10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
__________________________________________________
Form 10-Q
__________________________________________________ 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 1-4879 
_________________________________________________
Diebold, Incorporated
(Exact name of registrant as specified in its charter)
_________________________________________________ 
Ohio
 
34-0183970
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
 
 
 
5995 Mayfair Road, PO Box 3077, North Canton, Ohio
 
44720-8077
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (330) 490-4000
__________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
(Do not check if a smaller reporting company)
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Number of shares of common stock outstanding as of October 26, 2015 was 64,976,900.




DIEBOLD, INCORPORATED AND SUBSIDIARIES
Form 10-Q

Index
 

Table of Contents

Part I – Financial Information
Item 1: Financial Statements
DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in millions, except per share amounts)
 
 
September 30,
2015

December 31,
2014
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents

$
198.5


$
322.0

Short-term investments

99.2


136.7

Trade receivables, less allowances for doubtful accounts of $31.6 and $23.0 at September 30, 2015 and December 31, 2014, respectively
 
565.6

 
477.9

Inventories
 
420.6

 
405.2

Deferred income taxes
 
108.2

 
111.0

Prepaid expenses
 
24.1

 
22.0

Prepaid income taxes
 
42.2

 
11.7

Other current assets
 
149.8

 
169.0

Total current assets
 
1,608.2

 
1,655.5

Securities and other investments
 
82.2

 
83.6

Property, plant and equipment, net of accumulated depreciation and amortization of $434.3 and $443.4 at September 30, 2015 and December 31, 2014, respectively
 
177.0

 
169.5

Goodwill
 
197.4

 
172.0

Deferred income taxes
 
85.4

 
86.5

Finance lease receivables
 
44.6

 
90.4

Other assets
 
80.3

 
84.6

Total assets
 
$
2,275.1

 
$
2,342.1

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Notes payable
 
$
80.9

 
$
25.6

Accounts payable
 
283.9

 
261.7

Deferred revenue
 
231.7

 
275.1

Payroll and other benefits liabilities
 
81.0

 
116.8

Other current liabilities
 
289.0

 
348.5

Total current liabilities
 
966.5

 
1,027.7

Long-term debt
 
618.3

 
479.8

Pensions and other benefits
 
198.2

 
211.0

Post-retirement and other benefits
 
20.9

 
20.8

Deferred income taxes
 
14.9

 
6.5

Other long-term liabilities
 
29.8

 
41.4

Commitments and contingencies
 


 


Equity
 
 
 
 
Diebold, Incorporated shareholders' equity
 
 
 
 
Preferred shares, no par value, 1,000,000 authorized shares, none issued
 
—

 
—

Common shares, $1.25 par value, 125,000,000 authorized shares,79,690,226 and 79,238,759 issued shares, 64,996,239 and 64,632,400 outstanding shares at September 30, 2015 and December 31, 2014, respectively
 
99.6

 
99.0

Additional capital
 
431.8

 
418.1

Retained earnings
 
746.9

 
762.2

Treasury shares, at cost (14,693,987 and 14,606,359 shares at September 30, 2015 and December 31, 2014, respectively)
 
(560.2
)
 
(557.2
)
Accumulated other comprehensive loss
 
(316.7
)
 
(190.5
)
Total Diebold, Incorporated shareholders' equity
 
401.4

 
531.6

Noncontrolling interests
 
25.1

 
23.3

Total equity
 
426.5

 
554.9

Total liabilities and equity
 
$
2,275.1

 
$
2,342.1

See accompanying notes to condensed consolidated financial statements.

3
Table of Contents

DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(unaudited)
(in millions, except per share amounts)
 

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales
 
 
 
 
 
 
 
 
Services
 
$
404.4

 
$
416.5

 
$
1,208.5

 
$
1,209.7

Products
 
276.5

 
351.5

 
861.3

 
980.1

 
 
680.9

 
768.0

 
2,069.8


2,189.8

Cost of sales
 
 
 
 
 
 
 
 
Services
 
282.5

 
290.3

 
836.2

 
849.2

Products
 
231.1

 
277.1

 
703.5

 
789.1

 
 
513.6

 
567.4

 
1,539.7

 
1,638.3

Gross profit
 
167.3

 
200.6

 
530.1

 
551.5

 
 
 
 
 
 
 
 
 
Selling and administrative expense
 
127.6


129.9

 
392.5

 
371.2

Research, development and engineering expense
 
20.0


24.5

 
66.2

 
66.2

Impairment of assets
 
—


—

 
18.9

 
—

Loss (gain) on sale of assets, net
 
0.1

 
(0.5
)
 
(1.4
)
 
(13.1
)
 
 
147.7

 
153.9

 
476.2

 
424.3

Operating profit
 
19.6

 
46.7

 
53.9


127.2

 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
Investment income
 
5.9

 
7.9

 
20.6

 
26.6

Interest expense
 
(8.5
)
 
(8.3
)
 
(24.1
)
 
(23.1
)
Foreign exchange gain (loss), net
 
1.3

 
1.0

 
(9.2
)
 
(10.4
)
Miscellaneous, net
 
(1.3
)
 
0.5

 
(1.7
)
 
0.4

Income before taxes
 
17.0

 
47.8

 
39.5

 
120.7

Income tax (benefit) expense
 
(5.9
)
 
12.8

 
(1.7
)
 
