505$23,318 to its pension plans, including contributions to the nonqualified plan, and $2,223$2,247 to its other postretirement benefit plan induring the year ended December 31, 2010.2011. Also, the Company expects to contribute $23,881$15,814 to its pension plans, including the nonqualified plan, and $1,848$1,940 to its other postretirement benefit plan induring the year ended ending December 31, 2011.2012. The following benefit payments, which reflect expected future service, are expected to be paid:
| | | | | | | | | | | | | | |
| | | | | | | Other Benefits
| | | Other Benefits
| |
| | | | Pension
| | | before Medicare
| | | after Medicare
| |
| | | | Benefits | | | Part D Subsidy | | | Part D Subsidy | |
| 2011 | | | $ | 21,916 | | | $ | 2,083 | | | $ | 1,848 | |
| 2012 | | | | 23,678 | | | | 2,041 | | | | 1,808 | |
| 2013 | | | | 25,204 | | | | 1,989 | | | | 1,762 | |
| 2014 | | | | 27,103 | | | | 1,924 | | | | 1,705 | |
| 2015 | | | | 29,064 | | | | 1,832 | | | | 1,621 | |
| 2016 — 2020 | | | | 176,375 | | | | 7,986 | | | | 7,099 | |
|
| | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits before Medicare Part D Subsidy | | Other Benefits after Medicare Part D Subsidy |
| 2012 | | $ | 23,112 |
| | $ | 1,940 |
| | $ | 1,735 |
|
| 2013 | | 24,647 |
| | 1,917 |
| | 1,715 |
|
| 2014 | | 27,716 |
| | 1,893 |
| | 1,694 |
|
| 2015 | | 28,674 |
| | 1,836 |
| | 1,641 |
|
| 2016 | | 30,631 |
| | 1,785 |
| | 1,596 |
|
| 2017-2021 | | 185,451 |
| | 7,785 |
| | 6,981 |
|
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Retirement Savings PlanThe Company offers employee 401(k) savings plans (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. All new salaried employees hired on or after July 1, 2003 were provided with an employer basic matching contribution in the amount of 100 percent of the first three percent of eligible pay and 60 percent of the next three percent of eligible pay. This new enhanced benefit is in lieu of participation in the pension plan for salaried employees. For employees hired prior to July 1, 2003,The following table represents the Company matched 60 percent of participating employees’ first three percent ofCompany's basic match percentage on participant qualified contributions and 40 percent of participating employees’ next three percent of contributions. Effective April 1, 2009, the Company match for the Savings Plans was suspended if a participant was hired before July 1, 2003 and participates in the Diebold pension plan. Also effective April 1, 2009, the Company match was reduced to 30 cents for every dollar up to six percenta percentage of income for participants who were hired after July 1, 2003 and do not participate in the Dieboldtheir compensation:
78
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
|
| | | |
| Employees hired prior to July 1, 2003 | | Employees hired on or after July 1, 2003 |
Effective July 1, 2003 - March 31, 2009
| 60% of first 3% 40% of next 3% | | 100% of first 3% 60% of next 3% |
| Effective April 1, 2009 - December 31, 2010 | None | | 30% of first 6% |
| Effective January 1, 2011 - December 31, 2011 | 25% of first 6% | | 55% of first 6% |
pension plan.
The Company match is determined by the Board of Directors and evaluated at least annually. Total Company match was $1,895, $5,077$6,483, $1,895 and $12,510$5,077 for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively.
Deferred Compensation PlansThe 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 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.
The Company’s future minimum lease payments due under non-cancellable operating leases for real estate, vehicles and other equipment at December 31, 20102011 are as follows:
| | | | | | | | | | | | | |
| | | Total | | | Real Estate | | | Equipment(a) | |
| 2011 | | $ | 37,092 | | | $ | 21,948 | | | $ | 15,144 | |
| 2012 | | | 25,104 | | | | 17,595 | | | | 7,509 | |
| 2013 | | | 18,129 | | | | 14,740 | | | | 3,389 | |
| 2014 | | | 13,848 | | | | 12,239 | | | | 1,609 | |
| 2015 | | | 10,998 | | | | 9,716 | | | | 1,282 | |
| Thereafter | | | 18,913 | | | | 14,802 | | | | 4,111 | |
| | | | | | | | | | | | | |
| | | $ | 124,084 | | | $ | 91,040 | | | $ | 33,044 | |
| | | | | | | | | | | | | |
| | |
(a) | | Leased vehicles with contractual terms of36-60 months are cancellable after 12 months without penalty. |
|
| | | | | | | | | | | | |
| | | Total | | Real Estate | | Equipment (a) |
| 2012 | | $ | 43,192 |
| | $ | 29,766 |
| | $ | 13,426 |
|
| 2013 | | 31,388 |
| | 25,912 |
| | 5,476 |
|
| 2014 | | 24,942 |
| | 22,237 |
| | 2,705 |
|
| 2015 | | 18,630 |
| | 17,359 |
| | 1,271 |
|
| 2016 | | 14,404 |
| | 13,953 |
| | 451 |
|
| Thereafter | | 11,238 |
| | 10,998 |
| | 240 |
|
| | | $ | 143,794 |
| | $ | 120,225 |
| | $ | 23,569 |
|
(a) Leased vehicles with contractual terms of 36 to 60 months are cancellable after 12 months without penalty.
Future minimum lease payments reflect only the minimum payments during the initial12-month non-cancellable term.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 $69,448, $74,914$73,801, $69,448 and $84,708$74,914 for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively.
| |
NOTE 14: GUARANTEES AND PRODUCTNOTE 14: | GUARANTEES AND PRODUCT WARRANTIES |
In September 2009, the Company sold its U.S. election systems business. The related sale agreement contained shared liability clauses pursuant to which the Company agreed to indemnify the purchaser for 70 percent of any adverse consequences to the purchaser arising out of certain defined potential litigation or obligations. As of December 31, 2010, there were no material adverse consequences related to these shared liability indemnifications. The Company’s maximum exposure under the shared liability indemnifications is $8,000.
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$11,900 as of December 31, 20102011 and 2009.2010.
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, 2010, the maximum future payment obligations
201179
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
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. At December 31, 2009,, the maximum future payment obligations relative to these various guarantees totaled $53,419$71,321, of which $22,628$22,623 represented standby letters of credit to insurance providers,
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
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 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:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Balance at January 1 | | $ | 62,673 | | | $ | 43,009 | |
| Current period accruals(a) | | | 77,490 | | | | 67,316 | |
| Current period settlements | | | (61,850 | ) | | | (47,652 | ) |
| | | | | | | | | |
| Balance at December 31 | | $ | 78,313 | | | $ | 62,673 | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | |
| | 2011 | | 2010 |
| Balance at January 1 | $ | 78,313 |
| | $ | 62,673 |
|
| Current period accruals (a) | 49,825 |
| | 77,490 |
|
| Current period settlements | (64,783 | ) | | (61,850 | ) |
| Balance at December 31 | $ | 63,355 |
| | $ | 78,313 |
|
| | |
(a) | | includes the impact of foreign exchange rate fluctuations |
(a) Includes the impact of foreign exchange rate fluctuations.
| |
NOTE 15: | COMMITMENTS AND CONTINGENCIES |
At December 31, 2010,2011, the Company had purchase commitments due within one year totaling $3,672$3,091 for materials through contract manufacturing agreements at negotiated prices. The amounts purchased under these obligations totaled $7,508, $6,235 and $10,926$5,997 in 2010, 2009 and 2008, respectively.2011.
At December 31, 2010,2011, 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 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 thesethose 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, 2010:2011:
401(k)Securities and Securities ClassShareholder Actions
The Company has been served with various lawsuits, filed against it and certain current and former officers and directors, by shareholders and participants in the Company’s 401(k) Plan, alleging breaches of fiduciary duties under the Employee Retirement Income Security Act of 1974 with respect to the 401(k) Plan. These complaints, which have been consolidated into a single proceeding, seek compensatory damages in an unspecific amount, fees and expenses related to such lawsuits and the granting of extraordinary equitableand/or injunctive relief. In May 2009, the Company agreed to settle the 401(k) class action litigation for $4,500 to be paid out of the Company’s insurance policies. On February 11, 2011, the court entered an order approving the settlement.
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.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 (SEC settlement)Settlement).
80
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
On October 19, 2010, an alleged shareholder of the Company filed a shareholder derivative lawsuit in the Stark County, Ohio, Court of Common Pleas, alleging claims on behalf of the Company against certain current and former officers and directors of the Company for breach of fiduciary duty, unjust enrichment and corporate waste.waste (Levine v. Geswein et al., Case No. 2010-CV-3848). The complaint generally relates to the matters set forth in the court documents filed by the SEC in June 2010 in connection with the SEC Settlement, and asserts that the defendants are liable to the Company for alleged damages associated with the SEC investigation, settlement, and related litigation. It also asserts that alleged misstatements in the Company’s publicly issued financial statements caused the Company’s common stock to trade at artificially inflated prices between 2004 and 2006, and that defendants harmed the Company by causing it to repurchase its common stock in the open market at inflated prices during that period. The complaint seeks an award of money damages against the defendants and in favor of the Company in an unspecified amount, as well as unspecified equitable and injunctive relief and attorneys’ fees and expenses.
Management is unable to determine the financial statement impact, ifbelieves any possible loss or range of loss associated with the putative federal securities class action andcannot be estimated. The parties to the shareholder derivative lawsuit.lawsuit have agreed to a settlement of that action. The settlement, which requires court approval before it will become effective, is not anticipated to have a material impact on the Company's financial position or results of operations.
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
Labor and Wage Actions
On August 28, 2009, a purported class action lawsuit was filed in the United States District Court for the Southern District of California alleging that a class of all California technicians employed by the Company who were scheduled to be on standby were: (a) not paid for all hours that they worked; (b) not paid overtime compensation at the correct rate of pay; (c) not properly paid for missed meal and rest breaks and (d) not given correct paycheck stubs (Francisco v. Diebold, Incorporated, Case No. CV 1889 WQH WMC). The complaint seeks additional overtime and other compensation under the California Labor Code, various civil penalties and attorneys’ fees and expenses, and a request for an injunction for future compliance with the California Labor Code provisions that were alleged to have been violated. A mediation was held in the first quarter of 2011, which resulted in a tentative settlement, subject to agreement on final settlement terms and court approval, that is not considered material to the consolidated financial statements.
