News Column

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

August 6, 2014

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, which is expected to increase during the second half of 2014. 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.

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Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of June 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts)



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.



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 announced it engaged Accenture to provide finance and accounting, human resources and procurement business process outsourcing services. The Company has signed this multi-year outsourcing agreement in an effort to create 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 are expected to increase in the second half 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. 28



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Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of June 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) 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. The Company has another opportunity for a successful outsourcing and managed services approach. Security challenges and the systems to address them 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 $696 and $7,555 for the three months ended June 30, 2014 and 2013, respectively. Restructuring charges associated with the multi-year realignment plan were $5,833 and $17,058 for the six months ended June 30, 2014 and 2013, respectively. Restructuring charges for the three and six months ended June 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



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Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of June 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) RESULTS OF OPERATIONS Net income (loss) attributable to Diebold, Incorporated for the three months ended June 30, 2014 was $41,635 or $0.64 per share, an increase of $146,670 and $2.29 per share, respectively, from the same period in 2013. Total revenue for the three months ended June 30, 2014 was $733,457, an increase of $26,344 compared to the same period in 2013. Net income (loss) attributable to Diebold, Incorporated for the six months ended June 30, 2014 was $51,441 or $0.79 per share, an increase of $169,922 and $2.66 per share, respectively, from the same period in 2013. Total revenue for the six months ended June 30, 2014 was $1,421,750, an increase of $81,126 compared to the same period in 2013. The first six months of 2013 included $28,000 of additional pre-tax losses related to the settlement of the global Foreign Corrupt Practices Act (FCPA) investigation, a $17,500 pre-tax charge related to settlement of the securities legal action, and executive severance. Additionally, the 2013 results were significantly impacted by a negative tax rate, which is a result of deferred tax expense related to the repatriation of previously undistributed earnings and the establishment of a valuation allowance on certain Brazil deferred tax assets. 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 6.3, 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 June 30, 2014 and less than one percent of net sales for both the three and six months ended June 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. Revenue and operating profit in the last six months of 2013 were $19,374 and $2,388, respectively, related to the Company's Venezuelan 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, 2014 2013 2014 2013 % of % of % of % of Dollars Net sales Dollars Net sales Dollars Net sales Dollars Net sales Net sales $ 733,457 100.0 $ 707,113 100.0 $ 1,421,750 100.0 $ 1,340,624 100.0 Gross profit 186,795 25.5 157,416 22.3



350,928 24.7 287,430 21.4 Operating expenses 129,593 17.7 181,038 25.6

270,447 19.0 324,968 24.2 Operating profit (loss)

57,202 7.8 (23,622 ) (3.3 )



80,481 5.7 (37,538 ) (2.8 ) Net income (loss) 43,131

5.9 (103,852 ) (14.7 ) 48,007 3.4 (117,734 ) (8.8 ) Net income (loss) attributable to noncontrolling interests 1,496 0.2 1,183 0.2 (3,434 ) (0.2 ) 747 0.1 Net income (loss) attributable to Diebold, Incorporated 41,635 5.7 (105,035 ) (14.9 ) 51,441 3.6 (118,481 ) (8.8 ) 30



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Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of June 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts)



Three and Six Months Ended June 30, 2014 Comparisons to Three and Six Months Ended June 30, 2013

Net Sales The following table represents information regarding our net sales: Three Months Ended Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change Total financial self-service $ 542,873$ 544,996 (0.4 ) $ 1,009,405$ 1,031,397 (2.1 ) Total security 153,092 149,605 2.3 295,467 286,857 3.0 Brazil other 37,492 12,512 199.6 116,878 22,370 422.5 Total customer revenue $ 733,457$ 707,113 3.7 $ 1,421,750$ 1,340,624 6.1 FSS sales in the second quarter of 2014 were flat compared to the same period of 2013, including net unfavorable currency impact of $10,483 or 2.0 percent. FSS sales in the first six months of 2014 decreased $21,992 or 2.1 percent compared to the same period of 2013, including net unfavorable currency impact of $27,676 or 2.7 percent. The unfavorable currency impact was 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 three- and six-month periods decreased

$31,273 and $54,056 and 12.9 and 11.9 percent, respectively, 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 second quarter of 2014 increased $2,532

or 2.2 percent primarily due to growth in India and China, partially

offset by a decline in Indonesia from a large order in the prior year

comparable period. AP FSS sales in the first six months of 2014 decreased

$832 or 0.4 percent as the decline in Indonesia was offset by improvement

in India. • Europe, Middle East and Africa (EMEA) FSS sales in the three- and



six-month periods increased $33,780 and $51,833 or 40.0 and 34.4 percent,

respectively, due to growth in Western Europe and Africa related to higher

volume.