37.7

Net income
 
22.9

 
35.0

 
41.2

 
83.0

Net income (loss) attributable to noncontrolling interests
 
1.2

 
1.9

 
0.1

 
(1.5
)
Net income attributable to Diebold, Incorporated
 
$
21.7

 
$
33.1

 
$
41.1

 
$
84.5

 
 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
65.0

 
64.6

 
64.9

 
64.5

Diluted weighted-average shares outstanding
 
65.6

 
65.3

 
65.5

 
65.1

 
 
 
 
 
 
 
 
 
Net income attributable to Diebold, Incorporated
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.33

 
$
0.51

 
$
0.63

 
$
1.31

Diluted earnings per share
 
$
0.33

 
$
0.51

 
$
0.63

 
$
1.30

 
 
 
 
 
 
 
 
 
Common dividends declared and paid per share
 
$
0.2875

 
$
0.2875

 
$
0.8625

 
$
0.8625

See accompanying notes to condensed consolidated financial statements.


4
Table of Contents

DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
(in millions)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
22.9

 
$
35.0

 
$
41.2

 
$
83.0

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
Translation adjustment
 
(75.3
)
 
(52.6
)
 
(137.4
)
 
(31.8
)
Foreign currency hedges (net of tax $(2.2) $(1.3), $(4.0) and $0.6, respectively)
 
4.0

 
2.5

 
7.3

 
(1.1
)
Interest rate hedges
 


 


 


 


Net gain recognized in other comprehensive income (net of tax $(0.1), $(0.1), $(0.3) and $(0.3), respectively)
 
0.2

 
0.3

 
0.5

 
0.6

Reclassification adjustment for amounts recognized in net income (net of tax $0.1, $0.0, $0.1 and $0.1, respectively)
 
(0.1
)
 
(0.1
)
 
(0.2
)
 
(0.2
)
 
 
0.1

 
0.2

 
0.3

 
0.4

Pension and other post-retirement benefits
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax $(0.6), $(0.3), $(1.9) and $(0.9), respectively)
 
1.1

 
0.6

 
3.4

 
1.6

Net prior service benefit amortization (net of tax $0.0, $0.0, $0.0 and $0.1, respectively)
 
—

 
(0.1
)
 
(0.1
)
 
(0.2
)
 
 
1.1

 
0.5

 
3.3

 
1.4

Unrealized gain (loss) on securities, net
 
 
 
 
 
 
 
 
Net gain (loss) recognized in other comprehensive income (net of tax $0.0, $0.0, $0.0 and $0.8, respectively)
 
—

 
0.1

 
—

 
(1.4
)
Reclassification adjustment for amounts recognized in net income (net of tax $0.0, $0.0, $0.0 and $0.2, respectively)
 
—

 
—

 
—

 
(0.4
)
 
 
—

 
0.1

 
—

 
(1.8
)
Other comprehensive (loss) income, net of tax
 
(70.1
)
 
(49.3
)
 
(126.5
)
 
(32.9
)
Comprehensive (loss) income
 
(47.2
)
 
(14.3
)
 
(85.3
)
 
50.1

Less: comprehensive income (loss) attributable to noncontrolling interests
 
0.5

 
2.2

 
(0.3
)
 
(1.8
)
Comprehensive (loss) income attributable to Diebold, Incorporated
 
$
(47.7
)
 
$
(16.5
)
 
$
(85.0
)
 
$
51.9

See accompanying notes to condensed consolidated financial statements.

5
Table of Contents

DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
 
 
 
Nine Months Ended
 
 
September 30,
 
 
2015
 
2014
Cash flow from operating activities
 
 
 
 
Net income
 
$
41.2

 
$
83.0

Adjustments to reconcile net income to cash flow used in operating activities:
 
 
 
 
Depreciation and amortization
 
49.2

 
55.4

Share-based compensation
 
10.9

 
16.0

Excess tax benefits from share-based compensation
 
(0.3
)
 
(0.3
)
Devaluation of Venezuela balance sheet
 
7.5

 
12.1

Gain on sale of assets, net
 
(1.4
)
 
(13.1
)
Impairment of assets
 
18.9

 
—

Changes in certain assets and liabilities, net of the effects of acquisitions
 
 
 
 
Trade receivables
 
(133.3
)
 
(164.7
)
Inventories
 
(66.4
)
 
(156.3
)
Prepaid expenses
 
(2.8
)
 
(1.9
)
Prepaid income taxes
 
(30.5
)
 
7.5

Other current assets
 
(17.7
)
 
(46.4
)
Accounts payable
 
39.3

 
87.6

Deferred revenue
 
(29.7
)
 
30.4

Accrued salaries, wages and commissions
 
(23.4
)
 
5.8

Deferred income taxes
 
9.0

 
(6.5
)
Finance lease and notes receivables
 
6.0

 
(59.3
)
Certain other assets and liabilities
 
3.4

 
40.0

Net cash used in operating activities
 
(120.1
)
 
(110.7
)
Cash flow from investing activities
 
 
 
 
Payments for acquisitions, net of cash acquired
 
(59.4
)
 
(11.7
)
Proceeds from maturities of investments
 
101.0

 
406.6

Proceeds from sale of investments
 
—

 
39.6

Payments for purchases of investments
 
(107.1
)
 
(339.8
)
Proceeds from sale of assets
 
5.5

 
17.7

Capital expenditures
 
(42.9
)
 
(33.6
)
Increase in certain other assets
 
(2.9
)
 
(13.8
)
Net cash (used in) provided by investing activities
 
(105.8
)
 
