Business News

Diebold Reports Fourth Quarter and Year-End Financial Results

Thursday 05. February 2009 - 2008 earnings from continuing operations were $1.60 per share, or $2.69 on a non-GAAP basis*

– Full-year revenue up 8%

– 2008 operating profit margin improved by 2 percentage points

– Liquidity remains strong, with 2008 net cash from operations of $281 million, up 87%; and free cash flow* of $223 million, up 109%

– Company discontinues its Europe, Middle East & Africa (EMEA) based enterprise security operations

Diebold, Incorporated (NYSE:DBD) today reported fourth quarter 2008 income from continuing operations of $15.3 million, or $.23 per share, up 323% and 330%, respectively, from the fourth quarter 2007. Fourth quarter revenue was $823.0 million, down 6% from fourth quarter 2007.

Full-year 2008 income from continuing operations was $106.4 million, or $1.60 per share, up 137% and 139%, respectively, from 2007. Full-year 2008 revenue was $3,170.1 million, up 8% from 2007.

Non-GAAP earnings per share from continuing operations* in the fourth quarter 2008 were $.40, down 40% from fourth quarter 2007. Full-year 2008 earnings per share* on a non-GAAP basis were $2.69, up 58% from 2007.

Business Review
Management commentary


“During the year, we met or exceeded our targets in the areas of improved supply chain, manufacturing efficiency, quality and cost-reduction initiatives. Our company achieved the highest year-end non-GAAP earnings from continuing operations and free cash flow* in its 150-year history, largely as a result of our significant improvement in profitability, continued growth in key international geographies, progress in our cost-savings efforts, and improvement in our already strong customer loyalty scores,” said Thomas W. Swidarski, Diebold president and chief executive officer.

“As we look ahead, we believe the global economy will remain extremely challenging throughout 2009. While we’re obviously concerned about this negative environment, Diebold is in a unique position to deliver value. The solutions we provide enable customers to reduce costs and improve efficiency, and market demand for financial self-service solutions remains relatively stable. Additionally, more than half of our revenue comes from services – much of which is recurring in nature. Finally, we have developed the infrastructure and expertise to continually focus on improving operational efficiency and reducing costs.”

Fourth Quarter Orders (constant currency)

Total product and services orders for financial self-service and security were down in the double-digit range compared to the prior-year period. Global financial self-service orders decreased in the double-digit range, with a decrease in the high single-digit range in the Americas, and a decrease in the low double-digit range in EMEA. Orders in Asia Pacific (AP) decreased in excess of 50% due to the shift in seasonality in China as banks placed large orders in the prior-year period in preparation for the Olympics. Security orders decreased in the low double-digit range as new bank branch construction and retail store openings remain weak in the United States.

Profit/Loss
Revenue


Total revenue for the fourth quarter 2008 was down 6%, including a net negative currency impact of 5%. Full-year 2008 revenue was up 8%, including a net positive currency impact of 2%.

Gross Margin

Total gross margin for the fourth quarter 2008 was 23.9%, a decline of 0.3 percentage points from the fourth quarter of 2007. Total gross margin included restructuring charges of $5.4 million in the fourth quarter of 2008 and $3.4 million in the fourth quarter of 2007. The decrease in gross margin was due to an inventory write down of $13.0 million in the fourth quarter 2008, related to select equipment within Premier Election Solutions (Premier). In the fourth quarter 2007, Premier had an inventory write down of $3.7 million.

Total gross margin for the full-year 2008 was 25.1%, an increase of 2 percentage points from 2007. Total gross margin included restructuring charges of $25.6 million for the full-year 2008 and $28.7 million in 2007.

Operating Expense

Total operating expense as a percentage of revenue for the fourth quarter 2008 was 19.0%, a decrease of 2.9 percentage points from the fourth quarter of 2007. This decrease was due to a goodwill impairment charge of $46.3 million for Premier during the fourth quarter of 2007. There were no goodwill impairment charges in operating expense in the fourth quarter 2008. Operating expenses also included restructuring charges and non-routine expenses of $6.7 million and $3.3 million, respectively, in the fourth quarter of 2008 and $1.2 million and $3.1 million, respectively, in the fourth quarter of 2007.

Total operating expense as a percentage of revenue for the full-year 2008 was 19.5%, a decrease of 0.1 percentage points from 2007. These expenses included restructuring charges, non-routine expenses and impairment charges of $15.9 million, $45.1 million and $4.4 million, respectively, for the full-year of 2008. In 2007, the company had a $5.1 million restructuring credit from the sale of the facility in Cassis, France, $7.3 million in non-routine expenses and $46.3 million in impairment charges.

