Diebold Reports First Quarter Financial Results

NORTH CANTON, Ohio, April 27 /PRNewswire-FirstCall/ -- Diebold, Incorporated (NYSE: DBD) today reported first quarter 2010 income from continuing operations attributable to Diebold, net of tax, of $24.9 million, or $0.37 per share.  These amounts are both up 185%, from the first quarter 2009.  First quarter 2010 revenue was $619.0 million, down 6% from first quarter 2009.  

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Non-GAAP earnings per share* from continuing operations attributable to Diebold, in the first quarter 2010 were $0.34, down 26% from first quarter 2009.  

Business Review

Management commentary

"During the first quarter, we delivered solid results despite a challenging comparison to the same period last year, during which the effects of the global recession had yet to impact our results," said Thomas W. Swidarski, Diebold president and chief executive officer.  "We exceeded our internal expectations during the quarter, as some business closed sooner than expected and we benefitted from a more profitable segment mix.  As a result, we have gained more confidence in our full-year outlook and are reaffirming our guidance for both earnings and revenue for 2010.  

"Strategically, we will continue to focus on developing emerging solutions and building our infrastructure in key growth markets around the world," Swidarski continued.  "At the same time, the services-related business in our industry remains a key focus for us.  In addition to growing service revenue, we continued to improve service profitability during the quarter – and are on track to achieve our goal to improve service gross margin for the third consecutive year.  We recognize that our defining competitive advantage lies in Diebold's unmatched ability to deliver the full range of service, support and software solutions that surround ATM-related technology, make it work reliably, at lower costs and with the flexibility to meet diverse customer demands.  That's the driving force behind our service strategy emphasis – and it's our key to a successful future."

Bradley C. Richardson, executive vice president and chief financial officer, said, "Our balance sheet remains strong, and I am very pleased with the year-over-year working capital improvements we made during the quarter.  I am confident that the focus and ongoing initiatives for working capital improvement will continue to generate positive results through the remainder of the year and increase our ability to invest in growth opportunities and return value to shareholders in the form of dividends and modest share repurchases."  

First Quarter Orders (constant currency)

After coming off a particularly strong order period in the fourth quarter 2009, global product and services orders decreased 9% compared with the prior-year period. Global financial self-service orders decreased 10% against a difficult comparison with the first quarter 2009, as well as moderating from growth in excess of 40% in the fourth quarter 2009.  Orders in Asia Pacific decreased 26% as that region appears to be returning to a more typical seasonality pattern, and experienced a very strong fourth quarter 2009 in which orders increased more than 50%. These patterns are indicative of the variable nature of orders, particularly in Asia Pacific.  

Revenue

Total revenue for the first quarter 2010 was down 6%, including a net positive currency impact of 5%, primarily as a result of North America where the completion of large deposit automation deployments by major national banks in 2009 negatively impacted the revenue comparison in the quarter.  

Gross Margin

Total gross margin for the first quarter 2010 was 25.5%, an increase of 2.3 percentage points from the first quarter of 2009.  The increase in total gross margin was attributable to continued productivity gains and cost-reduction measures in the company's service operations.  

Operating Expense

Total operating expense as a percentage of revenue for the first quarter 2010 was 19.0%, an increase of 2.6 percentage points from the first quarter of 2009.  Operating expense as a percentage of revenue was negatively impacted by lower revenue in the quarter, increased investment in research and development, and certain costs associated with the previously announced job eliminations in the company's North America operations and corporate functions.

Operating Profit

Operating profit was 6.6% of net sales in the first quarter 2010, a decrease of 0.2 percentage points from the first quarter 2009.  

Income from Continuing Operations, net of tax (attributable to Diebold)

Income from continuing operations, net of tax, was $24.9 million or 4.0% of revenue in the first quarter 2010, an increase of 185%, or 2.7 percentage points from the first quarter 2009.  Included in the 2010 results are non-routine income of $3.2 million in expense recovery and reimbursement from the company's D&O insurance carriers, as well as restructuring charges of $0.9 million.  Income from continuing operations in the first quarter of 2009 includes the $25 million reserve related to the agreement in principle with the staff of the SEC, non-routine income of $7.2 million in expense recovery and reimbursement from the company's D&O insurance carriers, as well as restructuring charges of $3.2 million and $1.0 million in non-routine expenses.  

Taxes on Income from continuing operations attributable to Diebold

First quarter taxes on income from continuing operations attributable to Diebold were $9.6 million, resulting in a first quarter tax rate of 27.9%.  

Balance Sheet, Cash Flow and Liquidity

The company's net debt* was $178.0 million at March 31, 2010, an increase of $112.7 million from December 31, 2009 and a reduction of $108.1 million from March 31, 2009.  The company's net debt to capital ratio was 15% at March 31, 2010, 6% at December 31, 2009, and 24% at March 31, 2009.  Net cash used in operating activities was $55.5 million in the first quarter 2010, compared with net cash provided by operating activities of $19.5 million in the first quarter 2009.  Free cash use* in the first quarter 2010 was $66.6 million, compared with free cash flow* of $7.0 million in the first quarter 2009.  

