UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
__________________________________________________
Form 10-Q
__________________________________________________ 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
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)
_________________________________________________ 
Ohio
 
34-0183970
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
 
 
 
5995 Mayfair Road, PO Box 3077, North Canton, Ohio
 
44720-8077
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (330) 490-4000
__________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
(Do not check if a smaller reporting company)
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Number of shares of common stock outstanding as of July 27, 2015 was 64,964,785.




DIEBOLD, INCORPORATED AND SUBSIDIARIES
Form 10-Q

Index
 



Part I – Financial Information
Item 1: Financial Statements
DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in millions, except per share amounts)
 
 
June 30,
2015

December 31,
2014
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents

$
244.4


$
322.0

Short-term investments

119.5


136.7

Trade receivables, less allowances for doubtful accounts of $29.1 and $23.0 at June 30, 2015 and December 31, 2014, respectively
 
562.3

 
477.9

Inventories
 
425.5

 
405.2

Deferred income taxes
 
110.5

 
111.0

Prepaid expenses
 
25.5

 
22.0

Prepaid income taxes
 
26.0

 
11.7

Other current assets
 
183.3

 
169.0

Total current assets
 
1,697.0

 
1,655.5

Securities and other investments
 
83.8

 
83.6

Property, plant and equipment, net of accumulated depreciation and amortization of $438.6 and $443.4 at June 30, 2015 and December 31, 2014, respectively
 
176.2

 
169.5

Goodwill
 
208.1

 
172.0

Deferred income taxes
 
85.8

 
86.5

Finance lease receivables
 
53.7

 
90.4

Other assets
 
91.1

 
84.6

Total assets
 
$
2,395.7

 
$
2,342.1

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Notes payable
 
$
35.1

 
$
25.6

Accounts payable
 
306.5

 
261.7

Deferred revenue
 
263.9

 
275.1

Payroll and other benefits liabilities
 
89.2

 
116.8

Other current liabilities
 
309.5

 
348.5

Total current liabilities
 
1,004.2

 
1,027.7

Long-term debt
 
634.8

 
479.8

Pensions and other benefits
 
199.3

 
211.0

Post-retirement and other benefits
 
20.8

 
20.8

Deferred income taxes
 
12.3

 
6.5

Other long-term liabilities
 
34.1

 
41.4

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,79,653,050 and 79,238,759 issued shares, 64,962,866 and 64,632,400 outstanding shares at June 30, 2015 and December 31, 2014, respectively
 
99.6

 
99.0

Additional capital
 
429.4

 
418.1

Retained earnings
 
743.8

 
762.2

Treasury shares, at cost (14,690,184 and 14,606,359 shares at June 30, 2015 and December 31, 2014, respectively)
 
(560.0
)
 
(557.2
)
Accumulated other comprehensive loss
 
(247.2
)
 
(190.5
)
Total Diebold, Incorporated shareholders' equity
 
465.6

 
531.6

Noncontrolling interests
 
24.6

 
23.3

Total equity
 
490.2

 
554.9

Total liabilities and equity
 
$
2,395.7

 
$
2,342.1

See accompanying notes to condensed consolidated financial statements.

3


DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(unaudited)
(in millions, except per share amounts)
 

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales
 
 
 
 
 
 
 
 
Services
 
$
410.1

 
$
409.8

 
$
804.1

 
$
793.2

Products
 
323.3

 
323.7

 
584.8

 
628.6

 
 
733.4

 
733.5

 
1,388.9


1,421.8

Cost of sales
 
 
 
 
 
 
 
 
Services
 
280.8

 
283.6

 
553.7

 
558.9

Products
 
265.1

 
263.1

 
472.4

 
512.0

 
 
545.9

 
546.7

 
1,026.1

 
1,070.9

Gross profit
 
187.5

 
186.8

 
362.8

 
350.9

 
 
 
 
 
 
 
 
 
Selling and administrative expense
 
135.0


121.0

 
264.9

 
241.3

Research, development and engineering expense
 
23.9


21.7

 
46.2

 
41.7

Impairment of assets
 
(0.5
)


 
18.9

 

Gain on sale of assets, net
 
(1.6
)
 
(13.1
)
 
(1.5
)
 
(12.6
)
 
 
156.8

 
129.6

 
328.5

 
270.4

Operating profit
 
30.7

 
57.2

 
34.3


80.5

 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
Investment income
 
6.8

 
10.0

 
14.7

 
18.7

Interest expense
 
(7.6
)
 
(7.9
)
 
(15.6
)
 
(14.8
)
Foreign exchange (loss) gain, net
 
(1.2
)
 
0.6

 
(10.5
)
 
(11.4
)
Miscellaneous, net
 
0.8

 
1.3

 
(0.4
)
 
(0.1
)
Income before taxes
 
29.5

 
61.2

 
22.5

 
72.9

Income tax expense
 
5.6

 
18.1

 
4.2

 
24.9

Net income
 
23.9

 
43.1

 
18.3

 
48.0

Net income (loss) attributable to noncontrolling interests
 
1.7

 
1.5

 
(1.1
)
 
(3.4
)
Net income attributable to Diebold, Incorporated
 
$
22.2

 
$
41.6

 
$
19.4

 
$
51.4

 
 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
64.9

 
64.6

 
64.8

 
64.4

Diluted weighted-average shares outstanding
 
65.6

 
65.2

 
65.5

 
65.0

 
 
 
 
 
 
 
 
 
Net income attributable to Diebold, Incorporated
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.34

 
$
0.64

 
$
0.30

 
$
0.80

Diluted earnings per share
 
$
0.34

 
$
0.64

 
$
0.30

 
$
0.79

 
 
 
 
 
 
 
 
 
Common dividends declared and paid per share
 
$
0.2875

 
$
0.2875

 
$
0.575

 
$
0.575

See accompanying notes to condensed consolidated financial statements.


4


DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(in millions)

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
23.9

 
$
43.1

 
$
18.3

 
$
48.0

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
Translation adjustment
 
6.3

 
11.3

 
(62.1
)
 
20.8

Foreign currency hedges (net of tax $0.5, $1.0, $(1.8) and $1.9, respectively)
 
(1.0
)
 
(2.0
)
 
3.3

 
(3.6
)
Interest rate hedges
 


 


 


 


Net gain recognized in other comprehensive income (net of tax $(0.1), $(0.1), $(0.2) and $(0.2), respectively)
 
0.1

 
0.1

 
0.3

 
0.3

Reclassification adjustment for amounts recognized in net income
 

 

 
(0.1
)
 
(0.1
)
 
 
0.1

 
0.1

 
0.2

 
0.2

Pension and other post-retirement benefits
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax $(0.6), $(0.3), $(1.2) and $(0.6), respectively)
 
1.2

 
0.5

 
2.3

 
1.0

Net prior service benefit amortization
 
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
 
 
1.1

 
0.4

 
2.2

 
0.9

Unrealized loss on securities, net
 
 
 
 
 
 
 
 
Net loss recognized in other comprehensive income (net of tax $0.0, $0.2, $0.0 and $0.8, respectively)
 

 
(0.4
)
 

 
(1.5
)
Reclassification adjustment for amounts recognized in net income (net of tax $0.0, $0.2, $0.0 and $0.2), respectively)
 

 
(0.4
)
 

 
(0.4
)
 
 

 
(0.8
)
 

 
(1.9
)
Other comprehensive income (loss), net of tax
 
6.5

 
9.0

 
(56.4
)
 
16.4

Comprehensive income (loss)
 
30.4

 
52.1

 
(38.1
)
 
64.4

Less: comprehensive income (loss) attributable to noncontrolling interests
 
1.8

 
1.5

 
(0.8
)
 
(4.0
)
Comprehensive income (loss) attributable to Diebold, Incorporated
 
$
28.6

 
$
50.6

 
$
(37.3
)
 
$
68.4

See accompanying notes to condensed consolidated financial statements.

5


DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
 
 
 
Six Months Ended
 
 
June 30,
 
 
2015
 
2014
Cash flow from operating activities
 
 
 
 
Net income
 
$
18.3

 
$
48.0

Adjustments to reconcile net income to cash flow used in operating activities:
 
 
 
 
Depreciation and amortization
 
33.2

 
36.7

Share-based compensation
 
9.1

 
10.4

Excess tax benefits from share-based compensation
 
(0.2
)
 
(0.3
)
Devaluation of Venezuela balance sheet
 
7.5

 
12.1

Gain on sale of assets, net
 
(1.5
)
 
(12.6
)
Impairment of assets
 
18.9

 

Changes in certain assets and liabilities, net of the effects of acquisitions
 
 
 
 
Trade receivables
 
(104.8
)
 
(100.6
)
Inventories
 
(46.3
)
 
(101.2
)
Prepaid expenses
 
(3.5
)
 
(4.5
)
Prepaid income taxes
 
(14.3
)
 
3.7

Other current assets
 
(16.9
)
 
(35.1
)
Accounts payable
 
52.0

 
87.0

Deferred revenue
 
(4.4
)
 
42.8

Accrued salaries, wages and commissions
 
(20.2
)
 
(0.9
)
Deferred income taxes
 
4.4

 
(18.5
)
Finance lease and notes receivables
 
17.8

 
(71.9
)
Certain other assets and liabilities
 
(48.3
)
 
13.1

Net cash used in operating activities
 
(99.2
)
 
(91.8
)
Cash flow from investing activities
 
 
 
 
Payments for acquisitions, net of cash acquired
 
(59.4
)
 

Proceeds from maturities of investments
 
72.7

 
300.5

Proceeds from sale of investments
 

 
31.0

Payments for purchases of investments
 
(74.0
)
 
(230.5
)
Proceeds from sale of assets
 
5.5

 
17.6

Capital expenditures
 
(25.4
)
 
(18.4
)
Increase in certain other assets
 
(2.6
)
 
(7.9
)
Net cash (used in) provided by investing activities
 
(83.2
)
 
92.3

Cash flow from financing activities
 
 
 
 
Dividends paid
 
(37.8
)
 
(37.4
)
Debt issuance costs
 
(0.7
)
 

Revolving debt (repayments) borrowings, net
 
(68.0
)
 
20.0

Term loan borrowings
 
230.0

 

Other debt borrowings
 
41.2

 
95.5

Other debt repayments
 
(42.3
)
 
(86.0
)
Distributions to noncontrolling interest holders
 

 
(2.2
)
Excess tax benefits from share-based compensation
 
0.2

 
0.3

Issuance of common shares
 
2.8

 
14.2

Repurchase of common shares
 
(2.8
)
 
(1.6
)
Net cash provided by financing activities
 
122.6

 
2.8

Effect of exchange rate changes on cash and cash equivalents
 
(17.8
)
 
(11.1
)
Decrease in cash and cash equivalents
 
(77.6
)
 
(7.8
)
Cash and cash equivalents at the beginning of the period
 
322.0

 
230.7

Cash and cash equivalents at the end of the period
 
$
244.4

 
$
222.9

See accompanying notes to condensed consolidated financial statements.

6

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



  
Note 1: Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements of Diebold, Incorporated and its subsidiaries (collectively, the Company) have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (GAAP); however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods.
The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In addition, some of the Company’s statements in this Quarterly Report on Form 10-Q may involve risks and uncertainties that could significantly impact expected future results. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of results to be expected for the full year.
The Company has reclassified the presentation of certain prior-year information to conform to the current presentation.
In January 2015, the Company announced the realignment of its Brazil and Latin America (LA) businesses to drive greater efficiency and further improve customer service. Beginning the first quarter of 2015, LA and Brazil operations were reported under one single reportable operating segment and comparative periods have been reclassified for consistency. The presentation of comparative periods also reflects the reclassification of certain global expenses from segment operating profit to corporate charges not allocated to segments due to the 2015 realignment activities.
On March 13, 2015, the Company acquired all of the equity interests of Phoenix Interactive Design, Inc. (Phoenix) for a total purchase price of approximately $72.9, including $12.6 of deferred cash payment payable over the next three years. Acquiring Phoenix, a world leader in developing innovative software solutions for automated teller machines (ATMs) and a host of other financial self-service (FSS) applications, is a foundational move to accelerate the Company’s growth in the fast-growing managed services and branch automation spaces. The results of operations for Phoenix are primarily included in the North America (NA) reportable operating segment within the Company's condensed consolidated financial statements from the date of the acquisition. Preliminary purchase price allocations are subject to further adjustment until all pertinent information regarding the assets acquired and liabilities assumed are fully evaluated.
As of March 31, 2015, the Company agreed to sell its equity interest in its Venezuela joint venture to its joint venture partner and recorded a $10.3 impairment of assets in the first quarter of 2015. On April 29, 2015, the Company closed the sale for the estimated fair market value and recorded a $1.0 reversal of impairment of assets based on final adjustments in the second quarter of 2015, resulting in a $9.3 impairment of assets for the six months ended June 30, 2015. The Company no longer has a consolidating entity in Venezuela but will continue to operate in Venezuela on an indirect basis.
Prior to the sale, the Company's Venezuela operations consisted of a fifty-percent owned subsidiary, which was consolidated. Venezuela was measured using the U.S. dollar as its functional currency because its economy is considered highly inflationary. On March 24, 2014, the Venezuela government announced a currency exchange mechanism, SICAD 2, which yielded an exchange rate significantly higher than the rates established through the other regulated exchange mechanisms. As of March 31, 2014, management determined it was unlikely the Company would be able to convert bolivars under a currency exchange other than SICAD 2 and the Company remeasured its Venezuela balance sheet using the SICAD 2 rate of 50.86 compared to the previous official government rate of 6.30, which resulted in a decrease of $6.1 to the Company’s cash balance and net losses of $12.1 that were recorded within foreign exchange (loss) gain, net in the condensed consolidated statements of operations in the first quarter of 2014. As a result of the currency devaluation, the Company recorded a $4.1 lower of cost or market adjustment related to its service inventory within service cost of sales in the condensed consolidated statements of operations in the first quarter of 2014. On February 10, 2015, the Venezuela government introduced a new foreign currency exchange platform called the Marginal Currency System, or SIMADI, which replaced the SICAD 2 mechanism, yielding another significant increase in the exchange rate. As of March 31, 2015, management determined it was unlikely that the Company would be able to convert bolivars under a currency exchange other than SIMADI and remeasured its Venezuela balance sheet using the SIMADI rate of 192.95 compared to the previous SICAD 2 rate of 50.86, which resulted in a loss of $7.5 recorded within foreign exchange (loss) gain, net in the condensed consolidated statements of operations in the first quarter of 2015.
In the second quarter of 2014, the Company divested its Diebold Eras, Incorporated (Eras) subsidiary for a sale price of $20.0, including installment payments of $1.0 on the first and second year anniversary dates of the closing. This sale resulted in a gain of $13.7 recognized within gain on sale of assets, net in the condensed consolidated statement of operations. Revenue and operating

7

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



profit in the six months ended June 30, 2014 related to this divested subsidiary was $6.0 and $3.0 are included within the NA segment. Net income before taxes related to this divested subsidiary is included in continuing operations and was $2.1 and $3.0 for the three and six months ended June 30, 2014, respectively.
Recently Issued Accounting Guidance
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard is effective for the Company on January 1, 2018. Early application is permitted on the original adoption date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for the Company on January 1, 2016, with early adoption permitted. The adoption of ASU 2015-03 is not expected to have a material impact on the financial statements of the Company.
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share or Its Equivalent (ASU 2015-07). The amendments in this update remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The standard is effective for the Company on December 15, 2015, with early adoption permitted. The adoption of ASU 2015-07 is not expected to have a material impact on the financial statements of the Company.
Note 2: Earnings Per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding. Diluted earnings per share includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing earnings per share, non-vested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating securities. The Company’s participating securities include restricted stock units (RSUs), deferred shares, and shares that were vested, but deferred by the employee. The Company calculated basic and diluted earnings per share under both the treasury stock method and the two-class method. For the three and six months ended June 30, 2015 and 2014, there was no impact in the per share amounts calculated under the two methods. Accordingly, the treasury stock method is disclosed below.
The following represents amounts used in computing earnings per share and the effect on the weighted-average number of shares of dilutive potential common shares:

8

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Numerator
 
 
 
 
 
 
 
 
Income used in basic and diluted earnings per share
 
 
 
 
 
 
 
 
Net income attributable to Diebold, Incorporated
 
$
22.2

 
$
41.6

 
$
19.4

 
$
51.4

Denominator (in millions)
 
 
 
 
 
 
 
 
Weighted-average number of common shares used in basic earnings per share
 
64.9

 
64.6

 
64.8

 
64.4

Effect of dilutive shares
 
0.7

 
0.6

 
0.7

 
0.6

Weighted-average number of shares used in diluted earnings per share
 
65.6

 
65.2

 
65.5

 
65.0

Net income attributable to Diebold, Incorporated
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.34

 
$
0.64

 
$
0.30

 
$
0.80

Diluted earnings per share
 
$
0.34

 
$
0.64

 
$
0.30

 
$
0.79

Anti-dilutive shares (in millions)
 
 
 
 
 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares
 
1.2

 
1.0

 
1.3

 
1.2

Note 3: Equity
The following table presents changes in shareholders' equity attributable to Diebold, Incorporated and the noncontrolling interests:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Diebold, Incorporated shareholders' equity
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
449.5

 
$
610.3

 
$
531.6

 
$
596.8

Comprehensive income (loss) attributable to Diebold, Incorporated
 
28.6

 
50.6

 
(37.3
)
 
68.4

Common shares
 
0.2

 
0.1

 
0.6

 
0.7

Additional capital
 
6.4

 
8.8

 
11.3

 
23.9

Treasury shares
 
(0.2
)
 
(0.3
)
 
(2.8
)
 
(1.6
)
Dividends paid
 
(18.9
)
 
(18.7
)
 
(37.8
)
 
(37.4
)
Balance at end of period
 
$
465.6

 
$
650.8

 
$
465.6

 
$
650.8

 
 
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
23.3

 
$
17.0

 
$
23.3

 
$
24.0

Comprehensive income (loss) attributable to noncontrolling interests, net (1)
 
1.3

 
1.5

 
1.3

 
(4.0
)
Distributions to noncontrolling interest holders
 

 
(0.6
)
 

 
(2.1
)
Balance at end of period
 
$
24.6

 
$
17.9

 
$
24.6

 
$
17.9

(1)
Comprehensive income (loss) attributable to noncontrolling interests of $1.8 and $(0.8) for the three and six months ended June 30, 2015, respectively, is net of a $(0.5) and $2.1 Venezuela noncontrolling interest adjustment for the three and six months ended June 30, 2015, respectively, to reduce the carrying value to the estimated fair market value.
Note 4: Accumulated Other Comprehensive Loss
The following table summarizes the changes in the Company’s accumulated other comprehensive (loss) income (AOCI), net of tax, by component for the three months ended June 30, 2015:

 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at March 31, 2015
 
$
(143.5
)
 
$
2.9

 
$
(0.4
)
 
$
(112.9
)
 
$
0.3

 
$
(253.6
)
Other comprehensive income (loss) before reclassifications (1)
 
6.2

 
(1.0
)
 
0.1

 

 

 
5.3

Amounts reclassified from AOCI
 

 

 

 
1.1

 

 
1.1

Net current-period other comprehensive income (loss)
 
6.2

 
(1.0
)
 
0.1

 
1.1

 

 
6.4

Balance at June 30, 2015
 
$
(137.3
)
 
$
1.9

 
$
(0.3
)
 
$
(111.8
)
 
$
0.3

 
$
(247.2
)
(1)
Other comprehensive income (loss) before reclassifications within the translation component excludes $0.1 of translation attributable to noncontrolling interests.

9

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the three months ended June 30, 2014:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Unrealized Gain on Securities, Net
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at March 31, 2014
 
$
7.6

 
$
(3.5
)
 
$
(0.9
)
 
$
(51.5
)
 
$
1.6

 
$
0.3

 
$
(46.4
)
Other comprehensive income (loss) before reclassifications (1)
 
11.4

 
(2.0
)
 
0.1

 

 
(0.4
)
 

 
9.1

Amounts reclassified from AOCI
 

 

 

 
0.4

 
(0.4
)
 

 

Net current-period other comprehensive income (loss)
 
11.4

 
(2.0
)
 
0.1

 
0.4

 
(0.8
)
 

 
9.1

Balance at June 30, 2014
 
$
19.0

 
$
(5.5
)
 
$
(0.8
)
 
$
(51.1
)
 
$
0.8

 
$
0.3

 
$
(37.3
)
(1)
Other comprehensive income (loss) before reclassifications within the translation component excludes $(0.1) of translation attributable to noncontrolling interests.
The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the six months ended June 30, 2015:

 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2015
 
$
(74.9
)
 
$
(1.4
)
 
$
(0.5
)
 
$
(114.0
)
 
$
0.3

 
$
(190.5
)
Other comprehensive (loss) income before reclassifications (1)
 
(62.4
)
 
3.3

 
0.3

 

 

 
(58.8
)
Amounts reclassified from AOCI
 

 

 
(0.1
)
 
2.2

 

 
2.1

Net current-period other comprehensive (loss) income
 
(62.4
)
 
3.3

 
0.2

 
2.2

 

 
(56.7
)
Balance at June 30, 2015
 
$
(137.3
)
 
$
1.9

 
$
(0.3
)
 
$
(111.8
)
 
$
0.3

 
$
(247.2
)
(1)
Other comprehensive (loss) income before reclassifications within the translation component excludes $0.3 of translation attributable to noncontrolling interests.


The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the six months ended June 30, 2014:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Unrealized Gain on Securities, Net
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2014
 
$
(2.4
)
 
$
(1.9
)
 
$
(1.0
)
 
$
(52.0
)
 
$
2.7

 
$
0.3

 
$
(54.3
)
Other comprehensive income (loss) before reclassifications (1)
 
21.4

 
(3.6
)
 
0.3

 

 
(1.5
)
 

 
16.6

Amounts reclassified from AOCI
 

 

 
(0.1
)
 
0.9

 
(0.4
)
 

 
0.4

Net current-period other comprehensive income (loss)
 
21.4

 
(3.6
)
 
0.2

 
0.9

 
(1.9
)
 

 
17.0

Balance at June 30, 2014
 
$
19.0

 
$
(5.5
)
 
$
(0.8
)
 
$
(51.1
)
 
$
0.8

 
$
0.3

 
$
(37.3
)
(1) Other comprehensive income (loss) before reclassifications within the translation component excludes $(0.6) of translation attributable to noncontrolling interests.

10

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table summarizes the details about amounts reclassified from AOCI:
 
 
Three Months Ended
 
Six Months Ended
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
Amount Reclassified from AOCI
 
Amount Reclassified from AOCI
 
Amount Reclassified from AOCI
 
Amount Reclassified from AOCI
 
Affected Line Item in the Statement of Income
Interest rate hedges
 
$

 
$

 
$
(0.1
)
 
$
(0.1
)
 
Interest expense
Pension and post-retirement benefits:
 
 
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax $(0.6), $(0.3), $(1.2) and $(0.6), respectively)
 
1.2

 
0.5

 
2.3

 
1.0

 
(1)
Net prior service benefit amortization
 
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
 
(1)
 
 
1.1

 
0.4

 
2.2

 
0.9

 
 
Unrealized loss on securities (net of tax $0.0, $0.2, $0.0 and $0.2, respectively)
 

 
(0.4
)
 

 
(0.4
)
 
Investment income
Total reclassifications for the period
 
$
1.1

 
$

 
$
2.1

 
$
0.4

 
 
(1)
Pension and other post-retirement benefits AOCI components are included in the computation of net periodic benefit cost (refer to note 12).
Note 5: Share-Based Compensation
The Company’s share-based compensation payments to employees are recognized based on their grant-date fair values during the period in which the employee is required to provide services in exchange for the award. Share-based compensation is recognized as a component of selling and administrative expense. Total share-based compensation expense was $4.8 and $5.4 for the three months ended June 30, 2015 and 2014, respectively. Total share-based compensation expense was $9.1 and $10.4 for the six months ended June 30, 2015 and 2014, respectively.
Options outstanding and exercisable as of June 30, 2015 under the Company’s 1991 Equity and Performance Incentive Plan (as Amended and Restated as of February 12, 2014) (the 1991 Plan) and changes during the six months ended June 30, 2015 were as follows:    
 
 
Number of
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value (1)
 
 
(in millions)
 
(per share)
 
(in years)
 
 
Outstanding at January 1, 2015
 
1.6

 
$
37.11

 
 
 
 
Expired or forfeited
 
(0.3
)
 
$
50.81

 
 
 
 
Exercised
 
(0.1
)
 
$
31.09

 

 
 
Granted
 
0.5

 
$
32.33

 
 
 
 
Outstanding at June 30, 2015
 
1.7

 
$
34.09

 
7
 
$
3.5

Options exercisable at June 30, 2015
 
0.9

 
$
35.26

 
5
 
$
1.7

Options vested and expected to vest at June 30, 2015 (2)
 
1.7

 
$
34.13

 
7
 
$
3.4

(1)
The aggregate intrinsic value (the difference between the closing price of the Company’s common shares on the last trading day of the second quarter of 2015 and the exercise price, multiplied by the number of “in-the-money” options) that would have been received by the option holders had all option holders exercised their options on June 30, 2015. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common shares.
(2)
The options expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding non-vested options.