On May 7, 2010, a purported collective action under the Fair Labor Standards Act was filed in the United States District Court for the Northern District of Florida alleging that field service employees of the Company nationwide were not paid for the time spent logging into the Company’s computer network in the morning, for travel to their first jobs and for meal periods that were supposedly automatically deducted from the employees’ pay but, allegedly, not taken.taken (Nichols v. Diebold, Incorporated, Case No. 3:10cv150/RV/MD). The lawsuit seekssought unpaid overtime, liquidated damages equal to the amount of unpaid overtime and attorneys’attorneys' fees. In December 2010, the plaintiff voluntarily dismissed the lawsuit, which resulted in a tentative settlement in the amount of $9,500$9,500 subject to agreement on final settlement terms and court approval. This tentative settlement was recorded in selling and administrative expense in Decemberthe fourth quarter of 2010.
Election Systems Actions
The Company, including certain of its subsidiaries, filed a lawsuit on May 30, 2008 against Cuyahoga County, In July 2011, the Board of Elections of Cuyahoga County, Ohio,parties agreed upon the Board of County Commissioners of Cuyahoga County, Ohio, (collectively, Cuyahoga County), and Ohio Secretary of State Jennifer Brunner (Secretary) regarding several Ohio contracts under which certainfinal terms of the Company’s subsidiaries provided voting equipment and related services to the State of Ohio and a number of its counties seeking a declarationsettlement. The case was then refiled so that the Company met its contractual obligations.
In response, Cuyahoga County and the Secretary filed several claims against the Company and its former subsidiaries seeking declaratory relief and unspecified damages under several theories of recovery, as well as seeking to pierce the Company’s “corporate veil” and hold Diebold, Incorporated directly liable for acts and omissions alleged to have been committed by its subsidiaries. In connection with the Company’s subsequent sale of those subsidiaries, the Company agreed to indemnify the former subsidiaries and their purchaser from any and all liabilities arising outcourt approval of the lawsuit. Additional Ohio counties joined the Secretary’s claims, including
81
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
Butler County. In March 2010, the Companysettlement could be sought, and Cuyahoga County agreed to settle their claims for $7,500, to be paid out of the Company’s insurance policies, and the court has dismissed that portion of the lawsuit
The Company has also reached settlement agreements with the Secretary and all of the Ohio counties using the former subsidiaries’ voting equipment, except Butler County. The settlements are for immaterial amounts, to be paid out of the Company’s insurance policies, and free or discounted products and services, to be provided by the Company’s former subsidiaries or third parties. On November 1, 2010, all of the claims in the lawsuit, except those of Butler County, were dismissed. For procedural purposes, simultaneously with the dismissal entry on November 1, 2010, the Company and its former subsidiaries filed a claim against Butler County seeking a declaration that it is not entitled to relief on its claims. Settlement discussions with Butler County are ongoing.10, 2011, court approval was obtained.
Global FCPAForeign 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 is conducting anconducted a global internal review and collectingcollected 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 whichthat may also potentially implicate the FCPA. The Company’s current assessment indicates that the transactions and payments in questionCompany continues 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 ismonitor its ongoing and accordingly, there can be no assurance that it will not find evidence of additional transactions that potentially implicatecompliance 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 has beenwas previously informed that the SEC’sSEC's inquiry now hashad 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. TheAs of December 31, 2011, the Company accrued an estimated loss related to the potential outcome of this matter within miscellaneous, net expense which is not considered material to the consolidated financial statements. 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. At this time, the Company cannot predict the length, scope or results of its review or thesethe government investigations and future 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. Furthermore, the Company cannot estimate the amount of any potential incremental losses or the impact, if any, on its resultsrange of operations.loss.
| |
NOTE 16: | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
NOTE 16: DERIVATIVE INSTRUMENTS AND HEDGINGACTIVITIES
The Company uses derivatives to mitigate the negative 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 other comprehensive incomeOCI 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 must beare 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 CompanyCompany'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.
82
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
FOREIGN EXCHANGE
Non-Designated HedgesA 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. For the year ended December 31, 2010, there were 840 non-designated foreign exchange contracts that settled. As of December 31, 2010, there were 59 non-designated foreign exchange contracts outstanding, primarily euro, British pound and Swiss franc, totaling $526,008, which represents the absolute value of notional amounts.
Net Investment HedgesThe Company has international subsidiaries with net balance sheet positions that generate cumulative translation adjustments within other comprehensive income.OCI. During 2009,2011, the Company used derivatives to manage potential adverse changes in value of its net investments in Brazil. The Company uses the forward to forwardforward-to-forward method for its quarterly retrospective and prospective
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
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 other comprehensive income whereOCI until substantial liquidation of the subsidiary, when they will remain until they arewould be reclassified to income together with the gain or loss on the entire investment upon substantial liquidation. The fair value of the subsidiary. As of December 31, 2010 and 2009, there were noCompany’s net investment hedge contracts outstanding.was $1,768 as of December 31, 2011. The gain recognized in OCI on net investment hedge contracts was $1,768 for the year ended December 31, 2011.
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 $(1,558) and $(3,135) as of December 31, 2011 and 2010, respectively.
The following table summarizes the gain (loss) recognized on non-designated foreign exchange derivative instruments for the years ended December 31:
|
| | | | | | | | |
| Income Statement Location | | 2011 | | 2010 |
| Interest expense | | $ | (7,441 | ) | | $ | (6,862 | ) |
| Foreign exchange gain (loss), net | | 8,016 |
| | 11,557 |
|
| | | $ | 575 |
| | $ | 4,695 |
|
INTEREST RATE
Cash Flow HedgesThe 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. TheAs of December 31, 2011, the Company executed twohas a pay-fixed receive-variable interest rate swaps,swap, with a notional amount totaling $50,000,$25,000, to hedge against changes in the LIBOR benchmark interest rate on a portion of the Company’s LIBOR-based borrowings. In October 2010, one of the two interest rate hedges with a notional amount of $25,000 expired. In October 2009, the Company used borrowings of approximately $205,000 and €50,300 under its new credit facility agreement to repay all amounts outstanding under (and terminated) the prior loan agreement. While the LIBOR-based cash flows designated in the original hedge relationships remain probable of occurring, the Company elected to de-designate the original cash flow hedging relationships and designated new hedging relationships in conjunction with entering into its new credit facility.
The Company’s monthly retrospective assessment of hedge effectiveness to determine whether the hedging relationship continues to qualify for hedge accounting is performed using regression analysis. The Company’s monthly prospective assessment of hedge effectiveness measures the extent to which exact offset is not achieved is performed by comparing the cumulative change in the fair value of the interest rate swaps to the cumulative change in the fair value of the hypothetical interest rate swaps with critical terms that match the LIBOR-based borrowings. When computing cumulative changes in fair values, the Company computes the difference between the current fair value and the sum of all future discounted cash flows projected at designation that are not yet paid or accrued as of the current valuation date in order to isolate changes in fair value primarily attributable to changes in interest rates. Changes in value that are deemed effective are accumulated in other comprehensive incomeOCI and reclassified to interest expense when the hedged interest is accrued. For the year ended December 31, 2010, the Company recognized $72 loss representing the change in fair value of the interest rate swap that was deemed ineffective. To the extent that it becomes probable that the Company’s
83
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
variable rate borrowings will not occur, the gains or losses on the related cash flow hedges will be reclassified from other comprehensive incomeOCI to interest expense. The fair value of the Company’s interest rate contracts was $(3,796) and $(3,371) as of December 31, 2011 and 2010, 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,$200,000, related to the senior notes issuance in March 2006. Amounts previously recorded in other comprehensive incomeOCI related to the pre-issuance cash flow hedges will continue to be reclassified to income on a straight-line basis through February 2016.
The following table summarizes the fair value of derivative instruments designated and not designated as hedging instruments and their respective balance sheet location as of December 31:
| | | | | | | | | | | |
| | | 2010 | | | 2009 | | | Balance Sheet Location(1) |
Derivatives designated as hedging instruments | | | | | | | | | | |
| Liability derivatives: | | | | | | | | | | |
| Interest rate contracts | | $ | (1,099 | ) | | $ | (2,122 | ) | | Other current liabilities |
| Interest rate contracts | | | (2,272 | ) | | | (1,277 | ) | | Other long-term liabilities |
| | | | | | | | | | | |
| Total liability derivatives | | | (3,371 | ) | | | (3,399 | ) | | |
| | | | | | | | | | | |
Total hedging instruments | | $ | (3,371 | ) | | $ | (3,399 | ) | | |
| | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | |
| Asset derivatives: | | | | | | | | | | |
| Foreign exchange contracts | | $ | 1,095 | | | $ | 1,047 | | | Other current assets |
| Foreign exchange contracts | | | 827 | | | | 399 | | | Other current liabilities |
| | | | | | | | | | | |
| Total asset derivatives | | | 1,922 | | | | 1,446 | | | |
| Liability derivatives: | | | | | | | | | | |
| Foreign exchange contracts | | | (170 | ) | | | (560 | ) | | Other current assets |
| Foreign exchange contracts | | | (4,887 | ) | | | (2,171 | ) | | Other current liabilities |
| | | | | | | | | | | |
| Total liability derivatives | | | (5,057 | ) | | | (2,731 | ) | | |
| | | | | | | | | | | |
Total derivatives not designated | | $ | (3,135 | ) | | $ | (1,285 | ) | | |
| | | | | | | | | | | |
Total derivatives | | $ | (6,506 | ) | | $ | (4,684 | ) | | |
| | | | | | | | | | | |
| | |
(1) | | The balance sheet location noted above represents the balance sheet line item where the respective contract types are reported using a net basis due to master netting agreements with counterparties. However, the asset derivative and liability derivative categories noted above represent the Company’s derivative positions on a gross contract by contract basis. |
The following table summarizes the gain (loss)or loss recognized on designated cash flow hedge derivative instruments for the years ended December 31:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
Foreign exchange contracts | | | | | | | | |
| Loss recognized in OCI (effective portion) | | $ | — | | | $ | (71 | ) |
Interest rate contracts | | | | | | | | |
| (Loss) gain recognized in OCI (effective portion) | | $ | (231 | ) | | $ | 2,976 | |
| Gain (loss) reclassified from accumulated OCI (effective portion) | | | 562 | | | | (136 | ) |
| (Loss) gain recognized in income (ineffective portion) | | | (72 | ) | | | 39 | |
31, 2011 and 2010 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 $771$719 from other comprehensive income to interest expense within the next 12 months.
