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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014
[October 30, 2014]

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014


(Edgar Glimpses Via Acquire Media NewsEdge) DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, 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 Form10-Q.



Introduction Diebold, Incorporated and its subsidiaries (collectively, the Company) is a global leader in providing integrated services and software, financial self-service (FSS) delivery and security systems to primarily the financial, commercial, retail and other markets. Founded in 1859, the Company currently has approximately 16,000 employees with representation in more than 90 countries worldwide. The Company unveiled its multi-year turnaround strategy, Diebold 2.0, at the Investment Community Conference in November 2013. The objective of Diebold 2.0 is to transform the Company into a world-class, services-led and software enabled provider of secure, convenient and efficient solutions for its customers. The turnaround strategy will follow a "Crawl, Walk, Run" approach, which requires the core business operations to be stabilized in the "Crawl" phase and build the foundation for future growth in the "Walk" and "Run" phases.

Four core pillars provide the Company a clear path toward reaching this multi-year objective: • Reduce 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 Company sees opportunities to leverage its capabilities in services, software and innovation to meet the needs of its rapidly evolving markets. The Company has sharpened its focus on executing its core strategies in FSS and electronic security. This includes making the appropriate investments to deliver growth within these areas, especially in research, development and engineering expense. In addition, the Company remains committed to a disciplined risk assessment process, focused on proactively identifying and mitigating potential risks to the Company's continued success.

Diebold 2.0 - Turnaround Strategy Diebold 2.0 is built on four core pillars: cost, cash, talent and growth.

Underpinned by the four core pillars, the turnaround strategy encompasses eight specific actions to achieve top-tier performance and generate sustainable, profitable growth.

Eight-Point Program: 1. Establish a Competitive Cost Structure Reducing the Company's fixed cost envelope and driving operational rigor is fundamental. The $150,000 multi-year realignment plan launched in 2013 will drive efficiency while reducing general and administrative costs and the cost of goods sold.

2. Drive Sustainable Improvement in Cash Flow The Company is committed to improving cash generation in order to increase shareholder value and fuel the investments necessary to grow the business. An emphasis on working capital improvements and cash generation now extends far beyond the finance organization - it is a main-stage requirement in every operation in every region.

3. Improve Sales Effectiveness The Company's sales teams must enhance skills, tools and coverage to reach more prospects more effectively. For example, the global deployment of Salesforce.com will enhance the ability to plan, forecast and allocate resources more productively.

4. Increase Speed and Agility Streamlining the management structure will drive greater accountability, accelerate decision-making and facilitate the transition to a truly global business. Change is being viewed as an enabler of progress and not as a disrupter.

5. Instill a Winning Culture Grounded in Execution The message being driven to every member of the organization: The Company is not merely to participate in a market, but to succeed, and win through a culture built upon accountability and execution. As an example, the Company has taken steps to better align employee compensation with Company performance.

27-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) 6. Collaborate With Customers and Partners to Drive Innovative Solutions The Company must accelerate new ideas through teamwork with capable partners and collaboration with customers. For example, the India-originated Diebold 429 Automated Teller Machine (ATM) solution reduced development time and costs while at the same time meeting defined market needs.

7. Further Leverage Services and Software The Company expects the commoditization of hardware to continue, the size and importance of the software stack to increase, and our expertise in services and system integration to be a key differentiator. The objective is to further expand the percentage of sales derived from services and software, which is expected to exceed 60 percent during the transformation.

8. Generate Long-Term, Profitable Growth The seven actions defined above are designed to put the Company on a sustainable, profitable growth trajectory. A commitment to operational rigor, improved analytics and data-driven decision-making is expected to position the Company to benefit from secular trends in outsourcing and mobility, expand its electronic security business and drive both organic and inorganic growth.

As part of the transformation, the Company engaged Accenture to provide finance and accounting, human resources and procurement business process outsourcing services. The Company's multi-year outsourcing agreement focuses on creating one global delivery model that enhances the quality, controls and efficiency of the Company's integrated global business processes. The Company plans to utilize Accenture's industry leading practices, technologies and global delivery network to establish more synchronized operational controls, improve operational transparency, lower spending and reduce costs. Reinvestment of the Company's savings into transformation initiatives with Accenture were marginal in the first half of 2014 and have increased in the third quarter of 2014.