65.0

Cash flow from financing activities
 
 
 
 
Dividends paid
 
(56.5
)
 
(56.2
)
Debt issuance costs
 
(0.7
)
 
(1.4
)
Revolving debt (repayments) borrowings, net
 
(36.4
)
 
124.0

Term loan borrowings
 
230.0

 
—

Other debt borrowings
 
87.7

 
133.8

Other debt repayments
 
(91.2
)
 
(141.5
)
Distributions to noncontrolling interest holders
 
(0.2
)
 
(2.2
)
Excess tax benefits from share-based compensation
 
0.3

 
0.3

Issuance of common shares
 
3.4

 
14.4

Repurchase of common shares
 
(3.0
)
 
(1.8
)
Net cash provided by financing activities
 
133.4

 
69.4

Effect of exchange rate changes on cash and cash equivalents
 
(31.0
)
 
(14.0
)
(Decrease) increase in cash and cash equivalents
 
(123.5
)
 
9.7

Cash and cash equivalents at the beginning of the period
 
322.0

 
230.7

Cash and cash equivalents at the end of the period
 
$
198.5

 
$
240.4

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



  
Note 1: Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements of Diebold, Incorporated and its subsidiaries (collectively, the Company) have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (GAAP); however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods.
The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In addition, some of the Company’s statements in this Quarterly Report on Form 10-Q may involve risks and uncertainties that could significantly impact expected future results. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of results to be expected for the full year.
The Company has reclassified the presentation of certain prior-year information to conform to the current presentation.
In January 2015, the Company announced the realignment of its Brazil and Latin America (LA) businesses to drive greater efficiency and further improve customer service. Beginning with the first quarter of 2015, LA and Brazil operations were reported under one single reportable operating segment and comparative periods have been reclassified for consistency. The presentation of comparative periods also reflects the reclassification of certain global expenses from segment operating profit to corporate charges not allocated to segments due to the 2015 realignment activities.
On March 13, 2015, the Company acquired all of the equity interests of Phoenix Interactive Design, Inc. (Phoenix) for a total purchase price of approximately $72.9, including $12.6 of deferred cash payment payable over the next three years. Acquiring Phoenix, a world leader in developing innovative multi-vendor software solutions for automated teller machines (ATMs) and a host of other financial self-service (FSS) applications, is a foundational move to accelerate the Company’s growth in the fast-growing managed services and branch automation spaces. The results of operations for Phoenix are primarily included in the North America (NA) reportable operating segment within the Company's condensed consolidated financial statements from the date of the acquisition. Preliminary purchase price allocations are subject to further adjustment until all pertinent information regarding the assets acquired and liabilities assumed are fully evaluated.
As of March 31, 2015, the Company agreed to sell its equity interest in its Venezuela joint venture to its joint venture partner and recorded a $10.3 impairment of assets in the first quarter of 2015. On April 29, 2015, the Company closed the sale for the estimated fair market value and recorded a $1.0 reversal of impairment of assets based on final adjustments in the second quarter of 2015, resulting in a $9.3 impairment of assets for the six months ended June 30, 2015. The Company no longer has a consolidating entity in Venezuela but will continue to operate in Venezuela on an indirect basis.
Prior to the sale, the Company's Venezuela operations consisted of a fifty-percent owned subsidiary, which was consolidated. Venezuela was measured using the U.S. dollar as its functional currency because its economy is considered highly inflationary. On March 24, 2014, the Venezuela government announced a currency exchange mechanism, SICAD 2, which yielded an exchange rate significantly higher than the rates established through the other regulated exchange mechanisms. As of March 31, 2014, management determined it was unlikely the Company would be able to convert bolivars under a currency exchange other than SICAD 2 and the Company remeasured its Venezuela balance sheet using the SICAD 2 rate of 50.86 compared to the previous official government rate of 6.30, which resulted in a decrease of $6.1 to the Company’s cash balance and net losses of $12.1 that were recorded within foreign exchange gain (loss), net in the condensed consolidated statements of operations in the first quarter of 2014. As a result of the currency devaluation, the Company recorded a $4.1 lower of cost or market adjustment related to its service inventory within service cost of sales in the condensed consolidated statements of operations in the first quarter of 2014. On February 10, 2015, the Venezuela government introduced a new foreign currency exchange platform called the Marginal Currency System, or SIMADI, which replaced the SICAD 2 mechanism, yielding another significant increase in the exchange rate. As of March 31, 2015, management determined it was unlikely that the Company would be able to convert bolivars under a currency exchange other than SIMADI and remeasured its Venezuela balance sheet using the SIMADI rate of 192.95 compared to the previous SICAD 2 rate of 50.86, which resulted in a loss of $7.5 recorded within foreign exchange gain (loss), net in the condensed consolidated statements of operations in the first quarter of 2015.
In the second quarter of 2014, the Company divested its Diebold Eras, Incorporated (Eras) subsidiary for a sale price of $20.0, including installment payments of $1.0 on the first and second year anniversary dates of the closing. This sale resulted in a gain of $13.7 recognized within gain on sale of assets, net in the condensed consolidated statement of operations. Revenue and operating

7
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



profit in the nine months ended September 30, 2014 related to this divested subsidiary were $6.0 and $3.0, respectively, and are included within the NA segment. Net income before taxes related to this divested subsidiary is included in continuing operations and was $3.0 for the nine months ended September 30, 2014. There was no impact of Eras on the three months ended September 30, 2014.
In the third quarter of 2014, the Company acquired 100 percent of the equity interests of Cryptera A/S (Cryptera), a supplier of the Company's encrypting PIN pad technology and a world leader in the research and development of secure payment technologies. This acquisition positioned the Company as a significant original equipment manufacturer of secure payment technologies and allowed the Company to own more of the intellectual property related to its ATMs. The total purchase price was approximately $13.0, including a 10 percent deferred cash payment payable on the first anniversary of the acquisition. The results of operations for Cryptera are included in the Europe, Middle East and Africa (EMEA) segment within the Company's condensed consolidated financial statements from the date of the acquisition.