11

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table summarizes information on non-vested RSUs and performance shares relating to employees and non-employee directors for the six months ended June 30, 2015:
 
 
Number of
Shares
 
Weighted-Average
Grant-Date Fair
Value
 
 
(in millions)
 
(per share)
RSUs:
 
 
 
 
Non-vested at January 1, 2015
 
0.7

 
$
33.72

Forfeited
 
(0.1
)
 
$
34.09

Vested
 
(0.2
)
 
$
36.14

Granted
 
0.5

 
$
32.76

Non-vested at June 30, 2015
 
0.9

 
$
32.53

Performance Shares:
 
 
 
 
Non-vested at January 1, 2015
 
1.1

 
$
37.38

Forfeited
 
(0.2
)
 
$
36.89

Vested
 
(0.3
)
 
$
40.04

Granted
 
0.6

 
$
31.16

Non-vested at June 30, 2015
 
1.2

 
$
33.76

Performance shares are granted based on certain management objectives, as determined by the Board of Directors each year. Each performance share earned entitles the holder to one common share of the Company. The Company's performance shares include performance objectives that vest and are calculated after a three-year period as well as performance objectives that vest proportionately over a three-year period which are calculated annually. No shares are granted unless certain management threshold objectives are met.
As of June 30, 2015, there were 0.1 million non-employee director deferred shares vested and outstanding.
Note 6: Income Taxes
The effective tax rate was 19.0 percent and 29.6 percent on the income for the three months ended June 30, 2015 and 2014, respectively. The effective tax rate was 18.7 percent and 34.2 percent on the income for the six months ended June 30, 2015 and 2014, respectively. The tax rate for the three and six months ended June 30, 2015 benefited from a release of an uncertain tax position due to the expiration of the statute of limitations. Additionally, the tax rate for the six months ended June 30, 2015 benefited from the release of a valuation allowance in Asia Pacific (AP) and discrete tax items resulting from the sale of Venezuela (refer to note 1) recorded primarily in the first quarter. The tax rate for the three months and six months ended June 30, 2014 reflected the release of valuation allowance against excess capital losses utilized. Additionally, the tax rate for the six months ended June 30, 2014 was negatively impacted by discrete tax expense on the repatriation of certain foreign earnings recorded in the first quarter of 2014.
Note 7: Investments
The Company’s investments, primarily in Brazil, consist of certificates of deposit that are classified as available-for-sale and stated at fair value based upon quoted market prices. Unrealized gains and losses are recorded in AOCI. Realized gains and losses are recognized in investment income and are determined using the specific identification method. There were no realized gains from the sale of securities and proceeds from the sale of available-for-sale securities for the three and six months ended June 30, 2015.

12

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



Realized gains from the sale of securities were $0.7 for the three and six months ended June 30, 2014. Proceeds from the sale of available-for-sale securities were $31.0 during the six months ended June 30, 2014.
The Company’s investments, excluding cash surrender value of insurance contracts of $74.2 and $73.8 as of June 30, 2015 and December 31, 2014, respectively, consisted of the following:
 
 
Cost Basis
 
Unrealized Gain
 
Fair Value
As of June 30, 2015
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
119.5

 
$

 
$
119.5

Long-term investments
 
 
 
 
 
 
Assets held in a rabbi trust
 
$
9.0

 
$
0.6

 
$
9.6

 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
136.7

 
$

 
$
136.7

Long-term investments
 
 
 
 
 
 
Assets held in a rabbi trust
 
$
9.3

 
$
0.5

 
$
9.8

Note 8: Allowance for Credit Losses
The following table summarizes the Company’s allowance for credit losses for the six months ended June 30, 2015 and 2014:

 
 
Finance
Leases
 
Notes
Receivable
 
Total
Allowance for credit losses
 
 
 
 
 
 
Balance at January 1, 2015
 
$
0.4

 
$
4.1

 
$
4.5

Provision for credit losses
 
0.3

 

 
0.3

Write-offs
 
(0.1
)
 

 
(0.1
)
Balance at June 30, 2015
 
$
0.6

 
$
4.1

 
$
4.7

 
 
 
 
 
 
 
Balance at January 1, 2014

$
0.4


$
4.1


$
4.5

Provision for credit losses

0.1




0.1

Write-offs

(0.2
)



(0.2
)
Balance at June 30, 2014

$
0.3


$
4.1


$
4.4

There were no significant changes in provision for credit losses, recoveries and write-offs during the six months ended June 30, 2015 and 2014. In the six months ended June 30, 2015 and 2014, the Company sold finance lease receivables of $5.4 and $7.1, respectively. As of June 30, 2015, finance leases and notes receivable individually evaluated for impairment were $118.9 and $14.6, respectively. As of June 30, 2014, finance leases and notes receivable individually evaluated for impairment were $184.3 and $18.9, respectively. As of June 30, 2015 and December 31, 2014, the Company’s finance lease receivables in LA were $100.4 and $127.9, respectively. The decrease is related primarily to the strengthening dollar compared to the Brazil real and recurring customer payments for financing arrangements in LA.
The Company records interest income and any fees or costs related to financing receivables using the effective interest method over the term of the lease or loan. The Company reviews the aging of its financing receivables to determine past due and delinquent accounts. Credit quality is reviewed at inception and is re-evaluated as needed based on customer-specific circumstances. Receivable balances 60 days to 89 days past due are reviewed and may be placed on nonaccrual status based on customer-specific circumstances. Receivable balances are placed on nonaccrual status upon reaching greater than 89 days past due. Upon receipt of payment on nonaccrual financing receivables, interest income is recognized and accrual of interest is resumed once the account has been made current or the specific circumstances have been resolved.
As of June 30, 2015 and December 31, 2014, the recorded investment in past-due financing receivables on nonaccrual status was $0.9 and $2.2, respectively, and there were no recorded investments in finance receivables past due 90 days or more and still accruing interest. The recorded investment in impaired notes receivable was $4.1 as of June 30, 2015 and December 31, 2014 and was fully reserved.

13

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table summarizes the Company’s aging of past-due notes receivable balances:
 
 
June 30, 2015
 
December 31, 2014
30-59 days past due
 
$
0.1

 
$
0.1

60-89 days past due
 

 

> 89 days past due (1)
 
2.3

 
1.5

Total past due
 
$
2.4

 
$
1.6

(1)
Past-due notes receivable balances greater than 89 days are fully reserved.
Note 9: Inventories
Major classes of inventories are summarized as follows:
 
 
June 30, 2015
 
December 31, 2014
Finished goods
 
$
186.5

 
$
197.4

Service parts
 
146.5

 
125.6

Raw materials and work in process
 
92.5

 
82.2

Total inventories
 
$
425.5

 
$
405.2

Note 10: Goodwill and Other Assets
The changes in carrying amounts of goodwill within the Company's segments are summarized as follows:
 
NA
 
AP
 
EMEA
 
LA
 
Total
Goodwill
$
112.1

 
$
41.3

 
$
168.7

 
$
148.5

 
$
470.6

Accumulated impairment losses
(13.2
)
 

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at January 1, 2014
$
98.9

 
$
41.3

 
$

 
$
39.7

 
$
179.9

Divestiture
(1.6
)
 

 

 

 
(1.6
)
Currency translation adjustment
(0.2
)
 
(1.3
)
 

 
(4.8
)
 
(6.3
)
Goodwill
$
110.3

 
$
40.0

 
$
168.7

 
$
143.7

 
$
462.7

Accumulated impairment losses
(13.2
)
 

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at December 31, 2014

$
97.1

 
$
40.0

 
$

 
$
34.9

 
$
172.0

Goodwill acquired
40.2

 
0.5

 

 
0.5

 
41.2

Currency translation adjustment
0.5

 
(1.0
)
 

 
(4.6
)
 
(5.1
)
Goodwill
151.0

 
39.5

 
168.7

 
139.6

 
498.8

Accumulated impairment losses
(13.2
)
 

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at June 30, 2015
$
137.8

 
$
39.5

 
$

 
$
30.8

 
$
208.1

During 2014, NA had a reduction to goodwill of $1.6 relating to the sale of Eras. In March 2015, the Company acquired Phoenix, a world leader in developing innovative software solutions for ATMs and a host of other FSS applications. Preliminary goodwill and other intangible assets resulting from the acquisition were $41.2 and $29.3, respectively, and are primarily included in the NA reportable operating segment. The purchase price allocations are preliminary and subject to further adjustment until all pertinent information regarding the assets acquired and liabilities assumed are fully evaluated. The goodwill associated with the transaction is not deductible for income tax purposes.
There have been no impairment indicators identified during the six months ended June 30, 2015.

14

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following summarizes information on intangible assets by major category:
 
June 30, 2015
 
December 31, 2014
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Internally-developed
software
$
76.5

 
$
(50.3
)
 
$
26.2

 
$
102.1

 
$
(65.8
)
 
$
36.3

Other intangibles
76.2

 
(29.4
)
 
46.8

 
52.2

 
(28.5
)
 
23.7

Total
$
152.7

 
$
(79.7
)
 
$
73.0

 
$
154.3

 
$
(94.3
)
 
$
60.0

Intangible assets are included in other assets on the condensed consolidated balance sheets. Amortization expense on capitalized software included in product cost of sales was $4.1 and $4.3 for the three months ended June 30, 2015 and 2014, respectively, and $7.6 and $8.9 for the six months ended June 30, 2015 and 2014, respectively.
The decrease in internally-developed software is primarily due to a $9.1 impairment during the first quarter of 2015 of certain internally-developed software related to redundant legacy Diebold software as a result of the acquisition of Phoenix.
Note 11: Debt
Outstanding debt balances were as follows:
 
 
June 30, 2015
 
December 31, 2014
Notes payable
 
 
 
 
Uncommitted lines of credit
 
$
22.8

 
$
24.8

Term loan
 
11.5

 

Other
 
0.8

 
0.8

 
 
$
35.1

 
$
25.6

Long-term debt
 
 
 
 
Revolving credit facility
 
$
177.0

 
$
240.0

Senior notes
 
225.0

 
225.0

Term loan
 
218.5

 

Industrial development revenue bonds
 
11.9

 
11.9

Other
 
2.4

 
2.9

 
 
$
634.8

 
$
479.8

As of June 30, 2015, the Company had various international short-term uncommitted lines of credit with borrowing limits of $119.8. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of June 30, 2015 and December 31, 2014 was 6.38 percent and 2.96 percent, respectively. The increase in the weighted-average interest rate is attributable to the change in mix of borrowings in foreign entities. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at June 30, 2015 was $97.0.
In June 2015, the Company entered into a Second Amendment to the Credit Agreement (Second Amendment), which provides for a term loan in the aggregate principal amount of $230.0 with escalating quarterly principal payments and a balloon payment due upon maturity in August 2019. The weighted-average interest rate on the term loan as of June 30, 2015 was 1.94 percent, which is variable based on the London Interbank Offered Rate (LIBOR). The Second Amendment replaced the net debt to net capitalization financial covenant with a net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) financial covenant and, accordingly, modified the facility fee and interest rate pricing schedules. The Credit Agreement continues to provide a revolving credit facility with availability of up to $520.0. The Company has the ability, subject to various approvals, to increase the borrowing limits by $250.0. In August 2014, the Company entered into the First Amendment to the Credit Agreement and Guaranty (First Amendment), which increased its borrowing limits under the revolving credit facility from $500.0 to $520.0. The First Amendment also extended the maturity date of the revolving credit facility to August 2019. Up to $50.0 of the revolving credit facility is available under a swing line sub-facility. The weighted-average interest rate on outstanding revolving credit facility borrowings as of June 30, 2015 and December 31, 2014 was 1.64 percent and 1.69 percent, respectively, which is variable based on the LIBOR. The amount available under the revolving credit facility as of June 30, 2015 was $343.0. The Company incurred $0.7 of fees related to the Second Amendment in June 2015, which are amortized as a component of interest expense over the

15

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



term of the facility. The Company incurred $1.4 of fees related to the First Amendment in the third quarter of 2014, which are amortized as a component of interest expense over the term of the Credit Agreement.
In March 2006, the Company issued senior notes in an aggregate principal amount of $300.0 with a weighted-average fixed interest rate of 5.50 percent. The Company entered into a derivative transaction to hedge interest rate risk on $200.0 of the senior notes, which was treated as a cash flow hedge. This reduced the effective interest rate from 5.50 percent to 5.36 percent. The Company funded the repayment of $75.0 of the senior notes at maturity in March 2013 using borrowings under its revolving credit facility. The maturity dates of the remaining senior notes are staggered, with $175.0 and $50.0 due in March 2016 and 2018, respectively. For $175.0 of the Company's senior notes maturing in March 2016, management intends to fund the repayment through the revolving credit facility.
In 1997, industrial development revenue bonds were issued on behalf of the Company. The proceeds from the bond issuances were used to construct new manufacturing facilities in the United States. The Company guaranteed the payments of principal and interest on the bonds by obtaining letters of credit. The bonds were issued with a 20-year original term and are scheduled to mature in 2017. Each industrial development revenue bond carries a variable interest rate, which is reset weekly by the remarketing agents. The weighted-average interest rate on the bonds was 0.25 percent and 0.27 percent as of June 30, 2015 and December 31, 2014, respectively.
The Company’s financing agreements contain various restrictive financial covenants, including net debt to capitalization, net debt to EBITDA and net interest coverage ratios. As of June 30, 2015, the Company was in compliance with the financial and other covenants in its debt agreements.
Note 12: Benefit Plans
The Company has qualified pension plans covering certain U.S. employees that have been closed to new participants since 2003. Plans that cover salaried employees provide pension benefits based on the employee’s compensation during the ten years before retirement. The Company’s funding policy for salaried plans is to contribute annually based on actuarial projections and applicable regulations. 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.
The Company has non-qualified pension plans to provide supplemental retirement benefits to certain officers. Benefits are payable at retirement based upon a percentage of the participant’s compensation, as defined. In addition to providing pension benefits, the Company provides post-retirement 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 following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans and other benefits for the three months ended June 30:
 
 
Pension Benefits
 
Other Benefits
 
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
Service cost
 
$
0.9

 
$
0.8

 
$

 
$

Interest cost
 
6.0

 
5.8

 
0.2

 
0.1

Expected return on plan assets
 
(6.8
)
 
(6.5
)
 

 

Amortization of prior service benefit
 

 
(0.1
)
 
(0.1
)
 

Recognized net actuarial loss
 
1.6

 
0.7

 
0.1

 

Net periodic pension benefit cost
 
$
1.7

 
$
0.7

 
$
0.2

 
$
0.1


The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans and other benefits for the six months ended June 30:
 
 
Pension Benefits
 
Other Benefits
 
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
Service cost
 
$
1.8

 
$
1.5

 
$

 
$

Interest cost
 
11.9

 
11.5

 
0.3

 
0.3

Expected return on plan assets
 
(13.5
)
 
(12.9
)
 

 

Amortization of prior service benefit
 

 
(0.1
)
 
(0.1
)
 
(0.1
)
Recognized net actuarial loss
 
3.3

 
1.5

 
0.2

 
0.1

Net periodic pension benefit cost
 
$
3.5

 
$
1.5

 
$
0.4

 
$
0.3

Contributions
There have been no changes to the expected 2015 plan year contribution amounts previously disclosed. In the first quarter of 2015, the Company made a voluntary contribution to its qualified pension plan of $10.0. For the six months ended June 30, 2015 and 2014, contributions of $12.0 and $2.8, respectively, were made to the qualified and non-qualified pension plans.
Note 13: Guarantees and Product Warranties
In 1997, industrial development revenue bonds were issued on behalf of the Company. The Company guaranteed the payments of principal and interest on the bonds (refer to note 11) by obtaining letters of credit. The carrying value of the bonds was $11.9 as of June 30, 2015 and December 31, 2014.
The Company provides its global operations guarantees and standby letters of credit through various financial institutions for suppliers, customers, regulatory agencies and insurance providers. If the Company is not able to make payment or fulfill contractual obligations, the suppliers, customers, regulatory agencies and insurance providers may draw on the pertinent bank. At June 30, 2015, the maximum future payment obligations related to these various guarantees totaled $116.7, of which $28.0 represented standby letters of credit to insurance providers, and no associated liability was recorded. At December 31, 2014, the maximum future payment obligations relative to these various guarantees totaled $111.1, of which $28.0 represented standby letters of credit to insurance providers, and no associated liability was recorded.
The Company provides its customers a manufacturer’s warranty and records, at the time of the sale, a corresponding estimated liability for potential warranty costs. Estimated future obligations due to warranty claims are based upon historical factors such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts. As of June 30, 2015 and 2014, the Company’s warranty liability balances were $95.4 and $94.0, respectively. During 2014, the increase in warranty is largely attributable to sales related to Brazil other in LA. The currency translation adjustment is primarily due to the strengthening dollar compared to the Brazil real during 2015.
Changes in the Company’s warranty liability balance are illustrated in the following table:
 
 
2015
 
2014
Balance at January 1
 
$
113.3

 
$
83.2

Current period accruals
 
18.7

 
33.3

Current period settlements
 
(24.7
)
 
(25.2
)
Currency translation adjustment
 
(11.9
)
 
2.7

Balance at June 30
 
$
95.4

 
$
94.0


16

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



Note 14: Commitments and Contingencies
Contractual Obligation
At June 30, 2015, the Company had purchase commitments due within one year totaling $12.5 for materials through contract manufacturing agreements at negotiated prices.
Indirect Tax Contingencies
The Company accrues non-income-tax liabilities for indirect tax matters when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they are charged against income. In evaluating indirect tax matters, management takes into consideration factors such as historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. Management evaluates and updates accruals as matters progress over time. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably to the Company and could require recognizing future expenditures. Also, statutes of limitations could expire without the Company paying the taxes for matters for which accruals have been established, which could result in the recognition of future gains upon reversal of these accruals at that time.
At June 30, 2015, the Company was a party to several routine indirect tax claims from various taxing authorities globally that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the consolidated financial statements would not be materially affected by the outcome of these indirect tax claims and/or proceedings or asserted claims.
In addition to these routine indirect tax matters, the Company was a party to the proceedings described below:
In August 2012, one of the Company's Brazil subsidiaries was notified of a tax assessment of approximately R$270.0, including penalties and interest, regarding certain Brazil federal indirect taxes (Industrialized Products Tax, Import Tax, Programa de Integração Social and Contribution to Social Security Financing) for 2008 and 2009. The assessment alleges improper importation of certain components into Brazil's free trade zone that would nullify certain indirect tax incentives. On September 10, 2012, the Company filed its administrative defenses with the tax authorities.
In response to an order by the administrative court, the tax inspector provided further analysis with respect to the initial assessment in December 2013 that indicates a potential exposure that is significantly lower than the initial tax assessment received in August 2012. This revised analysis has been accepted by the initial administrative court; however, this matter remains subject to ongoing administrative proceedings and appeals. Accordingly, the Company cannot provide any assurance that its exposure pursuant to the initial assessment will be lowered significantly or at all. In addition, this matter could negatively impact Brazil federal indirect taxes in other years that remain open under statute. It is reasonably possible that the Company could be required to pay taxes, penalties and interest related to this matter, which could be material to the Company's consolidated financial statements. The Company continues to defend itself in this matter.
At June 30, 2015 and December 31, 2014, the Company had an accrual related to the Brazil indirect tax matter disclosed above of approximately $10.7 and $12.5, respectively. The movement between periods relates to the currency fluctuation in Brazil real.
Beginning in July 2014, the Company challenged customs rulings in Thailand seeking to retroactively collect customs duties on previous imports of ATMs. Management believes that the customs authority’s attempt to retroactively assess customs duties is in contravention of World Trade Organization agreements and, accordingly, is challenging the rulings. The matters are currently in the appeals process and management continues to believe that the Company has a valid legal position in these appeals. Accordingly, the Company has not accrued any amount for this contingency; however, the Company cannot provide any assurance that it will not ultimately be subject to retroactive assessments.
A loss contingency is reasonably possible if it has a more than remote but less than probable chance of occurring. Although management believes the Company has valid defenses with respect to its indirect tax positions, it is reasonably possible that a loss could occur in excess of the estimated accrual. The Company estimated the aggregate risk at June 30, 2015 to be up to approximately $201.1 for its material indirect tax matters, of which approximately $169.1 and $26.0, respectively, relates to the Brazil indirect tax matter and Thailand customs matter disclosed above. The aggregate risk related to indirect taxes is adjusted as the applicable statutes of limitations expire.

17

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



Legal Contingencies
At June 30, 2015, the Company was a party to several lawsuits that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s financial position or results of operations. In addition, the Company has indemnification obligations with certain former employees, and costs associated with these indemnifications are expensed as incurred. In management’s opinion, the Company's condensed consolidated financial statements would not be materially affected by the outcome of these legal proceedings, commitments or asserted claims.
Note 15: Derivative Instruments and Hedging Activities
The Company uses derivatives to mitigate the economic consequences associated with fluctuations in currencies and interest rates.
Foreign Exchange
Net Investment Hedges The Company has international subsidiaries with net balance sheet positions that generate cumulative translation adjustments within AOCI. The Company uses derivatives to manage potential changes in value of its net investments in LA. The Company uses the forward-to-forward method for its quarterly retrospective and prospective assessments of hedge effectiveness. No ineffectiveness results if the notional amount of the derivative matches the portion of the net investment designated as being hedged because the Company uses derivative instruments with underlying exchange rates consistent with its functional currency and the functional currency of the hedged net investment. Changes in value that are deemed effective are accumulated in AOCI where they will remain until they are reclassified to income together with the gain or loss on the entire investment upon substantial liquidation of the subsidiary. The fair value of the Company’s net investment hedge contracts were $0.8 and $1.2 as of June 30, 2015 and December 31, 2014, respectively. The net (loss) gain recognized in AOCI on net investment hedge derivative instruments was $(1.5) and $(3.0) in the three months ended June 30, 2015 and 2014, respectively, and $5.1 and $(5.5) in the six months ended June 30, 2015 and 2014, respectively.
Non-Designated Hedges A substantial portion of the Company’s operations and revenues are international. As a result, changes in foreign exchange rates can create substantial foreign exchange gains and losses from the revaluation of non-functional currency monetary assets and liabilities. The Company’s policy allows the use of foreign exchange forward contracts with maturities of up to 24 months to mitigate the impact of currency fluctuations on those foreign currency asset and liability balances. The Company elected not to apply hedge accounting to its foreign exchange forward contracts. Thus, spot-based gains/losses offset revaluation gains/losses within foreign exchange (loss) gain, net and forward-based gains/losses represent interest expense. The fair value of the Company’s non-designated foreign exchange forward contracts was $0.5 and $0.7 as of June 30, 2015 and December 31, 2014, respectively.
The following table summarizes the (loss) gain recognized on non-designated foreign-exchange derivative instruments:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,

 
2015
 
2014
 
2015
 
2014
Interest expense
 
$
(0.8
)
 
$
(1.6
)
 
$
(2.1
)
 
$
(3.0
)
Foreign exchange (loss) gain, net
 
(2.1
)
 
0.4

 
2.9

 
1.6

 
 
$
(2.9
)
 
$
(1.2
)
 
$
0.8

 
$
(1.4
)
Interest Rate
Cash Flow Hedges The Company has variable rate debt that is subject to fluctuations in interest related cash flows due to changes in market interest rates. As of June 30, 2015, the Company had two pay-fixed receive-variable interest rate swaps, with a total notional amount of $50.0, to hedge against changes in the LIBOR benchmark interest rate on a portion of the Company’s LIBOR-based borrowings. Changes in value that are deemed effective are accumulated in AOCI and reclassified to interest expense when the hedged interest is accrued. To the extent that it becomes probable that the Company’s variable rate borrowings will not occur, the gains or losses on the related cash flow hedges will be reclassified from AOCI to interest expense. The fair value of the Company’s interest rate contracts was $(0.7) and $(1.2) as of June 30, 2015 and December 31, 2014, 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 $200.0, related to the senior notes issuance in March 2006. Amounts previously recorded in AOCI related to the pre-issuance cash flow hedges will continue to be reclassified on a straight-line basis through February 2016.

18

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The gain recognized on designated cash flow hedge derivative instruments was $0.2 for both the three months ended June 30, 2015 and 2014, and $0.5 for both the six months ended June 30, 2015 and 2014. Gains and losses related to interest rate contracts that are reclassified from AOCI are recorded in interest expense on the statements of income. The Company anticipates reclassifying $0.5 from AOCI to interest expense within the next 12 months.
Note 16: Restructuring and Other Charges
Restructuring Charges
The following table summarizes the impact of the Company’s restructuring charges on the condensed consolidated statements of income:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Cost of sales – services
 
$
1.2

 
$
0.1

 
$
1.2

 
$
0.8

Cost of sales – products
 
1.3

 
0.1

 
1.3

 
0.1

Selling and administrative expense
 
4.7

 
0.5

 
7.2

 
4.9

Research, development and engineering expense
 

 

 
0.6

 

Total
 
$
7.2

 
$
0.7

 
$
10.3

 
$
5.8

The following table summarizes the Company’s restructuring charges by reporting segment:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Severance
 
 
 
 
 
 
 
 
North America (NA)
 
$
3.2

 
$
0.6

 
$
4.7

 
$
2.7

Asia Pacific (AP)
 
0.2

 

 
0.2

 
0.3

Europe, Middle East and Africa (EMEA)
 
2.1

 
0.1

 
3.0

 
0.7

Latin America (LA)
 
1.7

 

 
2.4

 
2.1

Total severance
 
$
7.2

 
$
0.7

 
$
10.3

 
$
5.8

During the first quarter of 2013, the Company announced a multi-year transformation plan. Certain aspects of this plan were previously disclosed under the Company's global realignment plan and global shared services plan. This multi-year transformation focuses on globalizing the Company's service organization and creating a unified center-led global organization for research and development, as well as transforming the Company's general and administrative cost structure. Restructuring charges of $7.2 and $0.7 for the three months ended June 30, 2015 and 2014, respectively, and $10.3 and $5.8 for the six months ended June 30, 2015 and 2014, respectively, related to the Company's multi-year transformation plan. Restructuring charges for the six months ended June 30, 2015 consisted primarily of severance costs related to the Company's transformation and business process outsourcing initiative. As of June 30, 2015, the Company anticipates additional restructuring costs of $6.4 to $8.5 to be incurred through the end of 2015, primarily within NA and EMEA, along with the realignment of LA and Brazil which was announced in January 2015 (refer to note 1). The Company anticipates additional cost in the multi-year transformation plan through at least the end of 2015. As management finalizes certain aspects of the transformation plan, the anticipated future costs related to this plan are subject to change.