Solutions The Company leverages its strong base of maintenance and advanced services to deliver comprehensive outsourcing and managed services. Banks are continuously being challenged to reduce costs while increasing operational efficiencies.

Through outsourced services, banks entrust the management of their ATM and security operations to the Company, allowing their staffs to focus on core competencies. Furthermore, the Company's outsourcing and managed services offering provides banks and credit unions with the leading-edge technology they need to stay competitive in the marketplace. As a leader in outsourcing services, the Company is poised to capitalize on the secular outsourcing trends in the marketplace. Several years ago, the Company launched its outsourcing and managed services business in North America and has grown this business from $5,000 to over $200,000 in annual revenue with over 22,500 units under contract.

Another demand driver in the global ATM marketplace is branch transformation.

The concept of branch transformation is to help financial institutions reduce their costs by migrating routine transactions, typically done inside the branch, to lower-cost automated channels, including the ATM as well as adding convenience and additional security for the banks' customers. One area of branch transformation that continues to gain traction is deposit automation. Among the largest U.S. national banks, there has been extensive deployment of deposit automation-enabled terminals. Today, approximately 25 percent of ATMs globally are configured for automated deposits.

Another solution the Company offers as part of its branch transformation efforts is Concierge Video Services™, most recently launched in North America. The solution provides consumers with on-demand access to bank call center representatives right at the ATM for sales or bank account maintenance support.

In addition to delivering a personal touch outside of regular business hours, Concierge Video Services™ ultimately assists financial institutions by maximizing operational efficiencies, improving the consumer experience and enhancing the overall consumer relationship.

Mobile integration is another emerging trend in the FSS space, as consumers look for multiple ways to interact with their financial institutions. In July 2013, Diebold introduced its cardless Mobile Cash Access solution, which allows consumers to stage a transaction with their mobile device and complete it at the ATM without the need for 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.

A new technology that enhances security for customers is Diebold's ActivEdge card reader. This is the ATM industry's first complete anti-skimming card reader that prevents all known forms of skimming, the most prevalent type of ATM crime, as well 28-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) as other forms of ATM fraud. ActivEdge can help financial institutions avoid skimming-related fraud losses which, according to the ATM Industry Association, total 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. We believe 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.

Another opportunity for a successful outsourcing and managed services approach relates to security challenges and the systems to address them, which have grown increasingly complex. This has created a strong business case among financial institutions and commercial customers for outsourcing and managed service solutions, particularly in the areas of monitoring, services and software management. Today, the Company is bringing its expertise back into the financial sector and pursuing other areas, namely the commercial market, with a focused effort to secure large, complex and technologically demanding projects. The Company has customer-focused teams that possess high levels of logical and enterprise security expertise that are required in this business. The Company is also leveraging best practices and some of the best talent to continue building upon its security outsourcing and managed services business.

As it relates to security, the Company recently introduced a new online security management tool in North America, called SecureStat®, that 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. SecureStat® is a great example of the software-driven platforms the Company is investing in to strengthen its services offering and differentiate itself in the marketplace.

Moving forward, the Company intends to create shareholder value by leveraging the opportunities it sees within the area of branch transformation, growing its services, outsourcing and software capabilities, further building out its electronic security business and taking advantage of key commercial trends around the world. Many opportunities lie ahead, and the Company will continue to invest in developing new services, software and security solutions that align with the needs of its core markets.

Multi-Year Realignment Plan The Company is committed to its previously announced multi-year realignment plan aimed at establishing a competitive cost structure throughout the organization.

The Company has currently identified targeted savings of $150,000 that are expected to be fully realized by the end of 2015 and is working to accelerate the cost savings efforts beyond this target longer term. The Company expects to reinvest a portion of the savings to drive long-term growth. Areas of reinvestment include: research and development of innovative new customer solutions; improving and updating the Company's information technology systems and infrastructure; transforming the general and administrative back-office functions; and strengthening sales coverage and marketing, processes and tools.