Recently Issued Accounting Guidance
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard is effective for the Company on January 1, 2018. Early application is permitted on the original adoption date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for the Company on January 1, 2016, with early adoption permitted. The adoption of ASU 2015-03 is not expected to have a material impact on the financial statements of the Company.
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share or Its Equivalent (ASU 2015-07). The amendments in this update remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The standard is effective for the Company on January 1, 2016, with early adoption permitted. The adoption of ASU 2015-07 is not expected to have a material impact on the financial statements of the Company.
In July 2015, the FASB issued ASU 2015-12, Plan Accounting: Defined Benefit Plan (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient (ASU 2015-12), which is a three-part update with the objective of simplifying benefit plan reporting to make the information presented more useful to the reader. Part I designates contract value as the only required measure for fully benefit-responsive investment contracts (FBRIC). A FBRIC is a guaranteed investment contract between the plan and an issuer in which the issuer agrees to pay a predetermined interest rate and principal for a set amount deposited with the issuer. Part II simplifies the investment disclosure requirements for employee benefits plans. Part III provides an alternative measurement date for fiscal periods that do not coincide with a month-end date. This guidance is effective for fiscal years beginning after December 15, 2015. The amendments in Parts I and II of this standard are effective retrospectively. The standard is effective for the Company on January 1, 2016, with early adoption permitted. The adoption of ASU 2015-12 is not expected to have a material impact on the financial statements of the Company.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16). The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date and presented separately on the face of the income statement or disclosed in the notes by line item. The standard is effective for the Company on January 1, 2016, with early

8
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



adoption permitted. The adoption of ASU 2015-16 is not expected to have a material impact on the financial statements of the Company.
Note 2: Earnings Per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding. Diluted earnings per share includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing earnings per share, non-vested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating securities. The Company’s participating securities include restricted stock units (RSUs), deferred shares, and shares that were vested, but deferred by the employee. The Company calculated basic and diluted earnings per share under both the treasury stock method and the two-class method. For the three and nine months ended September 30, 2015 and 2014, there was no impact in the per share amounts calculated under the two methods. Accordingly, the treasury stock method is disclosed below.
The following represents amounts used in computing earnings per share and the effect on the weighted-average number of shares of dilutive potential common shares:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Numerator
 
 
 
 
 
 
 
 
Income used in basic and diluted earnings per share
 
 
 
 
 
 
 
 
Net income attributable to Diebold, Incorporated
 
$
21.7

 
$
33.1

 
$
41.1

 
$
84.5

Denominator (in millions)
 
 
 
 
 
 
 
 
Weighted-average number of common shares used in basic earnings per share
 
65.0

 
64.6

 
64.9

 
64.5

Effect of dilutive shares
 
0.6

 
0.7

 
0.6

 
0.6

Weighted-average number of shares used in diluted earnings per share
 
65.6

 
65.3

 
65.5

 
65.1

Net income attributable to Diebold, Incorporated
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.33

 
$
0.51

 
$
0.63

 
$
1.31

Diluted earnings per share
 
$
0.33

 
$
0.51

 
$
0.63

 
$
1.30

Anti-dilutive shares (in millions)
 
 
 
 
 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares
 
1.5

 
0.9

 
1.5

 
1.2


9
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



Note 3: Equity
The following table presents changes in shareholders' equity attributable to Diebold, Incorporated and the noncontrolling interests:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Diebold, Incorporated shareholders' equity
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
465.6

 
$
650.8

 
$
531.6

 
$
596.8

Comprehensive (loss) income attributable to Diebold, Incorporated
 
(47.7
)
 
(16.5
)
 
(85.0
)
 
51.9

Common shares
 
—

 
0.1

 
0.6

 
0.8

Additional capital
 
2.4

 
5.9

 
13.7

 
29.8

Treasury shares
 
(0.2
)
 
(0.2
)
 
(3.0
)
 
(1.8
)
Dividends paid
 
(18.7
)
 
(18.8
)
 
(56.5
)
 
(56.2
)
Balance at end of period
 
$
401.4

 
$
621.3

 
$
401.4

 
$
621.3

 
 
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
24.6

 
$
17.9

 
$
23.3

 
$
24.0

Comprehensive income (loss) attributable to noncontrolling interests, net (1)
 
0.7

 
2.1

 
2.0

 
(1.9
)
Distributions to noncontrolling interest holders
 
(0.2
)
 
—

 
(0.2
)
 
(2.1
)
Balance at end of period
 
$
25.1

 
$
20.0

 
$
25.1

 
$
20.0

(1)
Comprehensive income (loss) attributable to noncontrolling interests of $(0.1) for the nine months ended September 30, 2015, respectively, is net of a $2.1 Venezuela noncontrolling interest adjustment for the nine months ended September 30, 2015, respectively, to reduce the carrying value to the estimated fair market value.
Note 4: Accumulated Other Comprehensive Loss
The following table summarizes the changes in the Company’s accumulated other comprehensive (loss) income (AOCI), net of tax, by component for the three months ended September 30, 2015:

