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Diebold's 2Q results reveal revenue increase, net loss

August 2, 2005

NORTH CANTON, Ohio - Diebold Inc. reported a 15 percent increase in revenue during the second quarter of 2005 from the same period in 2004. Quarterly net income, however, decreased 24 percent from '04 to '05, from $43.6 million or 60 cents per share to $33.3 million or 47 cents to 50 cents per share.

"We are clearly disappointed with our profitability during the quarter," said Walden W. O'Dell, Diebold chairman and chief executive officer. "As we previously indicated, most of the markets in which we compete remain healthy, and we once again experienced strong growth in orders and backlog during the quarter. However, slower than anticipated upgrade and replacement activity in the North America regional bank segment, cost challenges in our transition to a single global product platform, a higher mix of lower-margin revenue and negative foreign currency exchange impact due to the strengthening of the dollar in the quarter are negatively impacting our profit margins."

Restructuring costs and European Opteva manufacturing startup costs contributed to the net loss. But, according to the release, the company experienced double-digit product-order growth in the Europe, Middle East and Africa region, secured a $52 million order for lottery machines in Brazil and realized a 58 percent increase in Opteva orders during the quarter compared to the same period in '04. Other growth occurred in the company's security solutions revenue and in its Asia Pacific and EMEA markets.

"We are focused on improving the profitability of our business," O'Dell added. "In addition to previously disclosed cost-reduction actions, we are initiating some strategic changes within our organization. These changes are aimed at increasing the effectiveness of the functions across Diebold to better support our global efforts. The most sweeping of these changes is the establishment of a single global marketing organization, formed through consolidating several channel-based marketing functions.

"These changes will streamline our operations and drive improved efficiency and knowledge management throughout the company. Also, we have restructured our Global Software & Services organization by integrating all its functions into other existing organizations to better leverage resources and combine similar knowledge bases within the company. As a result of these and other actions, we anticipate cost reductions of approximately $20 million on an annual basis."

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