In addition, some of the savings should offset price erosion, wage inflation in emerging markets and volatile commodity prices in the Company's core business.

Given these factors, the Company anticipates that approximately 50 percent of the savings will positively impact operating profit. In addition to the cost savings impact, the Company expects that the plan will enhance its competitive position by focusing on globalizing the Company's service organization, 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 associated with the multi-year realignment plan were $928 and $4,346 for the three months ended September 30, 2014 and 2013, respectively.

Restructuring charges associated with the multi-year realignment plan were $6,761 and $21,404 for the nine months ended September 30, 2014 and 2013, respectively. Restructuring charges for the three and nine months ended September 30, 2014 primarily related to severance costs of employees due to the Company's business process outsourcing initiative with Accenture.

Business Drivers The business drivers of the Company's future performance include, but are not limited to: • timing of self-service equipment upgrades and/or replacement cycles, including deposit automation in mature markets such as the United States; • demand for products and solutions related to bank branch transformation opportunities; • demand for services, including outsourcing and managed services; • 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, such as Asia Pacific.

29-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) RESULTS OF OPERATIONS Net income attributable to Diebold, Incorporated for the three months ended September 30, 2014 was $33,020 or $0.51 per share, an increase of $54,710 and $0.85 per share, respectively, from the same period in 2013. Total revenue for the three months ended September 30, 2014 was $768,031, an increase of $62,607 compared to the same period in 2013. Net income attributable to Diebold, Incorporated for the nine months ended September 30, 2014 was $84,461 or $1.30 per share, an increase of $224,632 and $3.50 per share, respectively, from the same period in 2013. Total revenue for the nine months ended September 30, 2014 was $2,189,781, an increase of $143,733 compared to the same period in 2013.

The first nine months of 2014 included a $13,709 pre-tax gain from the sale of the Company's Diebold Eras, Incorporated (Eras) subsidiary. Cryptera A/S (Cryptera) was acquired for a purchase price of approximately $13,000 and is included in the Europe, Middle East and Africa (EMEA) segment within the Company' s condensed consolidated financial statements from July 1, 2014, the date of acquisition.

The first nine months of 2013 included $28,000 of pre-tax losses related to the settlement of the global Foreign Corrupt Practices Act (FCPA) investigation, a $17,245 pre-tax charge related to settlement of the securities legal action and executive severance costs, including accelerated share-based compensation expense of $2,982 (pre-tax) all recognized in selling and administrative expense, partially offset by non-routine income of $2,191 related to a pre-tax gain from the sale of certain U.S. manufacturing operations to a long-time supplier recognized in gain on sale of assets, net in the condensed consolidated statements of operations. The Company also recorded a $70,000 pre-tax, non-cash goodwill impairment charge related to its Brazil segment in the third quarter of 2013 in the condensed consolidated statements of operations.

The Company's Venezuelan operations consist of a fifty-percent owned subsidiary, which is consolidated. Venezuela is measured using the U.S. dollar as its functional currency because its economy is considered highly inflationary. On March 24, 2014, the Venezuelan 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. Management has determined that it is unlikely that the Company will be able to convert bolivars under a currency exchange other than SICAD 2. On March 31, 2014, the Company remeasured its Venezuelan balance sheet using the SICAD 2 rate of 50.86 compared to the previous official government rate of 6.30, resulting in a decrease of $6,051 to the Company's cash balance and net losses of $12,101 that were recorded within foreign exchange gain (loss), net in the condensed consolidated statements of operations in the first quarter of 2014. In addition, as a result of the currency devaluation, the Company recorded a $4,073 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. In the future, if the Company converts bolivars at a rate other than the SICAD 2 rate, the Company may realize additional gains or losses that would be recorded in the statement of operations. The Company's Venezuelan operations represented less than one percent of the Company's total assets as of September 30, 2014 and less than one percent of net sales for both the three and nine months ended September 30, 2014. The Company does not expect its Venezuelan operations to be a significant component of its consolidated revenue or operating profit for the remainder of 2014.

