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Diebold's 4Q, full-year revenue climbs while net income drops

January 30, 2006

NORTH CANTON, Ohio - Diebold Inc. announced Jan. 31 that its fourth-quarter and full-year earnings climbed in 2005 while net income fell. Quarterly revenue hit $817.6 million, a 14.9 percent increase from the same period a year earlier. And year-end revenue hit $2.6 billion, a 10 percent increase from $2.4 billion in '04.

Net income for 4Q 2005, however, fell $48.2 million, from $62.8 million or 87 cents per share in '04 to $14.6 million or 21 cents per share. Net income for the year hit $100.9 million, down 45 percent from $183.8 million in '04.

Net income was negatively impacted by a lower mix of revenue from the higher-margin North America regional bank market and increased security sales, which carry a lower margin, the company's earnings report stated. Manufacturing and supply-chain inefficiencies and higher energy costs also played a role.

"While 2005 was very challenging, during the fourth quarter we began taking the steps necessary to bring more stability to the business," said Kevin J. Krakora, Diebold's vice president and chief financial officer. "We've improved our forecasting processes and have made changes to our finance organization to further strengthen the financial controls and processes we have in place."

"Despite the progress we've made in addressing our operational issues, significant work remains," he added. "Therefore, 2006 will be a transitional year requiring focus and investment in key areas of our operations as we take the steps necessary to return Diebold to acceptable levels of profitability in 2007 and beyond."

For the year and the quarter, election systems earnings accounted for the majority of the company's revenue. That segment, which includes lottery systems in Brazil, brought in $161 million in 2005, up 79 percent from $90 million in '04. In 4Q '05, the segment brought in $89.9 million, up from $13.6 million during the same period a year earlier.

The company did, however, announce in a news release that adjustments to election systems revenue may come down the pike. (If adjustments are needed, the effect on revenue is estimated to be between $2 million and $10 million, which would be recognized in later periods.)

Financial self-service revenue hit $537 million during the quarter, up 1.6 percent from the same period a year earlier. Financial self-service revenue for the year totaled $1.77 billion, up about 4 percent from $1.69 billion a year earlier. Diebold attributed that increase to strong growth in EMEA, which offset lower revenue in the Americas that included decreases in Brazil and the regional bank market in the United States.

In 2006, the company expects financial self-service revenue to remain flat, with anticipated growth coming from the security and election systems segments.

Security solutions revenue for the year was up 16 percent, from $570 million in '04 to $662 million.

"Our brand remains strong and we have solid customer relationships on which to build," said Thomas W. Swidarski, Diebold's president and chief executive. "Over the past six weeks, I have identified several areas within the business that need more focus. My intent is to bolster our investment in these areas as quickly as possible.

Swidarski said Diebold has identified "a multiyear profit improvement plan that encompasses significant cost reduction as well as improved pricing. This plan entails eliminating more than $100 million from our cost structure within three years. Elements of this plan include streamlining our critical processes, significantly improving our order-to-cash cycle, and optimizing our supply chain and manufacturing footprint." (Read also, Diebold sells N.C. manufacturing facility.)  

During 4Q, Diebold repurchased 1,536,929 shares of its common stock. For the 12 months ended Dec. 31, the company repurchased 3,271,419 shares. The company can repurchase an additional 4.5 million shares under previous authorizations by its board of directors. (Read also, Diebold authorizes 4-million share stock-repurchase.)

"We are continuing to evaluate our management structure, current lines of business and planned investments into new businesses to ensure they are strategically aligned with the future direction of our company."

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Diebold Nixdorf

As a global technology leader and innovative services provider, Diebold Nixdorf delivers the solutions that enable financial institutions to improve efficiencies, protect assets and better serve consumers.

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