Third quarter 2009 revenue was $645.2 million, down 26% from third quarter 2008.

Nine-month year-to-date 2009 income from continuing operations attributable to Diebold, net of tax, was $65.2 million, or $0.98 per share, both down 28% from the same period in 2008. Nine-month year-to-date 2009 revenue was $1,993.4 million, down 13% from 2008.

Non-GAAP earnings per share* from continuing operations attributable to Diebold, net of tax, in the third quarter 2009 were $0.39, down 67% from third quarter 2008. Nine-month year-to-date 2009 non-GAAP earnings per share* were $1.36, down 40% from the same period in 2008.

All results from operations reported today, including prior periods, reflect Premier Election Solutions as a discontinued operation.

*See accompanying notes for non-GAAP measures.

Business Review

Management commentary

"Considering the significant headwinds we continue to face in our core financial markets, I'm encouraged by the progress we've made on various key business improvement initiatives under our direct control," said Thomas W. Swidarski, Diebold president and chief executive officer. "It's important to note that we faced a very difficult comparison to the third quarter 2008, which represented the highest quarterly earnings per share in the company's history.

"During this extremely difficult market environment, we continue to significantly reduce operating expenses on a dollar basis while maintaining our investment in future product and services solutions. We believe this strategy will help strengthen our competitive position when our core markets return to growth. We also continue to make progress on improving our working capital, which has resulted in a year-to-date free cash flow improvement of more than $65 million*. Looking forward, as we continue to move our company to an increased focus on services, we will manage our business as we have during the course of the financial dg the course of the financial dge our business as we have during the course of the financial do move our company to an increased focus on services, we will manage our business as we have during the course of the financial downturn - by striking an appropriate balance between reducing our costs and investing in our future growth."

*See accompanying notes for non-GAAP measures.

Third Quarter Orders (constant currency)

Total product and services orders for financial self-service and security were down in the low 20% range compared to the prior-year period. Global financial self-service orders also decreased in the low 20% range. Orders in Asia Pacific decreased in the low double digits. In the Americas, financial self-service orders decreased in the high teens. Orders in Europe, Middle East and Africa (EMEA) decreased more than 40%. Security orders also decreased in the low 20% range as new bank branch construction and retail store openings remain weak in the United States.

Profit/Loss

Revenue

Total revenue for the third quarter 2009 was down 26%, including a net negative currency impact of 2%. Nine-month year-to-date 2009 revenue was down 13%, including a net negative currency impact of 4%.

Gross Margin

Total gross margin for the third quarter 2009 was 23.6%, a decline of 2.6 percentage points from the third quarter of 2008. Total gross margin included restructuring charges of $1.2 million in the third quarter of 2009 and $10.7 million in the third quarter of 2008. The decrease in gross margin was due primarily to a difficult comparison to the third quarter 2008, when the company sold nearly all of its Brazilian elections equipment for the year, slightly offset by improved service gross margin. Service gross margin improvement came as a result of continued productivity gains and favorable year-over-year fuel costs.

Nine-month year-to-date 2009 gross margin was 23.8%, a decrease of 1.6 percentage points from the same period of 2008. Total gross margin included restructuring charges of $7.0 million year-to-date 2009, and $20.2 million in the same period of 2008.

Operating Expense

Total operating expense as a percentage of revenue for the third quarter 2009 was 18.8%, an increase of 0.2 percentage points from the third quarter of 2008. Operating expense as a percentage of revenue was higher due to significant decreases in revenue, partially offset by ongoing cost-reduction efforts. In addition, operating expense in the third quarter 2009 included restructuring charges of $0.5 million. Operating expense in the third quarter of 2008 included $3.7 million in restructuring charges and $24.7 million in non-routine expenses.

Total operating expense as a percentage of revenue for nine-month year-to-date 2009 was 17.6%, a decrease of 2.0 percentage points from the same period of 2008. The 2009 expenses included restructuring charges of $3.2 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. In the comparable period in 2008, operating expenses included $8.7 million in restructuring charges and $41.8 million in non-routine expenses. The company also incurred an impairment charge in the first half of 2008 of $4.4 million, or $0.05 per share, related to the write down of intangible assets from the 2004 acquisition of TFE Technology.