19

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table summarizes the Company's cumulative total restructuring costs for the multi-year transformation plan as of June 30, 2015:
 
Severance
 
Other
 
Total
Cumulative total restructuring costs for the multi-year transformation plan
 
 
 
 
 
NA
$
66.6

 
$
2.0

 
$
68.6

AP
2.8

 
0.6

 
3.4

EMEA
4.7

 
0.9

 
5.6

LA
16.8

 

 
16.8

Total
$
90.9

 
$
3.5

 
$
94.4

The following table summarizes the Company’s restructuring accrual balances and related activity for the six months ended June 30:
 
 
2015
 
2014
Balance at January 1
 
$
7.8

 
$
35.3

Liabilities incurred
 
10.3

 
5.8

Liabilities paid/settled
 
(10.4
)
 
(33.1
)
Balance at June 30
 
$
7.7

 
$
8.0

Impairment and Other Charges
The Company recorded an impairment related to other intangibles in LA in the second quarter of 2015 and an impairment of $9.1 related to redundant legacy Diebold internally-developed software as a result of the acquisition of Phoenix.
Other charges consist of items that the Company has determined are non-routine in nature and are not expected to recur in future operations. Net non-routine (expense) income of $(5.4) and $12.2 impacted the three months ended June 30, 2015 and 2014, respectively. Net non-routine (expense) income of $(10.0) and $11.1 impacted the six months ended June 30, 2015 and 2014, respectively. Non-routine expense for the six months ended June 30, 2015 is primarily due to legal, indemnification and professional fees related to the corporate monitor. Non-routine income for the first six months of 2014 included a $13.7 pre-tax gain from the sale of the Eras, recognized in gain on sale of assets, net in the condensed consolidated statements of income.

20

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



Note 17: Fair Value of Assets and Liabilities
Assets and Liabilities Recorded at Fair Value
Assets and liabilities subject to fair value measurement are as follows:
 
 
June 30, 2015
 
December 31, 2014
 
 
 
 
Fair Value Measurements Using
 
 
 
Fair Value Measurements Using
 
 
Fair Value
 
Level 1
 
Level 2
 
Fair Value
 
Level 1
 
Level 2
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
$
119.5

 
$
119.5

 
$

 
$
136.7

 
$
136.7

 
$

Assets held in rabbi trusts
 
9.6

 
9.6

 

 
9.8

 
9.8

 

Foreign exchange forward contracts
 
1.6

 

 
1.6

 
2.9

 

 
2.9

Total
 
$
130.7

 
$
129.1

 
$
1.6

 
$
149.4

 
$
146.5

 
$
2.9

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation
 
$
9.6

 
$
9.6

 
$

 
$
9.8

 
$
9.8

 
$

Foreign exchange forward contracts
 
0.3

 

 
0.3

 
1.0

 

 
1.0

Interest rate swaps
 
0.7

 

 
0.7

 
1.2

 

 
1.2

Total
 
$
10.6

 
$
9.6

 
$
1.0

 
$
12.0

 
$
9.8

 
$
2.2

The Company uses the end of period when determining the timing of transfers between levels. During the six months ended June 30, 2015, there were no transfers between levels.
The fair value and carrying value of the Company’s debt instruments are summarized as follows:
 
 
June 30, 2015
 
December 31, 2014
 
 
Fair Value
 
Carrying
Value
 
Fair Value
 
Carrying
Value
Notes payable
 
$
35.1

 
$
35.1

 
$
25.6

 
$
25.6

Long-term debt
 
637.7

 
634.8

 
483.6

 
479.8

Total debt instruments
 
$
672.8

 
$
669.9

 
$
509.2

 
$
505.4

Note 18: Segment Information
The Company considers its operating structure and the information subject to regular review by its President and Chief Executive Officer, who is the Chief Operating Decision Maker (CODM), to identify reportable operating segments. The CODM makes decisions, allocates resources and assesses performance by the following regions, which are also the Company’s four reportable operating segments: NA, AP, EMEA and LA. The four geographic segments sell and service financial self-service and security systems around the globe, as well as elections, lottery and information technology solutions in Brazil other, through wholly-owned subsidiaries, majority-owned joint ventures and independent distributors in most major countries. Beginning in the first quarter of 2015, LA and Brazil operations are reported under one single reportable operating segment and comparative periods have been reclassified for consistency. The presentation of comparative periods also reflects the reclassification of certain global expenses from segment operating profit to corporate charges not allocated to segments due to the 2015 realignment activities.
Certain information not routinely used in the management of the segments, information not allocated back to the segments or information that is impractical to report is not shown. Segment operating profit is defined as revenues less expenses identifiable to those segments. Segment operating income reconciles to consolidated income before income taxes by deducting corporate costs and other income or expense items that are not attributed to the segments (refer to note 16). Total assets are not allocated to segments and are not included in the assessment of segment performance and therefore are excluded from the segment information disclosed as follows.

21

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following tables represent information regarding the Company’s segment information and provides a reconciliation between segment operating profit and the consolidated income before income taxes:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Revenue summary by segment
 
 
 
 
 
 
 
 
NA
 
$
391.4

 
$
346.0

 
$
731.3

 
$
663.5

AP
 
109.4

 
119.4

 
219.9

 
226.5

EMEA
 
106.1

 
118.4

 
192.9

 
202.5

LA
 
126.5

 
149.7

 
244.8

 
329.3

Total revenue
 
$
733.4

 
$
733.5

 
$
1,388.9

 
$
1,421.8

 
 
 
 
 
 
 
 
 
Intersegment revenue
 
 
 
 
 
 
 
 
NA
 
$
23.8

 
$
18.2

 
$
44.9

 
$
34.1

AP
 
40.3

 
23.4

 
59.7

 
47.3

EMEA
 
24.1

 
12.8

 
35.2

 
19.8

LA
 
0.1

 
0.1

 
0.2

 
0.2

Total intersegment revenue
 
$
88.3

 
$
54.5

 
$
140.0

 
$
101.4

 
 
 
 
 
 
 
 
 
Segment operating profit
 
 
 
 
 
 
 
 
NA
 
$
73.7

 
$
72.1

 
$
141.4

 
$
131.5

AP
 
14.3

 
13.3

 
32.5

 
30.1

EMEA
 
14.1

 
22.0

 
26.5

 
33.2

LA
 
13.2

 
8.7

 
16.3

 
20.2

Total segment operating profit
 
$
115.3

 
$
116.1

 
$
216.7

 
$
215.0

 
 
 
 
 
 
 
 
 
Corporate charges not allocated to segments (1)
 
(72.5
)
 
(70.4
)
 
(143.2
)
 
(139.8
)
Asset impairment charges
 
0.5

 

 
(18.9
)
 

Restructuring charges
 
(7.2
)
 
(0.7
)
 
(10.3
)
 
(5.8
)
Net non-routine (expense) income
 
(5.4
)
 
12.2

 
(10.0
)
 
11.1

 
 
(84.6
)
 
(58.9
)
 
(182.4
)
 
(134.5
)
Operating profit
 
$
30.7

 
$
57.2

 
$
34.3

 
$
80.5

Other (expense) income
 
(1.2
)
 
4.0

 
(11.8
)
 
(7.6
)
Income before taxes
 
$
29.5

 
$
61.2

 
$
22.5

 
$
72.9

(1)
Corporate charges not allocated to segments include headquarter-based costs associated with manufacturing administration, procurement, human resources, finance and accounting, global development/engineering, global strategy/mergers and acquisitions, global information technology, tax, treasury and legal.
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,


2015
 
2014

2015
 
2014
Segment depreciation and amortization expense
 
 
 
 
 
 
 
 
NA
 
$
2.2

 
$
2.7

 
$
4.2

 
$
5.1

AP
 
1.8

 
1.9

 
3.4

 
3.8

EMEA
 
0.8

 
0.9

 
1.6

 
2.1

LA
 
1.0

 
3.4

 
3.9

 
5.4

Total segment depreciation and amortization expense
 
5.8

 
8.9

 
13.1

 
16.4

Corporate depreciation and amortization expense
 
11.0

 
10.1

 
20.1

 
20.3

Total depreciation and amortization expense
 
$
16.8

 
$
19.0

 
$
33.2

 
$
36.7


22

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



 
 
June 30, 2015
 
December 31, 2014
Segment property, plant and equipment, at cost
 
 
 
 
NA
 
$
122.8

 
$
128.8

AP
 
50.5

 
46.9

EMEA
 
35.3

 
38.2

LA
 
63.1

 
78.7

Total segment property, plant and equipment, at cost
 
$
271.7

 
$
292.6

Corporate property plant and equipment, at cost, not allocated to segments
 
343.1

 
320.3

Total property, plant and equipment, at cost
 
$
614.8

 
$
612.9

The following table presents information regarding the Company’s revenue by service and product solution:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,

 
2015
 
2014
 
2015
 
2014
Financial self-service
 
 
 
 
 
 
 
 
Services
 
$
299.2

 
$
306.1

 
$
590.6

 
$
591.1

Products
 
268.9

 
236.8

 
472.7

 
418.3

Total financial self-service
 
568.1

 
542.9

 
1,063.3

 
1,009.4

Security
 
 
 
 
 
 
 
 
Services
 
110.9

 
103.7

 
213.5

 
202.1

Products
 
52.7

 
49.4

 
100.1

 
93.4

Total security
 
163.6

 
153.1

 
313.6

 
295.5

Total financial self-service and security
 
731.7

 
696.0

 
1,376.9

 
1,304.9

Brazil other
 
1.7

 
37.5

 
12.0

 
116.9

 
 
$
733.4

 
$
733.5

 
$
1,388.9

 
$
1,421.8

Note 19: Subsequent Event
Effective July 24, 2015, the Board of Directors of the Company and George S. Mayes, Jr. agreed that Mr. Mayes would step down from his position as the Executive Vice President and Chief Operating Officer of the Company. Mr. Mayes is eligible to receive the severance benefits under the Company's Senior Leadership Severance Plan (the “Plan”) for a “Qualifying Termination” (as defined in the Plan). The Company and Mr. Mayes are negotiating final terms of his severance.

23

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that appear elsewhere in this Quarterly Report on Form 10-Q.
Introduction
Diebold, Incorporated and its subsidiaries (collectively, the Company) provide the technology, software and services that connect people around the world with their money - bridging the physical and digital worlds of cash conveniently, securely and efficiently. Since its founding in 1859, Diebold has evolved to become a leading provider of exceptional self-service innovation, security and services to financial, commercial, retail and other markets. The Company has approximately 16,000 employees with business in more than 90 countries worldwide. The Company continues to execute its multi-year turnaround, Diebold 2.0, with the primary objective of transforming the Company into a world-class, services-led and software enabled Company, supported by innovative hardware, which automates the way people connect with their money.
Diebold 2.0 consists of four pillars:
Streamline its cost structure and improve its near-term delivery and execution.
Generate increased free cash flow in order to fund the investments necessary to drive profitable growth, while preserving the ability to return value to shareholders in the form of reliable dividends and, as appropriate, share repurchases.
Attract and retain the talent necessary to drive innovation and the focused execution of the transformation strategy.
Return the Company to a sustainable, profitable growth trajectory.
The turnaround is expected to occur in three phases: 1) Crawl, 2) Walk, and 3) Run. During the “Crawl” phase, the Company is focusing on taking cost out of the business and reallocating a portion of these savings as reinvestments in systems and processes. The Company engaged Accenture LLP (Accenture) in a multi-year outsourcing agreement to provide finance and accounting and procurement business process services. Cost savings, along with working capital improvements, resulted in significantly more free cash flow. With respect to talent, the Company attracted new leaders from top technology and services companies. Through increased collaboration with customers, the Company has also improved its growth trajectories in its Financial Self-Service (FSS) and Security businesses.
During the second half of 2015, the Company expects to enter the “Walk” phase of Diebold 2.0 whereby the Company will continue to build on each pillar of cost, cash, talent and growth. The Company is committed to its multi-year transformation plan and has identified targeted savings of $200.0 that are expected to be fully realized by the end of 2017. The Company plans to reinvest approximately 50 percent of the cost savings to drive long-term growth. The main difference in the "Walk" phase will be a greater emphasis on top-line growth and increasing the mix of revenue from services and software and sustaining our top-line growth. Additionally, the Company will continue to shape its portfolio of businesses consistent with its strategy of becoming a more services-led, software enabled Company.
Restructuring charges associated with the multi-year transformation plan were $10.3 and $5.8 for the six months ended June 30, 2015 and 2014, respectively. Restructuring charges for the six months ended June 30, 2015 consisted primarily of severance costs related to the Company's transformation and business process outsourcing initiative with Accenture.
Solutions
A significant demand driver in the global automated teller machine (ATM) marketplace is branch automation. The concept is to help financial institutions reduce their costs by migrating routine transactions, typically done inside the branch, to lower-cost automated channels, while also growing revenue, and adding convenience and security for the banks' customers. One area of branch automation that continues to gain traction is deposit automation. Through 2014, approximately 30 percent of ATMs globally are configured for automated deposits.
Another solution the Company offers as part of its branch automation efforts is two-way video capabilities. The solution provides consumers with on-demand access to bank call center representatives at the ATM for sales or bank account maintenance support. In addition to delivering a personal touch outside of regular business hours, it ultimately assists financial institutions by maximizing operational efficiencies, improving the consumer experience and enhancing the overall consumer relationship.
Mobile integration is another emerging trend in the FSS market, as consumers look for more convenient ways to interact with their financial institutions. To address this need, Diebold offers a cardless mobile solution, which allows consumers to initiate a transaction

24

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

with their mobile device and complete it at the ATM without a card. This capability provides consumers with a more convenient and secure option, while giving financial institutions the opportunity to offer their own branded mobile wallet solution. Diebold has demonstrated success with this solution in North America (NA) and Europe, Middle East and Africa (EMEA). The Company has announced that Banque Internationale, a Luxembourg-based financial institution, and UBS AG in Switzerland partnered with Diebold to launch a cardless transaction solution across their ATM networks.
A new technology that enhances security for customers is Diebold’s ActivEdge™ secure card reader. This is the ATM industry's first complete anti-skimming, EMV compliant card reader that prevents all known forms of skimming, the most prevalent type of ATM crime. ActivEdge™ can assist financial institutions avoid skimming-related fraud losses which, according to the ATM Industry Association, totals more than $2 billion annually worldwide. ActivEdge™ requires users to insert cards into the reader via the long edge, instead of the traditional short edge. The Company believes by shifting a card's angle 90 degrees, ActivEdge™ prevents modern skimming devices from reading the card's full magnetic strip, eliminating the devices' ability to steal card data.
Diebold is a leader in managed and maintenance services for financial institutions in NA with over 27,000 managed ATMs and over 80,000 ATMs under maintenance. The combination of Diebold’s differentiated security, remote management and highly-trained field technicians has made Diebold the overwhelming choice for current and emerging self-service solutions. Through managed services, banks entrust the management of their ATM and security operations to Diebold, allowing their associates to focus on core competencies. Furthermore, the Company's managed services provides banks and credit unions with the leading-edge technology it needs to stay competitive in the marketplace.
The Company also offers innovative, hardware-agnostic software solutions for ATMs and a host of other FSS applications. These offerings include highly configurable, enterprise-wide software that automates and migrates financial services across channels, changing the way financial products are delivered to consumers. The software portfolio was greatly enhanced by the Company’s recent acquisition of Phoenix Interactive Design, Inc. (Phoenix).
The Company’s SecureStat® online security management tool streamlines how customers manage their security operations. At the core of the solution is a personalized dashboard that utilizes customizable, distinct widgets to provide a snapshot of a user's entire security platform, including locations, security systems and devices. In addition, SecureStat® can unify security services and disparate systems, while providing a single interface for real-time administration of security operations across an enterprise. To further build out the capabilities of SecureStat®, Diebold and Eagle Eye Networks, Inc., have formalized the security industry's first national strategic alliance to deliver cloud-based video services. The new video solutions will offer services that stream and store live and recorded video, provide flexible cloud storage, and generate notification and real-time analytics. Customers will be able to access and manage these new video services from Diebold's centralized software-as-a-service solution - SecureStat®. This is an example of the software driven platforms the Company is investing in to strengthen its suite of solutions and differentiate itself in the market.
Entering the “Walk” phase of Diebold 2.0, the Company intends to compete for a larger portion of the addressable market for FSS solutions. The Company will continue to invest in developing new services, software and security solutions that align with the needs of its markets.
Business Drivers
The business drivers of the Company's future performance include, but are not limited to:
demand for services and software, including managed services and professional services;
timing of self-service equipment upgrades and/or replacement cycles;
demand for products and solutions related to bank branch automation opportunities;
demand for security products and services for the financial and commercial sectors; and
high levels of deployment growth for new self-service products in emerging markets.


25

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Significant Highlights
In January 2015, the Company announced the realignment of its Brazil and LA businesses to drive greater efficiency and further improve customer service. Beginning the first quarter of 2015, LA and Brazil operations were reported under one single reportable operating segment and comparative periods have been reclassified for consistency. The presentation of comparative periods also reflects the reclassification of certain global expenses from segment operating profit to corporate charges not allocated to segments due to the 2015 realignment activities.
On March 13, 2015, the Company acquired all of the equity interests of Phoenix for a total purchase price of approximately $72.9, including $12.6 of deferred cash payment payable over the next three years. Acquiring Phoenix, a world leader in developing innovative software solutions for ATMs and a host of other FSS applications, is a foundational move to accelerate the Company’s growth in the fast-growing managed services and branch automation spaces. The results of operations for Phoenix are primarily included in the NA reportable operating segment within the Company's condensed consolidated financial statements from the date of the acquisition. Preliminary purchase price allocations are subject to further adjustment until all pertinent information regarding the assets acquired and liabilities assumed are fully evaluated.
As of March 31, 2015, the Company agreed to sell its equity interest in its Venezuela joint venture to its joint venture partner and recorded a $10.3 impairment of assets in the first quarter of 2015. On April 29, 2015, the Company closed the sale for the estimated fair market value and recorded a $1.0 reversal of impairment of assets based on final adjustments in the second quarter of 2015, resulting in a $9.3 impairment of assets for the six months ended June 30, 2015. The Company no longer has a consolidating entity in Venezuela but will continue to operate in Venezuela on an indirect basis.
Prior to the sale, the Company's Venezuela operations consisted of a fifty-percent owned subsidiary, which was consolidated. Venezuela was measured using the U.S. dollar as its functional currency because its economy is considered highly inflationary. On March 24, 2014, the Venezuela government announced a currency exchange mechanism, SICAD 2, which yielded an exchange rate significantly higher than the rates established through the other regulated exchange mechanisms. As of March 31, 2014, management determined it was unlikely the Company would be able to convert bolivars under a currency exchange other than SICAD 2 and the Company remeasured its Venezuela balance sheet using the SICAD 2 rate of 50.86 compared to the previous official government rate of 6.30, which resulted in a decrease of $6.1 to the Company’s cash balance and net losses of $12.1 that were recorded within foreign exchange (loss) gain, net in the condensed consolidated statements of operations in the first quarter of 2014. As a result of the currency devaluation, the Company recorded a $4.1 lower of cost or market adjustment related to its service inventory within service cost of sales in the condensed consolidated statements of operations in the first quarter of 2014. On February 10, 2015, the Venezuela government introduced a new foreign currency exchange platform called the Marginal Currency System, or SIMADI, which replaced the SICAD 2 mechanism, yielding another significant increase in the exchange rate. As of March 31, 2015, management determined it was unlikely that the Company would be able to convert bolivars under a currency exchange other than SIMADI and remeasured its Venezuela balance sheet using the SIMADI rate of 192.95 compared to the previous SICAD 2 rate of 50.86, which resulted in a loss of $7.5 recorded within foreign exchange (loss) gain, net in the condensed consolidated statements of operations in the first quarter of 2015.
In the second quarter of 2014, the Company divested Eras for a sale price of $20.0, including installment payments of $1.0 on the first and second year anniversary dates of the closing. This sale resulted in a gain of $13.7 recognized within gain on sale of assets, net in the condensed consolidated statement of operations. Revenue and operating profit in the six months ended June 30, 2014 related to this divested subsidiary was $6.0 and $3.0 are included within the NA segment. Net income before taxes related to this divested subsidiary is included in continuing operations and was $2.1 and $3.0 for the three and six months ended June 30, 2014, respectively.









26

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Results of Operations
The following discussion of the Company’s financial condition and results of operations provides information that will assist in understanding the financial statements and the changes in certain key items in those financial statements. The following discussion should be read in conjunction with the condensed consolidated financial statements and the accompanying notes that appear elsewhere in this Quarterly Report.
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
Dollars
 
% of
Net sales
 
Dollars
 
% of
Net sales
 
Dollars
 
% of
Net sales
 
Dollars
 
% of
Net sales
Net sales
 
$
733.4

 
100.0
 
$
733.5

 
100.0
 
$
1,388.9

 
100.0

 
$
1,421.8

 
100.0

Gross profit
 
$
187.5

 
25.6
 
$
186.8

 
25.5
 
$
362.8

 
26.1

 
$
350.9

 
24.7

Operating expenses
 
$
156.8

 
21.4
 
$
129.6

 
17.7
 
$
328.5

 
23.7

 
$
270.4

 
19.0

Operating profit
 
$
30.7

 
4.2
 
$
57.2

 
7.8
 
$
34.3

 
2.5

 
$
80.5

 
5.7

Net income
 
$
23.9

 
3.3
 
$
43.1

 
5.9
 
$
18.3

 
1.3

 
$
48.0

 
3.4

Net income (loss) attributable to noncontrolling interests
 
$
1.7

 
0.2
 
$
1.5

 
0.2
 
$
(1.1
)
 
(0.1
)
 
$
(3.4
)
 
(0.2
)
Net income attributable to Diebold, Incorporated
 
$
22.2

 
3.0
 
$
41.6

 
5.7
 
$
19.4

 
1.4

 
$
51.4

 
3.6

Three and Six Months Ended June 30, 2015 Comparisons to Three and Six Months Ended June 30, 2014
Net Sales
The following table represents information regarding our net sales:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
Financial self-service
 
$
568.1

 
$
542.9

 
4.6

 
$
1,063.3

 
$
1,009.4

 
5.3

Security
 
163.6

 
153.1

 
6.9

 
313.6

 
295.5

 
6.1

Brazil other
 
1.7

 
37.5

 
(95.5
)
 
12.0

 
116.9

 
(89.7
)
Total revenue
 
$
733.4

 
$
733.5

 

 
$
1,388.9

 
$
1,421.8

 
(2.3
)
FSS sales in the second quarter of 2015 increased $25.2 or 4.6 percent compared to the same period of 2014, including net unfavorable currency impact of $40.8 or 8.5 percent related mainly to the Brazil real and Euro. FSS sales in the first six months of 2015 increased $53.9 or 5.3 percent compared to the same period of 2014, including net unfavorable currency impact of $65.0 or 7.3 percent. The unfavorable currency impact was related mainly to the Brazil real and Euro. The following results include the impact of foreign currency:
NA FSS sales in the three- and six-month periods increased $36.0 and $52.0 or 17.1 and 13.0 percent, respectively, primarily due to higher volume in Canada from a large deposit automation upgrade project that began in the third quarter of 2014. The six months ended June 30, 2015 also benefited from a product revenue improvement between years in the U.S. regional bank space, partially offset by lower product volume within the U.S. national bank business.
Asia Pacific (AP) FSS sales in the three- and six-month periods decreased $11.5 and $9.1 or 9.9 and 4.1 percent, respectively. The decreases in both time periods mainly related to a decline in product revenue stemming from lower volume primarily in China, where the government is encouraging banks to increase their use of domestic ATM suppliers, partially offset by service revenue growth across all countries in the region due in part to higher professional service volume.
EMEA FSS sales in the three- and six-month periods decreased $12.1 and $9.5 or 10.3 and 4.7 percent, respectively. Unfavorable currency impact of $19.7 and $34.0 adversely impacted the three- and six-month periods, respectively, coupled with a revenue decline in Western Europe, partially offset by higher volume in the Middle East. The benefit of

27

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

the Cryptera A/S (Cryptera) acquisition was $4.8 and $8.6 for the three- and six-month periods, respectively. In addition, the six months ended June 30, 2015 benefited from an improvement in South Africa driven by higher volume.
LA FSS sales in the three- and six-month periods increased $12.8 and $20.5 or 13.0 and 11.0 percent, respectively. Both time periods increased from higher product revenue in several countries, resulting in part from customers replacing their existing install base. Conversely, the three- and six-month periods were adversely influenced by unfavorable currency impact of $17.7 and $25.2 in Brazil, respectively, and the six months ended June 30, 2015 was negatively impacted by lower service revenue in Venezuela as a result of the currency devaluation in the first quarter of 2015 and the subsequent sale of the Company’s equity interest in the joint venture.
Security sales increased in the three- and six-month periods due to growth in the electronic security business, which was partially offset by a slight decline in the physical security business. NA accounted for the majority of the security revenue improvement in the three- and six-month periods as the region increased $9.4 and $16.0 or 6.9 and 6.1 percent, respectively.
Brazil other sales decreased in the three- and six-month periods due to deliveries of information technology (IT) equipment to a Brazil education ministry in the prior year and unfavorable currency impact of $10.4 and $25.1, respectively. Additionally, market-specific economic and political factors continue to weigh on the purchasing environment driving lower volume in country.
Incremental net sales from acquisitions were $12.5 and $21.1 for the three- and six-month periods of 2015, respectively.
Gross Profit
The following table represents information regarding our gross profit:
 
 
Three Months Ended

Six Months Ended
 
 
June 30,

June 30,
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
Gross profit - services
 
$
129.3

 
$
126.2

 
2.5

 
$
250.4

 
$
234.3

 
6.9

Gross profit - products
 
58.2

 
60.6

 
(4.0
)
 
112.4

 
116.6

 
(3.6
)
Total gross profit
 
$
187.5

 
$
186.8

 
0.4

 
$
362.8

 
$
350.9

 
3.4

 
 
 
 
 
 
 
 
 
 
 
 
 
Gross margin – services
 
31.5
%
 
30.8
%
 
 
 
31.1
%
 
29.5
%
 
 
Gross margin – products
 
18.0
%
 
18.7
%
 

 
19.2
%
 
18.5
%
 
 
Total gross margin
 
25.6
%
 
25.5
%
 
 
 
26.1
%
 
24.7
%
 
 
The increases in service gross margin for the three- and six-month periods were mainly driven by higher net margin among the international regions, with the largest margin improvements occurring in AP and LA. AP service gross margin increased in part due to favorable service solution mix. LA service gross margin in the six-month period increased principally due to a lower of cost or market adjustment of $4.1 in the first quarter of 2014 as a result of the Venezuela currency devaluation. Service gross profit included restructuring charges of $1.2 and $0.1 in the three months ended June 30, 2015 and 2014, respectively, and $1.2 and $0.8 in the six months ended June 30, 2015 and 2014, respectively.
The decrease in product gross margin for the three month period compared to the same period in 2014 was mainly due to higher total restructuring charges. Product gross margin increased in the six months ended June 30, 2015 primarily as a result of geographic mix. Product gross profit included total restructuring charges and non-routine expenses of $1.3 and $0.1 in the three and six months ended June 30, 2015 and 2014, respectively.
Incremental gross profit from acquisitions were $5.8 and $9.9 for the three- and six-month periods of 2015, respectively.

