Diebold's Revenue Recognition Changes Ahead of Election Year (DBD)

Diebold Inc. (NYSE:DBD) has announced some changes to its revenue recognition practices deemed the "Bill & Hold" basis within its North America segment as part of ongoing discussions with the SEC.  Diebold will discontinue the use of bill and hold as a method of revenue recognition in both its North America and international businesses, and it is in the process of determining which method will used ahead.

What is interesting is that this represented 11% of consolidated revenues in 2006.  The company said that the timing in revenue recognition would impact previously reported cash by operating activities or its net cash position.  But that might not mean that there won’t be restatements to revenues.  Ultimately it will be a wash when smoothed out through time and will likely see this move into "new orders" or "backlog" instead of current revenues, but that 11% is worth noting.  We won’t say exactly how the revenue recognition will change because the company itself hasn’t decided.  Upon completing this review and potential restatement process, Diebold indicates that it will be in a position to provide updated revenue and earnings guidance for the full-year 2007.

Just last week there were reports that the company had disputed voting results in a local California election, and there are reports almost monthly regarding electronic voting reviews.  As we head into the 2008 presidential election you can bet long and hard that Diebold and its electronic voting machines will come under scrutiny and garner more media attention regarding the perils (and benefits) of electronic voting.

But there is an interesting issue surrounding Diebold, despite your political bias and despite your opinion of electronic voting.  Despite all the negative coverage and all of those coming to the defense of e-voting machines, Diebold stock may not perform the way you might guess in election years.  On an adjusted basis:

• Shares closed out 2005 at $36.69 and closed out 2006 at $45.90.  That represents a 25.1% gain on an adjusted basis.
• Shares closed out 2003 at $50.35 and closed out 2004 at $52.87, representing roughly a 5% gain on an adjusted basis.

Unfortunately, this stock sits at $45.61 as of Monday’s close and the 52-week trading range is $41.41 to $54.50. 

2008 is probably going to have more and more e-voting, although public challenges to this pose a risk according to the company.  In 2006 the company claimed more than 150,000 touch screen and optical scan units were used in 34 states for electronic voting.   It makes you wonder if the day will ever come that we can merely cast votes at ATM machines.  Diebold would probably like that, particularly as Diebold is a leader in manufacturing and servicing ATM’s as its major operations.

Jon C. Ogg
October 2, 2007