Operating Profit

Operating profit was 4.8% of net sales in the third quarter 2009, a decrease of 2.8 percentage points from the third 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 5.1% in the third quarter 2009 and 12.1% in the third quarter 2008.

Nine-month year-to-date 2009 operating profit was 6.1% of revenue, an increase of 0.3 percentage points from the comparable period of 2008. Non-GAAP operating profit margin* was 6.1% in the first nine months of 2009 and 9.1% in the comparable period of 2008.

*See accompanying notes for non-GAAP measures

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

Income from continuing operations, net of tax, was $24.5 million, or 3.8% of revenue in the third quarter 2009, a decrease of 49%, or 1.7 percentage points from the third quarter 2008. Included in the 2009 results are after-tax restructuring charges of $1.4 million. Income from continuing operations in the third quarter of 2008 included after-tax restructuring charges of $11.5 million, and after-tax, non-routine charges of $19.5 million.

Nine-month year-to-date 2009 income from continuing operations, net of tax, was $65.2 million, or 3.3% of revenue, and $90.4 million, or 3.9% of revenue, in the comparable period of 2008. Nine-month year-to-date 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, $11.3 million in expense recovery and reimbursement from the company's D&O insurance carriers, as well as after-tax restructuring charges of $7.6 million. Nine-month year-to-date 2008 income from continuing operations, net of tax, included $24.3 million in after-tax restructuring charges, and after-tax, non-routine charges of $36.8 million.

Balance Sheet, Cash Flow and Liquidity

The company's net debt* was $208.3 million at September 30, 2009, a reduction of $45.9 million from December 31, 2008 and a reduction of $170.0 million from September 30, 2008. The company's net debt to capital ratio was 17% at September 30, 2009, 21% at December 31, 2008, and 25% at September 30, 2008. For the first nine months of 2009, net cash provided by operating activities was $122.7 million at September 30, 2009, an increase of $60.9 million from September 30, 2008. Free cash flow* in the third quarter 2009 was $36.6 million, a decrease of $2.7 million from the third quarter 2008. For the first nine months of 2009, free cash flow* was $94.3 million, an increase of $65.1 million from the first nine months of 2008.

*See accompanying notes for non-GAAP measures.

Restructuring charges and discontinued operations

The company incurred restructuring charges of $0.02 per share in the third quarter of 2009. The majority of these charges were related to severance costs from the previously announced reduction in the company's global workforce during 2008, and the reduction in field office and warehousing facilities. Nine-month year-to-date 2009 restructuring charges were $0.11 per share.

As previously disclosed, in September, the company sold its U.S.-based elections systems business. Likewise the company closed its EMEA-based enterprise security operations during the fourth quarter 2008. As a result, the company recorded a third quarter 2009 loss from discontinued operations of $0.2 million net of tax and a loss on the sale of the U.S.-based elections systems business of $31.4 million (net of tax). This compares to a loss from discontinued operations of $1.1 million, net of tax, in the third quarter 2008. Losses from discontinued operations for the first nine months, net of tax were $8.8 million and $2.9 million in 2009 and 2008, respectively.

Full-year 2009 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 continuing operations for the full year 2009 include:

* Revenue

Previous Guidance Current Guidance
Total revenue -13% to -7% -13% to -9%
Financial self-service -8% to -2% -8% to -6%
Security -19% to -11% -17% to -14%
Election systems $40 million to $50 million $0
Brazilian lottery $5 million to $10 million $5 million to $7 million

* Earnings per share

Previous Guidance Current Guidance
2009 EPS (GAAP) $1.34 - $1.52 $1.34 - $1.39
Restructuring charges .10 - .11 .15 - .15
Non-routine expenses .39 - .40 .39 - .39
Non-routine income (.13) - (.13) (.13) - (.13)
2009 EPS (non-GAAP*) $1.70 - $1.90 $1.75 - $1.80

*See accompanying notes for non-GAAP measures.

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