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.

30-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 2014 2013 % of % of % of % of Dollars Net sales Dollars Net sales Dollars Net sales Dollars Net sales Net sales $ 768,031 100.0 $ 705,424 100.0 $ 2,189,781 100.0 $ 2,046,048 100.0 Gross profit 200,583 26.1 172,805 24.5 551,511 25.2 460,235 22.5 Operating expenses 153,864 20.0 203,058 28.8 424,311 19.4 528,026 25.8 Operating profit (loss) 46,719 6.1 (30,253 ) (4.3 ) 127,200 5.8 (67,791 ) (3.3 ) Net income (loss) 34,955 4.6 (20,204 ) (2.9 ) 82,962 3.8 (137,938 ) (6.7 ) Net income (loss) attributable to noncontrolling interests 1,935 0.3 1,486 0.2 (1,499 ) (0.1 ) 2,233 0.1 Net income (loss) attributable to Diebold, Incorporated 33,020 4.3 (21,690 ) (3.1 ) 84,461 3.9 (140,171 ) (6.9 ) Three and Nine Months Ended September 30, 2014 Comparisons to Three and Nine Months Ended September 30, 2013 Net Sales The following table represents information regarding our net sales: Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 % Change 2014 2013 % Change Total financial self-service $ 550,366 $ 525,152 4.8 $ 1,559,771 $ 1,556,549 0.2 Total security 158,041 154,202 2.5 453,508 441,059 2.8 Brazil other 59,624 26,070 128.7 176,502 48,440 264.4 Total customer revenue $ 768,031 $ 705,424 8.9 $ 2,189,781 $ 2,046,048 7.0 FSS sales in the third quarter of 2014 increased $25,214 or 4.8 percent compared to the same period of 2013, including net unfavorable currency impact of $2,941 or 0.6 percent. FSS sales in the first nine months of 2014 were flat compared to the same period of 2013, including net unfavorable currency impact of $30,617 or 2.0 percent related mainly to the Brazilian real and Indian rupee. The following results include the impact of foreign currency: • North America (NA) FSS sales in the third quarter of 2014 were flat compared to the prior year comparable period. FSS sales in the nine months ended September 30, 2014 compared to the same period of 2013 decreased $53,407 or 7.9 percent primarily from lower volume within the U.S.

national bank business due in part to a large non-recurring project that favorably impacted 2013, partially offset by improvement between years in the U.S. regional bank space.

• Asia Pacific (AP) FSS sales in the three and nine months ended September 30, 2014 increased $14,760 and $13,928 or 13.2 and 4.2 percent, respectively, due to growth in China. FSS sales in the first nine months of 2014 compared to the same period of 2013 also benefited from improvement in India partially offset by a decline in Indonesia due to a large order in the prior year.

• Europe, Middle East and Africa (EMEA) FSS sales in the three and nine months ended September 30, 2014 increased $18,262 and $70,094 or 22.4 and 30.2 percent, respectively, with the primary driver being growth in Western Europe. The increase in the nine months ended September 30, 2014 and 2013 also related to higher volume in Africa.

• Latin America (LA) FSS sales in the third quarter of 2014 were flat compared to the prior year comparable period. The nine months ended September 30, 2014 decreased $3,232 or 2.6 percent compared to the same period of 2013 because 31-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) of a decline in Venezuela resulting from the currency control policy of the Venezuelan government and a decline in Colombia partially offset by higher volume in Mexico.

• Brazil FSS sales in the three and nine months ended September 30, 2014 decreased $8,978 and $24,160 or 14.2 and 12.7 percent, respectively, due to lower product sales volume. Brazil FSS sales in the first nine months of 2014 compared to the same period of 2013 included net unfavorable currency impact of $14,385 or 7.2 percent.