28

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Operating Expenses
The following table represents information regarding our operating expenses:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015

2014
 
% Change
 
2015
 
2014
 
% Change
Selling and administrative expense
 
$
135.0

 
$
121.0

 
11.6
 
$
264.9

 
$
241.3

 
9.8
Research, development and engineering expense
 
23.9

 
21.7

 
10.1
 
46.2

 
41.7

 
10.8
Impairment of assets
 
(0.5
)
 

 
 
18.9

 

 
Gain on sale of assets, net
 
(1.6
)
 
(13.1
)
 
87.8
 
(1.5
)
 
(12.6
)
 
88.1
Total operating expenses
 
$
156.8

 
$
129.6

 
21.0
 
$
328.5

 
$
270.4

 
21.5
The increase in selling and administrative expense in the three- and six-month periods of 2015 compared to the same periods of 2014 resulted primarily from higher total non-routine expenses and restructuring charges as well as higher spend resulting from reinvestment of the Company’s savings into transformation initiatives, partially offset by favorable currency impact. Selling and administrative expense included non-routine expenses of $4.9 and $1.6 in the three months ended June 30, 2015 and 2014, respectively, and $9.5 and $2.6 in the six months ended June 30, 2015 and 2014, respectively. The primary component of the non-routine expenses in both years pertained to legal, indemnification and professional fees related to the corporate monitor. Selling and administrative expense included restructuring charges of $4.7 and $0.5 in the three months ended June 30, 2015 and 2014, respectively, and $7.2 and $4.9 in the six months ended June 30, 2015 and 2014, respectively, which consisted primarily of severance costs related to the Company's transformation and business process outsourcing initiative. The impact from acquisitions for the three- and six-month periods of 2015 was $5.3 and $7.1, respectively.
Research, development and engineering expense as a percent of net sales was 3.3 percent in both the three and six months ended June 30, 2015 compared to 3.0 and 2.9 percent for the three and six months ended June 30, 2014, respectively. The spend increase in the second quarter of 2015 in relation to the prior year comparable period was due to increased staffing expense and incremental expense associated with the Cryptera and Phoenix acquisitions. These same factors were the main drivers to the spend increase in the six-month period of 2015 as well as restructuring charges of $0.6 in the first quarter of 2015. The impact from acquisitions for the three- and six-month periods of 2015 was $1.3 and $2.1, respectively.
As of March 31, 2015, the Company agreed to sell its equity interest in its Venezuela joint venture to its joint venture partner and recorded a $10.3 impairment of assets in the first quarter of 2015. On April 29, 2015, the Company closed the sale for the estimated fair market value and recorded a $1.0 reversal of impairment of assets based on final adjustments in the second quarter of 2015, resulting in a $9.3 impairment of assets for the six months ended June 30, 2015. The Company no longer has a consolidating entity in Venezuela but will continue to operate in Venezuela on an indirect basis. Additionally, the Company recorded an impairment related to other intangibles in LA in the second quarter of 2015 and an impairment of $9.1 related to redundant legacy Diebold internally-developed software as a result of the acquisition of Phoenix in the first quarter of 2015.
The gain on sale of assets in the three and six months ended June 30, 2015 was primarily due to the sale of a building in NA. During the second quarter of 2014, the Company divested its Eras, resulting in a gain on sale of assets of $13.7.
Operating Profit
The following table represents information regarding our operating profit:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015

2014
 
% Change
 
2015
 
2014
 
% Change
Operating profit
 
$
30.7

 
$
57.2

 
(46.3
)
 
$
34.3

 
$
80.5

 
(57.4
)
Operating profit margin
 
4.2
%
 
7.8
%
 
 
 
2.5
%
 
5.7
%
 
 
The decrease in operating profit for the three- and six-month periods of 2015 compared to the same periods in 2014 was mainly due to higher net non-routine and restructuring charges, inclusive of impairment of assets, principally within operating expenses. In addition, we have reinvested global savings from our transformation strategies primarily in dollar-denominated infrastructure. These were partially offset by an improvement in service gross margin.

29

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Other Income (Expense)
The following table represents information regarding our other income (expense):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015

2014
 
% Change
 
2015
 
2014
 
% Change
Investment income
 
$
6.8

 
$
10.0

 
(32.0
)
 
$
14.7

 
$
18.7

 
(21.4
)
Interest expense
 
(7.6
)
 
(7.9
)
 
3.8

 
(15.6
)
 
(14.8
)
 
(5.4
)
Foreign exchange (loss) gain, net
 
(1.2
)
 
0.6

 

 
(10.5
)
 
(11.4
)
 
7.9

Miscellaneous, net
 
0.8

 
1.3

 
(38.5
)
 
(0.4
)
 
(0.1
)
 

Other (expense) income, net
 
$
(1.2
)
 
$
4.0

 

 
$
(11.8
)
 
$
(7.6
)
 
(55.3
)
The decrease in investment income in both the three- and six-month periods of 2015, compared with the same periods in 2014, was driven primarily by unfavorable currency impact in Brazil. The foreign exchange loss, net for the first six months of 2015 and 2014 included $7.5 and $12.1, respectively, related to the devaluation of the Venezuela currency.
Net Income
The following table represents information regarding our net income:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015

2014
 
% Change
 
2015
 
2014
 
% Change
Net income
 
$
23.9

 
$
43.1

 
(44.5
)
 
$
18.3

 
$
48.0

 
(61.9
)
Percent of net sales
 
3.3
%
 
5.9
%
 
 
 
1.3
%
 
3.4
%
 

Effective tax rate
 
19.0
%
 
29.6
%
 
 
 
18.7
%
 
34.2
%
 
 
The tax rate for the three and six months ended June 30, 2015 benefited from a release of an uncertain tax position due to the expiration of the statute of limitations. Additionally, the tax rate for the six months ended June 30, 2015 benefited from the release of a valuation allowance in AP and discrete tax items resulting from the sale of Venezuela (refer to note 1 to the condensed consolidated financial statements) recorded primarily in the first quarter. The tax rate for the three months and six months ended June 30, 2014 reflected the release of valuation allowance against excess capital losses utilized. Additionally, the tax rate for the six months ended June 30, 2014 was negatively impacted by discrete tax expense on the repatriation of certain foreign earnings recorded in the first quarter of 2014.
Segment Revenue and Operating Profit Summary
The following tables represent information regarding our revenue and operating profit by reporting segment:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
North America
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
Revenue
 
$
391.4

 
$
346.0

 
13.1
 
$
731.3

 
$
663.5

 
10.2
Segment operating profit
 
$
73.7

 
$
72.1

 
2.2
 
$
141.4

 
$
131.5

 
7.5
Segment operating profit margin
 
18.8
%
 
20.8
%
 
 
 
19.3
%

19.8
%
 
 
NA revenue increased in the three- and six-month periods of 2015 compared to the same periods in 2014 primarily due to higher volume in Canada from a large deposit automation upgrade project which began in the third quarter of 2014 as well as continued growth in the electronic security business. The first six months of 2015 also benefited from higher product revenue in the regional FSS business, offset in part by a decline in national FSS product revenue from lower volume. Operating profit increased in both time periods due to the overall revenue growth, partially offset by a decline in total gross margin percentage tied to a mix of higher product sales.

30

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Asia Pacific
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
Revenue
 
$
109.4

 
$
119.4

 
(8.4
)
 
$
219.9

 
$
226.5

 
(2.9
)
Segment operating profit
 
$
14.3

 
$
13.3

 
7.5

 
$
32.5

 
$
30.1

 
8.0

Segment operating profit margin
 
13.1
%
 
11.1
%
 
 
 
14.8
%
 
13.3
%
 
 
AP revenue in the three- and six-month periods of 2015 decreased from the comparable periods in the prior year as a result of a decline in product revenue stemming from lower volume particularly in China, where the government is encouraging banks to increase their use of domestic ATM suppliers. The product revenue decrease was partially offset by higher service revenue from growth in all other countries within the segment, with a main driver being increased professional service activity. Operating profit in the three- and six-months ended June 30, 2015 compared to the same periods of 2014 increased from a combination of higher service revenue and improved service margin performance, partially offset by higher operating expense and lower product volume.
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Europe, Middle East and Africa
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
Revenue
 
$
106.1

 
$
118.4

 
(10.4
)
 
$
192.9

 
$
202.5

 
(4.7
)
Segment operating profit
 
$
14.1

 
$
22.0

 
(35.9
)
 
$
26.5

 
$
33.2

 
(20.2
)
Segment operating profit margin
 
13.3
%
 
18.6
%
 
 
 
13.7
%
 
16.4
%
 
 
EMEA revenue in the three- and six-month periods of 2015 decreased due to unfavorable currency impact and lower revenue in Western Europe, partially offset by higher volume in the Middle East and the benefit of the Cryptera acquisition. Additionally, the six months ended June 30, 2015 benefited from an improvement in South Africa driven by higher volume. Operating profit declined between years in both time periods mainly due to the aforementioned unfavorable currency impact in addition to mix of revenue across the region.
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Latin America
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
Revenue
 
$
126.5

 
$
149.7

 
(15.5
)
 
$
244.8

 
$
329.3

 
(25.7
)
Segment operating profit
 
$
13.2

 
$
8.7

 
51.7

 
$
16.3

 
$
20.2

 
(19.3
)
Segment operating profit margin
 
10.4
%
 
5.8
%
 
 
 
6.7
%
 
6.1
%
 
 
LA revenue decreased in the three- and six-month periods of 2015 compared to the same periods of 2014 due to unfavorable currency impact of $29.3 and $52.2, respectively, deliveries of IT equipment to a Brazil education ministry in the prior year and market-specific economic and political factors on the purchasing environment driving lower volume in country. These declines were partially offset by FSS revenue growth across most countries.
Operating profit in the three-month period of 2015 compared to the same period of 2014 increased from higher product margin resulting mainly from favorable country revenue mix, improved service margin performance and lower operating expense due to favorable currency impact, partially offset by a decline in total revenue. Operating profit in the six-month period of 2015 were consistent with the same period in 2014, excluding the additional benefit of a lower of cost or market adjustment of $4.1 in the first quarter of 2014 as a result of the Venezuela currency devaluation.
Refer to note 18 to the condensed consolidated financial statements for further details of segment revenue and operating profit.

31

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Liquidity and Capital Resources
The Company's total cash and cash availability as of June 30, 2015 and December 31, 2014 was as follows:
 
 
June 30,
2015
 
December 31,
2014
Cash and cash equivalents
 
$
244.4

 
$
322.0

Additional cash availability from
 
 
 
 
Short-term uncommitted lines of credit
 
97.0

 
115.2

Revolving credit facility
 
343.0

 
280.0

Short-term investments
 
119.5

 
136.7

Total cash and cash availability
 
$
803.9

 
$
853.9

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. For $175.0 of the Company's senior notes maturing in March 2016, management intends to fund the repayment through its revolving credit facility. 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 any repurchases of the Company’s common shares for at least the next 12 months. As of June 30, 2015, $333.1 or 91.5 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 payments for foreign and domestic taxes. The Company has $140.1 that is available for repatriation with no additional tax expense as the Company has already provided for such taxes. Part of the Company’s growth strategy is to pursue strategic acquisitions. The Company has made acquisitions in the past and intends to make acquisitions in the future. The Company intends to finance any future acquisitions with either cash and short-term investments, cash provided from operations, borrowings under available credit facilities, proceeds from debt or equity offerings and/or the issuance of common shares.
The following table summarizes the results of our condensed consolidated statement of cash flows for the six months ended June 30:
Net cash flow (used in) provided by:
 
2015
 
2014
Operating activities
 
$
(99.2
)
 
$
(91.8
)
Investing activities
 
(83.2
)
 
92.3

Financing activities
 
122.6

 
2.8

Effect of exchange rate changes on cash and cash equivalents
 
(17.8
)
 
(11.1
)
Net decrease in cash and cash equivalents
 
$
(77.6
)
 
$
(7.8
)
Net cash used in operating activities was $99.2 for the six months ended June 30, 2015, an increase of $7.4 from $91.8 for the same period in 2014. Cash flows from operating activities are generated primarily from net income and increases in the non-cash components of working capital. Cash flows from operating activities during six months ended June 30, 2015, compared to the same period of 2014, were unfavorably impacted primarily by increases in trade receivables and prepaid income taxes expenses and the decreases in deferred revenue, accrued salaries, wages and commissions, accounts payable and certain other assets and liabilities. These changes related primarily to timing of payments received from customers, the timing of our billing and revenue cycle and installations for our customers. The unfavorable changes were partially offset by the changes in inventory, deferred income tax and finance lease and notes receivables primarily due to the timing of payments and an improvement in timing related to the inventory cycle and the timing of shipments compared to the prior-year period. The cash flow impact associated with deferred revenue largely represents prepayments received on service contracts and product sales, which is lower than the same period in 2014 due to the timing of the billing and revenue cycle resulting in an unfavorable impact in 2015. Cash flows from finance lease and notes receivables improved by $89.7 and deferred income tax by $22.9 compared to the same period of 2014. Finance lease receivables decreased in the six months ended June 30, 2015 due to recurring customer payments for financing arrangements primarily in LA.
Net cash used in investing activities was $83.2 for the six months ended June 30, 2015 compared to net cash provided by investing activities of $92.3 for the same period in 2014. The $175.5 change was primarily related to a decrease in proceeds from investing activities related to investments, the acquisition of Phoenix in March 2015 for a cash payment of $59.4, less cash acquired, and a decrease in the proceeds from the sale of assets. In 2015, the proceeds from the sale of assets of $5.5 were primarily due to the sale of a building in NA and a deferred payment for the sale of Eras. In 2014, the proceeds from the sale of assets of $17.6 were primarily due to the sale of Eras.

32

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Net cash provided by financing activities was $122.6 for the six months ended June 30, 2015 compared to net cash provided by financing activities of $2.8 for the same period in 2014. The change was primarily due to a $130.7 increase in debt borrowings, net of repayments, year over year offset by a decrease of $11.4 in issuances of common shares related to share-based compensation activity. The increase in debt borrowings was used to fund working capital and the acquisition of Phoenix.
Effect of exchange rate changes on cash and cash equivalents was negatively impacted by $9.5 and $6.1 related to the currency devaluation in Venezuela for the six months ended June 30, 2015 and 2014, respectively.
As of June 30, 2015, the Company had various international short-term uncommitted lines of credit with borrowing limits of $119.8. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of June 30, 2015 and December 31, 2014 was 6.38 percent and 2.96 percent, respectively. The increase in the weighted-average interest rate is attributable to the change in mix of borrowings in foreign entities. Short-term uncommitted lines of credit mature in less than one year. The amount available under the short-term uncommitted lines of credit at June 30, 2015 was $97.0.
In June 2015, the Company entered into a Second Amendment to the Credit Agreement (Second Amendment), which provides for a term loan in the aggregate principal amount of $230.0 with escalating quarterly principal payments and a balloon payment due upon maturity in August 31, 2019. The weighted-average interest rate on the term loan as of June 30, 2015 was 1.94 percent, which is variable based on the London Interbank Offered Rate (LIBOR). The Second Amendment replaced the net debt to net capitalization financial covenant with a net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) financial covenant and, accordingly, modified the facility fee and interest rate pricing schedules. The Credit Agreement continues to provide a revolving credit facility with availability of up to $520.0. The Company has the ability, subject to various approvals, to increase the borrowing limits by $250.0. In August 2014, the Company entered into the First Amendment to the Credit Agreement and Guaranty (First Amendment), which increased its borrowing limits under the revolving credit facility from $500.0 to $520.0. The First Amendment also extended the maturity date of the revolving credit facility to August 2019. Up to $50.0 of the revolving credit facility is available under a swing line sub-facility. The weighted-average interest rate on outstanding revolving credit facility borrowings as of June 30, 2015 and December 31, 2014 was 1.64 percent and 1.69 percent, respectively, which is variable based on the LIBOR. The amount available under the revolving credit facility as of June 30, 2015 was $343.0. The Company incurred $0.7 of fees related to the Second Amendment in June 2015, which are amortized as a component of interest expense over the term of the facility. The Company incurred $1.4 of fees related to the First Amendment in the third quarter of 2014, which are amortized as a component of interest expense over the term of the Credit Agreement.
In March 2006, the Company issued senior notes in an aggregate principal amount of $300.0 with a weighted-average fixed interest rate of 5.50 percent. The Company entered into a derivative transaction to hedge interest rate risk on $200.0 of the senior notes, which was treated as a cash flow hedge. This reduced the effective interest rate from 5.50 percent to 5.36 percent. The Company funded the repayment of $75.0 of the senior notes at maturity in March 2013 using borrowings under its revolving credit facility. The maturity dates of the remaining senior notes are staggered, with $175.0 and $50.0 due in March 2016 and 2018, respectively. For the $175.0 of the Company's senior notes maturing in March 2016, management intends to fund the repayment through the revolving credit facility.
In 1997, industrial development revenue bonds were issued on behalf of the Company. The proceeds from the bond issuances were used to construct new manufacturing facilities in the United States. The Company guaranteed the payments of principal and interest on the bonds by obtaining letters of credit. The bonds were issued with a 20-year original term and are scheduled to mature in 2017. Each industrial development revenue bond carries a variable interest rate, which is reset weekly by the remarketing agents. The weighted-average interest rate on the bonds was 0.25 percent and 0.27 percent as of June 30, 2015 and December 31, 2014, respectively.
The Company’s financing agreements contain various restrictive financial covenants, including net debt to capitalization, net debt to EBITDA and net interest coverage ratios. As of June 30, 2015, the Company was in compliance with the financial and other covenants in its debt agreements.
Dividends The Company paid dividends of $37.8 and $37.4 in the six months ended June 30, 2015 and 2014, respectively. Quarterly dividends were $0.2875 per share for both periods.
Contractual Obligations In the first six months of 2015, the Company entered into purchase commitments due within one year for materials through contract manufacturing agreements for a total negotiated price. As of June 30, 2015, these additional contracts have remaining balances of $12.3.
Except for the contract manufacturing agreements noted above, all contractual cash obligations with initial and remaining terms in excess of one year and contingent liabilities remained generally unchanged at June 30, 2015 compared to December 31, 2014.

33

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Off-Balance Sheet Arrangements The Company enters into various arrangements not recognized in the condensed consolidated balance sheets that have or could have an effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources. The principal off-balance sheet arrangements that the Company enters into are guarantees, operating leases 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 13 to the condensed 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 condensed consolidated balance sheets and recording gains and losses in the condensed consolidated statements of income.
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 condensed consolidated financial statements. The preparation of these financial statements requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include revenue recognition, the valuation of trade, finance lease receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, guarantee obligations and assumptions used in the calculation of income taxes, pension and post-retirement benefits and customer incentives, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors the economic conditions and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.
Management believes there have been no significant changes during the six months ended June 30, 2015 to the items that the Company disclosed as its critical accounting policies and estimates in management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Forward-Looking Statement Disclosure
In this Quarterly Report on Form 10-Q, 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, and 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” and similar expressions is intended to identify forward-looking statements that have been made and may in the future be made by or on behalf of the Company. Although the Company believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, the economy, its knowledge of its business, and on key performance indicators that impact the Company, these forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed in or implied by the forward-looking statements. The Company is not obligated to update forward-looking statements, whether as a result of new information, future events or otherwise.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to:
competitive pressures, including pricing pressures and technological developments;
changes in the Company's relationships with customers, suppliers, distributors and/or partners in its business ventures;
changes in political, economic or other factors such as currency exchange rates, inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting the worldwide business in each of the Company's operations;
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;

34

Management's Discussion and Analysis of
Financial Conditions and Results of Operations as of June 30, 2015
DIEBOLD, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

the Company’s ability to maintain effective internal controls;
changes in the Company’s intention to further repatriate cash and cash equivalents and short-term investments residing in international tax jurisdictions could negatively impact foreign and domestic taxes;
unanticipated litigation, claims or assessments, as well as the outcome/impact of any current/pending litigation, claims or assessments, including but not limited to, the Company's Brazil tax dispute;
variations in consumer demand for FSS 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 healthcare costs, including those that may result from government action;
the amount and timing of repurchases of the Company’s common shares, if any; and
the Company's ability to achieve benefits from its cost-reduction initiatives and other strategic changes, including its multi-year transformation plan and other restructuring actions, as well as its business process outsourcing initiative.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2015, the Company agreed to sell its equity interest in its Venezuela joint venture to its joint venture partner and recorded a $10.3 impairment of assets in the first quarter of 2015. On April 29, 2015, the Company closed the sale for the estimated fair market value and recorded a $1.0 reversal of impairment of assets based on final adjustments in the second quarter of 2015, resulting in a $9.3 impairment of assets for the six months ended June 30, 2015. The Company no longer has a consolidating entity in Venezuela but will continue to operate in Venezuela on an indirect basis.
Prior to the sale, the Company's Venezuela operations consisted of a fifty-percent owned subsidiary, which was consolidated. Venezuela was measured using the U.S. dollar as its functional currency because its economy is considered highly inflationary. On March 24, 2014, the Venezuela government announced a currency exchange mechanism, SICAD 2, which yielded an exchange rate significantly higher than the rates established through the other regulated exchange mechanisms. As of March 31, 2014, management determined it was unlikely the Company would be able to convert bolivars under a currency exchange other than SICAD 2 and the Company remeasured its Venezuela balance sheet using the SICAD 2 rate of 50.86 compared to the previous official government rate of 6.30, which resulted in a decrease of $6.1 to the Company’s cash balance and net losses of $12.1 that were recorded within foreign exchange (loss) gain, net in the condensed consolidated statements of operations in the first quarter of 2014. As a result of the currency devaluation, the Company recorded a $4.1 lower of cost or market adjustment related to its service inventory within service cost of sales in the condensed consolidated statements of operations in the first quarter of 2014. On February 10, 2015, the Venezuela government introduced a new foreign currency exchange platform called the Marginal Currency System, or SIMADI, which replaced the SICAD 2 mechanism, yielding another significant increase in the exchange rate. As of March 31, 2015, management determined it was unlikely that the Company would be able to convert bolivars under a currency exchange other than SIMADI and remeasured its Venezuela balance sheet using the SIMADI rate of 192.95 compared to the previous SICAD 2 rate of 50.86, which resulted in a loss of $7.5 recorded within foreign exchange (loss) gain, net in the condensed consolidated statements of operations in the first quarter of 2015.
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Except for the currency devaluation noted above, there have been no material changes in this information since December 31, 2014.

35

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
(dollars in millions, except per share amounts)

Item 4: Controls and Procedures
This Quarterly Report includes the certifications of our chief executive officer (CEO) and chief financial officer (CFO) required by Rule 13a-14 of the Exchange Act of 1934 (the Exchange Act). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.
Based on the performance of procedures by management, designed to ensure the reliability of financial reporting, management believes that the unaudited condensed consolidated financial statements fairly present, in all material respects, the Company's financial position, results of operations and cash flows as of the dates, and for the periods presented (refer to note 1 to the condensed consolidated financial statements).
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission'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 Quarterly Report, 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 June 30, 2015.
During the quarter ended June 30, 2015, there were no changes to the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

36

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015
(dollars in millions, except per share amounts)

Part II – Other Information
Item 1: Legal Proceedings
At June 30, 2015, the Company was a party to several lawsuits as well as several routine indirect tax claims from various taxing authorities globally that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company's financial position or results of operations. In addition, the Company has indemnification obligations with certain former employees and costs associated with these indemnifications are expensed as incurred. In management's opinion, the Company's condensed consolidated financial statements would not be materially affected by the outcome of those legal proceedings, commitments or asserted claims.
For more information regarding legal proceedings, please refer to Part I, Item 3 of the Company's Annual Report on Form 10-K for the year ended December 31, 2014. There have been no material developments with respect to the legal proceedings reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.
Item 1A: Risk Factors
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. There has been no material change to this information since December 31, 2014.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Information concerning the Company’s share repurchases made during the second quarter of 2015:
Period
 
Total Number of
Shares
Purchased (1)
 
Average Price
Paid Per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans (2)
 
Maximum Number
of Shares that
May Yet Be
Purchased Under
the Plans (2)
April
 
435

 
$
35.45

 

 
2,426,177

May
 
5,530

 
$
33.26

 

 
2,426,177

June
 
1,261

 
$
33.53

 

 
2,426,177

Total
 
7,226

 
$
33.44

 

 
 
(1)
All shares were surrendered or deemed surrendered to the Company in connection with the Company’s share-based compensation plans.
(2)
The total number of shares repurchased as part of the publicly announced share repurchase plan since its inception was 13,450,772 as of June 30, 2015. The plan was approved by the Board of Directors in 1997. The Company may purchase shares from time to time in open market purchases or privately negotiated transactions. The Company may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans. The plan has no expiration date. The following table provides a summary of Board of Directors approvals to repurchase the Company’s outstanding common shares:
 
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

2012
2,000,000

 
15,876,949

Item 3: Defaults Upon Senior Securities
None.
Item 4: Mine Safety Disclosures
Not applicable.