84
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
The following table summarizes the gain (loss) recognized on non-designated foreign exchange derivative instruments for the years ended December 31:
| | | | | | | | | |
| Income Statement Location | | 2010 | | | 2009 | |
| Interest expense | | $ | (6,862 | ) | | $ | (8,913 | ) |
| Foreign exchange loss, net | | | 11,557 | | | | (18,140 | ) |
| | | | | | | | | |
| | | $ | 4,695 | | | $ | (27,053 | ) |
| | | | | | | | | |
| |
NOTE 17: | RESTRUCTURING AND OTHER CHARGES |
NOTE 17: RESTRUCTURING AND OTHER CHARGES
The following table summarizes the impact of Company’s restructuring charges (benefits) on the consolidated statements of operations:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| Cost of sales — products | | $ | 1,163 | | | $ | 5,348 | | | $ | 15,936 | |
| Cost of sales — services | | | 540 | | | | 7,488 | | | | 9,663 | |
| Selling and administrative expense | | | 3,809 | | | | 10,276 | | | | 11,265 | |
| Research, development and engineering expense | | | (143 | ) | | | 2,091 | | | | 3,649 | |
| Impairment of assets | | | — | | | | — | | | | 435 | |
| Gain on sale of real estate | | | (1,186 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| | | $ | 4,183 | | | $ | 25,203 | | | $ | 40,948 | |
| | | | | | | | | | | | | |
Restructuring charges of $624 related to the U.S. election systems businessoperations for the yearyears ended December 31, 2008 are reflected in loss from discontinued operations.31:
|
| | | | | | | | | | | | |
| | | 2011 | | 2010 | | 2009 |
| | | | | | | |
| Cost of sales - products | | $ | 3,905 |
| | $ | 1,163 |
| | $ | 5,348 |
|
| Cost of sales - services | | 10,678 |
| | 540 |
| | 7,488 |
|
| Selling and administrative expense | | 11,607 |
| | 3,809 |
| | 10,276 |
|
| Research, development and engineering expense | | (8 | ) | | (143 | ) | | 2,091 |
|
| Gain on sale of real estate | | — |
| | (1,186 | ) | | — |
|
| | | $ | 26,182 |
| | $ | 4,183 |
| | $ | 25,203 |
|
The following table summarizes the Company’s restructuring charges (benefits) within continuing operations by reporting segment:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| DNA | | | | | | | | | | | | |
| Severance | | $ | 3,226 | | | $ | 14,376 | | | $ | 5,623 | |
| Other(1) | | | 368 | | | | 3,397 | | | | 10,083 | |
| Gain on sale of real estate | | | (1,186 | ) | | | — | | | | — | |
| DI | | | | | | | | | | | | |
| Severance | | | 1,315 | | | | 6,815 | | | | 17,672 | |
| Other(2) | | | 460 | | | | 615 | | | | 7,570 | |
| | | | | | | | | | | | | |
| Total | | $ | 4,183 | | | $ | 25,203 | | | $ | 40,948 | |
| | | | | | | | | | | | | |
| | |
1) | | Other costs included in the DNA segment include pension obligation, legal and professional fees, travel, training, asset movement and facility costs. |
|
(2) | | Other costs included in the DI segment include legal and professional fees, contract termination fees, penalties, asset impairment costs and costs to transfer usable inventory. |
Restructuring charges of $4,059, $17,232 and $20,598 for the years ended December 31:
|
| | | | | | | | | | | | |
| | | 2011 | | 2010 | | 2009 |
| DNA | | | | | | |
| Severance | | $ | 4,000 |
| | $ | 3,226 |
| | $ | 14,376 |
|
| Other (1) | | 239 |
| | 368 |
| | 3,397 |
|
| Gain on sale of real estate | | — |
| | (1,186 | ) | | — |
|
| DI | | | | | | |
| Severance | | 19,284 |
| | 1,315 |
| | 6,815 |
|
| Other (2) | | 2,659 |
| | 460 |
| | 615 |
|
| Total | | $ | 26,182 |
| | $ | 4,183 |
| | $ | 25,203 |
|
| |
| (1) | Other costs in the DNA segment for the year ended December 31, 2009 include costs to move inventory related to facility closures and consolidation of warehouse operations and distribution centers. |
| |
| (2) | 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 $19,450 for the year ended December 31, 2010, 20092011 related to the Company’s plan for the EMEA reorganization, which realigns resources and 2008,further leverages the existing shared services center. As of December 31, 2011, the Company anticipates additional restructuring costs in the range of $4,000 to $6,000 to be incurred in 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 of $1,057, $4,059 and $17,232 for the years ended December 31, 2011, 2010 and 2009, respectively, related to reductions in the Company’s global workforce, including realignment of the organization and resources to better support
85
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
opportunities in emerging growth markets and consolidation of certain international facilities in efforts to optimize overall operational performance. In December 2009, the Company began to implement a workforce reduction that primarily affected the Company’s Canton, Ohio area facilities. The Company expects to complete this workforce reduction no later than the end of the first quarter of 2011 and does not expect any material remaining costs.costs related to this workforce reduction.
Restructuring charges (benefits) charges of $(146)$826, $4,440$(146) and $12,372$4,440 for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively, related to the Company’s strategic global manufacturing realignment plans. The Company’s global manufacturing realignment plans include the closure of its manufacturing facilities in Newark, Ohio and Cassis, France in 2008 and 2006, respectively, as well as the movement of Opteva product manufacturing out of Lexington, North Carolina in 2009. The Company believes these plans are substantially complete. Security manufacturing operations continue in the Lexington facility. Restructuring benefits in 2010 were primarily the result of the gain on sale of a real estate in Newark, Ohio, benefits related to a pension withdrawal liability that was settled in the first quarter of 2010 (refer to note 12), partially offset by charges in 2010 for legal and professional fees related to these restructuring plans. The Company does not expect any material remaining costs related to these plans.
Other restructuring charges of $270, $3,531were $4,849, $270 and $7,978$3,531 for the yearyears ended December 31, 2011, 2010 2009 and 2008,2009, respectively. Other restructuring charges for 2011 related primarily to realignment in North American operations and other restructuring charges in 2009 primarily related to employee severance costs in connection with the Company’s sale of certain assets and liabilities in Argentina,Argentina.
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as well as consolidation of warehouse operations and distribution centersDecember 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in the United States. Other restructuring charges for 2008 primarily related to the Company’s plans to downsize and then to close its operations in Germany.thousands, except per share amounts)
The following table summarizes the Company’s cumulative total restructuring costs for the significant plans:
| | | | | | | | | | | | | |
| | | | | | Global
| | | | |
| | | Global Workforce
| | | Manufacturing
| | | | |
| | | Reductions | | | Realignment | | | | |
| Costs incurred to date: | | | | | | | | | | | | |
| DNA | | $ | 21,432 | | | $ | 11,579 | | | | | |
| DI | | | 20,457 | | | | 25,064 | | | | | |
| | | | | | | | | | | | | |
| Total costs incurred to date | | $ | 41,889 | | | $ | 36,643 | | | | | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | EMEA Reorganization | | Global Workforce Reductions | | Global Manufacturing Realignment |
| Costs incurred to date: | | | | | | |
| DNA | | $ | — |
| | $ | 21,494 |
| | $ | 11,579 |
|
| DI | | 19,450 |
| | 21,452 |
| | 25,890 |
|
| Total costs incurred to date | | $ | 19,450 |
| | $ | 42,946 |
| | $ | 37,469 |
|
The following table summarizes the Company’s restructuring accrual balances and related activity:
| | | | | | | | | | | | | |
| | | Severance | | | Other | | | Total | |
Balance January 1, 2008 | | $ | 2,515 | | | $ | 2,902 | | | $ | 5,417 | |
| Liabilities incurred | | | 23,295 | | | | 17,653 | | | | 40,948 | |
| Liabilities paid/settled | | | (17,503 | ) | | | (11,838 | ) | | | (29,341 | ) |
| | | | | | | | | | | | | |
Balance December 31, 2008 | | $ | 8,307 | | | $ | 8,717 | | | $ | 17,024 | |
| Liabilities incurred | | | 21,191 | | | | 4,012 | | | | 25,203 | |
| Liabilities paid/settled | | | (14,303 | ) | | | (6,007 | ) | | | (20,310 | ) |
| | | | | | | | | | | | | |
Balance December 31, 2009 | | $ | 15,195 | | | $ | 6,722 | | | $ | 21,917 | |
| Liabilities incurred | | | 4,541 | | | | 828 | | | | 5,369 | |
| Liabilities paid/settled | | | (16,396 | ) | | | (7,550 | ) | | | (23,946 | ) |
| | | | | | | | | | | | | |
Balance December 31, 2010 | | $ | 3,340 | | | $ | — | | | $ | 3,340 | |
| | | | | | | | | | | | | |
|
| | | |
| Balance at January 1, 2009 | $ | 17,024 |
|
| Liabilities incurred | 25,203 |
|
| Liabilities paid/settled | (20,310 | ) |
| Balance at December 31, 2009 | $ | 21,917 |
|
| Liabilities incurred | 5,369 |
|
| Liabilities paid/settled | (23,946 | ) |
| Balance at December 31, 2010 | $ | 3,340 |
|
| Liabilities incurred | 26,182 |
|
| Liabilities paid/settled | (19,386 | ) |
| Balance at December 31, 2011 | $ | 10,136 |
|
Other ChargesOther charges and expense reimbursements consist of items that the Company determineshas determined are non-routine in nature and are not expected to recur in future operations. Net non-routine expenses of $16,234, $15,144$14,981, $16,234 and $45,145$15,144 impacted the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively. 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
86
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
and legal fees related to a previously disclosed employment class actionclass-action lawsuit as well as legal and compliance costs related to the FCPA investigation. In June 2010, the SEC finalized the settlement of civil charges stemming from the SEC and DOJU.S. Department of Justice investigations (government investigations). The Company had previously reached an agreement in principle in 2009 with the staff of the SEC and the Company accrued a $25,000the $25,000 penalty in the first quarter of 2009, which was paid in June 2010. Net non-routine expenses in 2009 consisted of $1,467$1,467 in legal and other consultation fees recorded in selling and administrative expense related to the government investigations and the $25,000 charge,$25,000 penalty, recorded in miscellaneous, net. In addition, in 2009 selling and administrative expense was offset by $11,323$11,323 of non-routine income, primarily related to reimbursements from the Company’s D&Odirector and officer insurance carriers related to legal and other expenses incurred as part of the government investigations. Non-routine expenses for the year ended December 31, 2008 were primarily legal, audit and consultation fees related to the internal review of accounting items, restatement of financial statements, government investigations, as well as other advisory fees.
NOTE 18: FAIR VALUE OF ASSETS ANDLIABILITIES
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.