Security sales increased in the three and nine months ended September 30, 2014 compared to the same periods in 2013 due to growth in the electronic security business, which was partially offset by a decline in the physical security business. From a regional perspective, total security sales increased in the third quarter of 2014 compared to the same period of 2013 due to growth in AP and NA partially offset by a decrease in LA resulting from the electronic security business. In the first nine months of 2014, total security sales increased in relation to the prior year comparable period as growth in NA was offset in part by a decrease in LA resulting from the electronic security business.

Brazil other increased in the three and nine months ended September 30, 2014 compared to the same periods in 2013 due to lottery sales volume offset in part by a decline in election systems sales. In addition, the first nine months of 2014 were favorably impacted by deliveries of information technology (IT) equipment to the education ministry. These deliveries are not expected to recur in 2015.

Gross Profit The following table represents information regarding our gross profit: Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 % Change 2014 2013 % ChangeGross profit - services $ 126,167 $ 115,117 9.6 $ 360,535 $ 296,505 21.6 Gross profit - products 74,416 57,688 29.0 190,976 163,730 16.6 Total gross profit $ 200,583 $ 172,805 16.1 $ 551,511 $ 460,235 19.8 Gross margin - services 30.3 % 28.4 % 29.8 % 24.7 % Gross margin - products 21.2 % 19.2 % 19.5 % 19.4 % Total gross margin 26.1 % 24.5 % 25.2 % 22.5 % The increases in service gross margin in the three and nine months ended September 30, 2014 were primarily driven by NA, which benefited from lower employee-related expense associated with restructuring initiatives implemented as part of the Company's service transformation efforts, including the ongoing benefit from its pension freeze and voluntary early retirement program. Total service gross margin in the three and nine months ended September 30, 2014 compared to the same periods in 2013 were also favorably impacted by a higher net margin among the international regions, with the main drivers being LA and EMEA in the third quarter of 2014 while Brazil was the principal contributor in the first nine months of 2014. Service gross profit included total restructuring charges and non-routine expenses of $514 and $2,378 in the three months ended September 30, 2014 and 2013, respectively, and $1,353 and $9,815 in the nine months ended September 30, 2014 and 2013, respectively.

The increase in product gross margin for the third quarter of 2014 compared to the same period in 2013 resulted mainly from margin improvements in LA partially driven by Mexico and EMEA largely due to higher volume and product mix. Product gross margin for the first nine months of 2014 was flat compared to the prior year comparable period.

32-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) Operating Expenses The following table represents information regarding our operating expenses: Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 % Change 2014 2013 % ChangeSelling and administrative expense $ 129,938 $ 111,683 16.3 $ 371,236 $ 394,401 (5.9 ) Research, development and engineering expense 24,466 21,957 11.4 66,173 66,404 (0.3 ) Impairment of assets - 70,000 N/M - 70,642 N/M Gain on sale of assets, net (540 ) (582 ) N/M (13,098 ) (3,421 ) N/M Total operating expenses $ 153,864 $ 203,058 (24.2 ) $ 424,311 $ 528,026 (19.6 ) The increase in selling and administrative expense in the third quarter of 2014 compared to the same period of 2013 resulted primarily from reinvestment of the Company's savings into transformation initiatives. The decrease in selling and administrative expense in the first nine months of 2014 compared to the same period of 2013 resulted primarily from lower non-routine expenses and restructuring charges of $57,526 coupled with favorable currency impact partially offset by reinvestment of the Company's savings into transformation initiatives.

Selling and administrative expense included non-routine expenses of $3,547 and $3,700 in the three months ended September 30, 2014 and 2013, respectively, and $6,182 and $59,699 in the nine months ended September 30, 2014 and 2013, respectively. The primary components of non-routine expenses in the three and nine months ended September 30, 2013 were additional charges of $28,000 related to the settlement of the FCPA investigation and $17,500 for the settlement of the securities legal action. Additionally, the non-routine expenses for the nine months ended September 30, 2013 included executive severance costs of $9,300.

Selling and administrative expense included restructuring charges of $414 and $1,859 in the three months ended September 30, 2014 and 2013, respectively, and $5,365 and $9,374 in the nine months ended September 30, 2014 and 2013, respectively.