37

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015

Item 5: Other Information
Change In Control Agreements
On July 24, 2015, the Company entered into change in control agreements (the Employee Agreements) with named executive officers Christopher A. Chapman, Stefan Merz and Sheila M. Rutt. These Employee Agreements replace prior agreements with Mr. Chapman and Ms. Rutt and provide change in control benefits consistent with customary governance and compensation practices, including the elimination of the excise tax gross-up provisions.
The benefits available under the Employee Agreements are subject to a “double trigger,” so that benefits are only paid following both (i) a Change in Control (as defined in the Employee Agreements) and (ii) a termination of the executive’s employment without Cause by the Company or for Good Reason by the executive (as those terms are defined in the Employee Agreements) in the three-year period following a Change in Control.
The Employee Agreements include the following items:
A Change in Control definition that is the same as the Change in Control definition in the Company’s shareholder-approved Amended and Restated 1991 Equity and Performance Incentive Plan, its equity award agreements, and the Amended and Restated Executive Employment Agreement with its Chief Executive Officer, discussed below;
A lump sum payment equal to two times base salary and target cash bonus;
Two years of continued participation in the Company’s health and welfare benefit plans;
A lump sum payment in an amount equal to the additional benefits the executive would have accrued under each qualified or nonqualified pension, profit sharing, deferred compensation or supplemental plan for one additional year of service, provided the executive was fully vested prior to termination;
A one-year post-termination noncompete and nonsolicit period;
An initial term of two years (through July 24, 2017), with automatic one-year extensions each January unless either party provides three months’ notice that the agreement should not extend;
An automatic three-year extension following a Change in Control; and
A “best results” provision in connection with any excise taxes imposed following a termination.
The form of Employee Agreement is filed as Exhibit 10.1 to this Quarterly Report.
Mattes Employment Agreement Amendment
The Company entered into an Amended and Restated Executive Employment Agreement (the Mattes Agreement) with Andreas (Andy) W. Mattes, its President and Chief Executive Officer, on July 24, 2015. The purpose of the revisions in the Mattes Agreement was to align the Change in Control definition and the Cause definition that applies in the two-year period following a Change in Control as stated in the Mattes Agreement with the definitions used in the Employee Agreements discussed above.
In addition, the updates in the Mattes Agreement also provide for:
A two-year term (through July 24, 2017), with automatic one-year renewals unless either party provides at least six months’ notice that that agreement should not renew;
“Termination without Cause” benefits if the Company does not renew the Mattes Agreement and Mr. Mattes’ employment does not continue;
An extension of the exercise period for stock options and stock appreciation rights following termination from three months to twelve months, consistent with the Senior Leadership Severance Plan amendment discussed below;
Payment of reasonable attorney’s fees in connection with the review of the Mattes Agreement; and
A “best results” provision in connection with any excise taxes imposed following a termination, consistent with the Employee Agreements discussed above.
The Mattes Agreement is filed as Exhibit 10.2 to this Quarterly Report.

38

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015

Senior Leadership Severance Plan Amendment
Effective July 24, 2015, the Company also amended and restated its Senior Leadership Severance Plan (as amended and restated, the Severance Plan). The Severance Plan provides severance benefits to executives who are involuntarily terminated other than for Cause or upon certain constructive terminations, in each case not in connection with a change in control. The amendment to the Severance Plan extends the period stock options and stock appreciation rights shall remain exercisable following the date of termination from three months to twelve months. The time period will also be extended for each business day that the executive is restricted from exercising rights under any such awards due to a Company-instituted blackout period.
The Severance Plan is filed as Exhibit 10.3 to this Quarterly Report.
Amendment to Deferred Compensation Plan No. 2 for Directors
On July 24, 2015, the Company also approved an amendment to its Deferred Compensation Plan No. 2 for Directors. The purpose of this amendment was to align the Change in Control definition with the definitions used in the Employee Agreements and Mattes Agreement discussed above. The amendment and updated definition are effective for fees deferred pursuant to election agreements entered into after July 24, 2015 and the related participant accounts.
The amendment to the Deferred Compensation Plan No. 2 for Directors is filed as Exhibit 10.4 to this Quarterly Report. The previously filed plan amended by this amendment is listed at Exhibit 10.5.
Executive Departure
The Company also announced the departure of George S. Mayes, Jr., former Executive Vice President and Chief Operating Officer, effective July 24, 2015. The Company offered a separation agreement to Mr. Mayes that provides for benefits in accordance with the Severance Plan.



39

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015

Item 6: 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 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 Employee Agreement
 
 
 
10.2
 
Amended and Restated Executive Employment Agreement, dated as of July 30, 2015, by and between Diebold, Incorporated and Andreas W. Mattes
 
 
 
10.3
 
Amended and Restated Senior Leadership Severance Plan
 
 
 
10.4
 
First Amendment to Deferred Compensation Plan
 
 
 
10.5
 
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)
 
 
 
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


 

40

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015

SIGNATURES
Pursuant to the requirements 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: July 30, 2015
 
By:
/s/ Andreas W. Mattes
 
 
 
Andreas W. Mattes
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Date: July 30, 2015
 
By:
/s/ Christopher A. Chapman
 
 
 
Christopher A. Chapman
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
(Principal Financial Officer)
 
 
 
 


41

DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2015


EXHIBIT INDEX
 
EXHIBIT NO.
 
DOCUMENT DESCRIPTION
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 Employee Agreement
 
 
 
10.2
 
Amended and Restated Executive Employment Agreement, dated as of July 30, 2015, by and between Diebold, Incorporated and Andreas W. Mattes
 
 
 
10.3
 
Amended and Restated Senior Leadership Severance Plan
 
 
 
10.4
 
First Amendment to Deferred Compensation Plan
 
 
 
10.5
 
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)
 
 
 
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


42














EMPLOYEE AGREEMENT
This EMPLOYEE AGREEMENT (“Agreement”), dated as of [ENTER DATE], by and between DIEBOLD, INCORPORATED, an Ohio corporation (the “Company”), and [ENTER NAME] (the “Employee”).
WHEREAS, the Company develops, manufactures, sells, installs, operates, and monitors various products, systems, and services, including software solutions;
WHEREAS, the Company wishes to employ the Employee or, if the Employee is already employed by the Company, the Company wishes to continue to employ the Employee;
WHEREAS, the Company desires to set forth the general terms of the Employee’s employment with the Company;
WHEREAS, the Employee is a key employee who is expected to make, or continue to make, major contributions to the profitability, growth and financial strength of the Company and its Subsidiaries (as that term is hereafter defined);
WHEREAS, the Company recognizes that, as is the case for most publicly held companies, the possibility of a Change in Control (as that term is hereafter defined) exists;
WHEREAS, the Company desires to assure itself and its Subsidiaries of both present and future continuity of management in the event of a Change in Control and desires to establish certain minimum compensation rights for key employees, including the Employee, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that key employees are not practically disabled from discharging their duties upon a Change in Control; and
WHEREAS, the Employee is willing to render services on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, the Company and the Employee agree as follows.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1.
Certain Definitions. For the purposes of this Agreement, the following terms shall have the respective meanings set forth below:
(a)
Board” means the board of directors of the Company.

(b)
Cause” means that, prior to any termination pursuant to Section 5(b) hereof for “Cause”, the Employee shall have committed:

(1)
an intentional act of fraud, embezzlement or theft in connection with his or her duties or in the course of his or her employment with the Company or any Subsidiary;

(2)
intentional wrongful damage to property of the Company or any Subsidiary;

(3)
intentional wrongful disclosure of secret processes or confidential information of the Company or any Subsidiary; or

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(4)
intentional wrongful engagement in any competitive activity which would constitute a material breach of the duty of loyalty (“Competitive Activity”);
and any such act shall have been materially harmful to the Company and its Subsidiaries taken as a whole. For purposes of this Agreement, no act, or failure to act, on the part of the Employee shall be deemed “intentional” if it was due primarily to an error in judgment or negligence, but shall be deemed “intentional” only if done, or omitted to be done, by the Employee not in good faith and without reasonable belief that his or her action or omission was in or not opposed to the best interest of the Company and its Subsidiaries.
Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for “Cause” hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with his or her counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Employee had committed an act set forth above in this Section 1(b) and specifying the particulars thereof in detail. Nothing herein shall limit the right of the Employee or his or her beneficiaries to contest the validity or propriety of any such determination.
(c)
Change in Control” means the occurrence of any of the following during the Term:

(1)
the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either: (A) the then-outstanding shares of common stock of the Company (the “Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (“Voting Stock”); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (3) below; or

(2)
individuals who, as of the date hereof, constitute the Board (as modified by this subsection (2), the “Incumbent Board”), cease for any reason (other than death or disability) to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(3)
consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Company Common Stock and Voting Stock immediately prior to such Business Combination

2




















beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Company Common Stock and Voting Stock of the Company, as the case may be, (B) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) sponsored or maintained by the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then-outstanding shares of common stock of the entity resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board providing for such Business Combination; or

(4)
approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
A “Change in Control” will be deemed to occur (i) with respect to a Change in Control pursuant to subsection (1) above, on the date that any Person becomes the beneficial owner of thirty percent (30%) or more of either the Company Common Stock or the Voting Stock, (ii) with respect to a Change in Control pursuant to subsection (2) above, on the date the members of the Incumbent Board first cease for any reason (other than death or disability) to constitute at least a majority of the Board, (iii) with respect to a Change in Control pursuant to subsection (3) above, on the date the applicable transaction closes and (iv) with respect to a Change in Control pursuant to subsection (4) above, on the date of the shareholder approval. Notwithstanding the foregoing provisions, a “Change in Control” shall not be deemed to have occurred for purposes of this Agreement solely because of a change in control of any Subsidiary by which the Employee may be employed.
(d)
Date of Termination” means the date on which the Employee incurs a “separation from service,” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (“Code”), with the Company and its Subsidiaries.

(e)
Disabled” means the Employee has become permanently disabled within the meaning of, and begins actually to receive disability benefits pursuant to, the long-term disability plan in effect immediately prior to the Change in Control for key employees of the Company and its Subsidiaries.

(f)
Good Reason” means:

(1)
failure to elect, reelect or otherwise maintain the Employee in the offices or positions in the Company or any Subsidiary which the Employee held immediately prior to a Change in Control, or the removal of the Employee as a director of the Company (or any successor thereto) if the Employee shall have been a director of the Company immediately prior to the Change in Control;

(2)
a material reduction in the nature or scope of the responsibilities or duties attached to the position or positions with the Company and its Subsidiaries which the Employee held immediately prior to the Change in Control, a material reduction in the aggregate of the

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Employee’s Base Pay (as that term is hereafter defined) and Incentive Pay (as that term is hereafter defined) opportunity received from the Company, or the termination of the Employee’s rights to any material Employee Benefits (as that term is hereafter defined) to which he or she was entitled immediately prior to the Change in Control or a material reduction in scope or value thereof without the prior written consent of the Employee;

(3)
the liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or a significant portion of its business and/or assets, unless the successor or successors (by liquidation, merger, consolidation, reorganization or otherwise) to which all or a significant portion of its business and/or assets have been transferred (directly or by operation of law) shall have assumed all duties and obligations of the Company under this Agreement pursuant to Section 13 hereof;

(4)
the Company shall relocate its principal executive offices, or the Company or any Subsidiary shall require the Employee to have his or her principal location of work changed, to any location which is in excess of 50 miles from the location thereof immediately prior to the Charge in Control or the Company or any Subsidiary shall require the Employee to travel away from his or her office in the course of discharging his or her responsibilities or duties hereunder significantly more (in terms of either consecutive days or aggregate days in any calendar year) than was required of him or her prior to the Change in Control without, in either case, the Employee’s prior written consent; or

(5)
without limiting the generality or the effect of the foregoing, any material breach of this Agreement by the Company or any successor thereto.
The Employee is not entitled to assert that his or her termination is for Good Reason unless the Employee gives the Company written notice of the event or events that are the basis for such claim within ninety (90) days after the event or events occur, describing such claim in reasonably sufficient detail to allow the Company to address the event or events and a period of not less than thirty (30) days after to cure the alleged condition.
(g)
Subsidiary” means a corporation, company or other entity (i) more than fifty percent (50%) of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than fifty percent (50%) of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter owned or controlled, directly or indirectly, by the Company, but such corporation, company or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists.

(h)
Term” means the period commencing as of the date hereof and expiring as of the close of business on [insert date that is two years from the date of the agreement], provided, however, that (i) commencing on January 1, 2017 and each January 1 thereafter, the Term shall automatically be extended for an additional year unless, not later than September 30 of the year immediately preceding such January 1, the Company or the Employee shall have given notice that it or he/she, as the case may be, does not wish to have the Term extended and (ii) upon a Change in Control, the Term shall be extended to the third anniversary of such Change in Control. Notwithstanding the foregoing, subject to Section 11 hereof, if, at any time prior to a Change in Control, the Employee for any reason is no longer an employee of the Company or a Subsidiary, thereupon the Term shall be deemed to have expired.

2.
Acknowledgment of Consideration. The Employee agrees that this Agreement was entered into for good and valuable consideration, including, but not limited to the Company’s employment or continued

4




















employment of the Employee, the Company’s provision of Protected Information (as that term is hereafter defined) to the Employee, and the compensation and benefits associated with that employment.

3.
Employment Prior to a Change in Control. Prior to a Change in Control, the following terms shall govern the Employee’s employment.

(a)
Employment At-Will. The Employee is employed on an at-will basis. This means that either the Company or the Employee may terminate the Employee’s employment at any time, with or without notice, and with or without reason. The Employee understands and agrees that nothing in this Agreement constitutes an express or implied contract, or any promise or commitment, guaranteeing continued employment with the Company. The Company reserves the sole right to interpret, administer, change, revise, amend, or abolish any or all employment compensation, benefits, policies, procedures, or practices at any time, with or without notice.

(b)
General Employment Duties. The Employee agrees to diligently perform his or her job duties as may be assigned by the Company to the best of his or her ability. The Employee will keep informed of the Company’s policies, procedures, and practices, and will comply with them at all times. The Employee also agrees that, while employed by the Company, the Employee shall not engage in any activity that might impair or otherwise interfere with the proper performance of the Employee’s duties or responsibilities.

4.
Employment Following a Change in Control. Effective only upon a Change in Control, the following terms shall apply:

(a)
The Employee shall devote substantially all of his or her time during normal business hours (subject to vacations, sick leave and other absences in accordance with the policies of the Company and its Subsidiaries as in effect for key employees immediately prior to the Change in Control) to the business and affairs of the Company and its Subsidiaries, but nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time during normal business hours to (i) serving as a director, trustee or member of or participant in any organization or business so long as such activity is not directly competitive with the business of the Company as then being carried on, (ii) engaging in charitable and community activities, or (iii) managing his or her personal investments.

(b)
For his or her services pursuant to Section 4(a) hereof, the Employee shall (i) be paid an annual base salary at a rate not less than the Employee’s annual fixed or base compensation (payable monthly or otherwise as in effect for key employees of the Company immediately prior to the occurrence of a Change in Control) or such higher rate as may be approved from time to time by the Board, the Compensation Committee thereof or management (which base salary at such rate is herein referred to as “Base Pay”) and (ii) have a bona fide opportunity to earn an annual amount equal to not less than the annual bonus, incentive or other opportunity for payments of cash compensation in addition to the amounts referred to in clause (i) above made or to be made in regard to services rendered in any calendar year during the year in which the Change in Control occurred pursuant to any bonus, incentive, profit-sharing, performance, discretionary pay or similar policy, plan, program or arrangement of the Company or any Subsidiary or any successor thereto providing an annual cash bonus opportunity at least equal to the cash bonus opportunity payable thereunder (in both value and achievability) prior to a Change in Control (“Incentive Pay”); provided, however, that with the prior written consent of the Employee, nothing herein shall preclude a change in the mix between Base Pay and Incentive Pay so long as the aggregate annual cash compensation opportunity for the Employee in any one calendar year is not reduced in connection therewith or as a result thereof; and provided further, however, that in no event shall any increase in the Employee’s aggregate cash compensation or any portion thereof in any way diminish any other obligation of the Company under this Agreement.

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(c)
For his or her services pursuant to Section 4(a) hereof, the Employee shall be a full participant in, and shall be entitled to the perquisites, benefits and service credit for benefits as provided under, any and all employee retirement, income and welfare benefit policies, plans, programs or arrangements in which key employees of the Company or its Subsidiaries participate, including without limitation any stock option, stock purchase, stock appreciation, restricted stock grant, savings, pension, supplemental retirement or other retirement, income or welfare benefit, deferred compensation, group and/or executive life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by the Company or any Subsidiary), disability, salary continuation, expense reimbursement and other employee benefit policies, plans, programs or arrangements that may now exist or any equivalent successor policies, plans, programs, or arrangements that may be adopted hereafter by the Company or any Subsidiary providing perquisites, benefits and service credit for benefits at least equal to those provided or are payable thereunder prior to a Change in Control (collectively, “Employee Benefits”); provided, however, that except as expressly provided in, and subject to the terms of, Section 6(a)(1)(B) hereof, the Employee’s rights thereunder shall be governed by the terms thereof and shall not be enlarged hereunder or otherwise affected hereby. Subject to the proviso in the immediately preceding sentence, if and to the extent such perquisites, benefits or service credit for benefits are not payable or provided under any such policy, plan, program or arrangement as a result of the amendment or termination thereof, then the Company shall itself pay or provide therefor. Nothing in this Agreement shall preclude improvement or enhancement of any such Employee Benefits, provided that no such improvement shall in any way diminish any other obligation of the Company under this Agreement.

5.
Termination of Employment Following a Change in Control.

(a)
Death or Disability. The Employee’s employment shall terminate automatically if the Employee dies or becomes Disabled following a Change in Control.

(b)
Cause. The Company may terminate the Employee’s employment for Cause or without Cause following a Change in Control.

(c)
Good Reason. The Employee’s employment may be terminated by the Employee for Good Reason or by the Employee voluntarily without Good Reason following a Change in Control.

(d)
Notice of Termination. Any termination by the Company for Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b). “Notice of Termination” means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provision so indicated, and (3) if the termination date is other than the date of receipt of such notice, specifies the termination date (which termination date shall be not more than thirty (30) days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company, respectively, hereunder or preclude the Employee or the Company, respectively, from asserting such fact or circumstance in enforcing the Employee’s or the Company’s respective rights hereunder.

6.
Exclusive Obligations of the Company upon Certain Terminations Following a Change in Control.

(a)
Good Reason; Other Than for Cause. If, during the three (3) year period following a Change in Control, (X) the Company terminates the Employee’s employment other than for Cause, death, or Disability or (Y) the Employee resigns for Good Reason:

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(1)
the Company shall pay to the Employee (or the Employee’s estate or beneficiary, in the event of the Employee’s death after the Date of Termination), at the time specified herein (except as otherwise provided by Section 13(d)), the following amounts:

(A)
a lump sum payment equal to the sum of (i) ____ times the Base Pay of the Employee plus (ii) ____ times the target annual Incentive Pay of the Employee, in lieu of any further payments to the Employee for periods subsequent to the Date of Termination (collectively, the “Severance Payment”), payable within six (6) business days following the Date of Termination, provided all conditions to payment have been satisfied;

(B)
commencing on the Date of Termination and continuing until the earlier of (i) the expiration of the ___ year anniversary of the Date of Termination, (ii) the Employee’s death, or (iii) the Employee’s attainment of age 65 (such time period, the “Benefits Period”), the Company shall continue to provide the Employee (and the Employee’s eligible dependents and beneficiaries) with medical, dental, vision, and prescription drug benefits (collectively “health benefits”) and life insurance benefits substantially similar to those which the Employee was receiving or entitled to receive immediately prior to the Date of Termination (and if and to the extent that such benefits shall not or cannot be paid or provided under any policy, plan, program or arrangement of the Company or its Subsidiaries solely in order to comply with applicable law or due to the fact that the Employee is no longer an officer or employee of the Company and its Subsidiaries, then the Company shall itself pay or provide for the payment to the Employee (and the Employee’s eligible dependents and beneficiaries) such health benefits and life insurance benefits). The Employee shall pay the cost, on an after-tax basis, for the continued health benefits coverage, on or about January 31 of the year following the year in which the Date of Termination occurs and continuing on or about each January 31 until January 31 of the year following the last year of the Benefits Period, and concurrently therewith (and no later than March 15 following each such January 31) the Company will make a lump sum payment to the Employee such that, after payment of all taxes incurred by the Employee as a result of the Employee’s receipt of the continued health benefits coverage and payment by the Company, the Employee retains an amount equal to the amount the Employee paid during the immediately preceding calendar year for the health benefits coverage described in this Section 6(a)(1)(B). Without otherwise limiting the purposes or effect of Section 7 hereof, benefits provided or payable to the Employee pursuant to this Section 6(a)(1)(B) by reason of any “welfare benefit plan” of the Company (as the term “welfare benefit plan” is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) shall be reduced to the extent comparable welfare benefits are actually received by the Employee from another employer during the Benefits Period; and

(C)
a lump sum payment in an amount equal to the additional benefits that the Employee would have accrued under each qualified or nonqualified pension, profit sharing, deferred compensation or supplemental plan maintained by the Company for the Employee’s benefit had the Employee continued his or her employment with the Company for one additional year following his or her Date of Termination, provided that the Employee was fully vested under such plans immediately prior to his or her Date of Termination, payable within six (6) business days following the Date of Termination, provided all conditions to payment have been satisfied.

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Without limiting the rights of the Employee at law or in equity, if the Company fails to make any payment required to be made under Sections 4 and 6 of this Agreement on a timely basis, the Company shall pay interest on the amount thereof to the Employee until the date such payment is made at an annualized rate of interest equal to twelve percent (12%).
(b)
Release. As a condition to receiving payments under this Section 6, no later than forty five (45) days after having been presented such release by the Company, the Employee shall have executed and delivered to the Company a general release of claims in favor of the Company, its current and former Subsidiaries, affiliates and stockholders, and the current and former directors, officers, employees and agents of the Company in a form acceptable to the Company, and the Employee’s general release shall have become irrevocable.

7.
No Set-Off; Company’s Obligations; Mitigation. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Employee obtains other employment.

8.
Indemnification of Legal Fees. Effective only upon a Change in Control, it is the intent of the Company that the Employee not be required to incur the expenses associated with the enforcement of his or her rights under this Agreement following such a Change in Control by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits and payments intended to be extended to the Employee hereunder following a Change in Control. Accordingly, following a Change in Control if it should appear to the Employee that the Company has failed to comply with any of its obligations under this Agreement which arose following a Change in Control or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, the Employee the benefits intended to be provided to the Employee hereunder, the Company irrevocably authorizes the Employee from time to time to retain counsel of his or her choice, at the expense of the Company as hereafter provided, to represent the Employee in connection with the initiation or defense of any litigation or other legal action with respect to this Agreement, whether by or against the Company, or any Subsidiary, director, officer, stockholder or other person affiliated with the Company. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Employee’s entering into an attorney-client relationship with such counsel, and in that connection the Company and the Employee agree that a confidential relationship shall exist between the Employee and such counsel. Following a Change in Control, the Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys’ and related fees and expenses incurred by the Employee as a result of the Company’s failure to perform this Agreement or any provision hereof or as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision hereof as aforesaid, provided any such reimbursement of attorneys’ and related fees and expenses shall be made not later than December 31 of the year following the year in which the Employee incurred the expense.

9.
Section 280G.
(a)
In the event that any payment or benefit received or to be received by the Employee (including any payment or benefit received in connection with a Change in Control or the termination of the Employee’s employment pursuant to the terms of this Agreement) (all such payments and benefits, together, the “Total Payments”) would be subject (in whole or part), to any excise tax imposed under Section 4999 of the Code, or any successor provision thereto (the “Excise Tax”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, program, arrangement or agreement, the Company will reduce the Total Payments to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax (but in no event to less than zero); provided, however, that the Total Payments will only be

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reduced if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state, municipal and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state, municipal and local income taxes on such Total Payments and the amount of Excise Tax to which the Employee would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments.

(b)
In the case of a reduction in the Total Payments, the Total Payments will be reduced in the following order: (i) payments that are payable in cash that are valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a) will be reduced (if necessary, to zero), with amounts that are payable last reduced first; (ii) payments and benefits due in respect of any equity valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a), with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; (iii) payments that are payable in cash that are valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with amounts that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect of any equity valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; and (v) all other non-cash benefits not otherwise described in clauses (ii) or (iv) will be next reduced pro-rata. Any reductions made pursuant to each of clauses (i)-(v) above will be made in the following manner: first, a pro-rata reduction of cash payment and payments and benefits due in respect of any equity not subject to Section 409A of the Code, and second, a pro-rata reduction of cash payments and payments and benefits due in respect of any equity subject to Section 409A of the Code as deferred compensation.

