Good day everyone and welcome to Diebold Incorporated's third quarter financial results conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Vice President and Chief Communications Officer, Mr. John Kristoff. Please go ahead, sir.

Thank you, Alan. Good morning everyone and thank you for joining us for Diebold's third quarter conference call. Joining me today are Tom Swidarski, President and Chief Executive Officer and Kevin Krakora, Executive Vice President and Chief and Financial Officer. Just a few notes before we begin. A replay of this conference call will be available later today from our web site and as a reminder, some of the comments today may be considered forward-looking statements. Internal and/or external factors could significantly impact results and as a precaution we refer you to the more detailed risk factors that have been previously filed with the SEC. And now, let's jump to opening comments from Tom Swidarski.

Thank you, John. Good morning, everyone. We're very pleased to be back on a regular reporting schedule and to be here with you today. But before we get into our quarterly results, I'd like to take a moment to reiterate that our strategy to transform Diebold to a services company is progressing well. I recognize that a wide range of our skills, experience, expertise and resources is one of our greatest assets and a competitive advantage. Our global organization is focused on leveraging this advantage. I'm extremely proud of the progress we're making in a very difficult operating environment. To illustrate, let me highlight a few recent examples that demonstrate how we're leveraging our core competencies in the marketplace. First, during the quarter, the United States Postal Service chose Diebold to implement their nationwide security program. The Postal Service is capitalizing on Diebold's national presence, IT and security expertise to implement a multi-site, technologically-advanced video security program. With more than 40,00 sites across the country, the Postal Service has selected Diebold to manage this nationwide implementation. Diebold is one of only a few security integrators with the service infrastructure and the technological expertise to undertake such an extensive product and deliver an integrated IP video security solution. This contract begins the revenue in 2009. In another example, for the second year in a row, Diebold was ranked one of the world's top 100 outsourcing service providers by the International Association of Outsourcing Professionals. The fact that Diebold is an honoree of this prestigious award for two consecutive years speaks volumes about the growing success of our integrated services business. Integrated services and outsourcing are built upon the backbone of our service infrastructure. This recurring revenue stream, when combined with our traditional recurring maintenance contract, represents more than half of our…

Thanks Tom and good morning, everyone. Since our last call on August 11, we were successful in bringing all our financial filings current on September 30th. As a result, we now have resumed our normal financial reporting schedule. Let's now turn to a review of our financial results. In a word, we had an exceptional third quarter, which outpaced our already strong first and second quarters. The third quarter financial results reflected strong order and revenue growth, improved gross profit and operating profit margins, dramatic earnings in EPS improvement, as well as solid improvement in cash flow. Third quarter orders on a constant currency basis for the financial self service increased over 20% with double digit growth in each of our geographic regions. Security orders, however, decreased in the low double digit range as a result of continued weakness in the U.S. in the areas of new bank branch construction and retail store openings. Turning to revenues, total third quarter revenue grew by slightly more than 20% with approximately three percentage points of this increase attributable to net positive currency impact. To help frame up this increase in total revenues, I'll first focus on our largest revenue source, financial self service, which traditionally represents in excess of 70% of our total revenues. In Q3 2008, financial self service revenues increased by approximately $95 million, or slightly over 18%, compared with Q3 2007 with strong growth in both the product and services revenue lines. In addition, our third quarter 2008 financial self service revenues benefited from a large order in China in which revenue was expected to be recognized during the fourth quarter but occurred during the third quarter due to customer acceptance occurring sooner than expected. As we have pointed out in our previous earnings calls, financial self service spend…

Thank you, Kevin. Allan, at this time we'd like to open the call for our first question, please.

Thank you the question and answer session will be conducted electronically. (Operator Instructions) And we'll take our first question from Kartik Mehta with Ftn Midwest.

Good morning. Tom, you talked a little bit about the impact in consolidation and where market shares stands, at least for the top five institutions. I was wondering if you could talk a little bit about if you believe that there would be any impact to appraising or the fact that you've seen large banks consolidate with each other, or there wouldn't be that much of an impact.

