Diebold Reports Third Quarter Financial Results

NORTH CANTON, Ohio, Oct. 27, 2011 /PRNewswire/ --

Earnings overview presentation available at http://www.diebold.com/DBD3Q11.pdf

• 3Q EPS from continuing operations of $.65, or $.69 non-GAAP*
• Total revenue for 3Q 2011 down $39.3 million compared with prior-year period
• Company generates improvement in both gross and operating margin
• 3Q 2011 net debt* increased $57.8 million from 3Q 2010; 3Q 2011 free cash flow* of $30.5 million
• Diebold repurchases 1.7 million of its shares during the quarter under its repurchase plan
• Company raises FY non-GAAP* EPS guidance range to $2.15 - $2.25

Diebold, Incorporated (NYSE: DBD) today reported third quarter 2011 net income from continuing operations attributable to Diebold of $41.8 million, or $.65 per share, down from $44.1 million and $.66 per share, respectively, from the third quarter 2010. Third-quarter 2011 revenue was $709.3 million, down 5.2% from the third quarter 2010.

Non-GAAP earnings per share* from continuing operations attributable to Diebold, net of tax, in the third quarter 2011 were $.69 per share, down from $.73 per share in the third quarter 2010.  

Business Review

Management commentary

"Once again we delivered sound performance during the third quarter, showing significant year-over-year improvement in profit margins -- particularly in our services business.  And we are delivering on our commitment to generate the majority of our earnings in the back half of the year," said Thomas W. Swidarski, Diebold president and chief executive officer.  "We continue to focus on more profitable business opportunities globally, while effectively driving improvements in our operations and reducing our cost structure. As a result, we are raising our previous earnings guidance range for 2011.

"North America continues to perform very well, with high demand for our financial self-service solutions," continued Swidarski.  "In fact, U.S. regional bank product orders once again increased well in excess of 100 percent – and the expected revenue is beginning to materialize as we approach the end of the year.  While we also saw substantial revenue growth in Asia during the quarter, overall revenue was negatively impacted by a significant decrease in the cyclical Brazil voting business as well as declines in our overall security business."

Swidarski concluded, "Looking at the remainder of 2011, we are revising our revenue outlook to reflect lower financial self-service revenue expectations in Europe and Brazil largely due to the recent strengthening of the dollar.  With so many financial institutions facing a changing economic and regulatory environment, I remain extremely confident in our ability to provide leading-edge technology, software and expanded services that our customers are demanding to help measurably improve their business."  

Third Quarter Orders (constant currency)

Total global product and services orders decreased 3% compared with the prior-year period. Excluding Brazil election systems and lottery, total global orders were essentially flat. North America orders benefitted from strong financial self-service growth, led by significant growth in the U.S. regional bank space.  Asia Pacific orders decreased 9% mainly due to the timing of orders in China.  Orders decreased 31% within EMEA, primarily as the result of a large order in Turkey in the prior-year period, which created a difficult comparison.  Excluding Brazil election systems and lottery, Latin America orders were essentially flat. Security orders declined as the U.S. bank branch business continues to be challenged.

Profit/loss summary – year-to-date comparison (Dollars in millions)

The company's management believes excluding restructuring charges, non-routine expenses/income and impairment charges from operating margins is an indication of the company's baseline performance.  The exclusion of these items permits evaluation and comparison of results for the company's core business operations and it is on this basis that the company's management internally assesses the company's performance.

Revenue

Total revenue for the third quarter 2011 was down 5.2% compared to the third quarter 2010, including a net positive currency impact of approximately 3%.  Growth in North America and Asia Pacific was more than offset by revenue declines in EMEA and in Latin America, where Brazil realized $36.4 million less election systems revenue in the third quarter of 2011, compared with the third quarter 2010.  

Gross Margin

Total gross margin for the third quarter 2011 was 27.4%, an increase of 1.5 percentage points from the third quarter of 2010, due to more favorable customer and geographic mix.

Operating Expenses

Total operating expenses as a percentage of revenue for the third quarter 2011 were 19.7%, an increase of 0.8 percentage points from the third quarter of 2010.  This increase is a result of lower revenue during the third quarter 2011, as operating expense decreased $1.5 million during the period.  Operating expenses in the third quarter 2011 included $2.1 million of net restructuring charges primarily associated with restructuring efforts in EMEA.  Third quarter 2011 operating expenses also included non-routine expenses of $2.6 million for legal, consultative, and audit costs related to the previously disclosed Foreign Corrupt Practices Act (FCPA) investigation.

Operating expenses in third quarter 2010 included non-routine expenses of $2.6 million related to the FCPA investigation, and $3.0 million in impairment charges and restructuring charges of $0.1 million.

Operating Profit

Operating margin was 7.7% of net sales in the third quarter 2011, an increase of 0.7 percentage points from the third quarter 2010. Non-GAAP operating profit* in the third quarter 2011 was $58.4 million, or 8.2% of sales, and $58.5 million, or 7.8% of sales, in the third quarter 2010 excluding applicable restructuring charges, non-routine expenses, and impairment charges.  

Taxes on Income from Continuing Operations

Third quarter 2011 income taxes on continuing operations were $11.3 million.  This resulted in a third quarter income tax rate of 21% on both a GAAP and non-GAAP basis*. Full-year, non-GAAP tax rate is now expected to be approximately 26%*.

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

Income from continuing operations, net of tax, was $41.8 million, or 5.9% of revenue in the third quarter 2011, consistent on a percent of revenue basis with the third quarter 2010. Included in the third quarter 2011 net of tax results are restructuring charges of $1.2 million, and $1.6 million in non-routine expenses. Income from continuing operations net of tax in the third quarter 2010 included impairment charges of $2.3 million, net non-routine expenses of $1.9 million, and restructuring charges of $0.4 million.