(c)
For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax: (i) no portion of the Total Payments the receipt or enjoyment of which the Employee shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code will be taken into account; (ii) no portion of the Total Payments will be taken into account which, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Employee and selected by the accounting firm which was, immediately prior to the Change of Control, the Company’s independent auditor (the “Auditor”), does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments will be taken into account which, in the opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as set forth in Section 280G(b)(3) of the Code) that is allocable to such reasonable compensation; and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments will be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

(d)
At the time that payments are made under this Agreement, the Company will provide the Employee with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations, including any opinions or other advice the Company received from Tax Counsel, the Auditor, or other advisors or consultants (and any such opinions or advice which are in writing will be attached to the statement). All such calculations and opinions shall be binding on the Company and the Employee.





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10.
Covenants of Employee.

(a)
Non-Competition and Non-Solicitation.

(1)
Purpose and Definition. To protect the Protected Information the Employee receives, and in consideration of receiving that Protected Information and compensation and benefits from the Company, and for other valuable consideration, the Employee agrees to the following non-competition and non-solicitation covenants.

(2)
As used in this Agreement, “Protected Information” means information possessed by the Company or a parent, predecessor, Subsidiary, joint venture, or partnership of the Company, or any other entity whose assets, stock, or business activities have been acquired by the Company (collectively, the “Related Companies”), whether developed by the Employee or otherwise, that is not generally known publicly and that has value, gives the Company or its Related Companies a competitive advantage or otherwise qualifies as a “trade secret” under applicable laws.  Protected Information includes information that has been provided to the Company or its Related Companies by a third party and that is subject to restrictions on disclosure and/or use. Protected Information will generally include, but is not limited to, research, software, engineering drawings, service documentation, competitive intelligence, supplier names and data, customer information, business strategies, planned acquisitions or divestitures, quotations, discounts, data compilations, items marked as “confidential”, “secret”, “proprietary” or “privileged”, and any other information the Company has not publicly or lawfully obtained from third parties who are not bound by a confidentiality agreement with the Company, is not Protected Information.  In the event the Employee is unsure if something is to be treated as Protected Information, the Employee shall treat it as such until expressly advised otherwise by an officer of the Company.

(3)
Noncompetition. During the Employee’s employment and for a period of one (1) year after the Date of Termination, the Employee shall not: (A) directly or indirectly act in concert or conspire with any person employed by the Company in order to engage in or prepare to engage in or to have a financial or other interest in any business or any activity that the Employee knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on; or (B) serve as an employee, agent, partner, shareholder, director, or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business or any activity that the Employee knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on (provided, however, that notwithstanding anything to the contrary contained in this Agreement, the Employee may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934).

(4)
Confidentiality. The Company has advised the Employee and the Employee acknowledges that it is the policy of the Company to maintain as secret and confidential all Protected Information, and that Protected Information has been and will be developed at substantial cost and effort to the Company. The Employee shall not at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Employee’s employment), nor use in any manner, either during the Employee’s employment or after termination for any reason, any Protected Information, or cause any such Protected Information of the Company to enter the public domain.

(5)
Nonsolicitation. During the Employee’s employment and for a period of one (1) year after the Date of Termination, the Employee shall not: (A) employ or retain or solicit for

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employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of the Company; or (B) solicit suppliers or customers of the Company or induce any such person to terminate his, her, or its relationship with the Company.

(6)
Cooperation. Employee agrees to cooperate with the Company and its attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to Employee’s employment by the Company or any of its Subsidiaries.

(7)
Nondisparagement. At all times, the Employee agrees not to disparage the Company or otherwise make comments harmful to the Company’s reputation.

(8)
California Law. To the extent that California law is deemed to govern this Agreement, the restrictions set forth in Sections 10(a)(3) (with respect to post-employment competition) and (5) (with respect to post-employment solicitation) of this Agreement do not apply to the Employee.

(b)
Reasonableness of Restrictions. The Employee acknowledges that he or she has carefully considered the nature and extent of the restrictions upon him or her, and the rights and remedies conferred upon the Company in this Agreement, and acknowledges and agrees that the same: (i) are reasonable in scope, territory, and duration; (ii) are designed to eliminate competition which otherwise would be unfair to the Company; (iii) do not stifle his or her inherent skill and experience; (iv) would not operate as a bar to his or her sole means of support; (v) are fully required to protect the legitimate interests of the Company; and (vi) do not confer a benefit upon the Company disproportionate to the detriment of the Employee.

11.
Employment Rights. Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or the Employee to have the Employee remain in the employment of the Company or any Subsidiary prior to or after any Change in Control; provided, however, that any termination of employment of the Employee or the removal of the Employee from such Employee’s office or position (other than a termination by the Company for Cause, or termination for death or Disability) in the three (3) month period preceding a Change in Control shall be deemed to be a termination or removal of the Employee after a Change in Control for purposes of this Agreement.

12.
Successors.

(a)
The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the “Company” for the purposes of this Agreement), but shall not otherwise be assignable, transferable or delegable by the Company.

(b)
This Agreement shall inure to the benefit of and be enforceable by the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees.


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(c)
This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Section 12(a) hereof. Without limiting the generality of the foregoing, the Employee’s right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his or her will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 12(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated.

(d)
The Company and the Employee recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company and the Employee hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement.

13.
Miscellaneous.

(a)
This Agreement and all matters relating to Employee’s employment shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to conflicts of laws principles thereof. Each party to this Agreement (i) consents to the personal jurisdiction of the state and federal courts having jurisdiction in Summit County, Ohio, (ii) stipulates that the proper, exclusive, and convenient forum and venue for legal adjudication of any issue arising out of this Agreement or relating to claims between the parties is Summit County, Ohio for state court proceedings, and the Northern District of Ohio, Akron location, for federal district court proceedings, and (iii) waives any defense, whether asserted by a motion or pleading, that Summit County, Ohio, or the Northern District of Ohio, Akron location, is an improper or inconvenient venue.

(b)
Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Employee at the last address he or she has filed in writing with the Company or, in the case of the Company, at its principal offices.

(c)
The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any invalid or unenforceable provision shall be deemed severed from this Agreement to the extent of its invalidity or unenforceability, and this Agreement shall be construed and enforced as if the Agreement did not contain that particular provision to the extent of its invalidity or unenforceability, provided that in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.

(d)
The intent of the parties is that payments and benefits under this Agreement comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding any provisions of this Agreement to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, the Employee shall not be considered to have terminated employment with the Company for purposes of this Agreement and no payments shall be due to the Employee under Section 6 of this Agreement until the Employee would be considered to have incurred a “separation from service” from the Company within the meaning of Section 409A of the Code. For purposes of this Agreement, each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A of the Code, and any payments that are due within the “short term deferral period” as defined in Section 409A of the Code shall not be treated as deferred

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compensation unless applicable law requires otherwise. To the extent required to avoid an accelerated or additional tax under Section 409A of the Code, amounts reimbursable to the Employee under this Agreement shall be paid to the Employee on or before the last day of the year following the year in which the expense was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits provided to the Employee) during any one year may not affect amounts reimbursable or provided in any subsequent year; provided, however, that with respect to any reimbursements for any taxes which the Employee would become entitled to under the terms of the Agreement, the payment of such reimbursements shall be made by the Company no later than the end of the calendar year following the calendar year in which the Employee remits the related taxes were incurred. Notwithstanding any provisions of this Agreement to the contrary, if the Employee is a “specified employee” (within the meaning of Section 409A of the Code and determined pursuant to any policies adopted by the Company consistent with Section 409A of the Code (a “Specified Employee”)), at the time of the Employee’s separation from service and if any portion of the payments or benefits to be received by the Employee upon separation from service would be considered deferred compensation under Section 409A of the Code and cannot be paid or provided to the Employee during the six-month period immediately following the Employee’s separation from service without the Executive incurring taxes, interest or penalties under Section 409A of the Code, such amounts that would otherwise be payable pursuant to this Agreement and benefits that would otherwise be provided pursuant to this Agreement, in each case, during the six-month period immediately following the Employee’s separation from service will instead be paid or made available on the earlier of (i) first business day after the date that is six (6) months following the Employee’s separation from service and (ii) the Executive’s death.

(e)
The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling.

(f)
Treatment of outstanding long-term equity incentive awards shall be in accordance with the terms and conditions of the award agreements and plan pursuant to which the incentives were granted.

(g)
To the extent consistent with state law, the Employee authorizes the Company to conduct drug tests and background checks on the Employee during the Employee’s employment with the Company at times determined by the Company. Failure to successfully complete or pass each drug test and background check is reason for immediate termination.

(h)
No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Employee and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

(i)
The Employee and the Company acknowledge that, except as provided in any other written agreement between the Employee and the Company, the employment of the Employee by the Company is “at will” and, prior to or after the occurrence of a Change in Control, the Employee’s employment may be terminated by either the Employee or the Company at any time. This Agreement represents the entire agreement between the parties relating to the subject matter hereof and replaces any and all prior agreements pertaining thereto between the Employee and the Company. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement.



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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written.
DIEBOLD, INCORPORATED:






By:
Title:
EMPLOYEE:



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AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the “Amended Agreement”), is made and entered into as of July 30, 2015 (the “Effective Date”) by and between Diebold, Incorporated, an Ohio corporation (together with its successors and assigns permitted under this Amended Agreement, the “Company”), and Andreas W. Mattes (the “Executive” and, together with the Company, the “Parties”).
W I T N E S S E T H
WHEREAS, the Company and the Executive entered into that certain Executive Employment Agreement, dated as of June 6, 2013, to set forth the terms and conditions upon which the Executive agreed to serve as an officer of the Company (the “Original Agreement”);
WHEREAS, the Company and the Executive desire to amend and restate the Original Agreement; and
WHEREAS, Section 18 of the Original Agreement requires that an amendment be in writing and signed by both parties.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a “Party” and together the “Parties”) agree as follows:
1.Definitions.

(a)“Base Salary” shall mean the salary provided for in Section 4 below.

(b)“Board” shall mean the Board of Directors of the Company.

(c)(i)     “Cause” shall mean, at all times other than during the two-year period following a Change in Control, the Executive’s:

(A)    Willful failure to substantially perform his duties with the Company (other than any such failure resulting from the Executive’s Disability), after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Company believes that the Executive has not substantially performed his duties, and the Executive has failed to remedy the situation within fifteen (15) business days of such written notice from the Company;
(B)    Willful gross negligence in the performance of the Executive’s duties;
(C)    Conviction of, or plea of guilty or nolo contendere to, any felony or a lesser crime or offense which, in the reasonable opinion of the Company, could adversely affect the business or reputation of the Company;
(D)    Willful engagement in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise;
(E)    Willful violation of any provision of the Company’s Code of Business Ethics, as amended from time to time;
(F)    Willful violation of any of the covenants contained in Sections 11 through 13 of this Amended Agreement, as applicable;

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(G)    Engaging in any act of dishonesty resulting in, or intended to result in, material personal gain at the expense of the Company; or
(H)    Engaging in any act that is intended to harm the reputation, business prospects, or operations of the Company.
For purposes of Section 1(c)(i), no act or omission by the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act or failure to act based upon: (i) authority given pursuant to a resolution duly adopted by the Board; or (ii) advice of counsel for the Company, shall be conclusively presumed to be done or omitted to be done by the Executive in good faith and in the best interests of the Company.
There shall be no termination for Cause pursuant to subsections 1(c)(i)(B) through (H) unless a written notice, containing a detailed description of the grounds constituting Cause hereunder, is delivered to the Executive stating the basis for the termination. Upon receipt of such notice, the Executive shall be given 30 days to fully cure (if such violation, neglect, or conduct is capable of cure) the violation, neglect, or conduct that is the basis of such claim. If, in the Board’s opinion, cure has not been accomplished by the Executive at the conclusion of such 30-day period, the Executive will be given a reasonable opportunity to be heard before termination.
(ii)     “Cause” shall mean, only during the two-year period following any Change in Control, the Executive’s:

(A)    Intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company or any Subsidiary;
(B)    Intentional wrongful damage to property of the Company or any Subsidiary;
(C)    Intentional wrongful disclosure of secret processes or confidential information of the Company or any Subsidiary; or
(D)    Intentional wrongful engagement in any competitive activity which would constitute a material breach of the duty of loyalty;
and any such act shall have been materially harmful to the Company and its Subsidiaries taken as a whole. For purposes of Section 1(c)(ii), no act, or failure to act, on the part of the Executive shall be deemed “intentional” if it was due primarily to an error in judgment or negligence, but shall be deemed “intentional” only if done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in or not opposed to the best interest of the Company and its Subsidiaries.
The Executive shall not be deemed to have been terminated for “Cause” under Section 1(c)(ii) unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive had committed an act set forth above in this Section 1(c)(ii) and specifying the particulars thereof in detail. Nothing herein shall limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination.
(d)     “Change in Control” means the occurrence of any of the following:

(i)    the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either: (A) the then-outstanding shares of common stock of the Company (the “Company

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Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (“Voting Stock”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (4) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) below; or
(ii)    individuals who, as of the date hereof, constitute the Board (as modified by this subsection (ii), the “Incumbent Board”), cease for any reason (other than death or disability) to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(iii)    consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Company Common Stock and Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Company Common Stock and Voting Stock of the Company, as the case may be, (B) no Person (excluding any entity resulting from such Business Combination or any Executive benefit plan (or related trust) sponsored or maintained by the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then-outstanding shares of common stock of the entity resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board providing for such Business Combination; or
(iv)    approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
A “Change in Control” will be deemed to occur (A) with respect to a Change in Control pursuant to subsection (i) above, on the date that any Person becomes the beneficial owner of thirty percent (30%) or more of either the Company Common Stock or the Voting Stock, (B) with respect to a Change in Control pursuant to subsection (ii) above, on the date the members of the Incumbent Board first cease for any reason (other than death or disability) to constitute at least a majority of the Board, (C) with respect to a Change in Control pursuant to subsection (iii) above, on the date the applicable transaction closes and (D) with respect to a Change in Control pursuant to subsection (iv) above, on the date of the shareholder approval. Notwithstanding the foregoing provisions, a “Change in Control” shall not be deemed to have occurred for purposes of this Amended Agreement solely because of a change in control of any Subsidiary by which the Executive may be employed.
(e)    “Code” means the Internal Revenue Code of 1986, as amended.


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(f)    “Compensation Committee” shall mean the Compensation Committee of the Board or any other committee appointed by the Board to perform the functions of the Compensation Committee.

(g)    “Date of Termination” shall mean the date on which the Executive incurs a “separation from service” within the meaning of Section 409A of the Code.

(h)    “Disability” shall mean the Executive’s permanent and total disability as defined by the long-term disability plan in effect for senior executives of the Company.

(i)    “Effective Date” shall be [July 30], 2015.

(j)    “Equity Incentive Plan” shall mean the Amended and Restated 1991 Equity Performance and Incentive Plan, as it may be amended from time to time, and/or any successor plan(s) providing for the issuance of time-based or performance-based equity to executives.

(k)    “Good Reason” shall mean the occurrence of any one or more of the following without the Executive’s express written consent:

(i)The Company changes the Executive’s title or material job duties such that it results in material diminution in Executive’s authority, duties, or responsibilities; or

(ii)The Company materially reduces the amount of the Executive’s then current Base Salary or the target opportunity for his annual incentive award; or

(iii)The Company requires the Executive to be based at a location in excess of fifty (50) miles from the location of the Executive’s principal job location or office as of the Effective Date, which the Parties acknowledge to be the Company’s North Canton, Ohio corporate headquarters; or

(iv)Executive is removed by the Board of its own volition from his position on the Board; or
(v)The failure of the Company to obtain in writing the obligation to perform or be bound by the terms of this Amended Agreement by any successor to the Company or a purchaser of all or substantially all of the assets of the Company; or

(vi)Any other action or inaction by the Company that constitutes a material breach by the Company of the terms and conditions of this Amended Agreement.
The Executive is not entitled to assert that his termination is for Good Reason, unless the Executive gives the Company written notice of the event or events that are the basis for such claim within 30 days after the event or events occur, describing such claim in reasonably sufficient detail to allow the Company to address the event or events and a period of not less than 30 days after to cure the alleged condition.

(l)    “Pro Rata” shall mean a fraction, the numerator of which is the number of days that the Executive was employed in the applicable performance period (the performance period in the case of an annual incentive award and a performance cycle in the case of an award under the Equity Incentive Plan) and the denominator of which shall be the number of days in the applicable performance period or cycle.

(m)    “Protected Information” shall mean trade secrets, confidential and proprietary business information of the Company, and any other information of the Company, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services that may be developed from time to time by the Company and its agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Amended Agreement), approved for release by the Company or lawfully obtained from third parties who are not bound by a confidentiality agreement with the Company, is not Protected Information.

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(n)    “Shares” shall mean the Common Shares of the Company.

(o)    “Subsidiary” means a corporation, company or other entity (i) more than 50 percent of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50 percent of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter owned or controlled, directly or indirectly, by the Company, but such corporation, company or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists.

(p)    “Term of Employment” shall mean the period specified in Section 2 below (including any extension as provided therein).

2.Term of Employment.

The Term of Employment shall begin on the Effective Date, and shall extend until the second anniversary of the Effective Date, with automatic one-year renewals thereafter unless either Party notifies the other at least 6 months before the scheduled expiration date that the Amended Agreement is not to renew. Notwithstanding the foregoing, the Term of Employment may be earlier terminated by either Party in accordance with the provisions of Section 10.
3.Position, Duties and Responsibilities.

(a)Commencing on the Effective Date and continuing for the remainder of the Term of Employment, the Executive shall be employed as the Chief Executive Officer and President of the Company and be responsible for the general management of the affairs of the Company. The Executive shall continue to serve on the Board and shall be re-nominated as applicable so that he continues to serve as a member of the Board during the Term of Employment. The Executive, in carrying out his duties under this Amended Agreement, shall report to the Board. During the term of this Amended Agreement, the Executive shall devote substantially all of his business time and attention to the business and affairs of the Company and shall use his best efforts, skills and abilities to promote its interests.

(b)Nothing herein shall preclude the Executive from (i) serving on the boards of directors of a reasonable number of other corporations with the concurrence of the Board, (ii) serving on the boards of a reasonable number of trade associations and/or charitable organizations, (iii) engaging in charitable activities and community affairs, and (iv) managing his personal investments and affairs, provided that such activities set forth in this Section 3(b) do not conflict or interfere with the effective discharge of his duties and responsibilities under Section 3(a).

4.Base Salary.

The Executive shall be paid an annualized Base Salary, payable in accordance with the regular payroll practices of the Company, of not less than $937,500. The Base Salary shall be reviewed annually for increase in the discretion of the Board.
5.Annual Incentive Award.

During the Term of Employment, the Executive shall be eligible for an annual incentive award with payout opportunities that are commensurate with his position and duties, as determined by the Company in its sole discretion. The Executive’s annual incentive award opportunities shall be based on Company and individual performance goals determined, and subject to change, by the Company in the Company’s sole discretion. The Executive shall be paid his annual incentive award no later than other senior executives of the Company are paid their annual incentive award.

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6.Long-Term Incentive Awards.

During the Term of Employment, the Executive shall be eligible to participate in the Company’s Long-Term Incentive Plan (LTIP) on terms commensurate with his position and duties, as determined by the Company in its sole discretion. Program design including performance measures and weighting is at the sole discretion of the Board.
7.Employee Benefit Programs.

During the Term of Employment, the Executive shall be entitled to participate in any employee benefit plans and programs made available to the Company’s senior level executives (other than the Diebold, Incorporated Senior Leadership Severance Plan (For Tier I, Tier II, and Tier III Executives), subject to Section 10(f) below, or any defined benefit plan, under any circumstances), as such plans or programs may be in effect from time to time, including, without limitation, 401(k) savings and other plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection, travel accident insurance, and any retirement plans or programs and any other employee welfare benefit plans or programs that may be sponsored by the Company in the future from time to time, including any plans that supplement the above-listed types of plans or programs, whether funded or unfunded. The Executive’s participation shall be based on, and the calculation of all benefits shall be based on, the assumptions that the Executive has met all service-period or other requirements for such participation. The Executive shall be entitled to four weeks of paid vacation during each year of employment, which shall be subject to the Company’s vacation policy for senior executives.
8.Reimbursement of Business and Other Expenses.

The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Amended Agreement and the Company shall promptly reimburse him for all reasonable business expenses incurred in connection with carrying out the business of the Company, subject to documentation in accordance with the Company’s policy.
9.Perquisites.

The Executive shall receive the following Company executive perquisites:
(a)The Company shall reimburse the Executive for reasonable financial planning and tax preparation fees up to an annual maximum of $12,000.

(b)The Executive shall be entitled to the annual Executive Physical Program at the Company’s expense at the Cleveland Clinic.

(c)The Executive shall be entitled to benefits provided under the Company’s applicable relocation policy, and the Company shall reimburse certain additional expenses as may be approved by the Chairman of the Board.

All reimbursements under Section 8 or Section 9, or otherwise under this Amended Agreement, shall be for expenses incurred by the Executive during the Term of Employment. In all events such reimbursement will be made no later than the end of the year following the year in which the expense was incurred. Each provision of reimbursements shall be considered a separate payment and not one of a series of payments for purposes of Section 409A of the Code. In addition, no reimbursement or in-kind benefit shall be subject to liquidation or exchange for another benefit and the amount available for reimbursement, or in-kind benefits provided, during one calendar year in no event will affect the amount of expenses required to be reimbursed or in-kind benefits required to be provided by the Company in any other calendar year.

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10.
Termination of Employment.

(a)Termination Due to Death. In the event that the Executive’s employment is terminated due to his death, his estate or his beneficiaries, as the case may be, shall be entitled to the following benefits:

(i)a lump sum amount, paid within 60 days following the Date of Termination, equal to the Executive’s unpaid Base Salary through and including the Date of Termination, as well as accrued, unused vacation and unreimbursed business expenses as of the Date of Termination, consistent with the regular payroll practices of the Company;

(ii)a lump sum amount, paid within 60 days following the Date of Termination, of the annual incentive at target for the calendar year that includes the Date of Termination; provided however, that such amount shall be adjusted on a Pro Rata basis.

(iii)all outstanding options and stock appreciation rights (“SARs”), whether or not then vested, shall vest and shall remain exercisable for a period of one year or until their stated expiration date, if earlier; and

(iv)Pro Rata long-term incentives shall be payable when scheduled to be paid (if, and to the extent, such awards are payable).

(b)Termination Due to Disability. In the event that the Executive’s employment is terminated due to his Disability, and conditioned upon, no later than 60 days after the Date of Termination, the Executive’s effective execution of a general release of claims against the Company (without revocation), the terms of such release to be agreed upon by the Company and the Executive, as well as the Executive’s acknowledgement of, and the Executive’s compliance with, the Executive’s obligations under the restrictive covenants set forth in Sections 11 through 13, he shall be entitled to the following benefits:

(i)a lump sum amount, paid within 60 days following the Date of Termination, equal to the Executive’s unpaid Base Salary through and including the Date of Termination, as well as for any accrued, unused vacation and unreimbursed business expenses as of the Date of Termination, consistent with the regular payroll practices of the Company;

(ii)a lump sum amount, paid within 60 days following the Date of Termination, of the annual incentive at target for the calendar year that includes the Date of Termination; provided however, that such amount shall be adjusted on a Pro Rata basis;

(iii)all outstanding options and SARs, whether or not then vested, shall vest and shall remain exercisable for a period of one year or until their stated expiration date, if earlier;

(iv)Pro Rata long-term incentives shall be payable, when scheduled to be paid (if, and to the extent, such awards are payable); and

(v)continuation of the Executive’s medical, dental, vision, and Company-paid basic life insurance coverage for 24 months. These benefits shall be provided by the Company to the Executive beginning immediately upon the Date of Termination. Such benefits shall be provided to the Executive at the same coverage level and cost to the Executive as in effect immediately prior to the Executive’s Date of Termination. Notwithstanding the above, these medical, dental, vision and Company-paid basic life insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Company in good faith. For purposes of enforcing this offset provision, the Executive shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.

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In no event shall a termination of the Executive’s employment due to Disability occur until the Party terminating Executive’s employment gives written notice to the other Party in accordance with Section 26 below.
(c)Termination by the Company for Cause. In the event the Company terminates the Executive’s employment for Cause, he shall be entitled to the following benefits:

(i)a lump sum amount, paid within 60 days following the Date of Termination, equal to the Executive’s unpaid Base Salary through and including the Date of Termination, as well as accrued, unused vacation and unreimbursed business expenses as of the Date of Termination, consistent with the regular payroll practices of the Company; and

(ii)all outstanding options and SARs which are not then vested shall be forfeited; vested options and SARs shall remain exercisable until the earlier of the thirtieth day after the Date of Termination or the originally scheduled expiration date of the options and SARs, unless the Compensation Committee determines otherwise.