Research, development and engineering expense as a percent of net sales in the three and nine months ended September 30, 2014 were 3.2 percent and 3.0 percent, respectively, compared with the same periods in 2013, which were 3.1 percent and 3.2 percent, respectively. The increase in research, development and engineering costs in the third quarter of 2014 compared to the third quarter of 2013 resulted mainly from higher spend related to development efforts to support the Company's innovation in future products and services combined with the acquisition of Cryptera in the third quarter of 2014. The first nine months of 2013 included restructuring charges of $2,617.

The Company recorded a $70,000 pre-tax, non-cash goodwill impairment charge in the third quarter of 2013 due to deteriorating macro-economic outlook, structural changes to an auction-based purchasing environment and new competitors entering the market over the past several quarters, management reduced its earnings outlook for the Brazil business unit during the third quarter of 2013. As a result, the Company performed an other-than-annual assessment for its Brazil reporting unit based on a two-step impairment test and concluded that the goodwill within the Brazil reporting unit was partially impaired.

During the second quarter of 2014, the Company divested Eras, resulting in a gain on sale of assets of $13,709. During the first quarter of 2013, the Company recognized a gain on assets of $2,191 resulting from the sale of certain U.S.

manufacturing operations to a long-time supplier.

Operating Profit (Loss) The following table represents information regarding our operating profit (loss): Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 % Change 2014 2013 % ChangeOperating profit (loss) $ 46,719 $ (30,253 ) (254.4 ) $ 127,200 $ (67,791 ) (287.6 ) Operating profit (loss) margin 6.1 % (4.3 )% 5.8 % (3.3 )% The increase in operating profit for the three and nine months ended September 30, 2014 compared to the same periods in 2013 resulted from a reduction in operating expense mainly due to lower non-routine charges, an improvement in service margin and 33-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) higher product sales, offset in part by higher spend partially attributable to reinvestment of the Company's savings into transformation strategies.

Other Income (Expense) The following table represents information regarding our other income (expense): Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 % Change 2014 2013 % Change Investment income $ 7,968 $ 6,695 19.0 $ 26,614 $ 21,060 26.4 Interest expense (8,384 ) (7,918 ) 5.9 (23,142 ) (22,027 ) 5.1 Foreign exchange gain (loss), net 988 2,977 (66.8 ) (10,373 ) (1,453 ) 613.9 Miscellaneous, net 571 355 60.8 444 (434 ) (202.3 ) Other income (expense), net $ 1,143 $ 2,109 (45.8 ) $ (6,457 ) $ (2,854 ) 126.2 The increase in investment income in the three and nine months ended September 30, 2014 compared with the same periods in 2013 was driven by Brazil due to leasing portfolio growth. The foreign exchange loss, net for the first nine months of 2014 and 2013 included $12,101 and $1,584, respectively, related to the devaluation of the Venezuelan currency.

Net Income (Loss) The following table represents information regarding our net income (loss): Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 % Change 2014 2013 % Change Net income (loss) $ 34,955 $ (20,204 ) N/M $ 82,962 $ (137,938 ) N/M Percent of net sales 4.6 % (2.9 )% 3.8 % (6.7 )% Effective tax rate 27.0 % 28.2 % 31.3 % (95.3 )% The increase in net income in the three and nine months ended September 30, 2014 compared to the same periods in 2013 was driven by higher operating profit related mainly to significantly lower non-routine expense, an improvement in service margin and higher product sales. These benefits were offset in part by higher spend partially attributable to reinvestment of the Company's savings into transformation initiatives. In addition, the third quarter of 2014 was unfavorably impacted by higher income taxes compared to the same period of 2013, whereas the first nine months of 2014 benefited from lower taxes compared to the same period in 2013.

The effective tax rate on income was 27.0 percent for the three months ended September 30, 2014 and the effective tax rate on the loss was 28.2 percent for the three months ended September 30, 2013. The third quarter 2014 rate was lower than the statutory rate because of earnings in lower-tax jurisdictions and tax benefits from discrete items recorded in the quarter. The reduced third quarter 2013 tax rate differed from the statutory rate mainly as a result of the non-deductible portion of the Company's Brazil goodwill impairment recorded during a quarter with overall losses.

