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Diebold posts Q2 results

04 August 2009  |  1477 views  |  0 Source: Diebold

Diebold, Incorporated (NYSE: DBD) today reported second quarter 2009 income from continuing operations attributable to Diebold, net of tax, of $30.6 million, or $.46 per share, both up 5% from the second quarter 2008.

Second quarter 2009 revenue was $700.5 million, down 9% from second quarter 2008.

Six-month year-to-date 2009 income from continuing operations attributable to Diebold, net of tax, was $34.9 million, or $0.52 per share, down 20% and 21%, respectively, from the same period in 2008. Six-month year-to-date 2009 revenue was $1,363.6 million, down 7% from 2008.

Non-GAAP earnings per share* from continuing operations attributable to Diebold, net of tax, in the second quarter 2009 were $.49, down 29% from second quarter 2008. Six-month year-to-date 2009 non-GAAP earnings per share* were $0.88, down 21% from 2008.

*See accompanying notes for non-GAAP measures.

Business Review

Management commentary

"I am pleased with the progress of our SmartBusiness 200 cost reduction initiative, and we continue to make strides to lower our overall cost structure," said Thomas W. Swidarski, president and chief executive officer of Diebold. "We also continue to make progress in working capital management, as demonstrated by our significant improvement in net debt and free cash flow. In addition, our intense focus on services resulted in the eighth consecutive quarter of year-over-year improved service gross margin.

"While we performed very well in the second quarter, the economic condition of our core markets in the financial industry continues to create a challenging environment. As we stated in the first quarter, there are signs that the market has bottomed out and is beginning to stabilize. For the remainder of this year, however, we don't expect any significant rebound in demand as spending remains tight with our financial customers.

"In light of the rapid changes taking place in the financial industry, we must continue to assess our operations," Swidarski continued. "As such, we continue to evaluate our manufacturing footprint, our current lines of business and our go-to-market strategies to strengthen our competitive position moving forward."

Second Quarter Orders (constant currency)

Total product and services orders for financial self-service and security were down in the mid-20% range compared to the prior-year period. Global financial self-service orders also decreased in the mid-20% range. Orders in Asia Pacific increased more than 50%. In the Americas, however, financial self-service orders decreased more than 30%, primarily due to a difficult comparison to the prior-year period when the company had two very large orders in Brazil. Orders in Europe, Middle East and Africa (EMEA) decreased more than 40%. Security orders also decreased in the mid-20% range as new bank branch construction and retail store openings remain weak in the United States.

Profit/Loss

Revenue

Total revenue for the second quarter 2009 was down 9%, including a net negative currency impact of 5%. Six-month year-to-date 2009 revenue was down 7%, including a net negative currency impact of 6%.

Gross Margin

Total gross margin for the second quarter 2009 was 24.7%, a decline of 0.4 percentage points from the second quarter of 2008. Total gross margin included restructuring charges of $2.7 million in the second quarter of 2009 and $7.4 million in the second quarter of 2008. The decrease in gross margin was due primarily to a higher percentage of revenue coming from lower margin business segments and regions, as well as lower overall revenue levels.

Six-month year-to-date 2009 gross margin was 23.8%, a decrease of 1.2 percentage points from the same period of 2008. Total gross margin included restructuring charges of $5.8 million year-to-date 2009, and $9.6 million in 2008.

Operating Expense

Total operating expense as a percentage of revenue for the second quarter 2009 was 18.3%, a decrease of 0.7 percentage points from the second quarter of 2008. Operating expenses were lower due to ongoing cost-reduction efforts. In addition, operating expenses in the second quarter 2009 included restructuring charges of $1.3 million and non-routine income of $1.3 million associated with expense recovery and reimbursement from our D&O insurance carriers. The company continues to pursue reimbursement of the remaining incurred legal and other expenditures with its other D&O insurance carriers. Operating expense in the second quarter of 2008 included $4.0 million in restructuring charges and $8.5 million in non-routine expenses.