 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at June 30, 2015
 
$
(137.3
)
 
$
1.9

 
$
(0.3
)
 
$
(111.8
)
 
$
0.3

 
$
(247.2
)
Other comprehensive (loss) income before reclassifications (1)
 
(74.7
)
 
4.0

 
0.2

 
—

 
—

 
(70.5
)
Amounts reclassified from AOCI
 
—

 
—

 
(0.1
)
 
1.1

 
—

 
1.0

Net current-period other comprehensive (loss) income
 
(74.7
)
 
4.0

 
0.1

 
1.1

 
—

 
(69.5
)
Balance at September 30, 2015
 
$
(212.0
)
 
$
5.9

 
$
(0.2
)
 
$
(110.7
)
 
$
0.3

 
$
(316.7
)
(1)
Other comprehensive (loss) income before reclassifications within the translation component excludes $(0.6) of translation attributable to noncontrolling interests.

10
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the three months ended September 30, 2014:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Unrealized Gain on Securities, Net
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at June 30, 2014
 
$
19.0

 
$
(5.5
)
 
$
(0.8
)
 
$
(51.1
)
 
$
0.8

 
$
0.3

 
$
(37.3
)
Other comprehensive (loss) income (loss) before reclassifications (1)
 
(52.8
)
 
2.5

 
0.3

 
—

 
0.1

 
—

 
(49.9
)
Amounts reclassified from AOCI
 
—

 
—

 
(0.1
)
 
0.5

 
—

 
—

 
0.4

Net current-period other comprehensive (loss) income
 
(52.8
)
 
2.5

 
0.2

 
0.5

 
0.1

 
—

 
(49.5
)
Balance at September 30, 2014
 
$
(33.8
)
 
$
(3.0
)
 
$
(0.6
)
 
$
(50.6
)
 
$
0.9

 
$
0.3

 
$
(86.8
)
(1)
Other comprehensive (loss) income before reclassifications within the translation component excludes $0.2 of translation attributable to noncontrolling interests.
The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the nine months ended September 30, 2015:

 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2015
 
$
(74.9
)
 
$
(1.4
)
 
$
(0.5
)
 
$
(114.0
)
 
$
0.3

 
$
(190.5
)
Other comprehensive (loss) income before reclassifications (1)
 
(137.1
)
 
7.3

 
0.5

 
—

 
—

 
(129.3
)
Amounts reclassified from AOCI
 
—

 
—

 
(0.2
)
 
3.3

 
—

 
3.1

Net current-period other comprehensive (loss) income
 
(137.1
)
 
7.3

 
0.3

 
3.3

 
—

 
(126.2
)
Balance at September 30, 2015
 
$
(212.0
)
 
$
5.9

 
$
(0.2
)
 
$
(110.7
)
 
$
0.3

 
$
(316.7
)
(1)
Other comprehensive (loss) income before reclassifications within the translation component excludes $(0.3) of translation attributable to noncontrolling interests.
The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the nine months ended September 30, 2014:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Unrealized Gain on Securities, Net
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2014
 
$
(2.4
)
 
$
(1.9
)
 
$
(1.0
)
 
$
(52.0
)
 
$
2.7

 
$
0.3

 
$
(54.3
)
Other comprehensive (loss) income before reclassifications (1)
 
(31.4
)
 
(1.1
)
 
0.6

 
—

 
(1.4
)
 
—

 
(33.3
)
Amounts reclassified from AOCI
 
—

 
—

 
(0.2
)
 
1.4

 
(0.4
)
 
—

 
0.8

Net current-period other comprehensive (loss) income
 
(31.4
)
 
(1.1
)
 
0.4

 
1.4

 
(1.8
)
 
—

 
(32.5
)
Balance at September 30, 2014
 
$
(33.8
)
 
$
(3.0
)
 
$
(0.6
)
 
$
(50.6
)
 
$
0.9

 
$
0.3

 
$
(86.8
)
(1) Other comprehensive (loss) income before reclassifications within the translation component excludes $(0.4) of translation attributable to noncontrolling interests.

11
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table summarizes the details about amounts reclassified from AOCI:
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
Amount Reclassified from AOCI
 
Amount Reclassified from AOCI
 
Amount Reclassified from AOCI
 
Amount Reclassified from AOCI
 
Affected Line Item in the Statement of Income
Interest rate hedges
 
$
(0.1
)
 
$
(0.1
)
 
$
(0.2
)
 
$
(0.2
)
 
Interest expense
Pension and post-retirement benefits:
 
 
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax $(0.6), $(0.3), $(1.9) and $(0.9), respectively)
 
1.1

 
0.6

 
3.4

 
1.6

 
(1)
Net prior service benefit amortization (net of tax $0.0, $0.0, $0.0 and $0.1, respectively)
 
—

 
(0.1
)
 
(0.1
)
 
(0.2
)
 
(1)
 
 
1.1

 
0.5

 
3.3

 
1.4

 
 
Unrealized loss on securities (net of tax $0.0, $0.0, $0.0 and $0.2, respectively)
 
—

 
—

 
—

 
(0.4
)
 
