Welcome to the Diebold Second Quarter 2013 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President and Chief Communications Officer, John Kristoff.

Thank you. Good morning, and thank you for joining us for Diebold's second quarter conference call. Joining me today are Andy Mattes, President and CEO; Brad Richardson, Executive Vice President and CFO; and George Mayes, Executive Vice President and COO. Just a few notes before we get started. In addition to the earnings release, we've provided a supplementary presentation on the Investor page of our website. Andy, Brad and George will be walking through this presentation as part of their comments today, and we encourage you to follow along. Before we discuss our results, as with past calls, it's important to note that we have restructuring charges, nonroutine and amortization expenses, nonroutine income, deferred tax expense on foreign cash repatriation and a tax valuation allowance 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 be focused 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, excludes discontinued operations. Also, as part of our previously disclosed material weakness remediation related to indirect tax incentives, we continue to assess our indirect tax compliance in Brazil and are reviewing the accounting treatment of certain transactions. It is possible that financial results for certain periods may need to be further revised or restated as a result of this work, which may potentially delay the filing of our quarterly report on Form 10-Q for the period ended June 30, 2013. Therefore, financial results discussed today should be treated as preliminary and subject to change. 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 the call over to Andy.

Thanks, John, and thank you to all of you for joining the call today. Clearly, the results we announced today are not in line with our capabilities and potential as a company. In a moment, we will review our performance during the past quarter, level set our financial outlook and the rationale behind our guidance and discuss the actions we're taking to address our issues. First, I think it's important for me to share my thoughts on Diebold after my first several weeks here to lend some perspective on our challenges and opportunities. Let me start with initial assessment of the company. There are multiple unique operating models at Diebold, and I don't know any other way to learn the business than to get underneath every piece of the operation. Along those lines, I've already visited 3 of our 5 geographic divisions, which account approximately for 70% of our employees and 75% of our revenues. I'm planning to visit our operations in Asia Pac and EMEA over the next few weeks. Also, I had the pleasure of meeting with approximately 30 of our top customers during the past 2 months, I came away from those meetings knowing that we have a strong base of customers who are looking for us to help them solve a lot of their business challenges. There's a great deal of value here. We have many strong assets, especially in our service portfolio, and have a very recognized brand in the market. While we have a lot of work ahead of us, my overall assessment is that we have a great turnaround opportunity here. Our immediate focus will be on the following fronts. As a company, we will get crisper regarding our decisions, actions and execution. To help facilitate our execution, we're in the process of…

Thank you very much, Andy, and good morning, everyone. First, I would like to update you on our Brazil tax assessment situation. Second, I will walk you through our second quarter financials on Slide 14 through 24 in the supporting presentation. Third, I will discuss our balance sheet strategy and the impact of the additional cost savings initiatives on our P&L and balance sheet. Finally, I will provide additional rationale behind our revenue guidance for 2013 and an update on our free cash flow outlook. As previously disclosed, one of our Brazilian subsidiaries was notified of a tax assessment of $133 million regarding certain Brazil federal indirect taxes for 2008 and 2009. We continue to evaluate the impact of this potential tax uncertainty and continue to believe that we have a strong legal and technical position in that matter. As a result of the assessment in our previously disclosed related material weakness, we undertook a review of our overall compliance with Brazil indirect tax regulation. As part of that review, during the second quarter of 2013, we identified adjustments related to the 2008 to 2012 prior-year periods for federal indirect tax incentives in the amount of approximately $23 million, impacting product cost of sales. These adjustments are not related to the original tax assessment, and our prior period financial statement will be revised, prospectively. As a result of revising our second quarter 2012 financials for this adjustment, there was an increase in previously reported costs of goods sold of $1.6 million, and a decrease of previously reported net income and diluted earnings per share of $1.2 million and $0.02 per share, respectively. While we are comfortable with our self assessment of the federal indirect tax incentives, we continue to assess our exposure for state indirect tax compliance. We have a…