Latin America (LA) FSS sales in the three- and six-month periods decreased

$10,871 and $3,754 or 24.3 and 4.8 percent, respectively. These decreases

primarily related to a decline in Venezuela resulting from the currency

control policy of the Venezuelan government and a decline in Colombia. For

the three-month comparative period, these declines were partially offset

by a net increase in the remainder of the region. In the six-month period,

these declines were partially offset by growth in Mexico. • Brazil FSS sales in the second quarter of 2014 increased $3,709 or 6.1 percent compared to the same period of 2013, including $4,457 in



unfavorable currency impact, driven by higher product sales volume. Brazil

FSS sales in the first six months of 2014 decreased $15,183 or 12.0

percent compared to the same period of 2013, due to $14,729 in unfavorable

currency impact. Security sales increased in the three- and six-month periods of 2014 compared to the same periods in the prior year 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 due to growth in NA offset partially by decreases in LA due to a decline in electronic security business and AP related mainly to Australia due to the shutdown of the physical security business in 2013. Brazil other increased $24,980 in the three-month period of 2014 compared to the same period in the prior year, due to lottery sales volume. Brazil other increased $94,508 in six-month period of 2014 compared to the same period in 2013, primarily related to deliveries of information technology (IT) equipment to the education ministry combined with lottery sales growth. 31



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Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of June 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) Gross Profit The following table represents information regarding our gross profit: Three Months Ended Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change

Gross profit - services $ 126,214$ 96,081 31.4 $ 234,368$ 181,388 29.2 Gross profit - products 60,581 61,335 (1.2 ) 116,560 106,042 9.9 Total gross profit $ 186,795$ 157,416 18.7 $ 350,928$ 287,430 22.1 Gross margin - services 30.8 % 23.3 % 29.5 % 22.8 % Gross margin - products 18.7 % 20.9 % 18.5 % 19.5 % Total gross margin 25.5 % 22.3 % 24.7 % 21.4 % The increases in service gross margin 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 six-month periods compared to prior year periods were also favorably impacted by a higher net margin among the international regions, with the largest margin improvements occurring in Brazil and EMEA. Total service gross profit included total restructuring charges and non-routine expenses of $139 and $4,516 in the three months ended June 30, 2014 and 2013, respectively, and $839 and $7,437 in the six months ended June 30, 2014 and 2013, respectively. The decrease in total product gross margin for the three- and six-month periods compared to the same periods in 2013 was primarily the result of geographic mix. Conversely, product gross margin was favorably impacted by increased volume and improved margin performance in EMEA. Operating Expenses The following table represents information regarding our operating expenses: Three Months Ended Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change

Selling and administrative expense $ 121,006$ 157,205 (23.0 ) $ 241,298$ 282,718 (14.7 ) Research, development and engineering expense 21,637 23,417 (7.6 ) 41,707 44,447 (6.2 ) Impairment of assets - 642 N/M - 642 N/M Gain on sale of assets, net (13,050 ) (226 ) N/M (12,558 ) (2,839 ) N/M Total operating expenses $ 129,593$ 181,038 (28.4 ) $ 270,447$ 324,968 (16.8 ) The decrease in selling and administrative expense in the three- and six-month periods of 2014 compared to the same periods of 2013 resulted primarily from lower non-routine expenses and restructuring charges of $45,492 and $55,929 in the three- and six-month periods, respectively. Additionally, selling and administrative expense included favorable currency impact in both the three- and six-month periods, partially offset by higher spend resulting in part from reinvestment of the Company's savings into transformation initiatives. Selling and administrative expense included non-routine expenses of $1,562 and $45,912 in the three months ended June 30, 2014 and 2013, respectively and $2,635 and $56,000 in the six months ended June 30, 2014 and 2013, respectively. The primary components of non-routine expenses in the three and six months ended June 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 six months ended June 30, 2013 included executive severance costs of $9,300. Selling and administrative expense included restructuring charges of $487 and $1,629 in the three months ended June 30, 2014 and 2013, respectively, and $4,952 and $7,516 in the six months ended June 30, 2014 and 2013, respectively. 32