(d)Termination by Company without Cause, Non-Renewal by the Company and Discontinuation of Service, or Termination by the Executive for Good Reason. In the event the Executive’s employment is terminated by the Company without Cause (i.e., on a basis other than specified in Subsections 10(a), 10(b), 10(c), 10(e), or 10(f)), the Company chooses not to renew this Amended Agreement and discontinues Executive’s service, or in the event Executive’s employment is terminated by Executive for Good Reason, at any time other than during the two-year period following a Change in Control, and conditioned upon, no later than 60 days after the Date of Termination or non-renewal and discontinuation of service, the Executive’s effective execution of a general release of claims against the Company (without revocation), the terms of such release to be agreed upon by the Company and Executive, as well as Executive’s acknowledgement of, and Executive’s compliance with, Executive’s obligations under the restrictive covenants set forth in Sections 11 through 13, the Executive shall be entitled to the following benefits:

(i)a lump sum amount, paid within 60 days following the Date of Termination, equal to the Executive’s unpaid Base Salary through and including the Date of Termination, as well as accrued vacation pay and unreimbursed business expenses;

(ii)a lump sum amount, paid within 60 days following the Date of Termination, equal to two (2) times (A) the Executive’s Base Salary, and (B) the Executive’s annual incentive award at target for the calendar year that includes the Date of Termination;

(iii)a lump sum amount, if any, paid within two and one-half (2 ½) months after the end of the calendar year that includes the Date of Termination, equal to the actual annual incentive that would have been payable to the Executive for the calendar year that includes the Date of Termination based on the Company’s actual performance against applicable goals and for Executive’s personal goals/ key initiatives, based on Executive’s assumed target level performance, if the Executive had remained employed through the end of such calendar year; provided however, that such amount shall be adjusted on a Pro Rata basis.

(iv)Continuation of the Executive’s medical, dental, vision, and Company-paid basic life insurance coverage for 24 months. These benefits shall be provided by the Company to the Executive beginning immediately upon the Date of Termination. Such benefits shall be provided to the Executive at the same coverage level and cost to the Executive as in effect immediately prior to the Executive’s Date of Termination. Notwithstanding the above, these medical, dental, vision and Company-paid basic life insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Company in good faith. For purposes of enforcing this offset provision, the Executive shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same;

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(v)All outstanding and unvested stock options and SARs shall immediately vest and shall remain exercisable for a period of twelve (12) months from the Date of Termination or the last day of the option term, whichever occurs first. Additionally, from time to time, the Company may declare “blackout” periods with respect to Executive and/or designated employees of the Company during which Executive and/or such employees are prohibited from engaging in certain transactions in Company securities. The scheduled expiration date of stock options and SARs pursuant to this subsection shall automatically, and without further notice to the option/SAR holder, be extended by one business day for each business day of the blackout period applied to the option/SAR holder (but in no case longer than the option term);

(vi)All restrictions on unvested shares of restricted stock and unvested restricted stock units shall immediately lapse, with such shares and units becoming non-forfeitable on a pro rata basis, as determined under this subparagraph (vi). The pro rata award shall equal the product of (A) and (B) where (A) is the number of restricted stock shares or units subject to the award, and (B) is a fraction, the numerator of which is the number of calendar months that the Executive was employed by the Company during the restriction period (with any partial months counting as a full month for this purpose) and the denominator of which is the number of months in the restriction period. The timing of the delivery of any shares on account of the vesting of any restricted share units will be determined under the terms of the Equity Incentive Plan (as most recently amended and/or restated) and the award agreements (or comparable documentation) thereunder;

(vii)Unearned performance shares and performance units shall be paid out on a pro rata basis, as determined under this subparagraph (vii). The pro rata award shall equal the product of (A) and (B) where (A) is the award the Executive would have earned based on actual performance measured as of the end of the respective performance period and (B) is a fraction, the numerator of which is the number of calendar months that the Executive was employed by the Company during the performance period (with any partial month counting as a full month for this purpose) and the denominator of which is the number of months in the performance period. Any such awards will be paid to Executive at the same time eligible participants are paid; and

(viii)The Company will assist the Executive in finding other employment opportunities by providing to him, at the Company’s limited expense, reasonable professional outplacement services through the provider of the Company’s choice. Such outplacement services shall terminate when the Executive finds other employment. However, in no event shall such outplacement services continue for more than 24 months following the Date of Termination.

(e)Voluntary Termination. A termination of employment by the Executive on his own initiative, other than a termination due to Disability or a termination for Good Reason, shall have the same consequences as provided in Section 10(c) for a termination for Cause. A voluntary termination under this Section 10(e) shall be effective on the date specified in the Executive’s written notice, unless such voluntary termination is earlier accepted by the Company, such early acceptance still to be treated as a voluntary termination by the Executive.

(f)Non-Renewal by the Company. During the Term of Employment, the Executive shall not be entitled to participate in the Diebold, Incorporated Senior Leadership Severance Plan (For Tier I, Tier II, and Tier III Executives), or any similar or successor plans or arrangements (the “Severance Plan”), but shall instead (except as may be otherwise determined by the Board), be entitled to receive payments and benefits in connection with the termination of the Executive’s employment pursuant to this Amended Agreement. The rights and obligations under this Section 10(f) shall survive any termination of this Amended Agreement or termination of the Executive’s employment with the Company.

(g)No Mitigation; No Offset. In the event of any termination of employment under this Section 10, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due the Executive under this Amended Agreement on account of any remuneration attributable to any subsequent employment that he may obtain.


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(h)Nature of Payments. Any amounts due under this Section 10 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty.

(i)Timing of Payments. Notwithstanding any provision in this Amended Agreement to the contrary, if the Executive is a “specified employee” (within the meaning of Treasury Regulation Section 1.409A-1(i) and using the identification methodology selected by the Company from time to time) on the Date of Termination, to the extent payments or benefits made hereunder (as well as any other payment or benefit that the Executive is entitled to receive upon his separation from service) constitute deferred compensation (after taking account any applicable exceptions under Section 409A of the Code), and to the extent required by Section 409A of the Code, payments or benefits payable upon separation from service which otherwise would be payable during the six-month period immediately following the Date of Termination will instead be paid or made available on the earlier of (i) the first day following the six month anniversary of the Executive’s Date of Termination and (ii) the Executive’s death.

11.Non-Competition.

(a) The Executive agrees that during the Executive’s employment with the Company and for a period of two (2) years following the termination of such employment, whether termination is by the Executive or the Company, and regardless of the reasons therefore, the Executive shall not: (A) directly, or indirectly act in concert or conspire with any person employed by the Company in order to, engage in or prepare to engage in or to have a financial or other interest in any business or any activity that he knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on (or with any product, service, or business activity which was under active development while the Executive was employed by Company if such development is being actively pursued by the Company during such two-year period); or (B) serve as an employee, agent, partner, shareholder, director, or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business or any activity that he knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on (or with any product, service, or business activity which was under active development while the Executive was employed by Company if such development is being actively pursued by the Company during such two-year period), provided, however, that notwithstanding anything to the contrary contained in this Amended Agreement, the Executive may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Exchange Act. Further, notwithstanding anything to the contrary in this Section 11(a), provided that the Company is given reasonable opportunity to consult with the Executive and the Executive consults with the Company in good faith, the Company may opt, in its sole discretion, to consent to the Executive’s accepting employment with a competitive business on the condition that Executive will not be involved, directly or indirectly, in any manner, with any competitive product or service.

(b)The Executive further acknowledges and agrees that, in the event of the termination of his employment with the Company, the Executive’s experience and capabilities are such that the Executive can obtain employment in business activities which do not compete with the Company, and that the enforcement of this Amended Agreement by way of injunction shall not prevent the Executive from earning a reasonable livelihood. The Executive further acknowledges and agrees that the covenants contained herein are necessary for the protection of the Company’s legitimate business interests and are reasonable in scope and duration.

12.No Solicitation of Employees.

The Executive agrees that during his employment with the Company and for a period of three (3) years following the termination of such employment, whether termination is by the Executive or by the Company, regardless of the reasons therefore, the Executive will not directly or indirectly, (a) employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of the Company; or (b) solicit suppliers or customers of the Company or induce any such person to terminate his, her, or its relationship with the Company. In the event that the scope of the restrictions in Section 11 or 12 are found overly broad, Executive agrees that a court should reform the restrictions by limiting them to the maximum reasonable scope.

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13.Confidentiality.

The Company has advised the Executive and the Executive acknowledges that it is the policy of the Company to maintain as secret and confidential all Protected Information, and that Protected Information has been and will be developed at substantial cost and effort to the Company. The Executive shall not at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Executive’s employment), nor use in any manner, either during the Executive’s employment or after termination for any reason, any Protected Information, or cause any such Protected Information of the Company to enter the public domain.
14.Effect of a Change in Control. The Executive’s entitlements relating to a Change in Control of the Company shall be determined in accordance with this Section 14 and there shall be no duplication of the benefits provided in this Section 14.

(a)Extension of Amended Agreement. Subject to Section 16 below, upon a Change in Control, the Term of Employment shall be extended to the second anniversary of such Change in Control, with automatic one (1) year renewals thereafter unless either party notifies the other at least six (6) months before the scheduled expiration date that the Amended Agreement is not to renew. Notwithstanding the foregoing, the Term of Employment may be earlier terminated by either party in accordance with the provisions of Section 10, except as modified by this Section 14.

(b)Obligations of the Company upon Certain Terminations Following a Change in Control.

(i)Good Reason; Other Than for Cause. If, during the two (2) year period following a Change in Control, the Executive’s employment is terminated by the Company without Cause (i.e., on a basis other than specified in Subsections 10(a), 10(b), 10(c), 10(e), or 10(f)), or the Executive’s employment is terminated by Executive for Good Reason, and conditioned upon Executive’s compliance with Executive’s obligations under the restrictive covenants set forth in Sections 11 through 13, the Executive shall be entitled to the following benefits:

(A)a lump sum amount, paid within sixty (60) days following the Date of Termination, equal to the Executive’s unpaid Base Salary through and including the Date of Termination, as well as accrued vacation pay and unreimbursed business expenses;

(B)a lump sum amount, paid within sixty (60) days following the Date of Termination, equal to two (2) times (A) the Executive’s Base Salary, and (B) the Executive’s annual incentive award at target for the calendar year that includes the Date of Termination;

(C)a lump sum amount, if any, paid within two and one-half (2 ½) months after the end of the calendar year that includes the Date of Termination, equal to the actual annual incentive that would have been payable to the Executive for the calendar year that includes the Date of Termination based on the Company’s actual performance against applicable goals and for Executive’s personal goals/ key initiatives, based on Executive’s assumed target level performance, if the Executive had remained employed through the end of such calendar year; provided however, that such amount shall be adjusted on a Pro Rata basis;

(D)continuation of the Executive’s medical, dental, vision, and Company-paid basic life insurance coverage for twenty four (24) months. These benefits shall be provided by the Company to the Executive beginning immediately upon the Date of Termination. Such benefits shall be provided to the Executive at the same coverage level and cost to the Executive as in effect immediately prior to the Executive’s Date of Termination. Notwithstanding the above, these medical, dental, vision and Company-paid basic life insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Company in good faith. For purposes of enforcing this offset provision, the Executive shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such

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employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same;

(E)all outstanding and unvested stock options and SARs shall immediately vest and shall remain exercisable for a period of twelve (12) months from the Date of Termination or the last day of the option term, whichever occurs first. Additionally, from time to time, the Company may declare “blackout” periods with respect to Executive and/or designated employees of the Company during which Executive and/or such employees are prohibited from engaging in certain transactions in Company securities. The scheduled expiration date of stock options and SARs pursuant to this subsection shall automatically, and without further notice to the option/SAR holder, be extended by one business day for each business day of the blackout period applied to the option/SAR holder (but in no case longer than the option term);

(F)all restrictions on unvested shares of restricted stock and unvested restricted stock units or deferred shares shall immediately lapse, with such shares and units becoming non-forfeitable. The timing of the delivery of any shares on account of the vesting of any restricted share units will be determined under the terms of the Equity Incentive Plan (as most recently amended and/or restated) and the award agreements thereunder;

(G)unearned performance shares and performance units shall become non-forfeitable at one hundred percent of target; the timing of the delivery of any shares or cash on account of the vesting of performance shares or performance units will be determined under the terms of the Equity Incentive Plan (as most recently amended and/or restated) and the award agreements thereunder; and

(H)the Company will assist the Executive in finding other employment opportunities by providing to him, at the Company’s limited expense, reasonable professional outplacement services through the provider of the Company’s choice. Such outplacement services shall terminate when the Executive finds other employment. However, in no event shall such outplacement services continue for more than 24 months following the Date of Termination.

(c)Indemnification of Legal Fees. Effective only upon a Change in Control, it is the intent of the Company that the Executive not be required to incur the expenses associated with the enforcement of his rights under this Amended Agreement following such a Change in Control by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder following a Change in Control. Accordingly, following a Change in Control if it should appear to the Executive that the Company has failed to comply with any of its obligations under this Amended Agreement which arose following a Change in Control or in the event that the Company or any other person takes any action to declare this Amended Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, the Executive the benefits intended to be provided to the Executive hereunder, the Company irrevocably authorizes the Executive from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent the Executive in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, or any Subsidiary, Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive’s entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. Following a Change in Control, the Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys’ and related fees and expenses incurred by the Executive as a result of the Company’s failure to perform this Amended Agreement or any provision hereof or as a result of the Company or any person contesting the validity or enforceability of this Amended Agreement or any provision hereof as aforesaid, provided any such reimbursement of attorneys’ and related fees and expenses shall be made not later than December 31 of the year following the year in which the Executive incurred the expense.


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15.Resolution of Disputes.

Any disputes arising under or in connection with this Amended Agreement shall be resolved by third party mediation of the dispute and, failing that, by binding arbitration, to be held in Cleveland, Ohio, in accordance with the rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The Company will pay the direct costs and expenses of such arbitration. The Company will also reimburse the Executive for reasonable fees and expenses, including reasonable attorney’s fees, incurred by the Executive in connection with such arbitration, such reimbursement to be made monthly as such fees and expenses are incurred. In the event Executive does not prevail at arbitration, however, Executive will re-pay to the Company any and all expenses and fees previously reimbursed by the Company.
Notwithstanding the provisions of this Section 15, the Parties agree that in the event of any dispute between the Executive and the Company as to any of the Executive’s obligations under Sections 11, 12, or 13, then the arbitration requirements of this Section 15 shall not apply, and that instead, the Parties must seek relief as to that dispute in a court of general jurisdiction in the State of Ohio to be docketed, if available, on the commercial docket of that court. The Parties hereby consent to the exclusive specific and general jurisdiction of such court. The Executive hereby agrees that, by virtue of his work for the Company, he has purposely availed himself of the benefits and protections of the laws of the State of Ohio. In addition, in connection with any such court action, the Executive acknowledges and agrees that the remedy at law available to the Company for breach by Executive of any of his obligations under Sections 11, 12, or 13 of this Agreement would be inadequate and that damages flowing from such a breach would not readily be susceptible to being measured in monetary terms. Accordingly, the Executive acknowledges, consents and agrees that, in addition to any other rights or remedies which the Company may have at law, in equity or under this Amended Agreement, upon adequate proof of the Executive’s violation of any provision of Sections 11, 12, or 13 of this Amended Agreement, the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage.
16.Assignability; Binding Nature.

This Amended Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the “Company” for the purposes of this Amended Agreement), but shall not otherwise be assignable, transferable or delegable by the Company.
The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Amended Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. No rights or obligations of the Executive under this Amended Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will or operation of law. This Amended Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. This Amended Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Amended Agreement or any rights or obligations hereunder except as expressly provided in Section 16 hereof. Without limiting the generality of the foregoing, the Executive’s right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 16, the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated.

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17.Entire Agreement.

This Amended Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto.
18.Amendment or Waiver.

No provision in this Amended Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of the Company. No waiver by either Party of any breach by the other Party of any condition or provision contained in this Amended Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company, as the case may be.
19.Withholding.

The Company may withhold from any amounts payable under this Amended Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling.
20.Severability.

In the event that any provision or portion of this Amended Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Amended Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law so as to achieve the purposes of this Amended Agreement.
21.Survivorship.

Except as otherwise expressly set forth in this Amended Agreement, the respective rights and obligations of the Parties hereunder shall survive any termination of the Executive’s employment. Except as otherwise expressly provided by this Amended Agreement, this Amended Agreement itself (as distinguished from the Executive’s employment) may not be terminated by either Party without the written consent of the other Party. Upon the expiration of the term of the Amended Agreement, the respective rights and obligations of the Parties shall survive such expiration to the extent necessary to carry out the intentions of the Parties an embodied in the rights (such as vested rights) and obligations of the Parties under this Amended Agreement.
22.References.

In the event of the Executive’s death or a judicial determination of his incompetence, reference in this Amended Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative.
23.Governing Law.

This Amended Agreement shall be governed in accordance with the laws of Ohio without reference to principles of conflict of laws.
24.Attorneys’ Fees.

Executive will be reimbursed his reasonable attorneys’ fees incurred with respect to the negotiation of this Amended Agreement, provided that Executive delivers to the Company proper documentation of the fees incurred no later than September 1, 2015. The Company will make such reimbursement (or directly pay the fees) no later than December 31, 2015.

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25.Section 280G.

(a)In the event that any payment or benefit received or to be received by the Executive (including any payment or benefit received in connection with a Change in Control or the termination of the Executive’s employment pursuant to the terms of this Amended Agreement) (all such payments and benefits, together, the “Total Payments”) would be subject (in whole or part), to any excise tax imposed under Section 4999 of the Code, or any successor provision thereto (the “Excise Tax”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, program, arrangement or agreement, the Company will reduce the Total Payments to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax (but in no event to less than zero); provided, however, that the Total Payments will only be reduced if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state, municipal and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state, municipal and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments.

(b)In the case of a reduction in the Total Payments, the Total Payments will be reduced in the following order: (i) payments that are payable in cash that are valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a) will be reduced (if necessary, to zero), with amounts that are payable last reduced first; (ii) payments and benefits due in respect of any equity valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a), with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; (iii) payments that are payable in cash that are valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with amounts that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect of any equity valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; and (v) all other non-cash benefits not otherwise described in clauses (ii) or (iv) will be next reduced pro-rata. Any reductions made pursuant to each of clauses (i)-(v) above will be made in the following manner: first, a pro-rata reduction of cash payment and payments and benefits due in respect of any equity not subject to Section 409A of the Code, and second, a pro-rata reduction of cash payments and payments and benefits due in respect of any equity subject to Section 409A of the Code as deferred compensation.

(c)For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax: (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code will be taken into account; (ii) no portion of the Total Payments will be taken into account which, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change of Control, the Company’s independent auditor (the “Auditor”), does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments will be taken into account which, in the opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as set forth in Section 280G(b)(3) of the Code) that is allocable to such reasonable compensation; and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments will be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

(d)At the time that payments are made under this Amended Agreement, the Company will provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations, including any opinions or other advice the Company received from Tax Counsel, the Auditor, or other advisors or consultants (and any such opinions or advice which are in writing will be attached to the statement). All such calculations and opinions shall be binding on the Company and the Executive.

15






26.Notices.

All notices and other communications required or permitted hereunder shall be in writing and shall be deemed given when (a) delivered personally, (b) delivered by certified or registered mail, postage prepaid, return receipt requested or (c) delivered by overnight courier (provided that a written acknowledgment of receipt is obtained by the overnight courier) to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give such notice of:
If to the Company:
Diebold, Incorporated
5995 Mayfair Road
North Canton, Ohio 44720
Attention: Vice President and Chief Human Resources Officer

If to the Executive:

At the last residential address known by the Company

With a Copy to:

Jonathan Cohen, Esq.
Joseph & Cohen, P.C.
1855 Market Street
San Francisco, CA 94103

27.Headings.

The headings of the sections contained in this Amended Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Amended Agreement.
28.Counterparts.

This Amended Agreement may be executed in two or more counterparts.
29.Code Section 409A Compliance.

To the extent applicable, it is intended that this Amended Agreement comply with the provisions of Section 409A of the Code. This Amended Agreement will be administered in a manner consistent with this intent. References to Section 409A of the Code will include any proposed, temporary or final regulation, or any other formal guidance, promulgated with respect to such section by the U.S. Department of Treasury or the Internal Revenue Service. Each payment or benefit to be made or provided to the Executive under the provisions of this Amended Agreement will be considered to be a separate payment and not one of a series of payments for purposes of Section 409A of the Code.





16





IN WITNESS WHEREOF, the undersigned have executed this Amended Agreement as of the date first written above.

The Company


By: /s/ Sheila Rutt




By: /s/ Andreas W. Mattes
 
Sheila Rutt
Vice President,
Chief Human Resources Officer
 
Andreas W. Mattes


17












Senior Leadership Severance Plan
Amended and Restated Effective July 24, 2015



























Contents




_______________________________________________________

Article 1. Establishment and Term of the Plan
2

Article 2. Definitions
3

Article 3. Severance Benefits
5

Article 4. Confidentiality and Noncompetition
9

Article 5. Legal Fees and Notice
10

Article 6. Successors and Assignment
10

Article 7. Miscellaneous
11




Diebold, Incorporated
Senior Leadership Severance Plan


Article 1. Establishment and Term of the Plan
1.1     Establishment of the Plan. Diebold, Incorporated (hereinafter referred to as the “Company”) hereby establishes a severance plan to be known as the “Diebold Incorporated Senior Leadership Severance Plan” (the “Plan”) as such plan has been amended and restated effective July 24, 2015 to incorporate amendments made effective on January 1, 2014, September 1, 2014 and July 24, 2015. The Plan provides severance benefits to certain employees of the Company (“Executives”) upon certain terminations of employment from the Company. Eligibility to participate in the Plan is determined by career level and is subject to approval by the Compensation Committee of the Board. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company’s management to their assigned duties without distraction in circumstances arising from the possibility of certain terminations.
1.2 Initial Term. This Plan will commence on January 1, 2012 (the “Effective Date”) and shall continue in effect for a period of three (3) years (the “Initial Term”).
1.3 Successive Periods. The term of this Plan shall automatically be extended for one (1) additional year at the end of the Initial Term, and then again after each successive one (1) year period thereafter (each such one (1) year period following the Initial Term is referred to as a “Successive Period”). However, the Committee may terminate this Plan entirely or terminate any individual Executive’s participation in the Plan at the end of the Initial

2



Term, or at the end of any Successive Period thereafter, by giving all Executives (or select Executives, if terminating select Executives’ participation in the Plan) written notice of intent not to renew, delivered at least three (3) months prior to the end of such Initial Term or Successive Period. If such notice is properly delivered by the Company, this Plan, along with all corresponding rights, duties, and covenants, shall automatically expire at the end of the Initial Term or Successive Period then in progress.
Article 2. Definitions
Whenever used in this Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized.
(a)
“Base Salary” means the Executive’s annual rate of salary, whether or not deferred as of the Effective Date of Termination.
(b)
“Beneficiary” means the persons or entities designated or deemed designated by the Executive pursuant to Section 7.5 herein.
(c)
“Board” means the Board of Directors of the Company.
(d)
“Cause” shall mean the Executive’s”
(i)
Willful failure to substantially perform his duties with the Company (other than any such failure resulting from the Executive’s Disability), after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Company believes that the Executive has not substantially performed his duties, and the Executive has failed to remedy the situation with fifteen (15) business days of such written notice from the Company;
(ii)
Willful gross negligence in the performance of the Executive’s duties;
(iii)
Conviction of, or plea of guilty or nolo contendere, to any felony or a lesser crime or offense which, in the reasonable opinion of the Company, could adversely affect the business or reputation of the Company;
(iv)
Willful engagement in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise;
(v)
Willful violation of any provision of the Company’s code of conduct;
(vi)
Willful violation of any of the covenants contained in Article 4 of this Plan, as applicable;
(vii)
Act of dishonesty resulting in, or intended to result in, personal gain at the expense of the Company; or
(viii)
Engaging in any act that is intended to harm, or may be reasonably expected to harm, the reputation, business prospects, or operations of the Company.
For purposes of this paragraph (d), no act or omission by the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act or failure to act based upon: (i) authority given pursuant to a resolution duly adopted by the Board; or (ii) advice of counsel for the Company, shall be conclusively presumed to be done or omitted to be done by the Executive in good faith and in the best interests of the Company.