Thanks, Brad. First, I'll briefly recap our performance during the quarter on a region-by-region basis. Then I'll provide an update on our cost reduction and multiyear realignment initiatives we introduced in April. Beginning with the highlights in North America, total revenue for the quarter was down approximately 8%, driven mostly by lower product volume associated with ADA and PCI upgrade activity in the prior-year period. The U.S. regional banks continue to remain cautious under technology spend initiatives. Total orders were down in the low-double digits, driven by the financial self-service business. In contrast, we continue to see spending in the U.S. national account space in regards to technology such as deposit automation and electronic security systems and solutions. We also made progress on several key a business initiatives this quarter, including our most recent partnership with Paydiant, a mobile wallet provider, to enable the cardless Mobile Cash Access solution. We are currently in the process of evaluating global applicability and identifying the right network providers and mobile wallet partners in other regions. The Mobile Cash Access solution, as well as other recently launched emerging technology, such as our Concierge Video, represent critical elements in the company's branch transformation growth strategy. Moving to our electronic security business. Orders were up more than 50% in North America, attributable mostly to activity in the National Bank business. We continue to focus on financial, commercial and national accounts and enterprise customer markets. In addition, we continue to increase our mix of recurring monthly revenue, producing higher margin and increasing enterprise value over time. Turning to Latin America and Brazil. Total revenue decreased 17% during the quarter, driven by lower volume from elections and financial self-service revenue in Brazil. However, total orders were up more than 20% in the region, driven mostly by financial self-service…

Thanks, George. One additional sidenote. We will be communicating more details on our turnaround plan during our planned Investor Day in November. We will communicate specific details regarding that event at a future date. And with that, I'd like to open it up for questions.

[Operator Instructions] And we'll go to Gil Luria with Wedbush Securities.

Would you mind for the 2013 guidance to give us some of the piece parts for growth by business, ATM, security and voting? And would the improvements in the back half of the year for margins, are they going to come from more from gross margin or operating margin?

It's Brad. That's a very, very good question. As we look at the overall guidance for the full year, minus 5% to minus 7%, certainly we're expecting that the security side of the business, again, as George and Andy spoke to, we're expecting a positive growth in the neighborhood of 1% to 3% there. You asked also about our election systems and lottery and just again, where those businesses are. From a timing standpoint, they're actually going to be down year-over-year, call it, a percentage and point -- percentage point impact on overall revenue performance. And so that would give the financial self-service business, again, for the reasons that we've articulated, in particular kind of here in North America down 6% to 7%. So those are the pieces that actually make up the overall revenue performance expectation of minus 5% to minus 7%. Your point in terms of really what drives the overall back half earnings performance of the company, certainly, as you've seen historically, looking at the various geographic regions, our EMEA business is slightly back-end loaded but relatively stable. Our Asia Pacific business, again, has been a relatively stable, even contributor throughout the year. But we do see typically our Latin America business, both including -- or in our Latin America business is typically back-end loaded and we have the order activity in place to support that. Our Brazil business again is back-end loaded this year just given the timing of some of the tenders. And we've only put in our forecast, what we have booked, if you will, at this point. So really what's driving the second half performance is Latin America and Brazil and a slight uptick in the performance of our North American business.

Got it. And then in terms of your dividend, are you given the cash needs this year? Are you contemplating reducing the dividend or are you comfortable continuing to -- your 60-year streak and increasing it, how long if you needed to borrow in order to do that, would you be willing to do that for a year or 2 years in order to continue that streak?

Yes, let me -- I'll comment here and I'm going to let Andy also kind of give his overall philosophy on that. What I would say is clearly, our dividend policy, if you will, is evaluated -- and our performance is evaluated over a multiyear period. Certainly, if you look at this year, there is a significant drain on our cash resources for the onetime items. But if you back those out, the overall underlying cash flow, free cash flow the company is somewhere between $70 million and $100 million. So still positive and sufficient to cover our dividend. We have also, though, and I'm very pleased that we've taken action to restructure the balance sheet, which strengthens our liquidity. We've also taken the actions on our pension plan, which while difficult for our associates, again, provides us with much, a much stronger balance sheet to support the company as we maneuver through a period where, again, we've got the regulatory draws but we also have the restructuring that we're doing. All of these are designed to take cost out of the company and return the company to growth. And that's what's ultimately going to allow us to sustain the dividend is by making meaningful improvement in our cost structure in order to improve our margins, improve our cash generation as we go forward and put us in a position where we have the cash to pay the dividend and reinvest for growth.