In the first quarter 2010, Diebold repurchased 337,000 of the company's common shares for approximately $10 million under its repurchase plan.  The company has approximately 2.6 million shares remaining under its existing board authorization.  

Restructuring charges and discontinued operations

The company incurred pre-tax restructuring charges of $1.1 million, or $0.01 per share, in the first quarter of 2010.  These charges were largely related to severance costs from the previously announced reorganization of the company's North America and corporate functions.  

All results from operations reported today, including prior periods, reflect Premier Election Solutions and the company's EMEA-based enterprise security operations as discontinued operations.  The company recorded a first quarter 2010 loss from discontinued operations of $1.0 million, net of tax.  This compares to a loss from discontinued operations of $7.1 million, net of tax, in the first quarter 2009.  

Venezuelan currency devaluation

On January 8, 2010, the Venezuelan government announced the devaluation of its currency, the bolivar, and the establishment of a two-tier exchange structure.  Management has determined that it is unlikely that the company will be able to transact business under the two-tier exchange structure.  As a result, the company is remeasuring its balance sheet and statement of operations using a parallel market rate.  The impact of this adjustment was a decrease of $6.5 million to the company's cash balance.  Earnings for the first quarter were negatively impacted by approximately $0.04 per share.  

All gains and losses resulting from the remeasurement of our financial statements are recorded in the statement of income.  In the future, if we convert bolivares at a rate other than the parallel market rate, we may realize gains that would be recorded in the statement of income.

Full-year 2010 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 acquisitions, disposals or other business combinations.

Expectations for continuing operations for the full year 2010 include:

• Revenue

• Earnings per share

Overview presentation and conference call

More information on Diebold's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on Diebold's Investor Relations website.  Thomas W. Swidarski and Bradley C. Richardson will discuss the company's financial performance during a conference call today at 10:00 a.m. (ET). Both the presentation and access to the call are available at http://investors.diebold.com.  The replay can also be accessed on the site for up to three months after the call.

Revenue Summary by Product, Service and Geographic Area

*See accompanying notes for non-GAAP measures.

Notes for Non-GAAP Measures

Forward-Looking Statements

In this press release, statements that are not reported financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance.  These forward-looking statements relate to, among other things, the company's future operating performance, the company's share of new and existing markets, the company's short- and long-term revenue and earnings growth rates, and the company's implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the company's manufacturing capacity.  

The use of the words "will," "believes," "anticipates," "expects," "intends" and similar expressions is intended to identify forward- looking statements that have been made and may in the future be made by or on behalf of the company. Although the company believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, the economy, its knowledge of its business, and on key performance indicators that impact the company, these forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed in or implied by the forward-looking statements. The company is not obligated to update forward-looking statements, whether as a result of new information, future events or otherwise.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to:

• ability to reach definitive agreements with the SEC and DOJ regarding their respective investigations;
• competitive pressures, including pricing pressures and technological developments;
• changes in the company's relationships with customers, suppliers, distributors and/or partners in its business ventures;
• changes in political, economic or other factors such as currency exchange rates, inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting the worldwide business in each of the company's operations, including Brazil, where a significant portion of the company's revenue is derived;
• the company's ability to take actions to mitigate the effect of the Venezuelan currency devaluation, further devaluation, actions of the Venezuelan government, and economic conditions in Venezuela;
• the continuing effects of the recent economic downturn and the disruptions in the financial markets, including the bankruptcies, restructurings or consolidations of financial institutions, which could reduce our customer base and/or adversely affect our customers' ability to make capital expenditures, as well as adversely impact the availability and cost of credit;
• acceptance of the company's product and technology introductions in the marketplace;
• the amount of cash and non-cash charges in connection with the restructuring of the company's North America operations and corporate functions, and the closure of both the company's Newark, Ohio facility and its EMEA-based enterprise security operations;
• unanticipated litigation, claims or assessments;
• variations in consumer demand for financial self-service technologies, products and services;
• potential security violations to the company's information technology systems;
• the investment performance of our pension plan assets, which could require us to increase our pension contributions, and significant changes in health care costs, including those that may result from government action such as the recently enacted U.S. health care legislation;
• the company's ability to successfully defend challenges raised to the sale of U.S. elections business; and
• the company's ability to achieve benefits from its cost-reduction initiatives and other strategic changes.

About Diebold

Diebold, Incorporated is a global leader in providing integrated self-service delivery and security systems and services.  Diebold employs more than 16,000 associates with representation in nearly 90 countries worldwide and is headquartered in Canton, Ohio, USA.  Diebold is publicly traded on the New York Stock Exchange under the symbol 'DBD.'  For more information, visit the company's Web site at www.diebold.com, or visit www.diebold.com/150 to learn more about Diebold's 150-year history.

SOURCE Diebold, Incorporated