Total operating expense as a percentage of revenue for six-month year-to-date 2009 was 17.8%, a decrease of 2.5 percentage points from the same period of 2008. These expenses included restructuring charges of $2.7 million and non-routine expenses of $1.3 million offset by $11.3 million in expense recovery and reimbursement from our D&O insurance carriers.

Six-month year-to-date 2008 operating expenses included $5.5 million in restructuring charges and $17.2 million in non-routine expenses. The company also incurred an impairment charge in the first half of 2008 of $4.4 million, or $0.5 per share, related to the write down of intangible assets from the 2004 acquisition of TFE Technology.

Operating Profit

Operating profit was 6.3% of net sales in the second quarter 2009, an increase of 0.2 percentage points from the second quarter 2008. Included in operating profit in both periods were restructuring charges and non-routine income/expenses. Excluding these items from both periods, non-GAAP operating profit margin* was 6.7% in the second quarter 2009 and 8.7% in the second quarter 2008.

Six-month year-to-date 2009 operating profit was 6.1% of revenue, an increase of 29.8% or 1.4 percentage points from the comparable period of 2008. Non-GAAP operating profit margin* was 5.9% in the first six months of 2009 and 7.2% in the comparable period of 2008.

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

Income from continuing operations, net of tax, was $30.6 million, or 4.4% of revenue in the second quarter 2009, an increase of 4.6%, or 0.6 percentage points from the second quarter 2008. Included in these numbers are after-tax restructuring charges of $3.0 million, and $1.0 million in expense recovery and reimbursement from our D&O insurance carriers. Income from continuing operations in 2008 included after-tax restructuring charges of $10.3 million, and after-tax, non-routine charges of $6.7 million.

Six-month year-to-date 2009 income from continuing operations, net of tax, was $34.9 million, or 2.6%, and $43.6 million, or 3.0%, in the comparable period of 2008. First half 2009 income from continuing operations, net of tax, includes the $25 million reserve related to the agreement in principle with the staff of the SEC, $11.0 million in expense recovery and reimbursement from the company's D&O carriers, as well as after-tax restructuring charges of $6.2 million. First-half 2008 income from continuing operations, net of tax, included $13.2 million in after-tax restructuring charges, and after-tax, non-routine charges of $17.1 million.

*See accompanying notes for non-GAAP measures

Balance Sheet, Cash Flow and Liquidity

The company's net debt* was $238.4 million at June 30, 2009, a reduction of $15.8 million from December 31, 2008 and a reduction of $134.4 million from June 30, 2008. The company's net debt to capital ratio was 19% at June 30, 2009, 21% at December 31, 2008, and 24% at June 30, 2008.

For the first six months of 2009, net cash provided by operating activities was $79.8 million at June 30, 2009, an increase of $70.2 million from June 30, 2008. Free cash flow* in the second quarter 2009 was $50.7 million, an increase of $68.2 million from the second quarter 2008. For the first six months of 2009, free cash flow* was $57.7 million, an increase of $67.8 million from the first six months of 2008.

*See accompanying notes for non-GAAP measures.

Restructuring charges and discontinued operations

The company incurred restructuring charges of $.05 per share in the second quarter of 2009. The majority of these charges were related to the sale of the company's direct operation in Argentina, severance costs from the previously announced reduction in the company's global workforce during 2008, and the reduction in field office and warehousing facilities. Six-month year-to-date 2009 restructuring charges were $.10 per share.

As previously disclosed, the company closed its EMEA-based enterprise security operations during the fourth quarter 2008. As a result, the company recorded a second quarter 2009 loss from discontinued operations of $0.2 million net of tax. This compares to a loss from discontinued operations of $2.0 million, net of tax, in the second quarter 2008. Losses from discontinued operations for the first six months, net of tax were $2.9 million and $2.6 million in 2009 and 2008, respectively.

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