Let me just add one thing to that. We realize the importance of the dividend for investor base [ph], and also believe that we want to make sure that our investors participate in the success that the company has going forward. Brad just pointed out all the onetime effect that we -- that put pressure on our P&L this year. But the midterm perspective for the company, we're optimistic. We believe the actions we are taking will increase our free cash flow going forward and should underpin our dividend policy going forward as well.

Matt Summerville, KeyBanc.

With a $150 million plus you're talking about and have identified in terms of cost savings, can you guys walk through kind of the cadence of how that should roll through your P&L? Meaning, how much you should expect to realize in '13, '14 and '15? And then, Andy, is the game plan still to reinvest about half of that and let the other half drop to the bottom line?

So Matt, as we had talked about earlier, we anticipate about $60 million of that rolling through our P&L and you can see that reflected on our second half performance. As we...

$60 million in this year, George.

This year, 2013. As we develop our perspective for 2014, we would have a view that we would have in the range between another $40 million to $50 million run through the P&L under 2014 as we accelerate our projects going forward, with the total $150 million being -- coming to fruition in 2015, as we had talked about earlier.

And then the second part of that question, Andy, about half of it dropped at the bottom line.

Yes, that's still our objective.

Okay. And then I guess just -- in terms of, Brad, you mentioned some Brazilian service contracts, can you sort of let [ph] out that issue, what's going on there?

Yes, there were 2 specific contracts that we have in Brazil that were relatively new contracts to the company. The performance under those contracts, certainly in terms of the number of calls that it take to -- taken to service those contracts has been above our expectations. So we have intervened at this juncture to work with our end customers, to adjust those contracts from a commercial standpoint and put that behind us here in the first half of the year.

Okay. And then just one follow-up. In terms of small bank spend in the U.S., I guess how are you guys thinking about an uptick there heading into '14 around the time that Microsoft ends support for XP. Do you do think it will be material? And do you think that will result in more proactive discussions on deposit automation and/or branch transformation among that customer base?

Matt, let me start. The good news is the discussions are starting. So yes, we see people contemplating investment going forward. The trigger point where these discussions translate into additional orders, that's -- we're still waiting for that to kick in. The Windows upgrade provides somewhat of an opportunity. But then again, we also need to see how actively the customer base is going to embrace it and how rapidly they're going to upgrade their systems.

Matt, let me just kind of add to that point in terms of just the expectations as we go into 2014. You may recall that again, as we went through 2012, the order activity in the regional bank space came down throughout the year following the ADA PCI compliance-related spending and we hit bottom in the third quarter of 2012. We saw an uptick in the fourth quarter of last year, which again, that was the basis for our plan and the basis for our initial thinking in terms of how the company would perform. But since the fourth quarter, we've seen in the first 2 quarters of this year the regional bank spend going back to kind of that third quarter last year of spend. So it's been flat, but at a flat, relatively low level. And as we've built out our expectations for the rest of the year, we've assumed that, that flat trend will continue.

Paul Coster, JP Morgan. Paul Coster - JP Morgan Chase & Co, Research Division: I've got 3 quick ones. Actually, on this point of the orders that you've seen, I kind of got the impression early on in the narratives that the orders were picking up, but you wouldn't see the revenue benefit until next year. Now I'm not sure what I heard on the order side. And even if it is picking up, why is there such a lag between the orders and the revenue?

Well, specifically, I mean, what you heard and I was commenting to Matt's question on the regional bank space. But we have orders that have clearly picked up in Latin America, Brazil. Our order activity is good in Asia Pacific and also in the EMEA region. And those all are providing, again, the backlog, if you will, in order to generate the sequential improvement that we see here in the third and fourth quarters. But I think it's fair to say that again, in the North America business, in particular on the regional banks space, that activity is, again, relatively flat. Paul Coster - JP Morgan Chase & Co, Research Division: And why is there a lag, though, in the international business? I'm supposed to reason [ph], but I'm just curious, that's all.