Investment income
Total reclassifications for the period
 
$
1.0

 
$
0.4

 
$
3.1

 
$
0.8

 
 
(1)
Pension and other post-retirement benefits AOCI components are included in the computation of net periodic benefit cost (refer to note 12).
Note 5: Share-Based Compensation
The Company’s share-based compensation payments to employees are recognized based on their grant-date fair values during the period in which the employee is required to provide services in exchange for the award. Share-based compensation is primarily recognized as a component of selling and administrative expense. Total share-based compensation expense was $1.8 and $5.6 for the three months ended September 30, 2015 and 2014, respectively. Total share-based compensation expense was $10.9 and $16.0 for the nine months ended September 30, 2015 and 2014, respectively.
Options outstanding and exercisable as of September 30, 2015 under the Company’s 1991 Equity and Performance Incentive Plan (as Amended and Restated as of February 12, 2014) (the 1991 Plan) and changes during the nine months ended September 30, 2015 were as follows:    
 
 
Number of
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value (1)
 
 
(in millions)
 
(per share)
 
(in years)
 
 
Outstanding at January 1, 2015
 
1.6

 
$
37.11

 
 
 
 
Expired or forfeited
 
(0.3
)
 
$
49.85

 
 
 
 
Exercised
 
(0.1
)
 
$
30.05

 

 
 
Granted
 
0.5

 
$
32.33

 
 
 
 
Outstanding at September 30, 2015
 
1.7

 
$
34.18

 
7
 
$
0.2

Options exercisable at September 30, 2015
 
0.9

 
$
35.39

 
5
 
$
0.2

Options vested and expected to vest at September 30, 2015 (2)
 
1.7

 
$
34.23

 
7
 
$
0.2

(1)
The aggregate intrinsic value (the difference between the closing price of the Company’s common shares on the last trading day of the third quarter of 2015 and the exercise price, multiplied by the number of “in-the-money” options) that would have been received by the option holders had all option holders exercised their options on September 30, 2015. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common shares.
(2)
The options expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding non-vested options.

12
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table summarizes information on non-vested RSUs and performance shares relating to employees and non-employee directors for the nine months ended September 30, 2015:
 
 
Number of
Shares
 
Weighted-Average
Grant-Date Fair
Value
 
 
(in millions)
 
(per share)
RSUs:
 
 
 
 
Non-vested at January 1, 2015
 
0.7

 
$
33.72

Forfeited
 
(0.1
)
 
$
33.79

Vested
 
(0.2
)
 
$
34.22

Granted
 
0.5

 
$
32.75

Non-vested at September 30, 2015
 
0.9

 
$
32.52

Performance Shares:
 
 
 
 
Non-vested at January 1, 2015
 
1.1

 
$
37.38

Forfeited
 
(0.3
)
 
$
36.28

Vested
 
(0.3
)
 
$
40.04

Granted
 
0.5

 
$
31.18

Non-vested at September 30, 2015
 
1.0

 
$
33.63

Performance shares are granted based on certain management objectives, as determined by the Board of Directors each year. Each performance share earned entitles the holder to one common share of the Company. The Company's performance shares include performance objectives that vest and are calculated after a three-year period as well as performance objectives that vest proportionately over a three-year period which are calculated annually. No shares are granted unless certain management threshold objectives are met.
As of September 30, 2015, there were 0.1 million non-employee director deferred shares vested and outstanding.
Note 6: Income Taxes
The effective tax rate was (34.7) percent and 26.8 percent on income for the three months ended September 30, 2015 and 2014, respectively. The effective tax rate was (4.3) percent and 31.2 percent on income for the nine months ended September 30, 2015 and 2014, respectively. The tax rate benefit for the three and nine months ended September 30, 2015 resulted from the repatriation of foreign earnings and the associated recognition of foreign tax credits and releases of uncertain tax positions due to the expiration of the statute of limitations. Additionally, the tax rate benefit for the nine months ended September 30, 2015 included the release of a valuation allowance and discrete tax items resulting from the sale of its Venezuela joint venture (refer to note 1) recorded primarily in the first quarter of 2015. The tax rate for the three months and nine months ended September 30, 2014 reflected the release of valuation allowance against excess capital losses utilized. Additionally, the tax rate for the nine months ended September 30, 2014 was negatively impacted by discrete tax expense on the repatriation of certain foreign earnings recorded in the first quarter of 2014.
Note 7: Investments
The Company’s investments, primarily in Brazil, consist of certificates of deposit that are classified as available-for-sale and stated at fair value based upon quoted market prices. Unrealized gains and losses are recorded in AOCI. Realized gains and losses are recognized in investment income and are determined using the specific identification method. There were no realized gains from the sale of securities and proceeds from the sale of available-for-sale securities for the three and nine months ended September 30, 2015. Realized (losses) gains from the sale of securities were $(0.2) and $0.5 for the three and nine months ended September 30, 2014. Proceeds from the sale of available-for-sale securities were $39.6 during the nine months ended September 30, 2014.

