Diebold, Incorporated (DBD)

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Diebold Inc. (DBD)

Q4 2010 Earnings Call

February 14, 2011 10:00 am ET

Executives

Thomas Swidarski – President, Chief Executive Officer

Bradley Richardson – Executive Vice President, Chief Financial Officer

John Kristoff – Vice President, Chief Communications Officer

Analysts

Kartik Mehta – Northcoast Research

Paul Coster – JP Morgan

Matt Summerville – Keybanc Capital Markets

Gil Luria – Wedbush Securities

Zahid Saddique – Gabelli & Company

Ted Wheeler – Buckingham Research

Presentation

Operator

Good day everyone. Welcome to Diebold Incorporated’s Fourth Quarter and Year End Financial Results conference call. Today’s call is being recorded.

At this time, for opening remarks and introductions I would like to turn the call over to Vice President and Chief Communications Officer, Mr. John Kristoff. Please go ahead, sir.

John Kristoff

Thank you, Cecilia. Good morning and thank you for joining us for Diebold’s fourth quarter conference call. Joining me today are Tom Swidarski, President and CEO, and Brad Richardson, Executive Vice President and CFO.

Just a few notes before we get started. In addition to the earning release, we’ve provided a supplementary presentation on the Investor page of our website. Tom and Brad will be walking through this presentation as part of their comments today, and we encourage you to follow along.

Before we discuss our fourth quarter results, as with past calls it’s important to note that we have restructuring, impairment charges, and non-routine income and expense in our financials. We believe that excluding these items gives an indication of the Company’s baseline operational performance. As a result, many of the remarks this morning will focus on non-GAAP financial information. For a reconciliation of our GAAP to non-GAAP numbers, please refer to the supplemental material at the end of the presentation. In addition, all results of operations reported today, including prior periods, exclude discontinued operations.

Finally, a replay of this conference call will be available later today from our website; and as a reminder, some of the comments today may be considered forward-looking statements. Internal and/or external factors could significantly impact actual results. As a precaution, please refer to the more detailed risk factors that have previously been filed with the SEC.

And now with opening remarks, I’ll turn it over to Tom.

Thomas Swidarski

Thanks, John. Good morning everyone. Thank you for joining our call today. As you see in our release this morning, revenue, earnings and cash flow all improved during the quarter. While there are a number of atypical items outlined in our release that we will explain during the call, from my point of view there are five key takeaways: first, the global financial self-service market is showing signs of recovery. I’m seeing a continued and significant ramp-up in orders in North America, particularly in the regional bank space. Second, we have reevaluated our strategy in EMEA and put plans in place to restructure the business to better focus on our core markets in the region. This will be a top priority for us in 2011. Third, we have remediated our two remaining material weaknesses in our financial control environment. Fourth, we continue to generate a significant amount of cash flow and are confident in our ability to continue that trend moving forward. Finally, given its confidence in the market’s recovery, our Board of Directors has authorized the Company to repurchase up to 4 million of its shares. We intend to execute this plan in 2011.

In terms of our performance during the quarter, we saw a number of positive trends. For example, global orders increased 7% in the period, excluding Brazil, where a voting equipment order and a large ATM order from Bradesco created a very difficult comparison to the prior year period. This growth in orders positions us well as we look to 2011. We also recorded a lower tax rate as we benefited from positive income mix and an improved outlook in Brazil, and we successfully completed a number of tax planning projects.

Across our organization, Diebold associates had many impressive achievements in 2010. We secured significant new customer wins, broadened our solution set, and earned accolades for excellence in manufacturing, service, and innovative solutions. The results of their contributions enabled us to move toward our vision of becoming a true services company.

Let me share with you a few milestones we hit in 2010. We now have 10,000 associates, more than 60% of our employee base who are directly involved in service and services within the Company. This is the fourth consecutive year in which the majority of our overall revenue was made up of service, most of which is recurring in nature.

Technical service metrics improved in every category including response time and fix it right the first time rates. The number of ATMs under integrated services contract in the U.S. more than doubled in 2010 and now represents nearly 3,000 sites. We have approximately 300,000 ATMs under service contract around the world. So I’m very proud of the accomplishments our associates were able to achieve during the year.

While we continue to make progress from an operational standpoint in the quarter, we also had a number of items that significantly impacted our GAAP earnings. These include a non-cash goodwill impairment charge in EMEA, new developments in our FCPA investigation, and settlement and fees related to the previously disclosed class action employment lawsuit. Brad will provide detail around the FCPA investigation as part of his remarks, but let me spend a few moments discussing our planned actions in EMEA.

From an operational perspective, revenue in EMEA was up 3% for the quarter while orders were down 12%. As I mentioned during the previous call, Europe remains our most difficult market in terms of our ability to compete profitably. Given our most recent challenges there, we are announcing a full impairment in our EMEA business unit. To improve our course moving forward, we are taking a thorough comprehensive look at all elements of our operation. In addition, we are reengineering our infrastructure to free up more resources for core markets in the region where we can compete most effectively.

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