Balance Sheet, Cash Flow and Liquidity

The company's net debt* was $232.2 million at September 30, 2011, an increase in net debt of $267.4 million from the net investment* position at December 31, 2010 and an increase of $57.8 million from September 30, 2010.  The increase in net debt during the third quarter was primarily the result of share repurchases. Diebold repurchased 1.7 million of its common shares for approximately $47 million under its repurchase plan in the third quarter. This leaves 0.7 million shares on the current Board repurchase authorization at September 30, 2011.  The company's net debt to capital ratio was 22% at September 30, 2011, -4% at December 31, 2010 and 14% at September 30, 2010.  

Net cash used in operating activities was $54.7 million for the nine months ended September 30, 2011, an increase of $105.7 million from the nine months ended September 30, 2010.  Free cash flow* in the third quarter 2011 was $30.5 million, a decrease of $26.9 million from the third quarter 2010.  The company expects to generate the majority of its cash flow during the fourth quarter, which will significantly reduce net debt by year end.  

Restructuring, non-routine expenses, and impairment charges

The company incurred restructuring charges, net of tax, of $1.2 million, or $.02 per share in the third quarter of 2011.  The majority of these charges were associated with restructuring efforts in EMEA.  For the full year, the company expects its restructuring charges to be in the range of $.28 to $.30 per share.  In addition, in the third quarter 2011, the company incurred non-routine expenses, net of  tax, of $1.6 million, or $.02 per share, related to the previously disclosed FCPA investigation.  

In the third quarter 2010, restructuring charges net of tax were $0.4 million, or $0.01 per share.  The majority of these charges were related to severance costs from the previously announced reorganization of the company's North America and corporate functions, and the continued strategic realignment of the company's global manufacturing.  The company incurred an impairment charge in the third quarter 2010 of $2.3 million, or $.03 per share, net of tax, related to a previous cost-basis investment in a security company.  During the third quarter 2010, the company also incurred non-routine expenses, net of tax, of $1.9 million, or $.03 per share, related to the previously disclosed FCPA investigation.

Foreign Corrupt Practices Act review

As previously disclosed, Diebold continues to conduct a global internal review of its compliance with the FCPA. The company excludes costs related to this review from its non-GAAP operating results as it provides a better overall understanding of the company's historical financial performance and future prospects. Diebold cannot predict the length, scope or results of this review or related government investigations, or the impact, if any, on its results of operations.

Full-year 2011 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 2011 are as follows:

• Revenue

• Earnings per share

*See accompanying notes for non-GAAP measures.

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.

Notes for Non-GAAP Measures

1. Reconciliation of diluted GAAP EPS to non-GAAP EPS from continuing operations measures:

The sums of the quarterly figures do not equal year-to-date figures due to rounding or differences in the weighted-average number of shares outstanding during the respective periods.

The company's management believes excluding restructuring charges, non-routine expenses/income and impairment charges is useful to investors because it provides an overall understanding of the company's historical financial performance and future prospects.  Management believes non-GAAP EPS from continuing operations is an indication of the company's base-line performance.  Exclusion of these items permits evaluation and comparison of results for the company's core business operations, and it is on this basis that management internally assesses the company's performance.    

2. Free cash flow (use) is calculated as follows:              

The company's management believes that free cash flow is useful to investors because it is a meaningful indicator of cash generated from operating activities that is available for the execution of its business strategy, including service of debt principal, dividends, share repurchase and acquisitions.  Free cash flow is utilized to fund our dividends, as well as mandatory debt payments and other investment opportunities. Free cash flow is not an indicator of residual cash available for discretionary spending, because it does not take into account mandatory debt service or other non-discretionary spending requirements that are deducted in the calculation of free cash flow.  

3. Net investment/(debt) is calculated as follows:

The company's management believes that given the significant cash, cash equivalents and other investments on its balance sheet that net cash against outstanding debt is a meaningful net debt calculation. A vast majority of the Company's cash and cash equivalents and short-term investments reside in international tax jurisdictions.

4. Reconciliation of GAAP Operating Margin to non-GAAP measures

The company's management believes excluding restructuring charges, non-routine expenses/income and impairment charges from operating margins is an indication of the company's baseline performance.  The exclusion of these items permits evaluation and comparison of results for the company's core business operations and it is on this basis that the company's management internally assesses the company's performance.  

Forward-Looking Statements

In this press release, statements that are not reported financial results or other historical information are "forward-looking statements".  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:

• 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 amount of cash and non-cash charges in connection with the restructuring of the company's EMEA operations
• the continuing effects of the 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 company's ability to maintain effective internal controls;
• changes in the company's intention to repatriate cash and cash equivalents and short-term investments residing in international tax jurisdictions could negatively impact foreign and domestic taxes;
• unanticipated litigation, claims or assessments, as well as the impact of any current/pending lawsuits;
• 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 amount and timing of repurchases of the company's common shares, if any;
• the outcome of the company's global FCPA review and any actions taken by government agencies in connection with the company's self disclosure, including the pending SEC investigation; 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 approximately 16,000 associates with representation in nearly 90 countries worldwide and is headquartered in the Canton, Ohio region, USA.  Diebold is publicly traded on the New York Stock Exchange under the symbol 'DBD.'  For more information, visit the company's website at www.diebold.com.

(Logo:  http://photos.prnewswire.com/prnh/20080725/DIEBOLDLOGO )

SOURCE Diebold, Incorporated