The effective tax rate on income was 31.3 percent for the nine months ended September 30, 2014 and the effective tax rate on the loss was (95.3) percent for the nine months ended September 30, 2013. The tax rate for the nine months ended September 30, 2014 includes a benefit from the release of a valuation allowance against excess capital losses offset by the negative impact of tax on foreign entities not permanently reinvested and the December 31, 2013 expiration of the Federal Research and Development Tax Credit and the Look-Thru Rule for Related Controlled Foreign Corporations under Section 954(c)(6) of the Internal Revenue Code of 1986, as amended. The negative tax rate for 2013 was a result of several factors, including tax expense related to the repatriation of previously undistributed earnings and the establishment of a valuation allowance on deferred tax assets in the Company's Brazilian manufacturing facility.

34-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) Segment Revenue and Operating Profit Summary The following tables represent information regarding our revenue and operating profit by reporting segment: Three Months Ended Nine Months Ended September 30, September 30, North America: 2014 2013 % Change 2014 2013 % Change Revenue $ 361,420 $ 356,943 1.3 $ 1,024,893 $ 1,056,184 (3.0) Segment operating profit 69,920 68,107 2.7 199,114 175,282 13.6 Segment operating profit margin 19.3 % 19.1 % 19.4 % 16.6 % NA revenue increased in the third quarter of 2014 compared to the same period in 2013 due to higher electronic security sales partially offset by a decrease in the physical security business. Operating profit increased due to an improvement in service margin and higher service revenue partially offset by an increase in operating expense resulting mainly from higher commission expense and additional sales associates. The service margin increase was primarily driven by lower employee-related expense resulting from restructuring initiatives in addition to the ongoing benefit from the Company's pension freeze and voluntary early retirement program.

NA revenue decreased in the first nine months of 2014 compared to the same period in 2013 due to lower FSS sales resulting from decreased product volume in the U.S. national bank sector partially due to the beneficial impact of a large non-recurring project in the prior year. NA revenue also declined due to lower physical security sales between years offset by higher electronic security revenue. Operating profit increased despite the net sales decline due to an improvement in service margin primarily driven by lower employee-related expense resulting from restructuring initiatives in addition to the ongoing benefit from the Company's pension freeze and voluntary early retirement program.

Three Months Ended Nine Months Ended September 30, September 30, Asia Pacific: 2014 2013 % Change 2014 2013 % Change Revenue $ 135,036 $ 116,102 16.3 $ 361,527 $ 346,660 4.3 Segment operating profit 20,809 16,657 24.9 50,865 46,297 9.9 Segment operating profit margin 15.4 % 14.3 % 14.1 % 13.4 % AP revenue in the three and nine months ended September 30, 2014 included net unfavorable currency impacts of $410 and $12,398, respectively. Including the impact of foreign currency, revenue in the third quarter of 2014 compared to the same period in 2013 increased due primarily to growth in China. For the first nine months of 2014, revenue increased mainly from growth in India and China partially offset by a decrease in Indonesia because of a large order in the comparable period of 2013. Operating profit in the third quarter of 2014 compared to the same period of 2013 increased due to higher volume and improved service margin performance partially offset by a decline in product gross margin and higher operating expense. Operating profit in the first nine months of 2014 also increased from the comparable period in 2013 for these reasons with the exception of a reduction in operating expense.

Three Months Ended Nine Months Ended September 30, September 30, Europe, Middle East and Africa: 2014 2013 % Change 2014 2013 % Change Revenue $ 99,882 $ 81,854 22.0 $ 302,337 $ 232,471 30.1 Segment operating profit 14,491 10,816 34.0 47,820 24,565 94.7 Segment operating profit margin 14.5 % 13.2 % 15.8 % 10.6 % EMEA revenue in the three and nine months ended September 30, 2014 increased primarily from higher sales volume in Western Europe while the first nine months of 2014 experienced growth from increased sales in Africa. The overall volume increase contributed to the operating profit improvement in the three and nine months ended September 30, 2014 compared to the comparable prior periods in 2013, combined with a gain in product gross margin due to higher volume and product mix partially offset by 35-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) operating expense due in part to the acquisition of Cryptera. Operating profit in the first nine months of 2014 was also favorably impacted by improved service margin performance.