3



For purposes of this Plan, there shall be no termination for Cause pursuant to subsections (i) through (viii) above, unless a written notice, containing a detailed description of the grounds constituting Cause hereunder, is delivered to the Executive stating the basis for the termination. Upon receipt of such notice, the Executive shall be given thirty (30) days to fully cure (if such violation, neglect, or conduct is capable of cure) the violation, neglect, or conduct that is the basis of such claim.
(e)
“Code” means the United States Internal Revenue Code of 1986, as amended, and any successors thereto.
(f)
“Committee” means the Compensation Committee of the Board or any other committee appointed by the Board to perform the functions of the Compensation Committee.
(g)
“Company” means Diebold, Incorporated, an Ohio corporation, or any successor thereto as provided in Article 6 herein.
(h)
“Disability” shall have the same meaning ascribed to that word in the long-term disability plan in effect for senior executives of the Company and its Subsidiaries.
(i)
“Effective Date” means the commencement date of this Plan as specified in Section 1.2 of this Plan.
(j)
“Effective Date of Termination” means the date on which a Qualifying Termination occurs, as defined hereunder, which triggers the payment of Severance Benefits hereunder.
(k)
“Good Reason” shall mean the occurrence of any one or more of the following without the Executive’s express written consent:
(i)    The Company materially reduces the amount of the Executive’s then current Base Salary or the target for his annual bonus; or
(ii)    The Company requires the Executive to be based at a location in excess of fifty (50) miles from the location of the Executive’s principal job location or office as of the Effective Date; or
(iii)    The failure of the Company to obtain in writing the obligation to perform or be bound by the terms of this Plan by any successor to the Company or a purchaser of all or substantially all of the assets of the Company; or
(iv) Any other action or inaction by the Company that constitutes a material breach by the Company of the terms and conditions of this Plan.
For purposes of this Plan, neither the change in the Executive’s title, authority, duties, or responsibilities nor the assignment of duties to the Executive that are inconsistent with his position shall constitute “Good Reason” and further, the Executive is not entitled to assert that his termination is for Good Reason unless the Executive gives the Company written notice of the event or events that are the basis for such claim within ninety (90) days after the event or events occur, describing such claim in reasonably sufficient detail to allow the Company to address the event or events and a period of not less than thirty (30) days after to cure the alleged condition.
(l)
“Notice of Termination” shall mean a written notice that shall indicate the specific termination provision in this Plan relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

4



(m)
“Qualifying Termination” means a termination of employment under the following circumstances:
(i)
An involuntary termination of the Executive’s employment by the Company for reasons other than Cause pursuant to a Notice of Termination delivered to the Executive by the Company; or
(ii)
A voluntary termination by the Executive for Good Reason pursuant to a Notice of Termination delivered to the Company by the Executive.
Termination of employment shall have the same meaning as “separation from service” within the meaning of Treasury Regulation §1.409A‑1(h).
(n)
“Severance Benefits” means the payment of severance compensation as provided in Article 3 herein.
Article 3. Severance Benefits
3.1    Right to Severance Benefits and Impact on Long‑Term Incentives.
(a)
Severance Benefits. The Executive shall be entitled to receive from the Company Severance Benefits, as described in Section 3.2 or, if applicable, Section 3.4 herein, if a Qualifying Termination of the Executive’s employment has occurred.
(b)
No Severance Benefits. The Executive shall not be entitled to receive Severance Benefits if the Executive’s employment with the Company ends for reasons other than a Qualifying Termination.
(c)
General Release and Acknowledgement of Restrictive Covenants. As a condition to receiving Severance Benefits under Section 3.2 or, if applicable, Section 3.4 herein, no later than sixty (60) days after the date of the Executive’s Qualifying Termination, (i) the Executive shall be obligated to execute a general release of claims in favor of the Company, its current and former affiliates and stockholders, and the current and former directors, officers, employees, and agents of the Company in a form acceptable to the Company, (ii) the Executive must execute a notice acknowledging the restrictive covenants in Article 4, and (iii) the Executive’s general release shall have become irrevocable.
3.2     Description of Severance Benefits. In the event the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1(a) herein, the Company shall provide the Executive with the following, subject to Section 3.2(g) herein:
(a)
A lump‑sum amount, paid sixty (60) calendar days following the Effective Date of Termination, equal to the Executive’s unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and all other items earned by and owed to the Executive through and including the Effective Date of Termination; provided that if the sixty (60) day period begins in an Executive’s taxable year and ends in the Executive’s subsequent taxable year, the payment will be made in the subsequent taxable year.
(b)
A lump‑sum amount, paid within the sixty (60) calendar days following the Effective Date of Termination, equal to: (i) two (2) for Grade 100 and 90 Executives regardless of date of hire, (ii) one and one‑half (1.5) for Grade 85 Executives regardless of date of hire, (iii) one and one-quarter for Grade 80 Executives with a date of hire after September 1, 2014, (iv) one and one-half (1.5) for Grade 80 Executives with a date of hire prior to August 31, 2014, and (v) one (1) for Grade 75 and 70 Executives regardless of date of hire, multiplied by the sum of the following: (A) the Executive’s Base Salary, and (B) the Executive’s annual target bonus opportunity in the year of termination, with the exception of Grade 70 with a date of hire after September 1, 2014 which is one (1) times (A) the Executive’s Base Salary only. Provided that if the sixty (60) day period begins in an Executive’s taxable year and ends in the Executive’s subsequent taxable year, the payment will be made in the subsequent taxable year.

5



(c)
A lump‑sum amount, if any, paid within two and one‑half (2 ½) months after the end of the calendar year that includes the Effective Date of Termination, equal to the actual bonus that would have been payable to the Executive for the calendar year that includes the Effective Date of Termination based on actual performance if the Executive had remained employed through the end of such calendar year; provided however, that such amount shall be adjusted on a pro rata basis based on the number of days the Executive was actually employed during the bonus plan year in which the Qualifying Termination occurs.
(d)
Continuation of the Executive’s medical, dental, vision, and Company-paid basic life insurance coverage for: (i) one hundred and four weeks (104) for Grade 100 and 90 Executives regardless of date of hire, or (ii) seventy-eight (78) weeks for Grade 85 and 80 Executives, (iii) sixty-five (65) weeks for Grade 80 Executives with a date of hire after September 1, 2014, and (iv) fifty-two (52) weeks for Grade 75 and 70 Executives. These benefits shall be provided by the Company to the Executive beginning immediately upon the Effective Date of Termination. Such benefits shall be provided to the Executive at the same coverage level and cost to the Executive as in effect immediately prior to the Executive’s Effective Date of Termination. Notwithstanding the foregoing, if the Executive is a “specified employee” within the meaning of Section 409A of the Code, then the benefits provided under this Section 3.2(d) which the Company determines constitute the payment of deferred compensation (within the meaning of Section 409A of the Code) shall be provided at the Executive’s sole cost during the six (6) month period immediately after the Effective Date of Termination, and as soon as administratively practicable following the expiration of such six (6) month period, the Company shall reimburse the Executive for the portion of such costs payable by the Company hereunder.
Notwithstanding the above, these medical, dental, vision and Company-paid basic life insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Company in good faith. For purposes of enforcing this offset provision, the Executive shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.
(e)
Treatment of outstanding long‑term incentives shall be in accordance with Section 3.3 herein.
(f)
The Company will assist the Executive in finding other employment opportunities by providing to him, at the Company’s limited expense, professional outplacement services through the provider of the Company’s choice. Such outplacement services shall terminate when the Executive finds other employment. However, in no event shall such outplacement services continue for more than two (2) years following the Effective Date of Termination.
(g)
Notwithstanding anything in this Plan to the contrary, if the Executive constitutes a “specified employee” as defined and applied in Section 409A of the Code, as of the Effective Date of Termination, to the extent payments made under Sections 3.2(a), (b), or (c) constitute deferred compensation (after taking into account any applicable exemptions from Section 409A of the Code), and to the extent required by Section 409A of the Code, payments may not commence to be paid to Executive until the earlier of: (i) the first day following the six (6) month anniversary of the Executive’s Effective Date of Termination, or (ii) the Executive’s date of death; provided, however, that any payments delayed during this six (6) month period shall be paid in a lump sum as soon as administratively practicable following the six (6) month anniversary of the Executive’s Effective Date of Termination. For purposes of Section 409A of the Code, each payment due under Sections 3.2(a), (b), and (c) immediately above shall be considered a separate payment.

6



For purposes of the preceding paragraph, and to the extent permitted by Section 409A of the Code, during the six (6) months following the Executive’s Effective Date of Termination, the Company shall pay any amounts required to be paid by this Section 3.2 in accordance with the payment schedules specified in this Section 3.2 to the extent that such payments would not exceed the limitations of the “short‑term deferral” and “separation pay plan” exceptions provided by Treasury Regulations and other guidance issued with respect to Code Section 409A. Any payments in excess of these limitations shall be paid after the six (6) month period described in accordance with the preceding paragraph.
3.3 Impact on Long‑Term Incentives. Upon a Qualifying Termination that entitles the Executive to Severance Benefits as provided in Section 3.1(a) herein:
(a)
All outstanding and unvested stock options and stock appreciation rights (“SARs”) shall immediately vest and shall remain exercisable for a period of twelve (12) months from the Effective Date of Termination or the last day of the option term, whichever occurs first. Additionally, from time to time, the Company may declare "blackout" periods with respect to Executive and/or designated employees of the Company during which Executive and/or such employees are prohibited from engaging in certain transactions in Company securities. The scheduled expiration date of stock options and SARs pursuant to this subsection shall automatically, and without further notice to the option/SAR holder, be extended by one business day for each business day of the blackout period applied to the option/SAR holder, but in no case longer than the option term..
(b)
All restrictions on unvested shares of restricted stock and unvested restricted stock units shall immediately lapse, with such shares and units becoming nonforfeitable on a pro rata basis, as determined under this subparagraph (b). The pro rata award shall equal the product of (x) and (y) where (x) is the number of restricted stock shares or units subject to the award, and (y) is a fraction, the numerator of which is the number of calendar months that the Executive was employed by the Company during the restriction period (with any partial months counting as a full month for this purpose) and the denominator of which is the number of months in the restriction period.
(c)
Unearned performance shares and performance units shall be paid out on a pro rata basis, as determined under this subparagraph (c). The pro rata award shall equal the product of (x) and (y) where (x) is the award the Executive would have earned based on actual performance measured as of the end of the respective performance period and (y) is a fraction, the numerator of which is the number of calendar months that the Executive was employed by the Company during the performance period (with any partial month counting as a full month for this purpose) and the denominator of which is the number of months in the performance period.
If there is any inconsistency between the terms of the Plan and the terms of a separate outstanding award agreement, the Plan’s terms shall completely supersede and replace the conflicting terms of the underlying award agreement.
3.4 Executives with less than one year of Service
Notwithstanding anything to the contrary in this Plan, with respect to any Executive hired on or after December 31, 2013, the Severance Benefits that such Executive may be entitled to upon a Qualifying Termination shall be limited as set forth in this Section 3.4 in the event the Effective Date of Termination for such Executive occurs prior to the first anniversary of the date on which such Executive became an employee of the Company. In the event the Executive under the circumstances described in the preceding sentence becomes entitled to receive Severance Benefits as provided in Section 3.1(a) herein, the provisions of Section 3.2 and Section 3.3 shall not apply, and instead the Company shall provide the Executive with the following, subject to Section 3.4(g) herein:

7



(a)
A lump sum amount, paid within sixty (60) calendar days following the Effective Date of Termination, equal to the Executive’s unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and all other items earned by and owed to the Executive through and including the Effective Date of Termination; provided that if the sixty (60) day period begins in an Executive’s taxable year and ends in the Executive’s subsequent taxable year, the payment will be made in the subsequent taxable year.
(b)
A lump sum amount, paid within sixty (60) calendar days following the Effective Date of Termination, equal to:  (i) the number of full calendar months from the date on which the Executive became an employee of the Company until the Effective Date of Termination (but in any event, no less than three (3) months), multiplied by (ii) an amount equal to (A) the sum of (x) the Executive’s Base Salary, and (y) the Executive’s annual target bonus opportunity in the year of termination, divided by (B) twelve (12) with the exception that Executives at a Grade 70 with a date of hire after September 1, 2014 receive one (1) times the Executive’s monthly base salary only multiplied by the number of full calendar months from the date on which the Executive became an employee of the Company until the Effective Date of Termination (but in any event, no less than (3) months); in all instances, if the sixty (60) day period begins in an Executive’s taxable year and ends in the Executive’s subsequent taxable year, the payment will be made in the subsequent taxable year.
(c)
[Intentionally omitted.]
(d)
Continuation of the Executive’s medical, dental, and vision insurance coverage for a period of time equal to the number of full calendar months from the date on which the Executive became an employee of the Company until the Effective Date of Termination (but in any event, no less than three (3) months). These benefits shall be provided by the Company to the Executive beginning immediately upon the Effective Date of Termination. Such benefits shall be provided to the Executive at the same coverage level and cost to the Executive as in effect immediately prior to the Executive’s Effective Date of Termination. Notwithstanding the foregoing, if the Executive is a “specified employee” within the meaning of Section 409A of the Code, then the benefits provided under this Section 3.4(d) which the Company determines constitute the payment of deferred compensation (within the meaning of Section 409A of the Code) shall be provided at the Executive’s sole cost during the six (6) month period immediately after the Effective Date of Termination, and as soon as administratively practicable following the expiration of such six (6) month period, the Company shall reimburse the Executive for the portion of such costs payable by the Company hereunder.
Notwithstanding the above, these medical, dental, and vision insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Company in good faith. For purposes of enforcing this offset provision, the Executive shall be deemed to have duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.

8



(e)
Treatment of outstanding long-term incentives shall be in accordance with the terms and conditions of the award agreements and plan pursuant to which the incentive was granted. Section 3.3 shall have no applicability.
(f)
[Intentionally omitted.]
(g)
Notwithstanding anything in this Plan to the contrary, if the Executive constitutes a “specified employee” as defined and applied in Section 409A of the Code, as of the Effective Date of Termination, to the extent payments made under Sections 3.4(a) or (b) constitute deferred compensation (after taking into account any applicable exemptions from Section 409A of the Code), and to the extent required by Section 409A of the Code, payments may not commence to be paid to Executive until the earlier of: (i) the first day following the six (6) month anniversary of the Executive’s Effective Date of Termination or, (ii) the Executive’s date of death; provided, however, that any payments delayed during this six (6) month period shall be paid in a lump sum as soon as administratively practicable following the six (6) month anniversary of the Executive’s Effective Date of Termination. For purposes of Section 409A of the Code, each payment due under Section 3.4(a) and (b) immediately above shall be considered a separation payment.
For purposes of the preceding paragraph, and to the extent permitted by Section 409A of the Code, during the six (6) months following the Executive’s Effective Date of Termination, the Company shall pay any amounts required to be paid by this Section 3.4 in accordance with the payment schedules specified in this Section 3.4 to the extent that such payments would not exceed the limitations of the “short-term deferral” and “separation pay plan” exceptions provided by Treasury Regulations and other guidance issued with respect to Code Section 409A. Any payments in excess of these limitations shall be paid after the six (6) month period described in accordance with the preceding paragraph.
Article 4. Confidentiality and Noncompetition
In the event the Executive becomes entitled to receive Severance Benefits as provided in Section 3.2 or, if applicable, Section 3.4, herein, the following shall apply:
(a)
Noncompetition. During the Executive’s Employment and for a period of: (i) two (2) years for Grade 100 and 90 Executives regardless of date of hire, or (ii) one and one-half (1.5) years for Grade 85 and 80 Executives, (iii) one and one-quarter (1.25) years for Grade 80 Executives with a date of hire after September 1, 2014, and (iv) one (1) year for Grade 75 and 70 Executives after the Effective Date of Termination, the Executive shall not: (A) directly or indirectly act in concert or conspire with any person employed by the Company in order to engage in or prepare to engage in or to have a financial or other interest in any business or any activity that he knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on; or (B) serve as an employee, agent, partner, shareholder, director, or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business or any activity that he knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on (provided, however, that notwithstanding anything to the contrary contained in this Plan, the Executive may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934).

(b)
Confidentiality. The Company has advised the Executive and the Executive acknowledges that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. The Executive shall not at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Executive’s employment), nor use in any manner, either during the

9



Executive’s employment or after termination for any reason, any Protected Information, or cause any such Protected Information of the Company to enter the public domain.
For purposes of this Plan, “Protected Information” means trade secrets, confidential and proprietary business information of the Company, and any other information of the Company, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services that may be developed from time to time by the Company and its agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Plan), approved for release by the Company or lawfully obtained from third parties who are not bound by a confidentiality agreement with the Company, is not Protected Information.
(c)
Nonsolicitation. During the Executive’s employment and for a period of: (i) three (3) years for Grade 100 and 90 Executives (ii) two and one-half (2 ½) years for Grade 85 and 80 Executives, and (iii) two (2) year for Grade 75 and 70 Executives after the Effective Date of Termination, the Executive shall not: (A) employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of the Company; or (B) solicit suppliers or customers of the Company or induce any such person to terminate his, her, or its relationship with the Company.
(d)
Cooperation. Executive agrees to cooperate with the Company and its attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to Executive’s employment by the Company or any of its subsidiaries.
(e)
Nondisparagement. At all times, the Executive agrees not to disparage the Company or otherwise make comments harmful to the Company’s reputation.
(f)
Severability. If any provision of Article 4 is held to be unenforceable, then this Agreement will be deemed amended to the extent necessary to render the otherwise unenforceable provision, and the rest of Article 4, valid and enforceable. If a court declines to amend the provisions of Article 4 as provided herein, the invalidity or unenforceability of any provision in Article 4 shall not affect the validity or enforceability of the remaining provisions in Article 4, which shall be enforced as if the offending provision had not been included in this Plan.
Article 5. Legal Fees and Notice
5.1     Payment of Legal Fees. Except as otherwise agreed to by the parties, the Company shall pay the Executive for costs of litigation or other disputes including, without limitation, reasonable attorneys’ fees incurred by the Executive in asserting any claims or defenses under this Plan, except that the Executive shall bear his own costs of such litigation or disputes (including, without limitation, attorneys’ fees) if the court (or arbitrator) finds in favor of the Company with respect to any claims or defenses asserted by the Executive.
5.2     Notice. Any notices, requests, demands, or other communications provided for by this Plan shall be sufficient if in writing and if sent by registered or certified mail to the Executive at the last address he or she has filed in writing with the Company or, in the case of the Company, at its principal offices.
Article 6. Successors and Assignment
6.1     Successors to the Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) of all or a significant portion of the assets of the Company by agreement, in form and substance satisfactory to the Executive, to expressly assume and agree to perform under this Plan in the same manner and to the same extent that the

10



Company would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, the terms of this Plan shall be binding upon any successor in accordance with the operation of law and such successor shall be deemed the “Company” for purposes of this Plan.
6.2     Assignment by the Executive. This Plan shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amount would still be payable to him or her hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the Executive’s Beneficiary. If the Executive has not named a Beneficiary, then such amounts shall be paid to the Executive’s devisee, legatee, or other designee, or if there is no such designee, to the Executive’s estate.
Article 7. Miscellaneous
7.1     Employment Status. Except as may be provided under any other agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and may be terminated by either the Executive or the Company at any time, subject to applicable law.
7.2     Entire Plan. Except for any change in control related separation or severance pay plans, agreements, or understandings, oral or written, between the parties hereto, this Plan supersedes all other separation or severance pay plans, prior agreements, or understandings, oral or written, between the parties hereto, with respect to the subject matter hereof, and constitutes the entire agreement of the parties with respect thereto. The Severance Benefits provided under Section 3.2 or, if applicable, Section 3.4 herein, are not intended to duplicate severance benefits (including change in control related severance benefits) under any other severance plan, arrangement, or employment agreement maintained by the Company. In the event an Executive qualifies for benefits under this Plan and under any other severance plan, arrangement, or employment agreement of the Company, the Severance Benefits under this Plan shall be reduced dollar for dollar by the amount or single-sum value of the severance benefits under any other such severance plan, arrangement, or agreement.
The Company reserves the right to provide additional benefits to the Executive outside of the Plan. Any such additional benefits will not be considered provided pursuant to this Plan, but unless expressly provided otherwise, any such additional benefits will offset and reduce the Severance Benefits provided under this Plan.
The amount of any reduction or offset under this Section 7.2 shall not change after a change in control except to the extent that such change does not change the time or form of payment of “deferred compensation” within the meaning of Section 409A of the Code.
7.3     Severability. In the event that any provision or portion of this Plan shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Plan shall be unaffected thereby and shall remain in full force and effect.
7.4     Tax Withholding. The Company may withhold from any benefits payable under this Plan all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.
7.5     Beneficiaries. The Executive may designate one (1) or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Plan. Such designation must be in the form of a signed writing acceptable to the Board or the Board’s designee. The Executive may make or change such designation at any time.
7.6     Payment Obligation Absolute. The Company’s obligation to make the payments provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or anyone else.

11



Except as provided in Section 3.2(d) of this Plan, the Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Plan, and the obtaining of any such other employment shall in no event effect any reduction of the Company’s obligations to make the payments and arrangements required to be made under this Plan.
7.7     Contractual Rights to Benefits. Subject to approval and ratification by the Board of Directors, this Plan establishes and vests in the Executive a contractual right to the benefits to which he or she is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.
7.8     Modification. No provision of this Plan may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by each and every Executive then covered by the Plan and by an authorized member of the Committee, or by the respective parties’ legal representatives and successors.
7.9     Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
7.10 Section 409A of the Code. This Plan is intended to comply with, or be exempt from, Section 409A of the Code (to the extent applicable). This Plan shall be interpreted and administered consistent with this intent. No reimbursement or in-kind benefit shall be subject to liquidation or exchange for another benefit and the amount available for reimbursement, or in-kind benefits to be provided, during any calendar year shall not affect the amount available for reimbursement, or in-kind benefits to be provided, in a subsequent calendar year. Any reimbursement to which the Executive is entitled hereunder shall be made no later than the last day of the calendar year following the calendar year in which such expenses were incurred.
7.11 Applicable Law. To the extent not preempted by the laws of the United States, the laws of the state of Ohio shall be the controlling law in all matters relating to this Plan.


12




DIEBOLD, INCORPORATED

FIRST AMENDMENT TO
DEFERRED COMPENSATION PLAN NO. 2
FOR DIRECTORS OF DIEBOLD, INCORPORATED


WHEREAS, Diebold, Incorporated established the Deferred Compensation Plan No. 2 for Directors of Diebold, Incorporated effective as of January 1, 2005; and
WHEREAS, pursuant to Article IV of the Plan, the Company reserved the right to amend the Plan; and
WHEREAS, the Plan is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, applicable to nonqualified deferred compensation; and
WHEREAS, on July 24, 2015, the Board of Directors of the Company approved an amendment of the Plan to revise Section 8 of Article II of the Plan;
NOW, THEREFORE, effective for the Fees deferred pursuant to Election Agreements entered into after the July 24, 2015 date of this First Amendment and the related Participant Accounts, Section 8 of Article II of the Plan is deleted in its entirety and the following is inserted in place thereof (defined terms not otherwise defined herein shall have the meanings ascribed to them in the Plan):

8.    Acceleration.

(i)For Fees deferred pursuant to Election Agreements entered into on or prior to July 24, 2015 and the related Participant Accounts, the following shall apply: Notwithstanding the foregoing, (i) in the event of the acquisition of substantially all of the assets of the Company or more than fifty percent (50%) of its stock by any person, firm, corporation or group of related corporations, in a transaction or transactions not approved by the Board of Directors of the Company, provided such transaction constitutes a "change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation" (for purposes of Section 409A of the Code), the entire amount of a Participant's Account will be paid in a lump sum to the Participant or his Beneficiary on the date of the closing of such transaction, or (ii) if a Participant incurs an Unforeseeable Emergency, to the extent permitted by Section 409A of the Code, an amount from such Participant's Account or Accounts shall be immediately paid to the Participant on the date within thirty (30) days after the date the Committee determines that the Participant has incurred an Unforeseeable Emergency, provided that the Participant shall not have the right to designate the taxable year of payment.

(ii)For Fees deferred pursuant to Election Agreements entered into after July 24, 2015 and the related Participant Accounts, the following shall apply: Notwithstanding the foregoing, (i) in the event of a Change in Control, the entire amount of a Participant's Account will be paid in a lump sum to the Participant or his Beneficiary on the date of the occurrence of such Change in Control, or (ii) if a Participant incurs an Unforeseeable Emergency, to the extent permitted by Section 409A of the Code, an amount from such Participant's Account or Accounts shall be immediately paid to the Participant on the date within thirty (30) days after the date the Committee determines that the Participant has incurred an Unforeseeable Emergency, provided that the Participant shall not have the right to designate the taxable year of payment.

Solely for purposes of this Section 8(ii) of Article II of the Plan:

(a)“Board” means the board of directors of the Company.

(b)“Change in Control” means the occurrence of any of the following:

1







(1)
the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either: (A) the then-outstanding shares of common stock of the Company (the “Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (“Voting Stock”); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (3) below; or

(2)
individuals who, as of July 24, 2015, constitute the Board (as modified by this subsection (2), the “Incumbent Board”), cease for any reason (other than death or disability) to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(3)
consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Company Common Stock and Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Company Common Stock and Voting Stock of the Company, as the case may be, (B) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) sponsored or maintained by the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then-outstanding shares of common stock of the entity resulting from such Business Combination, or

2







the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board providing for such Business Combination; or

(4)
approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

A “Change in Control” will be deemed to occur (i) with respect to a Change in Control pursuant to subsection (1) above, on the date that any Person becomes the beneficial owner of thirty percent (30%) or more of either the Company Common Stock or the Voting Stock, (ii) with respect to a Change in Control pursuant to subsection (2) above, on the date the members of the Incumbent Board first cease for any reason (other than death or disability) to constitute at least a majority of the Board, (iii) with respect to a Change in Control pursuant to subsection (3) above, on the date the applicable transaction closes and (iv) with respect to a Change in Control pursuant to subsection (4) above, on the date of the shareholder approval. Notwithstanding the foregoing provisions, a “Change in Control” shall not be deemed to have occurred for purposes of this Section 8(ii) of Article II of the Plan solely because of a change in control of any Subsidiary.

(c)“Subsidiary” means a corporation, company or other entity (i) more than fifty percent (50%) of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than fifty percent (50%) of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter owned or controlled, directly or indirectly, by the Company, but such corporation, company or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists.

* * *


3








EXHIBIT 31.1
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andreas W. Mattes, certify that:
1)
I have reviewed this quarterly report on Form 10-Q of Diebold, Incorporated;
2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 30, 2015
 
 
/s/ Andreas W. Mattes
 
 
 
Andreas W. Mattes
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)

 






EXHIBIT 31.2
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christopher A. Chapman, certify that:
1)
I have reviewed this quarterly report on Form 10-Q of Diebold, Incorporated;
2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 30, 2015
 
 
/s/ Christopher A. Chapman
 
 
 
Christopher A. Chapman
 
 
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)






EXHIBIT 32.1
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q of Diebold, Incorporated (Company) for the quarter ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (Report), I, Andreas W. Mattes, President and Chief Executive Officer, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge:
1
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

July 30, 2015
 
 
/s/ Andreas W. Mattes
 
 
 
Andreas W. Mattes
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)






EXHIBIT 32.2
DIEBOLD, INCORPORATED AND SUBSIDIARIES
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q of Diebold, Incorporated (Company) for the quarter ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (Report), I, Christopher A. Chapman, Senior Vice President and Chief Financial Officer, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge:
1
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

July 30, 2015
 
 
/s/ Christopher A. Chapman
 
 
 
Christopher A. Chapman
 
 
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)


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