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Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of June 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) Research, development and engineering expense as a percent of net sales were 2.9 percent in both the three and six months ended June 30, 2014 and were 3.3 percent in both the three and six months ended June 30, 2013. The reduction in research, development and engineering costs in 2014 resulted mainly from lower restructuring charges, as the three and six months ended June 30, 2013 included restructuring charges of $1,613 and $2,466, respectively. During the second quarter of 2014, the Company divested its Diebold Eras, Incorporated (Eras) subsidiary, 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 Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change Operating profit (loss) $ 57,202$ (23,622 ) (342.2 ) $ 80,481$ (37,538 ) (314.4 ) Operating profit (loss) margin 7.8 % (3.3 )%



5.7 % (2.8 )%

The increase in operating profit (loss) for the three- and six-month periods of 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 higher product sales, partially offset by higher spend partially attributable to reinvestment of the Company's savings into transformation strategies and a decline in product margin primarily due to geographic mix. Other Income (Expense) The following table represents information regarding our other income (expense): Three Months Ended Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change Investment income $ 9,935$ 6,814 45.8 $ 18,646$ 14,365 29.8 Interest expense (7,840 ) (6,766 ) 15.9 (14,758 ) (14,109 ) 4.6 Foreign exchange gain (loss), net 596 (2,216 ) (126.9 ) (11,361 ) (4,430 ) 156.5 Miscellaneous, net 1,308 309 323.3 (127



) (789 ) (83.9 ) Other income expense, net $ 3,999$ (1,859 ) (315.1 ) $ (7,600 )$ (4,963 ) 53.1

The increase in investment income in both the three- and six-month periods of 2014, compared with the same periods in 2013, was driven primarily by Brazil due to leasing portfolio growth. The foreign exchange loss, net for the first six 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 Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change

Net income (loss) $ 43,131$ (103,852 ) 141.5 $ 48,007$ (117,734 ) 140.8 Percent of net sales 5.9 % (14.7 )% 3.4 % (8.8 )% Effective tax rate 29.5 % (307.6 )% 34.1 % (177.0 )% The increase in income (loss) in the three- and six-months ended June 30, 2014 compared to the same period 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, as well as lower taxes. These benefits were partially offset by higher spend partially attributable to reinvestment of the Company's savings into transformation strategies and an overall decline in product gross margin primarily due to geographic mix. 33



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Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of June 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) The effective tax rate on income was 29.5 percent for the three months ended June 30, 2014 and the effective tax rate on the loss was (307.6) percent for the three months ended June 30, 2013. The second quarter 2014 tax rate benefited from a $2,439 release of a valuation allowance against excess capital losses utilized against capital gains from the sale of Eras. The negative tax rate for 2013 is a result of tax expense of approximately $47,000 related to the repatriation of previously undistributed earnings and the establishment of a valuation allowance of approximately $39,200 on deferred tax assets in the Company's Brazilian manufacturing facility, both of which occurred in the second quarter of 2013. The effective tax rate on income was 34.1 percent for the six months ended June 30, 2014 and the effective tax rate on the loss was (177.0) percent for the six months ended June 30, 2013. The tax rate for the six months ended June 30, 2014 reflects tax on foreign entities not permanently reinvested and the negative impact from 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. 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: 2014 2013 % Change 2014 2013 % Change Revenue $ 345,978$ 368,386 (6.1) $ 663,473$ 699,241 (5.1) Segment operating profit 70,964 61,098 16.1 129,194 107,175 20.5 Segment operating profit margin 20.5 % 16.6 % 19.5 % 15.3 % NA revenue decreased in the three- and six-month periods of 2014 compared to the same periods 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. 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 Six Months Ended June 30, June 30, Asia Pacific: 2014 2013 % Change 2014 2013 % Change Revenue $ 119,355$ 118,375 0.8 $ 226,491$ 230,558 (1.8) Segment operating profit 13,277 15,933 (16.7) 30,056 29,640 1.4 Segment operating profit margin 11.1 % 13.5 % 13.3 % 12.9 % AP revenue in the three- and six-month periods of 2014 included net unfavorable currency impacts of $6,293 and $11,988, respectively. Including the impact of foreign currency, revenue in the three-month period of 2014 was at a comparable level to the same period in 2013 as growth in India and China was offset by a decrease in Indonesia from a large order in 2013. For the first six months of 2014, revenue decreased from the prior year six-month period due to lower volume in Indonesia and a decline in Australia offset in part by growth in India. Operating profit in the second quarter of 2014 decreased compared to the same period of 2013 due to lower service margin performance while operating profit in the first six months of 2014 was relatively flat compared to the same period of 2013 from lower operating expense offset by lower total revenue and a decline in service margin. Three Months Ended Six Months Ended June 30, June 30, Europe, Middle East and Africa: 2014 2013 % Change 2014 2013 % Change Revenue $ 118,341$ 84,549 40.0 $ 202,455$ 150,617 34.4 Segment operating profit 21,993 9,457 132.6 33,329 13,749 142.4 Segment operating profit margin 18.6 % 11.2 % 16.5 % 9.1 % 34