13
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The Company’s investments, excluding cash surrender value of insurance contracts of $73.1 and $73.8 as of September 30, 2015 and December 31, 2014, respectively, consisted of the following:
 
 
Cost Basis
 
Unrealized Gain
 
Fair Value
As of September 30, 2015
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
99.2

 
$
—

 
$
99.2

Long-term investments
 
 
 
 
 
 
Assets held in a rabbi trust
 
$
8.9

 
$
0.2

 
$
9.1

 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
136.7

 
$
—

 
$
136.7

Long-term investments
 
 
 
 
 
 
Assets held in a rabbi trust
 
$
9.3

 
$
0.5

 
$
9.8

Note 8: Allowance for Credit Losses
The following table summarizes the Company’s allowance for credit losses for the nine months ended September 30, 2015 and 2014:
 
 
Finance
Leases
 
Notes
Receivable
 
Total
Allowance for credit losses
 
 
 
 
 
 
Balance at January 1, 2015
 
$
0.4

 
$
4.1

 
$
4.5

Provision for credit losses
 
0.3

 
—

 
0.3

Write-offs
 
(0.1
)
 
—

 
(0.1
)
Balance at September 30, 2015
 
$
0.6

 
$
4.1

 
$
4.7

 
 
 
 
 
 
 
Balance at January 1, 2014

$
0.4


$
4.1


$
4.5

Provision for credit losses

0.2


—


0.2

Write-offs

(0.2
)

—


(0.2
)
Balance at September 30, 2014

$
0.4


$
4.1


$
4.5

There were no significant changes in provision for credit losses, recoveries and write-offs during the nine months ended September 30, 2015 and 2014. In the nine months ended September 30, 2015 and 2014, the Company sold finance lease receivables of $5.4 and $22.1, respectively. As of September 30, 2015, finance leases and notes receivable individually evaluated for impairment were $86.5 and $13.5, respectively. As of September 30, 2014, finance leases and notes receivable individually evaluated for impairment were $157.6 and $18.1, respectively. As of September 30, 2015 and December 31, 2014, the Company’s finance lease receivables in LA were $66.5 and $127.9, respectively. The decrease is related primarily to the strengthening U.S. dollar compared to the Brazil real and recurring customer payments for financing arrangements in LA.
The Company records interest income and any fees or costs related to financing receivables using the effective interest method over the term of the lease or loan. The Company reviews the aging of its financing receivables to determine past due and delinquent accounts. Credit quality is reviewed at inception and is re-evaluated as needed based on customer-specific circumstances. Receivable balances 60 days to 89 days past due are reviewed and may be placed on nonaccrual status based on customer-specific circumstances. Receivable balances are placed on nonaccrual status upon reaching greater than 89 days past due. Upon receipt of payment on nonaccrual financing receivables, interest income is recognized and accrual of interest is resumed once the account has been made current or the specific circumstances have been resolved.
As of September 30, 2015 and December 31, 2014, the recorded investment in past-due financing receivables on nonaccrual status was $1.9 and $2.2, respectively, and there were no recorded investments in finance receivables past due 90 days or more and still accruing interest. The recorded investment in impaired notes receivable was $4.1 as of September 30, 2015 and December 31, 2014 and was fully reserved.

14
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table summarizes the Company’s aging of past-due notes receivable balances:
 
 
September 30, 2015
 
December 31, 2014
30-59 days past due
 
$
—

 
$
0.1

60-89 days past due
 
—

 
—

> 89 days past due (1)
 
3.0

 
1.5

Total past due
 
$
3.0

 
$
1.6

(1)
Past-due notes receivable balances greater than 89 days are fully reserved.
Note 9: Inventories
Major classes of inventories are summarized as follows:
 
 
September 30, 2015
 
December 31, 2014
Finished goods
 
$
181.6

 
$
197.4

Service parts
 
150.4

 
125.6

Raw materials and work in process
 
88.6

 
82.2

Total inventories
 
$
420.6

 
$
405.2

Note 10: Goodwill and Other Assets
The changes in carrying amounts of goodwill within the Company's segments are summarized as follows:
 
NA
 
AP
 
EMEA
 
LA
 
Total
Goodwill
$
112.1

 
$
41.3

 
$
168.7

 
$
148.5

 
$
470.6

Accumulated impairment losses
(13.2
)
 
—

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at January 1, 2014
$
98.9

 
$
41.3

 
$
—

 
$
39.7

 
$
179.9

Divestiture
(1.6
)
 
—

 
—

 
—

 
(1.6
)
Currency translation adjustment
(0.2
)
 
(1.3
)
 
—

 
(4.8
)
 
(6.3
)
Goodwill
$
110.3

 
$
40.0

 
$
168.7

 
$
143.7

 
$
462.7

Accumulated impairment losses
(13.2
)
 
—

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at December 31, 2014
$
97.1

 
$
40.0

 
$
—

 
$
34.9

 
$
172.0

Goodwill acquired
41.5

 
0.5

 
—

 
0.5

 
42.5

Currency translation adjustment
(3.6
)
 
(3.0
)
 
—

 
(10.5
)
 
(17.1
)
Goodwill
148.2

 
37.5

 
168.7

 
133.7

 
488.1

Accumulated impairment losses
(13.2
)
 
—

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at September 30, 2015
$
135.0

 
$
37.5

 
$
—

 
$
24.9

 
$
197.4

During 2014, NA had a reduction to goodwill of $1.6 relating to the sale of Eras. In March 2015, the Company acquired Phoenix, a world leader in developing innovative multi-vendor software solutions for ATMs and a host of other FSS applications. Preliminary goodwill and other intangible assets resulting from the acquisition were $42.5 and $26.8, respectively, and are primarily included in the NA reportable operating segment. The purchase price allocations are preliminary and subject to further adjustment until all pertinent information regarding the assets acquired and liabilities assumed are fully evaluated. The goodwill associated with the transaction is not deductible for income tax purposes.
There have been no impairment indicators identified during the nine months ended September 30, 2015.