Well, the lag, typically, is a 6-month lag, but it can turn out even longer. For example, in some of our activity in India, where there's a very, very long cycles from the time that we get our orders to the time that we install, we got very, very large orders and then they revenue over multi-quarters. Paul Coster - JP Morgan Chase & Co, Research Division: Okay. The second question has to with Andy's statement about turning the service delivery into service business. What does that mean?

Let me start with, we're doing a lot of things in our services business for our customers, but we're kind of doing them just in a fulfillment mode. We got to go through on saying, what is the type of service that we need to do to support our products and our solutions. What is the on-top service that we're providing. What's the value of those on-top solutions? And are we getting paid by our customers for the service that we do provide? And if we were to commit to these on-top servicers and if we were to commit to better SLAs, what would be a premium that a customer would be willing to pay us? And right now, we're doing a more case-by-case approach to it. We're not having that as standardized and as transparent as one would like to do this. And we believe given the high marks that we get for our service business, there's actually upside as we can continue to upsell our service offering and then get reimbursed from our customers for doing so. Paul Coster - JP Morgan Chase & Co, Research Division: All right. Okay. And then so this brings me to the third question, which is, Andy pretty wisely suggested this is going to take 2 to 3 years to turn this business around. What are we actually talking about as the end state here? Is it just to get us back on profitable growth? Or is it also a new strategic kind of direction?

This is day 45 on the job. So do me the favor, give me my 100 days to work through the strategy. We're taking a crawl, walk, run approach. We're starting with the absolute, no regret, must-do things right now. We will pick up speed as we go through the second half of this year and into next year, and then we'll be a more aggressive going into the out year. And that's why John has already mentioned that we would like to do an Investors Call with all of you and an Analyst Meeting in November, because by then, we should be in a position to better articulate the strategies, the building blocks, the timeline and the expectations that you could have for our the company.

Jeff Kessler, Imperial Capital.

First question is, with regard to the $150 million of savings, you've talked about approximately 50% of it falling to the bottom line over a period of time, over the years, as you specified. But could you talk about what is it going to -- what are the costs you've -- what are the costs involved in getting to those savings that will also hit the P&L? You've enunciated some of them with regard to the pension plan, but what other costs should we expect to see hit against that $150 million as we progress through the several year period?

I think if you look at what we've identified for the pension plan that there's an impact on the pension plan somewhere and you can see this in the overall full year guidance of between $0.40 to $0.72 a share, and that clearly is dependent upon the participation rate, which we should have a better handle on in the second half of this year. And then clearly, our ongoing restructuring, we expect somewhere in the neighborhood of $0.30 to $0.35, or to be precise, $0.27 to $0.35, which you see in our guidance. So the heavy lifting, if you will, in terms of the restructuring, the pension and the associated costs there are being incurred here in 2013 and we should see, again, the flow-through and the benefit of those. As George I mentioned, some coming through already, but a big impact as we move forward beyond 2013.

Okay. One question on your security industry. It looks like electronic security orders were up significantly. In that -- in the backlog that you were building, number one, what is the composition? Is this 90% financial? Or if it is not, what other verticals are beginning to show up as wins for you in electronic security? And number two, what -- is the recurring revenue composition of that backlog increasing as a percentage of the total wins as well? In other words, I'm wanting to see whether or not your recurring revenue percentage when we talk 2 or 3 years from now, is going to be higher in electronic security than it is now?

Yes, so I think the questions that you raise are really a point of excitement for us. As we look at our book, we see that the split between the financials and the commercials accounts are about 50/50. And so we do see growth in the commercial space, which is one of our key strategy in terms of diversifying our electronic security business. Additionally, in terms of recurring monthly revenue, we see that growing about 10% year-over-year. And so as you know, we just launched the initiative and have been investing pretty heavily in terms of driving our organic growth. And so in the future, we believe that you'll see the kind of incremental recurring monthly revenue that we've been talking about.

Okay. You've talked -- and actually, you were just asked by, I guess, Paul Coster with regard to how -- what is the comp -- what do you look for in terms of getting paid for your service on the financial side. I'm going to ask the same question on the security side. A couple of your competitors have become very, very, very focused on even walking away from business that doesn't pay correctly in terms of not just -- in terms of the service side with regard to security. Are you also moving in that direction to try to not just get the recurring revenue up to get your margins up, but to make sure that your margins on the installation -- on the product and installation business make sense for you.