I think Kartik, from a pricing standpoint, maybe we focus on the U.S. in terms of the consolidation. Most of the major players like the BofA's of the world, the JP Morgan Chase's of the world had very sophisticated sourcing folks in place already. And so as they take over other institutions or whatever, they were in a very competitive position in terms of using all that leverage today. So I don't think that would have that material of an impact on pricing going forward.

And then just a question on your order growth, now I know it's kind of uncertain right now, the times are uncertain and I was trying to get if you've had any cancellations, in any geographies, from banks because of what's happening or have things been pretty status quo.

We're scrubbing that daily. I mean I have that same worry constantly and we just had a conference call on that yesterday. To date, we are not seeing anything cancelled. Certainly as things continue to unfold, we're going to be diligent in watching that. But given the environment that we're in, I was concerned that things would be backing off. We haven't quite witnessed any of that yet. But certainly we have a cautious eye and keep our ears very tuned to that and as a matter of fact we're going through the backlog and we're kind of reviewing and revisiting all that to make sure in fact that we think all of that is solid. But as the work is done, to this point, we're pretty good in terms of the orders and our ability to continue to deliver.

Ken, I wanted to ask you a question on the cash flow. I'm trying to figure out is there a way to look at your cash flow for this year in a normalized, what the normalize would be without some of these one-time expenses. If you look at what was cashed and not cashed so we could have maybe a base to work off of for 2009. Because I'm assuming 2009 has an opportunity to have significant improvement.

I agree. We tried to do, if you refer to the release is we try to outline in both the restructuring and non-routine expense sections. The actual cash spend to date that we've incurred along with the charges. So for example, in the third quarter, the non-routine expenses, we spent 8.2 million in Q3 2008 compared to 800,000 Q3 of 2007. We have likewise disclosures about, cash payments regarding third restructuring which were approximately 6 million. So if you back those out of our third quarter spend that can give you an idea what is a more normalized number.

And then, Kevin, just a last question I'm just trying to understand. You talked about in the guidance that there's $0.10 to $0.15 of possible inventory write down that's included in that $2.53 to $2.58 number, or I just want to make sure I understood that right and I heard that correctly.

Right. You understood correctly. We're looking at some inventory that we have and it's dependent on some order volume that may or may not be realized in the fourth quarter. We're hopeful that it will be realized if there'll not be any kind of valuation of allowance required, but if it isn't, then we will be in a position to need to make a valuation allowance. So we've tried to pick the conservative approach and indicate the guidance anticipating that outcome but if it isn't likely then we obviously wouldn't need to make those expense adjustments.

Just kind of a follow-up. Just one last question, Kevin. Just tax rate for the rest of the year.

On year-to-date basis, our normal line effective cash rate is somewhere in the low 20% range and that's kind of where we're expecting it to finish by the end of the year. And that's driven mainly by the mix of income that we've experienced this year. Essentially, while really high picture in the U.S., we are recognizing a lot of net income as a result of all the charges that we're incurring. And consequently or profitably in the U.S. because of these charges is less. So we're, as you know, the U.S. stands as the second highest tax country in the globe so not have to pay taxes there has reduced that overall tax impact.

Thank you.

And we'll take our next question from Matt Summerville with Keybanc.

This is a follow-up on the tax question, Kevin. If you are to exclude all the noise from the non-routine from the restructuring, what would your tax rate, effective tax rate look like in the fourth quarter?

As we've kind of indicated, I think a more normalized rate is in the high 20% range, that's somewhere around 28 to 30%.

Okay. You kind of talked about this in response to one of Kartik's questions, but if you just look at for the full year 2008 the cash restructuring cost, the cash non-routine expenses, what are those anticipated to be for the full year? Because I'm trying to work into how much of a cash pick-up you will get from the full year '09 from those two discrete items in ’08.

Now, the way that I set that up I guess is I would say most of the expected non-routine expenses will be pretty close to that guidance, save about $14 to $15 million. So it would be just under that by about 14 to 15 million. On the restructuring phase, when we talk about a total restructuring cash, and let me just pull that up real quick, we talked about it being between 40 to 45 million. That's a little bit more problematic but I would say at least 7 to 10 million of that is likely to occur next year. And that's because of the timing of some other payments and severance payments, et cetera.

