Income from continuing operations in the third quarter was $29.5 million, compared with $13.5 million in the third quarter of 2005. Diluted earnings per share from continuing operations were $.45 compared to $.19 in the third quarter of 2005.

Included in the third quarter 2006 reported results were restructuring charges of $.02 per share resulting primarily from costs associated with the realignment of the European service and research and development operations. Excluding the impact of these items*, diluted earnings per share in the third quarter would have been $.47. Also included in the third quarter 2006 reported results was a net tax refund, which contributed $.02 to earnings per share.

Net cash provided by operating activities in the third quarter of 2006 was $79.9 million, a $107.9 million improvement from the comparable period in the prior year. Free cash flow* increased by $108.6 million, moving from free cash use* of $43.3 million in the third quarter 2005 to free cash flow* of $65.3 million in the third quarter 2006.

Business Review

Management commentary

"We are encouraged by the progress made during the quarter, as many of our strategic actions are beginning to result in tangible benefits. We continue to make progress on improving our operations, which has resulted in further profit margin improvement on a sequential basis," said Thomas W. Swidarski, Diebold president and chief executive officer. "While these results are encouraging, we are still early in the recovery process. We remain focused on continuing to execute on our multi-year profit improvement plan and return the company to acceptable levels of profitable growth. Our associates and management team have worked hard to get us moving in the right direction, and it is critical we continue with this same level of commitment as we strive to reach our long-term goals."

Kevin J. Krakora, executive vice president and chief financial officer, added, "I am especially pleased with the progress on two of our financial initiatives: improving free cash flow and reducing our effective tax rate. Free cash flow in the quarter benefited from the significant progress made in collecting receivables, with days sales outstanding improving by 11 days. The tax rate in the third quarter was lower than expected due to a net tax refund of $1.6 million, discrete to the quarter, and an anticipated lower full-year tax rate resulting from a change in income mix which favors lower tax jurisdictions."

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