Diebold Reports 2.7 Per Cent Revenue Increase In Q3

The company reported third quarter net income of $26.4 million, compared to net income of $48.3 million in the third quarter of 2004. Diluted earnings per share were $.37, compared to $.67 per share in the third quarter of 2004. Included in the third quarter 2005 reported results are restructuring charges of $.07 per share, manufacturing start-up and other one-time costs* of $.04 per share and the gain on the sale of the campus card systems business of $.18 per share. Excluding the impact of these items, diluted earnings per share in the third quarter would have been $.30 per share*, at the high end of the most recent guidance of $.25 to $.30 per share provided on September 21, 2005. As previously announced on July 5, 2005, the company sold its campus card systems division. As a result, the financial results from this business have been classified as a discontinued operation. Factors Contributing to Lower Third Quarter EPS On September 21, 2005, the company reduced its third quarter and full-year guidance. A number of factors contributed to lower earnings in the third quarter. Revenue was approximately $67 million lower than the original guidance provided on July 27, 2005. Approximately $50 million of the shortfall occurred in the global financial self-service business. An additional $12 million resulted from delayed deliveries and reduced revenue as a result of Hurricane Katrina, which includes $10 million of election systems equipment that had been scheduled for the Gulf region. The remainder of the revenue shortfall occurred in the security solutions business, resulting from softness in the North America bank market. Lower-than-expected demand, primarily in the more profitable U.S. regional bank segment, and customer installation delays resulted in lower-than-expected revenue and profits. Also, revenue delays were experienced in the Asia Pacific segment related to a large customer in China. In addition, operational issues resulted in incremental expense and lower revenue during the quarter. These operational issues include: ineffective supply-chain management; higher-than-expected manufacturing and product costs; continued challenges in achieving efficiencies in European-based manufacturing; higher energy costs; and delays associated with software issues. Below is a summary table providing an approximate estimate of the impact of factors affecting third quarter 2005 earnings per share compared to the guidance provided in the second quarter earnings announcement on July 27, 2005. Factors impacting Q3 2005 EPS vs. Revenue EPS guidance provided 7/27/05 (in millions) Lower-than-expected market demand/customer installation delays $37 $(.15) Operational issues 18 (.13) Hurricane Katrina 12 (.03) Tax rate increase — (.03) Increased other income/(exp.) — (.01) Total $67 $(.35) Financial Results “Clearly, this was a challenging quarter, particularly from an operational perspective,” said Walden W. O’Dell, Diebold chairman and chief executive officer. “We remain confident in the strength of our brand and in our competitive position in the markets we serve. We have a strong portfolio of businesses in growing markets and continue to generate sales growth, as product orders for Opteva increased significantly from the third quarter 2004. “However, in order to realize our long-term potential we must correct some fundamental performance issues. We must significantly improve our cost structure by addressing inefficiencies in our manufacturing supply chain and software development processes. In addition, we need to continue diligently instilling pricing discipline throughout the organization.” O’Dell continued, “We’ve identified and implemented several actions within the organization designed to improve our long-term financial performance. As previously announced, we’ve made positive changes in key leadership positions within the company, including a new COO and CFO, and have redesigned our organizational alignment to improve our core financial self-service business. “We’ve also taken many steps toward a more strategic and disciplined approach to global pricing management, with more actions to come. Significant work is underway to improve our fundamental performance issues. We remain committed to our previously announced restructuring actions and are evaluating additional potential actions for 2005 and 2006 to improve our competitiveness.” Fixed Exchange-Rate Third Quarter Orders Total orders for financial self-service and security products and services were essentially flat from the prior year period. Financial self-service orders were essentially flat, with order growth in EMEA well into the double digits offset by a decline in North America. Security orders increased in the low single-digit range. Orders in election systems increased significantly due to equipment orders in Ohio, Utah, Mississippi and Georgia. *See accompanying notes for non-GAAP measures. Revenue Total revenue from continuing operations for the quarter was $622.3 million, up $16.1 million, or 2.7 percent, and increased 0.1 percent on a fixed exchange-rate basis*. Total financial self-service revenue was down 1.6 percent and 4.9 percent on a fixed exchange-rate basis* as a result of a decline in North America, partially offset by gains in Brazil and Latin America. Security solutions revenue was up 9.4 percent and 8.7 percent on a fixed exchange-rate basis*. Election systems revenue was up 15.3 percent over prior year while first-time Brazilian lottery systems revenue was $3.4 million. Revenue Summary by Product and Service Solutions (In Thousands — Quarter % Change % Change Ended Sept. 30, 2005) 2005 2004 GAAP fixed rate* Financial Self-Service Products $194,248 $200,022 -2.9% -5.2% Services 217,271 218,392 -0.5% -4.6% Total Fin. self-service 411,519 418,414 -1.6% -4.9% Security solutions Products 67,870 69,260 -2.0% -2.8% Services 99,868 84,086 18.8% 18.3% Total Security 167,738 153,346 9.4% 8.7% Total Fin. self-service & security 579,257 571,760 1.3% -1.3% Election systems 39,697 34,434 15.3% 15.3% Brazilian lottery systems 3,379 – N/A N/A Total Revenue from Continuing Operations $622,333 $606,194 2.7% 0.1% Revenue Summary by Geographic Area (In Thousands — Quarter % Change % Change Ended Sept. 30, 2005) 2005 2004 GAAP fixed rate* The Americas Financial self-service solutions $277,556 $278,457 -0.3% -4.8% Security solutions 152,064 147,242 3.3% 2.9% subtotal 429,620 425,699 0.9% -2.2% Election systems 39,697 34,434 15.3% 15.3% Lottery 3,379 – N/A N/A Total Americas 472,696 460,133 2.7% -0.2% Asia Pacific Financial self-service solutions 51,584 54,940 -6.1% -9.2% Security solutions 10,783 6,097 76.9% 65.2% Total Asia Pacific 62,367 61,037 2.2% -1.5% Europe, Middle East, Africa Financial self-service solutions 82,379 85,017 -3.1% -2.6% Security solutions 4,891 7 N/A N/A Total Europe, Middle East, Africa 87,270 85,024 2.6% 3.2% Total Revenue from Continuing Operations $622,333 $606,194 2.7% 0.1%