Yes, our view is as we look at our ES [ph] portfolio, we want to be strategic and disciplined in terms of taking business. We want to make sure that the margins are enhancing or accretive to our current margin book. And so we have walked away from some enterprise deals that were not accretive and we'll continue to be disciplined as we go forward as we grow our business.

[Operator Instructions] And we'll go to Glenn Mattson with Sidoti. Glenn Mattson - Sidoti & Company, LLC: In the past, you talked about making kind of -- making acquisitions in the near term or medium term here, but would you say that's been put off for a little while here?

Two answers. Number 1, I go back to my crawl, walk, run approach. First, we got to get the rigor, the execution and the metrics around our business so that we feel comfortable that we can grow our business organically. Second, having said that, of course, we keep our eyes open for opportunities that cross our desks. And like every tech company, we're continuously evaluating scenarios that could be accretive to our overall business case. Glenn Mattson - Sidoti & Company, LLC: Okay. And then just maybe a little more color on Europe. I mean I guess, Italy ticked up, and what other comments can you make about the rest of the continent?

In terms of -- the good news about EMEA, I think, as you know, 2 years ago, we were struggling to get traction in that business. Through our recent cost reduction efforts, we've been able to stabilize that business and return to profitability. One of the bright spots that we see is our business in Turkey, where we continue to leverage our Altus acquisition in terms of service and we continue to get wind in the financial regions. And so overall, I think that's a big success for us.

Justin Hughes, Philadelphia Financial.

I just wanted to talk about sort of the cash outlays because you've taken a number of charges, but you haven't actually made the payments yet. So if I can add up the $48 million to DOJ, the class-action settlement, the payments on your early retirement plan, plus your repatriating capital from overseas, I get to about $150 million of cash that will be going out looks like in the next kind of 12 months of onetime nature. Are there any cash requirements on your debt covenants? And can you just refresh us on what your debt covenants are based upon?

Yes, I can do that. And just, I think where your math went a little awry there, and I'll just recap it for you. Certainly, the FCPA, the $48 million, again there's a question of timing. But assuming that, that goes out the door this year to settle that matter, $17.5 million for the derivative class-action lawsuit, we have the cash taxes of roughly $20 million for repatriation and probably another $10 million or so in terms of cash restructuring cost. Those add up to $100 million. The pension that you referred to, actually that comes out of the overall trust. Those assets and those decisions are secured by the assets in the pension plan, which again I'll reiterate, the underfunded status of that plan at the end of 2012 was $150 million underfunded and with the actions we've taken in terms of freezing will bring that status down to about $50 million underfunded. But those -- again, that $40 million that you heard, that you quoted with those funds would come out of the trust, the pension assets. And so it will not impact the free cash flow of the corporation.

Okay. Is there a cash requirement on your debt covenants or what are your debt covenants based on?

So really our debt covenants are based upon 2 factors. EBIT-to-net interest, and when I say net interest, meaning we take into account, obviously, the interest expense, but we also credit against that the interest income. And if just you just look at our disclosures on Page 5 of the earnings release, you can see that the interest expense and the interest income about offset each other. So the EBIT-to-net interest is not an issue again because of the net interest is fairly offsetting interest expense versus interest income. The other covenants that we have is a net debt to capital, which again we're allowed to credit the cash against our debt. And so that has to be less than 50% and you can see from, again, our disclosures on the slide is that we're well in compliance of that covenant.

Okay. And then my other question is I believe you've said in the prepared remarks that you're using a higher discount rate on your pension liability. What did you change that discount rate from and to?

Yes. I mean we'll have to get you the exact discount rates. But certainly from the time that we ended the year to where we are today, I mean there has been roughly about 100 basis points increase in interest rates since that time. We'll get you the exact rate that we've used.

And that concludes today's question-and-answer session. Mr. Kristoff, I'll turn things over to you for closing remarks.

Thank you, and thank you for joining us this morning. As always, if you have any additional follow-up questions, please feel free to contact myself or Jamie Finefrock directly. Thanks again and have a good day.

And that concludes today's conference. You may now disconnect.