87
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
| | | | | | 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 | | $ | 221,706 | | | $ | 221,706 | | | $ | — | | | $ | — | | | $ | 157,216 | | | $ | 157,216 | | | $ | — | | | $ | — | |
| U.S. dollar indexed bond funds | | | 51,417 | | | | — | | | | 51,417 | | | | — | | | | 20,226 | | | | — | | | | 20,226 | | | | — | |
| Assets held in a rabbi trust | | | 8,163 | | | | 8,163 | | | | — | | | | — | | | | 8,500 | | | | 8,500 | | | | — | | | | — | |
| Foreign exchange forward contracts | | | 925 | | | | — | | | | 925 | | | | — | | | | 487 | | | | — | | | | 487 | | | | — | |
| Contingent consideration on sale of business | | | 2,030 | | | | — | | | | — | | | | 2,030 | | | | 2,386 | | | | — | | | | — | | | | 2,386 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 284,241 | | | $ | 229,869 | | | $ | 52,342 | | | $ | 2,030 | | | $ | 188,815 | | | $ | 165,716 | | | $ | 20,713 | | | $ | 2,386 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred Compensation | | $ | 8,163 | | | $ | 8,163 | | | $ | — | | | $ | — | | | $ | 8,500 | | | $ | 8,500 | | | $ | — | | | $ | — | |
| Foreign exchange forward contracts | | | 4,060 | | | | — | | | | 4,060 | | | | — | | | | 1,772 | | | | — | | | | 1,772 | | | | — | |
| Interest rate swaps | | | 3,371 | | | | — | | | | 3,371 | | | | — | | | | 3,399 | | | | — | | | | 3,399 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 15,594 | | | $ | 8,163 | | | $ | 7,431 | | | $ | — | | | $ | 13,671 | | | $ | 8,500 | | | $ | 5,171 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 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 | | $ | 269,033 |
| | $ | 269,033 |
| | $ | — |
| | $ | — |
| | $ | 221,706 |
| | $ | 221,706 |
| | $ | — |
| | $ | — |
|
| U.S. dollar indexed bond funds | | 17,820 |
| | — |
| | 17,820 |
| | — |
| | 51,417 |
| | — |
| | 51,417 |
| | — |
|
| Assets held in a rabbi trust | | 7,170 |
| | 7,170 |
| | — |
| | — |
| | 8,163 |
| | 8,163 |
| | — |
| | — |
|
| Foreign exchange forward contracts | | 2,193 |
| | — |
| | 2,193 |
| | — |
| | 925 |
| | — |
| | 925 |
| | — |
|
| Contingent consideration on sale of business | | — |
| | — |
| | — |
| | — |
| | 2,030 |
| | — |
| | — |
| | 2,030 |
|
| Total | | $ | 296,216 |
| | $ | 276,203 |
| | $ | 20,013 |
| | $ | — |
| | $ | 284,241 |
| | $ | 229,869 |
| | $ | 52,342 |
| | $ | 2,030 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Deferred compensation | | $ | 7,170 |
| | $ | 7,170 |
| | $ | — |
| | $ | — |
| | $ | 8,163 |
| | $ | 8,163 |
| | $ | — |
| | $ | — |
|
| Foreign exchange forward contracts | | 1,983 |
| | — |
| | 1,983 |
| | — |
| | 4,060 |
| | — |
| | 4,060 |
| | — |
|
| Interest rate swaps | | 3,796 |
| | — |
| | 3,796 |
| | — |
| | 3,371 |
| | — |
| | 3,371 |
| | — |
|
| Total | | $ | 12,949 |
| | $ | 7,170 |
| | $ | 5,779 |
| | $ | — |
| | $ | 15,594 |
| | $ | 8,163 |
| | $ | 7,431 |
| | $ | — |
|
Short-Term InvestmentsThe 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 asavailable-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 CompensationThe 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 ContractsA 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 SwapsThe 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
88
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
borrowings. In October 2010, one of the two interest rate hedges expired. The fair value of the swap is determined using the income approach and is calculated based on LIBOR rates at the reporting date.
Contingent Consideration on Sale of BusinessThe Company’s September 2009 sale of its U.S. elections systems business included contingent consideration related to 70 percent of any cash collected over a five-year period on the accounts receivable balance of the sold business as of August 31, 2009. The fair value of the contingent consideration was determined based on historic collections on the accounts receivable as well as the probability of future anticipated collections (level 3 inputs) and was recorded at the net present value of the future anticipated cash flows.
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except per share amounts)
The following table summarizes the changes in fair value of the Company’s level 3 assets:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| |
Balance, January 1 | | $ | 2,386 | | | $ | — | |
| Contingent consideration on sale of business | | | — | | | | 7,147 | |
| Cash collections | | | (1,815 | ) | | | (5,004 | ) |
| Fair value adjustments | | | 1,459 | | | | 243 | |
| | | | | | | | | |
Balance, December 31 | | $ | 2,030 | | | $ | 2,386 | |
| | | | | | | | | |
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis |
| | | | | | | | |
| | | 2011 | | 2010 |
| Balance, January 1 | | $ | 2,030 |
| | $ | 2,386 |
|
| Cash collections | | (2,520 | ) | | (1,815 | ) |
| Fair value adjustments | | 490 |
| | 1,459 |
|
| Balance, December 31 | | $ | — |
| | $ | 2,030 |
|
In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also measures certain assets and liabilities at fair value on a nonrecurring basis. Our non-financial assets, including goodwill, intangible assets and property, plant and equipment, are measured at fair value when there is an indication of impairment. These assets are recorded at fair value, determined using level 3 inputs, only when an impairment charge is recognized. Further details regarding the Company’s regular impairment reviews appear in notes 1 and 10.
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. The fair value and carrying value of the Company’s debt instruments are summarized as follows:
| | | | | | | | | | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
| | | Fair Value | | | Carrying Value | | | Fair Value | | | Carrying Value | |
| |
| Notes payable — current | | $ | 15,038 | | | $ | 15,038 | | | $ | 16,915 | | | $ | 16,915 | |
| Notes payable — long term | | | 565,499 | | | | 550,368 | | | | 537,246 | | | | 553,008 | |
| | | | | | | | | | | | | | | | | |
| Total debt instruments | | $ | 580,537 | | | $ | 565,406 | | | $ | 554,161 | | | $ | 569,923 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2011 | December 31, 2010 |
| | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| Notes payable | | $ | 21,722 |
| | $ | 21,722 |
| | $ | 15,038 |
| | $ | 15,038 |
|
| Long-term debt | | 612,551 |
| | 606,154 |
| | 565,499 |
| | 550,368 |
|
| Total debt instruments | | $ | 634,273 |
| | $ | 627,876 |
| | $ | 580,537 |
| | $ | 565,406 |
|
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 valuesvalue of the Company’s long termlong-term senior notes was 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, which are considered Level 2 inputs.
89
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
| |
NOTE 19: | SEGMENT INFORMATION |
In the first quarter of 2010, the
The Company began management ofmanages its businesses on a geographic basis changing from the previous model of sales channel segments. In order to align the Company’s external reporting of its financial results with this organizational change, the Company has modified its segment reporting. The Company nowand 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 segment gross margin. Prior period segment information has been reclassified to conform to the current period presentation.operating profit.
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 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. Intercompany sales between legal entities are eliminated in consolidation and intersegment revenue is not significant. 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 product and service 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.
Upon classification
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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, 2010, 2009 and 2008:31:
SEGMENT INFORMATION BY CHANNEL
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
DNA | | | | | | | | | | | | |
| Customer revenues | | $ | 1,320,581 | | | $ | 1,382,461 | | | $ | 1,535,991 | |
| Operating profit | | | 81,444 | | | | 77,109 | | | | 96,867 | |
| Capital expenditures | | | 33,043 | | | | 28,900 | | | | 24,806 | |
| Depreciation | | | 27,177 | | | | 27,359 | | | | 26,850 | |
| Property, plant and equipment, at cost | | | 460,429 | | | | 445,749 | | | | 440,809 | |
| Total assets | | | 1,016,138 | | | | 1,082,529 | | | | 1,231,459 | |
DI | | | | | | | | | | | | |
| Customer revenues | | | 1,503,212 | | | | 1,335,831 | | | | 1,545,847 | |
| Operating (loss) profit | | | (83,246 | ) | | | 73,483 | | | | 86,043 | |
| Capital expenditures | | | 18,255 | | | | 15,387 | | | | 33,126 | |
| Depreciation | | | 24,248 | | | | 22,726 | | | | 28,445 | |
| Property, plant and equipment, at cost | | | 185,806 | | | | 167,628 | | | | 139,142 | |
| Total assets | | | 1,503,652 | | | | 1,472,336 | | | | 1,306,477 | |
TOTAL | | | | | | | | | | | | |
| Customer revenues | | | 2,823,793 | | | | 2,718,292 | | | | 3,081,838 | |
| Operating (loss) profit | | | (1,802 | ) | | | 150,592 | | | | 182,910 | |
| Capital expenditures | | | 51,298 | | | | 44,287 | | | | 57,932 | |
| Depreciation | | | 51,425 | | | | 50,085 | | | | 55,295 | |
| Property, plant and equipment, at cost | | | 646,235 | | | | 613,377 | | | | 579,951 | |
| Total assets | | | 2,519,790 | | | | 2,554,865 | | | | 2,537,936 | |
91 |