Okay. If we can talk about your North American business for as second, you mentioned in Q3 you had modest, I think, revenue growth in the ATM business. Can you give us a little more color on how that would break out in terms of revenue growth between, I'll just call them, big banks versus small banks?

Yeah, what we've seen Matt, this is Tom, what we've seen is the continuation of the, you know, let's call it the big banks sector continue to move aggressively forward and that, percent-wise, has continued through the first three quarters of this year. The small bank or maybe the regional bank in the credit union sector has been much more cautious. So you would look at that sector being down, the other sector being up significantly and so as such you come up with a kind of more modest number overall.

And then with respect to your guidance for the full year, how much FX headwind would be embedded in the fourth quarter on the top line for the total company and then based on current exchange rate today, how much FX headwind we should think about for 2009?

Typically, as we look at our guidance forward on revenue, what we do is we lock our expectation on revenue on the current rates that existed. So we would have looked in saying this is at the rates that we had in early October and would have locked our guidance that way. As you know in that environment, the dollars has continued to significantly strengthen so there could be some headwind relative to, especially to our Brazilian business with real which last time I looked was trading somewhere around 2.20 to the dollar, where it historically had been under $2 prior to that. So we have a little exposure that way but again that has been fluctuating so much that we thought the most prudent thing is to lock in the rates that we know today and then extrapolate them forward.

So embedded in your guidance then, how much FX headwind is in the fourth quarter?

It might be a couple percentage points.

And then similarly for 2009, how should we think about that again today? Or again using today's rate?

Well, we talked about on year-to-date basis. I mean, in the quarter we had about 3 percentage points of net positive impact and we talked on a year-to-date basis and it's slightly more than that. We have approximately 50% of our revenue being global in nature with a lot that concentrated in Brazil with real. And the reason it's difficult to answer that is it's really hard to gauge where we think that real is going to land relative to the U.S. dollar.

That's fair. It certainly had been volatile. I just want to talk about your services gross margins. They've come up essentially to 25%, so pretty dramatic improvement off the bottom which I think was about 20% if you exclude all the various charges. I guess peak service margins for Diebold back in like 2002 were maybe 27, 28%. I'm just curious as to whether or not this next wave of cost take out, do you have a road map to get back to those previous peak levels? Or has the business, again just look at services, changed materially enough since then that you’re getting closer to the peak now as opposed to what I mentioned a moment ago?

Matt, good question and my perspective on that is I don't know what the exact peak is. The makeup, the reason I feel like we have room to go here, and it's a little more difficult than it was in the past. The service base, you know when you add service and services in together and you look at that number, the services component of that has higher margin opportunity than traditional break fix maintenance kind of service. So we're making a lot improvement and still the service side of the business is the overwhelming majority of that. We've made a lot of progress there. We have less room to go there than I think we do on the services piece of the total mix so I actually think we'll be hitting, you know, over the next few years, we'll be able to achieve like what we’ve done historically. The way we'll get there is slightly different by adding in maybe more services to the overall mix there. And those services whether it'd be monitoring or whatever you look at it in that regard are higher margin opportunity. And so as we continue to grow that part of the business, it will make up for the continued pressure you’ll face on the pricing of a traditional maintenance service contract.

And then based on how you buy raw materials and how you buy fuel, Tom, at what point do you start to get some benefit from the reductions we've seen whether it'd be steel or whether it'd be gasoline prices.

Kevin, do you have—

Yeah, let me talk to about fuel initially which obviously has fallen dramatically. We kind of set a gauge up, and our exposure is primarily in the U.S. especially with fuel with the large fleet of vans that we have for our technicians. And we've talked about the fact that kind of every $0.10 of fuel price change translates into roughly about $750,000 of profits to us. So as you look and if I were to gauge that—

And you have to look at the year-over-year fuel cost. Yeah.