Three Months Ended Nine Months Ended September 30, September 30, Latin America: 2014 2013 % Change 2014 2013 % Change Revenue $ 54,089 $ 56,899 (4.9) $ 146,529 $ 161,182 (9.1) Segment operating profit 10,673 7,773 37.3 17,273 20,327 (15.0) Segment operating profit margin 19.7 % 13.7 % 11.8 % 12.6 % LA revenue decreased in the third quarter of 2014 compared to the same period of 2013 due to a decline in the electronic security business. LA revenue decreased in the first nine months of 2014 compared to the same period of 2013 due to a decline in sales concentrated mainly in Colombia and Venezuela, partially offset by FSS growth in Mexico. The Venezuela decrease resulted principally from the adverse impact of currency control policy measures instituted by the Venezuelan government. Operating profit in the third quarter in 2014 compared to the same period of 2013 increased mainly due to higher total gross margin partially offset by lower service revenue primarily resulting from the Venezuelan currency devaluation. For the first nine months of 2014 compared to the first nine months of 2013, operating profit was negatively impacted by lower total revenue as well as higher operating expense partially offset by an increase in product gross margin. Service margin was flat year over year despite a lower of cost or market adjustment of $4,073 in the first nine months of 2014 as a result of the Venezuelan currency devaluation.

Three Months Ended Nine Months Ended September 30, September 30, Brazil: 2014 2013 % Change 2014 2013 % Change Revenue $ 117,604 $ 93,626 25.6 $ 354,495 $249,551 42.1 Segment operating profit 7,960 7,299 9.1 21,606 5,765 274.8 Segment operating profit margin 6.8 % 7.8 % 6.1 % 2.3 % Brazil revenue increased in the third quarter of 2014 compared to the same period of 2013 due to lottery sales volume partially offset by a decline in FSS revenue and election systems sales. Brazil revenue increased in the first nine months of 2014 compared to same period of 2013, including a net unfavorable currency impact of $17,203. The constant currency revenue improvement related to lottery sales volume and deliveries of IT equipment to the education ministry in the first quarter of 2014 partially offset by a decrease in elections systems sales and FSS volume. Operating profit increased in the three and nine months ended September 30, 2014 compared to the same periods in 2013 as a result of the higher product sales volume offset by an increase in operating expenses mainly due to higher employee-related expense and consulting fees. Operating profit in the first nine months also benefited from service margin improvement related to cost savings initiatives.

Refer to note 18 to the condensed consolidated financial statements for further details of segment revenue and operating profit.

LIQUIDITY AND CAPITAL RESOURCES Capital resources are obtained from income retained in the business, borrowings under the Company's senior notes, committed and uncommitted credit facilities, long-term industrial revenue bonds and operating and capital leasing arrangements. Management expects that the Company's capital resources will be sufficient to finance planned working capital needs, research and development activities, investments in facilities or equipment, pension contributions, the payment of dividends on the Company's common shares and any repurchases of the Company's common shares for at least the next 12 months. As of September 30, 2014, $370,900 or 99.1 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 $134,383 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.

36-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of September 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) The Company's global liquidity as of September 30, 2014 and December 31, 2013 was as follows: September 30, December 31, 2014 2013 Cash and cash equivalents $ 240,433 $ 230,709 Additional cash availability from: Short-term uncommitted lines of credit 41,337 63,747 Five-year credit facility 204,987 261,000 Short-term investments 133,800 242,988 Total global liquidity $ 620,557 $ 798,444 The following table summarizes the results of our condensed consolidated statement of cash flows for the nine months ended September 30:

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