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| DNA | | | | | |
| Customer revenues | $ | 1,405,018 |
| | $ | 1,320,581 |
| | $ | 1,382,461 |
|
| Intersegment revenues | 73,399 |
| | 93,600 |
| | 58,442 |
|
| Operating profit | 128,151 |
| | 81,444 |
| | 77,109 |
|
| Capital expenditures | 23,131 |
| | 33,043 |
| | 28,900 |
|
| Depreciation | 27,495 |
| | 27,177 |
| | 27,359 |
|
| Property, plant and equipment, at cost | 461,452 |
| | 460,429 |
| | 445,749 |
|
| Total assets | 1,018,907 |
| | 1,016,138 |
| | 1,082,529 |
|
| | | | | | |
| DI | | | | | |
| Customer revenues | 1,430,830 |
| | 1,503,212 |
| | 1,335,831 |
|
| Intersegment revenues | 63,318 |
| | 44,445 |
| | 17,617 |
|
| Operating profit (loss) | 27,443 |
| | (83,246 | ) | | 73,483 |
|
| Capital expenditures | 31,622 |
| | 18,255 |
| | 15,387 |
|
| Depreciation | 23,054 |
| | 24,248 |
| | 22,726 |
|
| Property, plant and equipment, at cost | 180,804 |
| | 185,806 |
| | 167,628 |
|
| Total assets | 1,498,536 |
| | 1,503,652 |
| | 1,472,336 |
|
| | | | | | |
| TOTAL | | | | | |
| Customer revenues | 2,835,848 |
| | 2,823,793 |
| | 2,718,292 |
|
| Intersegment revenues | 136,717 |
| | 138,045 |
| | 76,059 |
|
| Operating profit (loss) | 155,594 |
| | (1,802 | ) | | 150,592 |
|
| Capital expenditures | 54,753 |
| | 51,298 |
| | 44,287 |
|
| Depreciation | 50,549 |
| | 51,425 |
| | 50,085 |
|
| Property, plant and equipment, at cost | 642,256 |
| | 646,235 |
| | 613,377 |
|
| Total assets | 2,517,443 |
| | 2,519,790 |
| | 2,554,865 |
|
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
The following table represents information regarding the Company’s revenue by geographic region and by product and service solution for the years ended December 31, 2010, 2009 and 2008:31:
| | | | | | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
Revenue summary by geography | | | | | | | | | | | | |
| Diebold North America | | $ | 1,320,581 | | | $ | 1,382,461 | | | $ | 1,535,991 | |
| Diebold International: | | | | | | | | | | | | |
| Latin America including Brazil | | | 770,691 | | | | 602,549 | | | | 675,355 | |
| Asia Pacific | | | 380,970 | | | | 387,119 | | | | 400,558 | |
| Europe, Middle East and Africa | | | 351,551 | | | | 346,163 | | | | 469,934 | |
| | | | | | | | | | | | | |
| Total Diebold International | | | 1,503,212 | | | | 1,335,831 | | | | 1,545,847 | |
| | | | | | | | | | | | | |
| Total revenue | | $ | 2,823,793 | | | $ | 2,718,292 | | | $ | 3,081,838 | |
| | | | | | | | | | | | | |
Total revenue | | | | | | | | | | | | |
domestic vs. international | | | | | | | | | | | | |
| Domestic | | $ | 1,262,914 | | | $ | 1,335,160 | | | $ | 1,477,875 | |
| Percentage of total revenue | | | 44.7 | % | | | 49.1 | % | | | 48.0 | % |
| International | | | 1,560,879 | | | | 1,383,132 | | | | 1,603,963 | |
| Percentage of total revenue | | | 55.3 | % | | | 50.9 | % | | | 52.0 | % |
| | | | | | | | | | | | | |
| Revenue from customers | | $ | 2,823,793 | | | $ | 2,718,292 | | | $ | 3,081,838 | |
| | | | | | | | | | | | | |
Revenue summary | | | | | | | | | | | | |
by product and service solution | | | | | | | | | | | | |
| Financial self-service: | | | | | | | | | | | | |
| Products | | $ | 959,820 | | | $ | 985,275 | | | $ | 1,127,120 | |
| Services | | | 1,086,569 | | | | 1,083,875 | | | | 1,113,450 | |
| | | | | | | | | | | | | |
| Total financial self-service | | | 2,046,389 | | | | 2,069,150 | | | | 2,240,570 | |
| Security: | | | | | | | | | | | | |
| Products | | | 223,514 | | | | 247,518 | | | | 319,493 | |
| Services | | | 406,831 | | | | 396,071 | | | | 455,909 | |
| | | | | | | | | | | | | |
| Total security | | | 630,345 | | | | 643,589 | | | | 775,402 | |
| | | | | | | | | | | | | |
| Total financial self-service & security | | | 2,676,734 | | | | 2,712,739 | | | | 3,015,972 | |
| Election and lottery systems: | | | | | | | | | | | | |
| Products | | | 147,034 | | | | 5,553 | | | | 65,243 | |
| Services | | | 25 | | | | — | | | | 623 | |
| | | | | | | | | | | | | |
| Total election and lottery systems | | | 147,059 | | | | 5,553 | | | | 65,866 | |
| | | | | | | | | | | | | |
| Revenue from customers | | $ | 2,823,793 | | | $ | 2,718,292 | | | $ | 3,081,838 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Revenue summary by geography | | | | | |
| Diebold North America | $ | 1,405,018 |
| | $ | 1,320,581 |
| | $ | 1,382,461 |
|
| Diebold International: | | | | | |
| Latin America including Brazil | 662,805 |
| | 770,691 |
| | 602,549 |
|
| Asia Pacific | 422,491 |
| | 380,970 |
| | 387,119 |
|
| Europe, Middle East and Africa | 345,534 |
| | 351,551 |
| | 346,163 |
|
| Total Diebold International | 1,430,830 |
| | 1,503,212 |
| | 1,335,831 |
|
| Total customer revenues | $ | 2,835,848 |
| | $ | 2,823,793 |
| | $ | 2,718,292 |
|
| | | | | | |
| Total customer revenues | | | | | |
| domestic vs. international | | | | | |
| Domestic | $ | 1,341,167 |
| | $ | 1,262,914 |
| | $ | 1,335,160 |
|
| Percentage of total revenue | 47.3 | % | | 44.7 | % | | 49.1 | % |
| International | 1,494,681 |
| | 1,560,879 |
| | 1,383,132 |
|
| Percentage of total revenue | 52.7 | % | | 55.3 | % | | 50.9 | % |
| Total customer revenues | $ | 2,835,848 |
| | $ | 2,823,793 |
| | $ | 2,718,292 |
|
| | | | | | |
| Revenue summary | | | | | |
| by product and service solution | | | | | |
| Financial self-service: | | | | | |
| Products | $ | 996,673 |
| | $ | 959,820 |
| | $ | 985,275 |
|
| Services | 1,140,872 |
| | 1,086,569 |
| | 1,083,875 |
|
| Total financial self-service | 2,137,545 |
| | 2,046,389 |
| | 2,069,150 |
|
| Security: | | | | | |
| Products | 194,028 |
| | 223,514 |
| | 247,518 |
|
| Services | 411,474 |
| | 406,831 |
| | 396,071 |
|
| Total security | 605,502 |
| | 630,345 |
| | 643,589 |
|
Total financial self-service & security | 2,743,047 |
| | 2,676,734 |
| | 2,712,739 |
|
| Election and lottery systems: | 92,801 |
| | 147,059 |
| | 5,553 |
|
| Total customer revenues | $ | 2,835,848 |
| | $ | 2,823,793 |
| | $ | 2,718,292 |
|
The Company had no customers that accounted for more than 10 percent of total net sales in 2011, 2010 2009 and 2008.2009.
| |
NOTE 20: | DISCONTINUED OPERATIONS |
During the third quarter of
In 2009, the Company sold its U.S. election systems business, primarily consisting of its subsidiary Premier Election Solutions, Inc. (PESI), for $12,147,$12,147, including $5,000$5,000 of cash and contingent consideration with a fair value of $7,147,$7,147, which represents 70 percent of any cash collected over a five-year period on the accounts receivable balancebalance. In 2008, the Company discontinued its EMEA-based security business.
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2010
2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(continued)
(dollars in thousands, except per share amounts)
of August 31, 2009. The sale agreement contained indemnification clauses pursuant to whichfollowing table summarizes the Company agreed to indemnify the purchaser for any and all adverse consequences relating to certain existing liabilities. In addition, the sale agreement contained shared liability clauses pursuant to which the Company agreed to indemnify the purchaser for 70 percent of any adverse consequences to the purchaser arising out of certain defined potential litigation or obligations. As of December 31, 2010, there were no material adverse consequences related to these shared liability indemnifications. The Company’s maximum exposure under the shared liability indemnifications is $8,000. The carrying value of the indemnified and shared liabilities related to the PESI sale was $1,531 and $6,541 as of December 31, 2010 and 2009, respectively.
During the fourth quarter of 2008, the Company decided to discontinue its enterprise security operations in the EMEA region. The Company does not anticipate incurring additional material charges associated with this closure.
Summarized financial information for these discontinued operations is as follows:for the years ended December 31:
| | | | | | | | | | | | | |
| | | Year Ended
| |
| | | December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
| Total revenue | | $ | 516 | | | $ | 23,209 | | | $ | 103,900 | |
| | | | | | | | | | | | | |
| Loss from discontinued operations | | | (2,561 | ) | | | (17,258 | ) | | | (31,942 | ) |
| Loss on sale of discontinued operations | | | — | | | | (50,750 | ) | | | — | |
| Income tax benefit | | | 2,836 | | | | 20,932 | | | | 12,744 | |
| | | | | | | | | | | | | |
| Income (loss) from discontinued operations, net of tax | | $ | 275 | | | $ | (47,076 | ) | | $ | (19,198 | ) |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | 2011 | | 2010 | | 2009 |
| Total revenue | | $ | — |
| | $ | 516 |
| | $ | 23,209 |
|
| Income (loss) from discontinued operations | | 407 |
| | (2,561 | ) | | (17,258 | ) |
| Loss on sale of discontinued operations | | — |
| | — |
| | (50,750 | ) |
| Income tax benefit | | 116 |
| | 2,836 |
| | 20,932 |
|
| Income (loss) from discontinued operations, net of tax | | $ | 523 |
| | $ | 275 |
| | $ | (47,076 | ) |
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$2,147 included within discontinued operations. Income (loss) from discontinued operations in 2008 included goodwill and other intangible asset impairment charges of $16,658 related to the closure of the Company’s EMEA enterprise security operations.