Right. The year-over-year, yeah. So to give a sense of how that has changed, in 2007 our fuel cost were somewhere around $2.70 per gallon, again, nationwide. If you look at this year, even given the precipitous decline that we've seen recently, I was still expecting it to be somewhere around 3.40 to 3.50. So we had to absorb, if you will, call it maybe, $5 to $6 million of incremental cost in that environment. So I don't see, again, $0.10 movement can be 750,000 of profit but we're not looking for a dramatic change in that space in the fourth quarter.

Matt, the other thing that I would to that is not only that the year-over-year issue but as prices were going up, we instituted a surcharge. And then recently we've gone out with our service contract and you know our renewal rates are pretty high but we also had a 5% increase that went on there. And it’s not an automatic increase. It is an increase, somebody can cancel their contract, sometimes it is getting negotiated down. But I think what will happen, or one of the things we are going to face here—because I have already received some of those call—was everybody saying, well now the price at the pump is down a buck less than it was before, I am not paying a 5% increase. So we will be working kind of on that specific issue over the next several months and have a much clearer picture as to the impact for really 2009 which is kind of the important aspect for us to get a handle on.

We will give you some color, Matt. But you know we don’t report actual backlogs.

I would say that historically our backlog is the largest it has ever been.

Okay. Fair enough, thank you.

Yes, I think in general terms we are comfortable with the backlog. It is significant compared to historic levels. But again, much like the Cardex question, we are going through that in the order book very closely to make sure that—I think now more than ever we need to be pretty cautious in terms of whether those turn into actual contracts and get revenued.

Thanks a lot.

Thanks, Matt.

We will go next to Gil Luria with Wedbush.

Hi. Thank you for taking my question. First as a clarification, I think you talked about $0.30 in the third quarter that you were not expecting to have there. Is that the extra China business, is that China and Brazil election, and is that revenue that you were just expecting in the fourth quarter and you got in the third quarter? Can you break that down a little bit?

If you are referring to my remarks, the $0.30 I talked about was really the impact of the difference year-over-year for the fourth quarter of China revenue, which as we talked about in 2007 we had a lot that was back end loaded in the year. And this year it was all front end loaded. So roughly about $0.30 of change between 2007 fourth quarter and 2008 is attributable to this change in spending in China. The large order we talked about relative to the third quarter was essentially somewhere just north of $0.10 of impact as a result of that. Now we would have expected as we were forecasting, expected that to occur in Q4 and it actually occurred in Q3.

Great. That is very helpful. In terms of back in August when you initially came out with the financials you started talking about possible goals for operating profits for 2009 and beyond. That was a long time ago and a lot has happened since then. And I think one of the things that you assumed when you were talking about those targets were at least mid single digit growth to help you with operating leverage. Now that the global banking environment has deteriorated a lot over the last couple of months, that currency is going against you, and considering the fact that you are not going to get the benefit from Brazil elections that seemed to be of pretty decent benefit in this quarter next year, what would your operating profit target be for next year? Let’s say if you were assuming absolutely no top line growth.

Gil, this is Tom. Let me answer that because that is a question we are wrestling with every single day. The way I would view this is this year our operating margin is going to be—I mean we had put a seven number out there and you know it is going to be well north of that. So the feeling I have here is we are going to improve our operating margin next year. We had originally had a 9% out there with certain assumptions around it, and now clearly with the environment we are in that becomes a very difficult challenge. So I think what I would be talking about and what we are working toward as we build our 2009 plan, is improvement in the operating margin. We will certainly be feeling good that we can get to improvement. That level of improvement really is going to be dictated by what the volume looks like and where that volume is from. So it is a combination of those factors and we are still in the throws of trying to put our heads together and make sure we have got a 2009 plan and targets that make sense. But certainly the environment has changed dramatically enough that we are revisiting that issue. I feel good about the procedures and the things we can control to improve the margin despite what could be a very difficult revenue environment. And we are also looking at how we address plans and action we take if revenue falls even further from that. Because that is the kind of environment we are in. So we are working through all of those contingencies and I do not think at this point I can define it too much tighter than that. Kevin, do you have any comment?

No, I think that hits it right on the mark and you are correct. When we initially set these targets we were assuming what we thought was modest growth of five to 6% which as we finish this year we are going to be well nine to 10. So that seemed very modest, but again after the last two months it is difficult to assess what that may turn out to be.