Income from Continuing Operations

Income from continuing operations was 1.9% of revenue in the fourth quarter 2008, an increase of 2.7 percentage points from the fourth quarter 2007. Included in this income were restructuring charges of $12.1 million in the fourth quarter 2008 and $4.6 million in the fourth quarter 2007. The increase in fourth quarter

2008 income from continuing operations as a percentage of revenue reflects lower operating expenses as a percentage of revenue and a lower effective tax rate. Excluding restructuring charges, non-routine expenses and impairment charges, operating margin from continuing operations would have been 6.8% in the fourth quarter 2008 compared to 8.5% in the fourth quarter 2007.

Income from continuing operations was 3.4% of revenue in the full year 2008, an increase of 1.9 percentage points from 2007. Included in this income were restructuring charges of $41.6 million in the full year 2008 and $23.6 million in 2007. The increase in full-year 2008 income from continuing operations as a percentage of revenue reflects higher gross margins, lower operating expenses as a percentage of revenue and a lower effective tax rate. Excluding restructuring charges, non-routine expenses and impairment charges, operating margin from continuing operations would have been 8.4% in 2008 compared to 6.2% in 2007.

Balance Sheet, Cash Flow and Liquidity

The company’s net debt* was $254.3 million at December 31, 2008, a reduction of $124.1 million from September 30, 2008 and a reduction of $70.4 million from December 31, 2007. The company’s net debt to capital ratio was 21% at December 31, 2008, 25% at September 30, 2008, and 23% at December 31, 2007.

Net cash provided by operating activities was $281.2 million at December 31, 2008, an increase of $219 million from September 30, 2008 and an increase of $131 million from December 31, 2007.

In the fourth quarter 2008, free cash flow* was $194.0 million, an increase of $90.5 million from the fourth quarter 2007. Full-year free cash flow* was $223.2 million in 2008, an increase of $116.2 million from 2007.

Restructuring charges and discontinued operations

The company incurred restructuring charges of $.13 per share in the fourth quarter of 2008. The majority of these charges were related to severance costs from the previously announced reduction in the company’s global workforce during 2008. Full-year restructuring charges in 2008 were $.50 per share.

As previously disclosed, the company closed its EMEA-based enterprise security operations during the fourth quarter 2008. As a result, the company recorded a fourth quarter 2008 non-cash asset impairment charge of $16.7 million, related to previously recorded goodwill and certain intangible assets. In addition, the company incurred severance expenses and other cash charges incidental to this closure of $1.7 million during the fourth quarter 2008. These charges are included within the company’s reporting of enterprise security in EMEA as a discontinued operation. The company anticipates incurring additional charges associated with this closure of approximately $2.2 million in 2009.

Non-routine expenses

The company incurred fourth quarter 2008 non-routine expenses totaling $3.3 million, or $.04 per share, compared to $3.1 million, or $.03 per share, in the fourth quarter of 2007. These expenses primarily consisted of legal, audit and consultation fees related to the previously announced internal review of other accounting items, restatement of financial statements and the ongoing government investigations, as well as other advisory fees.

The company incurred full-year 2008 non-routine expenses totaling $45.1 million, or $.54 per share, compared to $7.3 million, or $.08 per share in 2007. Cash payments related to these non-routine expenses in the full year 2008 were $29.0 million, compared to $5.1 million in 2007.

Pension expense

Diebold incurred full-year 2008 net pension expense of $3.3 million compared with $8.2 million in 2007. The company anticipates net pension expense of approximately $6 million in 2009. Actual cash contributions to the company’s pension plans were $6.8 million in 2008 compared with $11.3 million in 2007. Diebold anticipates contributing approximately $12 million to $14 million to its pension plans in 2009.

Full-year 2009 outlook

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of any future mergers, acquisitions, disposals or other business combinations.

Expectations for the full year 2009 include:


— Revenue

Revenue expectations Guidance
Total revenue -10% to -2%
Financial self-service -7% to -1%
Security -8% to +3%
Election systems $70 million to $80 million
Brazilian lottery $5 million to $10 million


— Earnings per share
Guidance
2009 EPS (GAAP) $2.07 – $2.36
Restructuring charges .01 – .01
Non-routine expenses .02 – .03
2009 EPS non-GAAP $2.10 – $2.40