93NOTE 21:
DIEBOLD INCORPORATED AND SUBSIDIARIES
FORM 10-KQUARTERLY FINANCIAL INFORMATION as of December 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)(UNAUDITED)
| |
NOTE 21: | QUARTERLY FINANCIAL INFORMATION (UNAUDITED) |
The following table presents selected unaudited consolidated statements of operations data:quarterly financial information for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Net sales | | $ | 618,999 | | | $ | 657,251 | | | $ | 665,180 | | | $ | 690,896 | | | $ | 748,620 | | | $ | 645,222 | | | $ | 790,994 | | | $ | 724,923 | |
| Gross profit | | | 158,010 | | | | 152,327 | | | | 178,144 | | | | 168,910 | | | | 193,894 | | | | 152,209 | | | | 189,517 | | | | 176,554 | |
| Income (loss) from continuing operations | | | 25,192 | | | | 10,838 | | | | 31,073 | | | | 33,272 | | | | 45,434 | | | | 25,237 | | | | (118,657 | ) | | | 9,983 | |
| (Loss) income from sale of discontinued operations, net of tax | | | (970 | ) | | | (7,081 | ) | | | (683 | ) | | | (1,558 | ) | | | 2,043 | | | | (203 | ) | | | (115 | ) | | | (1,042 | ) |
| Loss on sale of discontinued operations, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | (31,438 | ) | | | — | | | | (5,754 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | | 24,222 | | | | 3,757 | | | | 30,390 | | | | 31,714 | | | | 47,477 | | | | (6,404 | ) | | | (118,772 | ) | | | 3,187 | |
| Net income attributable to noncontrolling interests | | | 298 | | | | 2,109 | | | | 659 | | | | 1,284 | | | | 1,372 | | | | 751 | | | | 1,240 | | | | 2,084 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) attributable to Diebold, Incorporated | | $ | 23,924 | | | $ | 1,648 | | | $ | 29,731 | | | $ | 30,430 | | | $ | 46,105 | | | $ | (7,155 | ) | | $ | (120,012 | ) | | $ | 1,103 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations, net of tax | | $ | 0.38 | | | $ | 0.13 | | | $ | 0.46 | | | $ | 0.48 | | | $ | 0.67 | | | $ | 0.37 | | | $ | (1.83 | ) | | $ | 0.12 | |
| (Loss) income from discontinued operations, net of tax | | | (0.02 | ) | | | (0.11 | ) | | | (0.01 | ) | | | (0.02 | ) | | | 0.03 | | | | (0.48 | ) | | | — | | | | (0.10 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) attributable to Diebold, Incorporated | | $ | 0.36 | | | $ | 0.02 | | | $ | 0.45 | | | $ | 0.46 | | | $ | 0.70 | | | $ | (0.11 | ) | | $ | (1.83 | ) | | $ | 0.02 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | $ | 0.37 | | | $ | 0.13 | | | $ | 0.46 | | | $ | 0.48 | | | $ | 0.66 | | | $ | 0.37 | | | $ | (1.83 | ) | | $ | 0.12 | |
| (Loss) income from discontinued operations | | | (0.01 | ) | | | (0.11 | ) | | | (0.01 | ) | | | (0.02 | ) | | | 0.03 | | | | (0.48 | ) | | | — | | | | (0.10 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) attributable to Diebold, Incorporated | | $ | 0.36 | | | $ | 0.02 | | | $ | 0.45 | | | $ | 0.46 | | | $ | 0.69 | | | $ | (0.11 | ) | | $ | (1.83 | ) | | $ | 0.02 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic weighted-average shares outstanding | | | 66,298 | | | | 66,176 | | | | 65,936 | | | | 66,252 | | | | 65,705 | | | | 66,279 | | | | 65,686 | | | | 66,318 | |
| Diluted weighted-average shares outstanding(a) | | | 66,776 | | | | 66,586 | | | | 66,636 | | | | 66,786 | | | | 66,421 | | | | 66,951 | | | | 65,686 | | | | 67,057 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | | 2011 | 2010 | | 2011 | 2010 | | 2011 | 2010 | | 2011 | 2010 |
| Net sales | | $ | 614,157 |
| $ | 618,999 |
| | $ | 662,382 |
| $ | 665,180 |
| | $ | 709,322 |
| $ | 748,620 |
| | $ | 849,987 |
| $ | 790,994 |
|
| Gross profit | | 149,404 |
| 158,010 |
| | 169,490 |
| 178,144 |
| | 194,386 |
| 193,894 |
| | 222,649 |
| 189,517 |
|
| Income (loss) from continuing operations | | 4,146 |
| 25,192 |
| | 21,602 |
| 31,073 |
| | 42,782 |
| 45,434 |
| | 83,047 |
| (118,657 | ) |
(Loss) income from discontinued operations, net of tax | | (11 | ) | (970 | ) | | 529 |
| (683 | ) | | — |
| 2,043 |
| | 5 |
| (115 | ) |
| Net income (loss) | | 4,135 |
| 24,222 |
| | 22,131 |
| 30,390 |
| | 42,782 |
| 47,477 |
| | 83,052 |
| (118,772 | ) |
Net income attributable to noncontrolling interests | | 1,634 |
| 298 |
| | 1,327 |
| 659 |
| | 1,027 |
| 1,372 |
| | 3,297 |
| 1,240 |
|
Net income (loss) attributable to Diebold, Incorporated | | $ | 2,501 |
| $ | 23,924 |
| | $ | 20,804 |
| $ | 29,731 |
| | $ | 41,755 |
| $ | 46,105 |
| | $ | 79,755 |
| $ | (120,012 | ) |
| Basic earnings per share: | | | | | | | | | | | | |
Income (loss) from continuing operations, net of tax | | $ | 0.04 |
| $ | 0.38 |
| | $ | 0.31 |
| $ | 0.46 |
| | $ | 0.66 |
| $ | 0.67 |
| | $ | 1.27 |
| $ | (1.83 | ) |
(Loss) income from discontinued operations, net of tax | | — |
| (0.02 | ) | | 0.01 |
| (0.01 | ) | | — |
| 0.03 |
| | — |
| — |
|
Net income (loss) attributable to Diebold, Incorporated | | $ | 0.04 |
| $ | 0.36 |
| | $ | 0.32 |
| $ | 0.45 |
| | $ | 0.66 |
| $ | 0.70 |
| | $ | 1.27 |
| $ | (1.83 | ) |
| Diluted earnings per share: | | | | | | | | | | | | |
Income (loss) from continuing operations, net of tax | | $ | 0.04 |
| $ | 0.37 |
| | $ | 0.31 |
| $ | 0.46 |
| | $ | 0.65 |
| $ | 0.66 |
| | $ | 1.26 |
| $ | (1.83 | ) |
(Loss) income from discontinued operations, net of tax | | — |
| (0.01 | ) | | 0.01 |
| (0.01 | ) | | — |
| 0.03 |
| | — |
| — |
|
Net income (loss) attributable to Diebold, Incorporated | | $ | 0.04 |
| $ | 0.36 |
| | $ | 0.32 |
| $ | 0.45 |
| | $ | 0.65 |
| $ | 0.69 |
| | $ | 1.26 |
| $ | (1.83 | ) |
Basic weighted-average shares outstanding | | 65,762 |
| 66,298 |
| | 65,028 |
| 65,936 |
| | 63,626 |
| 65,705 |
| | 62,599 |
| 65,686 |
|
Diluted weighted-average shares outstanding (a) | | 66,230 |
| 66,776 |
| | 65,482 |
| 66,636 |
| | 64,186 |
| 66,421 |
| | 63,300 |
| 65,686 |
|
| | |
| (a) | | Incremental shares of 844844,000 were excluded from the computation of diluted EPS for quarter ended December 31, 2010 because their effect is anti-dilutive due to the loss from continuing operations. |
Income from continuing operations for the fourth quarter 2011 was positively impacted by an approximately $28,000 valuation allowance released in Brazil (refer to note 4). Included in the third quarter 2010 income from continuing operations areout-of-period adjustments of $19,822$19,822 in China related to remediation of the Company’s material weakness relating to revenue recognition (refer to note 1). 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$2,147 included within discontinued operations. Included in the fourth quarter 2009 income from continuing operations areout-of-period adjustments
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 chief executive officer (CEO) and chief financial officer (CFO) required byRule 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 |
(a) DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures (as defined inRules 13a-15(e) and15d-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 CEO and CFO 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 CEO and CFO, conducted an evaluation of disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that such disclosure controls and procedures were effective as of December 31, 2010.2011.
| |
(B) | MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING |
(b) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management, under the supervision of the CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined inRules 13a-15(f) and15d-15(f) promulgated under the Exchange Act, is a process designed by, or under the supervision of, the CEO and CFO 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 U.S. GAAP.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. |
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.
95
A material weakness in internal control over financial reporting is defined by the Public Company Accounting Oversight Board as being 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’sCompany's annual or interim financial statements will not be prevented or detected on a timely basis.
As stated above in
In connection with the preparation of this annual report on Form 10-K, management, under the supervision and with the participation of the CEO and CFO, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20102011 based on the criteria established in the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this evaluation, the CEO and CFO concluded that the Company maintained effective internal control over financial reporting as of December 31, 2010.2011.
KPMG LLP, the Company’sCompany's independent registered public accounting firm, has issued an auditor’sauditor's report on management’smanagement's assessment of the effectiveness of the Company’sCompany's internal control over financial reporting as of December 31, 2010.2011. This report is included in Item 8 of this annual report on Form10-K.
| |
(C) | CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING |
As previously reported under “Item 4 — Controls and Procedures” in our quarterly report on(c) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Form 10-Q forDuring the quarter ended September 30, 2010, management concluded that ourDecember 31, 2011, there have been no changes to the Company’s internal control over financial reporting was previously not effective based onthat have materially affected, or are reasonably likely to materially affect, the material weaknesses identified. Management has remediated those material weaknesses since the filing of that report.
During the quarter ended December 31, 2010, changes in ourCompany’s internal control over financial reporting occurred related to the two previously reported material weaknesses as follows:reporting.
Selection, Application and Communication of Accounting Policies: As of December 31, 2010, the Company’s management believes there is sufficient support to conclude that the previously reported material weakness in the misapplication of the Company’s revenue recognition policy related to multiple-deliverable arrangements has been remediated. During 2010, management completed remediation efforts to: 1) enhance the revenue recognition policy related to multiple-deliverable arrangements; 2) provide training to associates responsible for the application of the revenue recognition policy; 3) develop, implement and execute control processes to identify and account for multiple-deliverable arrangements in accordance with the Company’s policy, which entails completion of a detailed sales contract review documented on a “revenue recognition template;” and 4) increase management reviews on a significant portion of total revenue, which includes analysis by operational finance and corporate management, to review accuracy of recording and reporting revenue as documented in the revenue recognition templates. Based on management’s assessment, the controls over the application of the revenue recognition policy to multiple-deliverable arrangements are deemed to be operating effectively.
Controls over Income Taxes: As of December 31, 2010, the Company’s management believes there is sufficient support to conclude that the previously reported material weakness relating to controls over income taxes has been remediated. During 2010, management completed remediation efforts to: 1) utilize specialized third-party consultants to assist with assessing the root causes of the tax material weakness; 2) institute a review of tax balance sheet accounts within foreign entities; 3) accelerate key activities in the annual tax provision process and increase the level of finance management review of the tax provision; 4) enhance and expand key controls for greater accuracy and completeness in the tax provision process andsub-processes; and 5) redefine roles and responsibilities in the corporate tax organization, including hiring an additional tax director and other key tax professionals, to expand the tax organization and address resource constraints. Based on management’s assesment, the controls over income taxes are deemed to be operating effectively.
ITEM 9B: OTHER INFORMATION
None.