That is helpful. And then on the buy back, it is clear why you would want to hold off on that right now. What would be the indication that you would get that you would feel more comfortable resuming that? Is it going to be contingent on stabilization of credit, of liquidity? Is it going to be stabilization from your banks, is it more clarity from your banks? What are you going to be looking for to decide to engage in that buy back again?

Right, that is a great question and I do not think that there is one single indicator that I can point to to look at that. It is a multitude of things that you have just discussed. We clearly want to be sure that the banks are lending to each other and the spread has come down so that there is not any concern about availability of credit and cash. I was shocked one morning to be driving in and hear one of the regional companies having 150 million of their cash in market security locked up. So we want to be sure of that. Also if you look at our cash position we have over $300 million of cash, but it is important we are a global company and north of 75% of that cash is currently in international locations. And we have a number of strategies to repatriate that cash back into the US which we are going to execute upon. But that is not going to occur, a large part of that will not occur until the first quarter of 2009. So getting our cash into the right locations will be key, as well as what kind of fourth quarter cash flow we experience. We had dramatic improvement in September which was very good. Historically the fourth quarter tends to be the quarter that we collect the majority of our cash. So getting visibility of that will be also helpful as we assess that. But clearly, you know, I sit there and look at our trading range and say I would love to be purchasing today. But as soon as it becomes feasible we are going to do it.

Great, thank you very much.

You are welcome.

We will take our next question from Zahid Siddique with Gabelli and Company. Zahid Siddique - Gabelli & Company, Inc.: Hi, good morning.

Good morning. Zahid Siddique - Gabelli & Company, Inc.: You briefly touched on your relationship with Goldman Sachs, and I wanted to see is that relationship still on or is that basically you are done with that?

Goldman Sachs has been our long-term financial advisor who we have had a relationship with them—I know it predates the ‘90s. So we have had a two-decade at least relationship with them. It obviously became more formalized when we were dealing with the United Technologies bid and as a result of that had entered into a more formal arrangement as they became our principal advisors throughout that process. But the payment, for example, that we talk about in our release is relative to all the services that were rendered as a result of that this past year with the UTC effort. Zahid Siddique - Gabelli & Company, Inc.: Okay. So I guess you are not working with them at a formal level at least for now in terms of evaluating strategic options that are available to you? Is that a fair assessment?

They continue to provide us strategic consult, consultative advice, but the related fees relative to that are very modest. Zahid Siddique - Gabelli & Company, Inc.: Okay. And then my next question is on the financial self service. Would you be able to break down the revenue growth by geographic segments?

Sure, we can do that. In the release—

I will tell you that we have witnessed strong growth in most of our geographic regions.

The way I would look at that is the revenue summary by geographic segment, where you see the Americas, Asia-Pacific, Europe, Middle East, and Africa. I think that is a pretty good indicator relative to financial self service. I mean so while those, while the numbers percentage-wise may be a few percent swinging either way, I would say that is pretty indicative of what happened for us from a self service standpoint in the regions of the world.

Yes, and keep in mind that there is very little security revenue coming from outside the Americas.

Right. I mean we have a little in Europe, we have a little in Asia, but…

Not enough to move the needle.

Yes. Zahid Siddique - Gabelli & Company, Inc.: Sure. That is helpful. And then just a follow up on the share buy back or not initiating the share buy back. Did you also look at the possibility of maybe stopping the dividend or reducing it or maybe exchanging it with the share buy back plan?

Well I would say that we have discussed all of those options with the board. We have another board meeting coming up where, again we will revisit this given the dynamics in the marketplace. But from the last meeting I think we are very comfortable with kind of current course of speed. Again, we have got to get some of this cash repatriated back, which I think is the biggest driver for us. Zahid Siddique - Gabelli & Company, Inc.: Okay. Thanks a lot.

You are welcome.

And our last question comes from Reik Read with Robert Baird and Company. Reik Read - Robert W. Baird & Co. : Good morning. Could you guys maybe give us some sense of what the cost take out impact might be in the next couple of quarter now that you have completed the warehouse consolidation and the final closure of Newark?