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Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of June 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts)



EMEA revenue in the three- and six-month periods of 2014 increased primarily from higher sales volume in Western Europe and Africa. The overall volume increase contributed to the operating profit improvement between years. In addition, operating profit improved from higher service margin performance partially offset by an increase in operating expense.

Three Months Ended Six Months Ended June 30, June 30, Latin America: 2014 2013 % Change 2014 2013 % Change Revenue $ 43,490$ 58,591 (25.8) $ 92,440$ 104,283 (11.4) Segment operating profit 5,064 7,284 (30.5) 6,600 12,554 (47.4) Segment operating profit margin 11.6 % 12.4 % 7.1 % 12.0 % LA revenue decreased in the three- and six-month periods of 2014 compared to the same periods of 2013 due to a decline in sales concentrated mainly in Venezuela and Colombia, 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 three-month period of 2014 compared to the same period of 2013 declined mainly as a result of the decrease in total revenue partially offset by higher service gross margin. For the six-month period of 2014, operating profit was also negatively impacted by lower total revenue in addition to an overall margin decline, attributable to a lower of cost or market adjustment of $4,073 as a result of the Venezuelan currency devaluation, and higher operating expense. Three Months Ended Six Months Ended June 30, June 30, Brazil: 2014 2013 % Change 2014 2013 % Change Revenue $ 106,293$ 77,212 37.7 $ 236,891$155,925 51.9 Segment operating profit (loss) 3,654 (382 ) N/M 13,646 (1,534 ) N/M Segment operating profit (loss) margin 3.4 % (0.5 )% 5.8 % (1.0 )% Brazil revenue increased in the second quarter of 2014 compared to the same period of 2013, including a net unfavorable currency impact of $5,476. On a constant currency basis, revenue improved due to higher lottery sales volume and growth in FSS product revenue. Operating profit was favorably affected by the higher sales volume particularly in the lottery business and the benefit of higher service gross margin resulting in part from favorable solution mix and lower warranty expense. These benefits outweighed a decrease in IT-related product margin and higher operating expense. Brazil revenue increased in the first six months of 2014 compared to same period of 2013, including a net unfavorable currency impact of $17,666. The constant currency revenue improvement related to deliveries of IT equipment to the education ministry in the first quarter of 2014 combined with additional lottery sales in the second quarter of 2014. Operating profit increased due to the product sales volume growth and from higher service gross margin performance resulting mainly from lower warranty expense and favorable solution mix partially offset by higher operating expense and decrease in total product gross margin.



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 June 30, 2014, $365,676 or 97.3 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 $88,897 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. 35



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Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as of June 30, 2014 DIEBOLD, INCORPORATED AND SUBSIDIARIES (unaudited) (dollars in thousands, except per share amounts) The Company's global liquidity as of June 30, 2014 and December 31, 2013 was as follows: June 30, December 31, 2014 2013 Cash and cash equivalents $ 222,863$ 230,709 Additional cash availability from: Short-term uncommitted lines of credit 62,314 63,747 Five-year credit facility 248,960 261,000 Short-term investments 152,970 242,988 Total global liquidity $ 687,107$ 798,444



The following table summarizes the results of our condensed consolidated statement of cash flows for the six months ended June 30:


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