96
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 20112012 Annual Meeting of Shareholders (2011(2012 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 20112012 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 |
| Other Positions Held Last Five Years |
Thomas W. Swidarski— 52
53 President and Chief Executive Officer
Year elected: 2005 | | |
Bradley C. Richardson— 52
53 Executive Vice President and Chief Financial Officer
Year elected: 2009 | | 2003-2009:2003-2009; Executive Vice President, Corporate Strategy and Chief Financial Officer, Modine Manufacturing Company (auto, heavy-duty parts and specialty heating and air conditioning manufacturer) |
George S. Mayes, Jr.— 52
Executive Vice President, Global Operations
Year elected: 2008
| | 2006-2008: Senior Vice President, Supply Chain Management;2005-2006: Vice President, Global Supply Chain Management |
James L. M. Chen— 50
Executive Vice President, International Operations
Year elected: 2010
| | 2007-2010: Senior Vice President, EMEA/AP Divisions;2006-2007: Vice President, EMEA/AP Divisions;1998-2006:Vice President and Managing Director, Asia Pacific |
Charles E. Ducey, Jr.— 55
56 Executive Vice President, North America Operations
Year elected: 2009 | | 2006-2009: Senior Vice President, Global Development and Services;Services |
2005-2006:George S. Mayes, Jr. — 53
Executive Vice President, Global Development and Services |
| Operations Warren W. Dettinger— 57
Vice President, General Counsel and Assistant Secretary
Year elected: 2009
| | 2008-2009: Vice President and General Counsel;2004-2008: Vice President, General Counsel and Secretary |
Chad F. Hesse— 38
Senior Corporate Counsel and Secretary
Year elected: 2008
| | 2004-2008: Corporate Counsel and Assistant Secretary2006-2008: Senior Vice President, Supply Chain Management |
M. Scott HunterFrank A. Natoli — 49
47
Executive Vice President, Chief TaxInnovation Officer
Year elected: 20062012 | | 2004-2006: Vice President, Tax |
John D. Kristoff— 43
Vice President, Chief Communications Officer
Year elected: 2006
| | 2005-2006: Vice President, Corporate Communications and Investor Relations |
Miguel A. Mateo— 60
Vice President, Latin America Division
Year elected: 2004
| | |
Timothy J. McDannold— 48
Vice President and Treasurer
Year elected: 2007
| | 2000-2007: Vice President and Assistant Treasurer |
Frank A. Natoli— 46
2010-2011:Vice President, Chief Technology Officer
Year elected: 2010
| | Officer; 2009-2010: Vice President, Global Engineering and Reliability; Chief Technology Officer,2008-2009: Vice President, Operational Excellence;JulJuly 2006-2008: Vice President, Lean Manufacturing;Jan 2006-Jul 2006: Senior Director, Business TransformationManufacturing |
D. Alex Brown — 44 Vice President, Corporate Strategy and Development
Year elected: 2011 | 2005-2011: Partner, Marakon Associates (management consulting) |
Christopher A. Chapman — 37 Vice President, Global Finance
Year elected: 2011 | 2004- Feb 2010: Vice President, Controller, International Operations |
Chad F. Hesse — 39 Vice President, General Counsel and Secretary Year elected: 2011 | 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 — 50 Vice President, Treasurer and Chief Tax Officer Year elected: 2011 | 2006 - May 2011: Vice President, Chief Tax Officer |
John D. Kristoff — 44 Vice President, Chief Communications Officer Year elected: 2006 | |
Miguel A. Mateo — 60 Vice President, Latin America Division Year elected: 2004 | |
Leslie A. Pierce— 47
48 Vice President and Corporate Controller
Year elected: 2007
| | Mar-Nov 2009: Vice President, Interim Chief Financial Officer and Corporate Controller;2006-2007: Vice President, Accounting, Compliance and External Reporting;1999-2006: Manager, Special ProjectsReporting |
Sheila M. Rutt— 42
43 Vice President, Chief Human Resources Officer
Year elected: 2005 | | |
Bradley J. Stephenson— 58
Vice President, Security Division
Year elected: 2009
| | 2005-2009: Vice President, Physical Security Group |
97
There is no family relationship, either by blood, marriage or adoption, between any of the executive officers of the Company.
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 atwww.diebold.comor by written request to the Corporate Secretary.
SECTION 16(A)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 20112012 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 20112012 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 20112012 Annual Meeting and is incorporated herein by reference.
| |
ITEM 12: | 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 20112012 Annual Meeting and is incorporated herein by reference.
98
Equity Compensation Plan Information
| | | | | | | | | | | | | |
| | | Number of securities to be
| | | Weighted-average
| | | Number of securities remaining available
| |
| | | issued upon exercise of
| | | exercise price of
| | | for future issuance under equity
| |
| | | outstanding options,
| | | outstanding options,
| | | compensation plans (excluding securities
| |
| | | warrants and rights
| | | warrants and rights
| | | reflected in column (a))
| |
| Plan Category | | (a) | | | (b) | | | (c) | |
| |
| Equity compensation plans approved by security holders: | | | | | | | | | | | | |
| Stock options | | | 3,152,474 | | | $ | 36.77 | | | | N/A | |
| Restricted stock units | | | 594,386 | | | | — | | | | N/A | |
| Performance shares | | | 741,444 | | | | — | | | | N/A | |
| Non-employee director deferred shares | | | 90,500 | | | | — | | | | N/A | |
| | | | | | | | | | | | | |
| Total equity compensation plans approved by security holders | | | 4,578,804 | | | $ | 36.77 | | | | 4,236,406 | |
| | | | | | | | | | | | | |
| Equity compensation plans not approved by security holders: | | | | | | | | | | | | |
| Warrants | | | 34,789 | | | $ | 46.00 | | | | N/A | |
| Restricted stock units | | | 6,652 | | | | — | | | | N/A | |
| | | | | | | | | | | | | |
| Total equity compensation plans not approved by security holders | | | 41,441 | | | $ | 46.00 | | | | N/A | |
| | | | | | | | | | | | | |
| Total | | | 4,620,245 | | | $ | 36.87 | | | | 4,236,406 | |
| | | | | | | | | | | | | |
In column (b), the weighted-avereage exercise price is only applicable to stock options. In column (c), the number |
| | | | | | | | | | |
| Plan Category | | 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) |
Equity compensation plans approved by security holders: | | | | | | |
| Stock options | | 3,201,466 |
| | $ | 36.70 |
| | N/A |
|
| Restricted stock units | | 716,896 |
| | N/A |
| | N/A |
|
| Performance shares | | 727,351 |
| | N/A |
| | N/A |
|
Non-employee director deferred shares | | 114,300 |
| | N/A |
| | N/A |
|
| Deferred compensation | | 68,320 |
| | N/A |
| | N/A |
|
Total equity compensation plans approved by security holders | | 4,828,333 |
| | $ | 36.70 |
| | 3,045,311 |
|
| | | | | | | |
Equity compensation plans not approved by security holders: | | | | | | |
| Warrants | | 34,789 |
| | $ | 46.00 |
| | N/A |
|
Total equity compensation plans not approved by security holders | | 34,789 |
| | $ | 46.00 |
| | N/A |
|
| | | | | | | |
| Total | | 4,863,122 |
| | $ | 36.80 |
| | 3,045,311 |
|
| | | | | | | |
| In column (b), the weighted-avereage 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. |
| |
ITEM 13: | 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 20112012 Annual Meeting and is incorporated herein by reference.
ITEM 14: PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES
Information with respect to principal accountant fees and services is included in the Company’s proxy statement for the 20112012 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.report on Form 10-K.
• Consolidated Balance Sheets at December 31, 2011 and 2010
| | |
| • Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009 • Consolidated Statements of Equity for the Years Ended December 31, 2011, 2010 and 2009 • Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009 • Notes to Consolidated Financial Statements • | Consolidated Balance Sheets at December 31, 2010 and 2009 |
|
| • | Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008 |
|
| • | Consolidated Statements of Equity for the Years Ended December 31, 2010, 2009 and 2008 |
|
| • | Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 |
99
| | |
| • | Notes to Consolidated Financial Statements |
|
| • | Reports of Independent Registered Public Accounting Firm |
(a) 2. Financial statement schedule
The following report and schedule areis included in this Part IV, and areis found in this annual report:report on Form 10-K:
| | |
| • | Report of Independent Registered Public Accounting Firm, and |
|
| • | Valuation and Qualifying Accounts. |
• 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) | | Amended and Restated Articles of Incorporation of Diebold, Incorporated — incorporated by reference to Exhibit 3.1(i) to Registrant’s Annual Report onForm 10-K for the year ended December 31, 1994 (Commission FileNo. 1-4879) |
| | 3 | .1(ii) | | Amended and Restated Code of Regulations — incorporated by reference to Exhibit 3.1(ii) to Registrant’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2007 (Commission FileNo. 1-4879) |
| | 3 | .2 | | Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated — incorporated by reference to Exhibit 3.2 to Registrant’sForm 10-Q for the quarter ended March 31, 1996 (Commission FileNo. 1-4879) |
| | 3 | .3 | | Certificate of Amendment to Amended Articles of Incorporation of Diebold, Incorporated — incorporated by reference to Exhibit 3.3 to Registrant’sForm 10-K for the year ended December 31, 1998 (Commission FileNo. 1-4879) |
| | *10 | .1 | | Form of Amended and Restated Employment Agreement — incorporated by reference to Exhibit 10.1 to Registrant’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .5(i) | | Supplemental Employee Retirement Plan I as amended and restated January 1, 2008 — incorporated by reference to Exhibit 10.5(i) to Registrant’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .5(ii) | | Supplemental Employee Retirement Plan II as amended and restated July 1, 2002 — incorporated by reference to Exhibit 10.5(ii) to Registrant’sForm 10-Q for the quarter ended September 30, 2002 (Commission FileNo. 1-4879) |
| | *10 | .5(iii) | | Pension Restoration Supplemental Executive Retirement Plan — incorporated by reference to Exhibit 10.5(iii) to Registrant’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .5(iv) | | Pension Supplemental Executive Retirement Plan — incorporated by reference to Exhibit 10.5(iv) to Registrant’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .5(v) | | 401(k) Restoration Supplemental Executive Retirement Plan — incorporated by reference to Exhibit 10.5(v) to Registrant’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .5(vi) | | 401(k) Supplemental Executive Retirement Plan — incorporated by reference to Exhibit 10.5(vi) to Registrant’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .7(i) | | 1985 Deferred Compensation Plan for Directors of Diebold, Incorporated — incorporated by reference to Exhibit 10.7 to Registrant’s Annual Report onForm 10-K for the year ended December 31, 1992 (Commission FileNo. 1-4879) |
| | *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’sForm 10-Q for the quarter ended March 31, 1998 (Commission FileNo. 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’sForm 10-Q for the quarter ended March 31, 2003 (Commission FileNo. 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’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .8(i) | | 1991 Equity and Performance Incentive Plan as Amended and Restated as of February 7, 2001 — incorporated by reference to Exhibit 4(a) toForm S-8 Registration StatementNo. 333-60578 |
| | *10 | .8(ii) | | 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’sForm 10-Q for the quarter ended March 31, 2004 (Commission FileNo. 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’sForm 10-Q for the quarter ended March 31, 2004 (Commission FileNo. 1-4879) |