We are in the process of completing that so those—as we talked about when we did that, we have consolidated it, we have begun those closures and we have begun all of the consolidations. Our expectation is by the end of the year to have all of the consolidation done. But the savings that are going to come from that are going to have to continue as we work through efficiencies that we are going to gain by those consolidating actions. So it is not like we are going to start January with all of the benefit coming in. I think the best gauge that we have indicated is we are trying to get the 70 million of the next $100 million trench by the first half of 2010. And I would expect that ratably through 2009 and 2010 that is going to occur and it will not be anything like a step function.

Yes, I think that where we are at in that regard is we have got the 70 million goal by 2010. I mean expectation will be 40 million or something along those lines here in 2009. But again, we will be working through that. But it is not going to be all back end loaded in 2010. It is going to be a walk up process. Reik Read - Robert W. Baird & Co: Yes, I think part of what I am trying to gauge is, Tom, is that as you were talking before, if you face some incremental weakness, how quickly can some of those costs come out? And I think you put some language in the release saying you are trying to accelerate some of these programs. So I am just trying to understand how quickly that can happen for you.

Yes, and I do not think I have a good answer that I am comfortable with right now. We have got a team looking at that and what we can control from the acceleration capability, we have got some folks at different parts of the world. We have got our internal global leadership meeting here coming up in a couple of weeks where we are going to get some reports and some information that will help put better light on that before we comment other than kind of what we said before. That it may be 40-30 if we can accelerate that, we certainly would have to attempt given the environment that we could be facing. But I don’t know I can commit to that right now. Reik Read - Robert W. Baird & Co. : Okay. Fair enough. And then just last question. You talked a little bit about in your remarks on the integrated service offerings, you commented before about how you want to roll that out more on the geographic basis. You know it has been very strong in Brazil. Can you give us an update on how that is going and as you roll it out is there any head wind that occurs as part of that process to the service margins that you talked about before?

Yes, let me start with the last part of that. The head wind you face in terms of integrated services that I see that is happening, it is kind of accelerated now a little bit, is the length of time for someone to make a decision. And so what occurs in that regard is because it is complicated you are taking basically to replace of four or five independent suppliers of some combination of suppliers in doing it yourself. It is a big decision for any institution to make. And so the contract is generally around the neighborhood of five years. So unlike just making a simple hardware or software or maintenance decision that is kind of a one-time decision, this is a little more complicated. So from my standpoint, my approach here is to make sure we continue down this path. It may elongate some of the sales cycle, but it is worth it at the end of it when you get a contract for five years with someone that includes a refresh of technology kind of across the board. So that aspect of integrated services is probably the one thing that we are witnessing as we have moved into that more aggressively outside of Brazil. Brazil’s business model was really based on five or six major institutions that all had problems with up time or something specific in a point where they were less sophisticated and you have more risk with that model in that you have got five or six and if any one starts moving away or brings something back in house you have got risk. In the United States we have begun just on the opposite end of the spectrum. We are dealing with many institutions with 10, 15, 20 or sometimes up to 100…

Yes. Reik Read - Robert W. Baird & Co. : Is that a function of you guys—you talked about the past, maybe pulling out of certain areas, and is that a function of that or is there something else in there?

No, that would be the heart of it. In essence changing our business model in certain countries. But rather than worrying about the 20 or 30 million in revenue that you are going to get, the most important thing is effecting the profitability. And so from a profitability standpoint, we want to make sure that we are making sound decisions. We still can have a presence in the country, I just do not need necessarily to have an operation of 100 or 200 or 300 people if in fact we are not going to be profitable. So that is the tradeoff that we are making and we continue to be diligent relative to the revenue because to me profitability is a priority. Reik Read - Robert W. Baird & Co. : Thanks very much.

You are welcome.

And that concludes the question and answer session today. Mr. Kristoff, I would like to turn it back to you for any additional or closing remarks.

Thanks, Alan. I would like to thank everyone for joining us on the call this morning. And as always, for additional or follow up questions, please contact me directly.

And ladies and gentlemen that does conclude today’s conference. Thank you for your participation. You may now disconnect.