100
| | | | | |
| | *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’sForm 10-Q for the quarter ended June 30, 2004 (Commission FileNo. 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’sForm 8-K filed on April 29, 2009 (Commission FileNo. 1-4879) |
| | *10 | .9 | | Long-Term Executive Incentive Plan — incorporated by reference to Exhibit 10.9 to Registrant’s Annual Report onForm 10-K for the year ended December 31, 1993 (Commission FileNo. 1-4879) |
| | *10 | .10 | | Deferred Incentive Compensation Plan No. 2 — incorporated by reference to Exhibit 10.10 to Registrant’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .11 | | Annual Incentive Plan — incorporated by reference to Exhibit 10.11 to Registrant’s Annual Report onForm 10-K for the year ended December 31, 2000 (Commission FileNo. 1-4879) |
| | *10 | .13(i) | | 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 onForm 10-K for the year ended December 31, 1996 (Commission FileNo. 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’sForm 10-Q for the quarter ended March 31, 1998 (Commission FileNo. 1-4879) |
| | *10 | .14 | | Deferral of Stock Option Gains Plan — incorporated by reference to Exhibit 10.14 to the Registrant’s Annual Report onForm 10-K for the year ended December 31, 1998 (Commission FileNo. 1-4879) |
| | 10 | .17 | | Credit Agreement, dated as of October 19, 2009, by and among the Company, the Subsidiary Borrowers (as defined therein) party thereto, JPMorgan Chase Bank, N.A., as administrative agent and a lender, and the other lenders party thereto — incorporated by reference to Exhibit 10.1 to Registrant’sForm 8-K filed on October 23, 2009 (Commission FileNo. 1-4879) |
| | 10 | .20(i) | | 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’sForm 10-Q for the quarter ended March 31, 2001 (Commission FileNo. 1-4879) |
| | 10 | .20(ii) | | 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’sForm 10-Q for the quarter ended March, 31, 2001 (Commission FileNo. 1-4879) |
| | *10 | .22 | | Form of Non-Qualified Stock Option Agreement — incorporated by reference to Exhibit 10.1 to Registrant’sForm 8-K filed on September 21, 2009 (Commission FileNo. 1-4879) |
| | *10 | .23 | | Form of Restricted Share Agreement — incorporated by reference to Exhibit 10.2 to Registrant’sForm 8-K filed on September 21, 2009 (Commission FileNo. 1-4879) |
| | *10 | .24 | | Form of RSU Agreement — incorporated by reference to Exhibit 10.3 to Registrant’sForm 8-K filed on September 21, 2009 (Commission FileNo. 1-4879) |
| | *10 | .25 | | Form of Performance Share Agreement — incorporated by reference to Exhibit 10.4 to Registrant’sForm 8-K filed on September 21, 2009 (Commission FileNo. 1-4879) |
| | *10 | .26 | | 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 FileNo. 1-4879) |
| | 10 | .27 | | Form of Note Purchase Agreement — incorporated by reference to Exhibit 10.1 to Registrant’sForm 8-K filed on March 8, 2006 (Commission FileNo. 1-4879) |
| | *10 | .28 | | 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’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .29 | | 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’sForm 10-K for the year ended December 31, 2008 (Commission FileNo. 1-4879) |
| | *10 | .30 | | Form of Deferred Shares Agreement — incorporated by reference to Exhibit 10.5 to Registrant’sForm 8-K filed on September 21, 2009 (Commission FileNo. 1-4879) |
| | 21 | .1 | | Subsidiaries of the Registrant as of December 31, 2010 |
| | 23 | .1 | | Consent of Independent Registered Public Accounting Firm |
| | 24 | .1 | | Power of Attorney |
| | 31 | .1 | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
101
| | | | | |
| | 31 | .2 | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 32 | .1 | | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 |
| | 32 | .2 | | 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 | .LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| | **101 | .PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| |
| 3.1(i) | 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) |
| 3.1(ii) | 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) |
| 3.2 | 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) |
| 3.3 | 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) | 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) |
| *10.5(ii) | 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) |
| *10.5(iii) | 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) |
| *10.5(iv) | 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) |
| *10.5(v) | 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) |
| *10.5(vi) | 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) |
| *10.7(i) | 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) |
|
| |
| *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) | 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 |
| *10.8(ii) | 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 | 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) |
| *10.10 | 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) |
| *10.11 | 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) |
| *10.13(i) | 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 | 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) |
| 10.17 | 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)
|
| 10.20(i) | 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) |
| 10.20(ii) | 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) |
| *10.22 | 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) |
| *10.23 | 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) |
| *10.24 | 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) |
| *10.25 | 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) |
| *10.26 | 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) |
| 10.27 | 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) |
| *10.28 | 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) |
| *10.29 | 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) |
|
| |
| *10.30 | 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) |
| 21.1 | Subsidiaries of the Registrant as of December 31, 2011 |
| 23.1 | Consent of Independent Registered Public Accounting Firm |
| 24.1 | Power of Attorney |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 |
| 32.2 | 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. |
|
| ** | | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
| | |
| (b) | | Refer to page 87 of this annual report on Form 10-K for an index of exhibits.exhibits, which is incorporated herein by reference. |
102
SIGNATURES
SIGNATURES
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.
DIEBOLD, INCORPORATED
Date: February 22, 201117, 2012
| | |
| By: | /s/ Thomas W. Swidarski
|
By: /s/ Thomas W. Swidarski
Thomas W. Swidarski
President and Chief Executive Officer
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/ Thomas W. Swidarski
| President, Chief Executive Officer and Director (Principal Executive Officer)
| February 17, 2012 |
| Thomas W. Swidarski | |
| | |
/s/ Bradley C. Richardson
| Executive Vice President and Chief Financial Officer (Principal Financial Officer) | February 17, 2012 |
| Bradley C. Richardson | |
| | |
/s/ Leslie A. Pierce
| Vice President and Corporate Controller (Principal Accounting Officer) | February 17, 2012 |
| Leslie A. Pierce | |
| | |
| * | Director | | February 17, 2012 |
| Patrick W. Allender | | | |
| | |
/s/ Bruce L. Byrnes | Director | | February 17, 2012 |
| Bruce L. Byrnes | | | |
| | |
/s/ Mei-Wei Cheng | Director | | February 17, 2012 |
| Mei-Wei Cheng | | | |
| | |
* | Director | | February 17, 2012 |
| Phillip R. Cox | | | |
| | |
| * | Director | | February 17, 2012 |
| Richard L. Crandall | | | |
| | |
* | Director | | February 17, 2012 |
| Gale S. Fitzgerald | | | |
| | |
/s/ Phillip B. Lassiter | Director | | February 17, 2012 |
| Phillip B. Lassiter | | | |
| | |
* | Director | February 17, 2012 |
| John N. Lauer | | |
| | |
/s/ Henry D.G. Wallace | Director | | February 17, 2012 |
| Henry D.G. Wallace | | | |
| | |
/s/ Alan J. Weber | Director | | February 17, 2012 |
| Alan J. Weber | | | | |
Signature | | Title | | Date |
|
| | | | |
/s/ Thomas W. Swidarski
|
Thomas W. Swidarski | President, Chief Executive Officer and Director (Principal Executive Officer) | | February 22, 2011 | | | | | |
/s/ Bradley C. Richardson
Bradley C. Richardson | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | February 22, 2011 |
| | | | |
/s/ Leslie A. Pierce
Leslie A. Pierce | | Vice President and Corporate Controller (Principal Accounting Officer) | | February 22, 2011 |
| | | | |
/s/ Bruce L. Byrnes
Bruce L. Byrnes | | Director | | February 22, 2011 |
| | | | |
/s/ Mei-Wei Cheng
Mei-Wei Cheng | | Director | | February 22, 2011 |
| | | | |
*
Phillip R. Cox | | Director | | February 22, 2011 |
| | | | |
*
Richard L. Crandall | | Director | | February 22, 2011 |
| | | | |
*
Gale S. Fitzgerald | | Director | | February 22, 2011 |
| | | | |
/s/ Phillip B. Lassiter
Phillip B. Lassiter | | Director | | February 22, 2011 |
| | | | |
*
John N. Lauer | | Director | | February 22, 2011 |
| | | | |
/s/ Henry D.G. Wallace
Henry D.G. Wallace | | Director | | February 22, 2011 |
103
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
/s/ Alan J. Weber
Alan J. Weber | | Director | | February 22, 2011 |
| | |
| * | | The undersigned, by signing his name hereto, does sign and execute this Annual Report onForm 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 22, 201117, 2012
| | |
| *By: | /s/ Bradley C. Richardson
|
*By: /s/ Bradley C. Richardson
Bradley C. Richardson
Attorney-in-Fact
104
DIEBOLD, INCORPORATED AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2011, 2010 2009 AND 2008
(In thousands)2009
(in thousands)
| | | | | | | | | | | | | | | | | |
| | | Balance at
| | | | | | | | | | |
| | | beginning of
| | | | | | | | | Balance at
| |
| | | year | | | Additions | | | Deductions | | | end of year | |
| |
| |
Year Ended December 31, 2010 | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 26,648 | | | | 13,849 | | | | 15,629 | | | $ | 24,868 | |
Year ended December 31, 2009 | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 25,060 | | | | 16,727 | | | | 15,139 | | | $ | 26,648 | |
Year ended December 31, 2008 | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 33,707 | | | | 16,336 | | | | 24,983 | | | $ | 25,060 | |
105 |
| | | | | | | | | | |
| | Balance at beginning of year | Additions | Deductions | Balance at end of year |
| Year ended December 31, 2011 | | | | |
| Allowance for doubtful accounts | $ | 24,868 |
| 10,928 |
| 13,668 |
| $ | 22,128 |
|
| | | | | |
| Year ended December 31, 2010 | | | | |
| Allowance for doubtful accounts | $ | 26,648 |
| 13,849 |
| 15,629 |
| $ | 24,868 |
|
| | | | | |
| Year ended December 31, 2009 | | | | |
| Allowance for doubtful accounts | $ | 25,060 |
| 16,727 |
| 15,139 |
| $ | 26,648 |
|
EXHIBIT INDEX
| | | | | |
| EXHIBIT NO. | | DOCUMENT DESCRIPTION |
| |
| | 21 | .1 | | Significant Subsidiaries of the Registrant |
| | 23 | .1 | | Consent of Independent Registered Public Accounting Firm |
| | 24 | .1 | | Power of Attorney |
| | 31 | .1 | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 31 | .2 | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 32 | .1 | | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 |
| | 32 | .2 | | Certification of Chief 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 | .LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| | *101 | .PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| |
| EXHIBIT NO. | DOCUMENT DESCRIPTION |
| 21.1 | Significant Subsidiaries of the Registrant |
| 23.1 | Consent of Independent Registered Public Accounting Firm |
| 24.1 | Power of Attorney |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 |
| 32.2 | Certification of Chief 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 |
| |
| * | | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