15
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following summarizes information on intangible assets by major category:
 
September 30, 2015
 
December 31, 2014
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Internally-developed
software
$
88.2

 
$
(46.5
)
 
$
41.7

 
$
102.1

 
$
(65.8
)
 
$
36.3

Other intangibles
52.6

 
(29.1
)
 
23.5

 
52.2

 
(28.5
)
 
23.7

Total
$
140.8

 
$
(75.6
)
 
$
65.2

 
$
154.3

 
$
(94.3
)
 
$
60.0

Intangible assets are included in other assets on the condensed consolidated balance sheets. Amortization expense on capitalized software included in product cost of sales was $3.7 and $4.6 for the three months ended September 30, 2015 and 2014, respectively, and $11.3 and $13.5 for the nine months ended September 30, 2015 and 2014, respectively.
The decrease in internally-developed software is primarily due to a $9.1 impairment during the first quarter of 2015 of certain internally-developed software related to redundant legacy Diebold software as a result of the acquisition of Phoenix.
Note 11: Debt
Outstanding debt balances were as follows:
 
 
September 30, 2015
 
December 31, 2014
Notes payable
 
 
 
 
Uncommitted lines of credit
 
$
68.4

 
$
24.8

Term loan
 
11.5

 
—

Other
 
1.0

 
0.8

 
 
$
80.9

 
$
25.6

Long-term debt
 
 
 
 
Revolving credit facility
 
$
171.1

 
$
240.0

Senior notes
 
225.0

 
225.0

Term loan
 
215.6

 
—

Industrial development revenue bonds
 
4.4

 
11.9

Other
 
2.2

 
2.9

 
 
$
618.3

 
$
479.8

As of September 30, 2015, the Company had various international short-term uncommitted lines of credit with borrowing limits of $119.0. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of September 30, 2015 and December 31, 2014 was 2.95 percent and 2.96 percent, respectively. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at September 30, 2015 was $50.6.
In June 2015, the Company entered into a Second Amendment to the Credit Agreement (Second Amendment), which provides for a term loan in the aggregate principal amount of $230.0 with escalating quarterly principal payments and a balloon payment due upon maturity in August 2019. The weighted-average interest rate on the term loan as of September 30, 2015 was 1.75 percent, which is variable based on the London Interbank Offered Rate (LIBOR). The Second Amendment replaced the net debt to net capitalization financial covenant with a net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) financial covenant and, accordingly, modified the facility fee and interest rate pricing schedules. The Credit Agreement continues to provide a revolving credit facility with availability of up to $520.0. The Company has the ability, subject to various approvals, to increase the borrowing limits by $250.0. In August 2014, the Company entered into the First Amendment to the Credit Agreement and Guaranty (First Amendment), which increased its borrowing limits under the revolving credit facility from $500.0 to $520.0. The First Amendment also extended the maturity date of the revolving credit facility to August 2019. Up to $50.0 of the revolving credit facility is available under a swing line sub-facility. The weighted-average interest rate on outstanding revolving credit facility borrowings as of September 30, 2015 and December 31, 2014 was 1.57 percent and 1.69 percent, respectively, which is variable based on the LIBOR. The amount available under the revolving credit facility as of September 30, 2015 was $348.9. The Company incurred $0.7 of fees related to the Second Amendment in June 2015, which are amortized as a component of interest expense

16
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



over the term of the facility. The Company incurred $1.4 of fees related to the First Amendment in the third quarter of 2014, which are amortized as a component of interest expense over the term of the Credit Agreement.
In March 2006, the Company issued senior notes in an aggregate principal amount of $300.0 with a weighted-average fixed interest rate of 5.50 percent. The Company entered into a derivative transaction to hedge interest rate risk on $200.0 of the senior notes, which was treated as a cash flow hedge. This reduced the effective interest rate from 5.50 percent to 5.36 percent. The Company funded the repayment of $75.0 of the senior notes at maturity in March 2013 using borrowings under its revolving credit facility. The maturity dates of the remaining senior notes are staggered, with $175.0 and $50.0 due in March 2016 and 2018, respectively. For $175.0 of the Company's senior notes maturing in March 2016, management intends to fund the repayment through the revolving credit facility.
In 1997, industrial development revenue bonds were issued on behalf of the Company. The proceeds from the bond issuances were used to construct new manufacturing facilities in the United States. The Company guaranteed the payments of principal and interest on the bonds by obtaining letters of credit. The bonds were issued with a 20-year original term and are scheduled to mature in 2017. Each industrial development revenue bond carries a variable interest rate, which is reset weekly by the remarketing agents. The weighted-average interest rate on the bonds was 0.34 percent and 0.27 percent as of September 30, 2015 and December 31, 2014, respectively. During the third quarter of 2015, the Company repaid $7.5 of the industrial development revenue bonds of which the remainder is expected to be repaid during the fourth quarter of 2015.
The Company’s financing agreements contain various restrictive financial covenants, including net debt to capitalization, net debt to EBITDA and net interest coverage ratios. As of September 30, 2015, the Company was in compliance with the financial and other covenants in its debt agreements.
Note 12: Benefit Plans
The Company has qualified pension plans covering certain U.S. employees that have been closed to new participants since 2003. Plans that cover salaried employees provide pension benefits based on the employee’s compensation during the ten years before retirement. The Company’s funding policy for salaried plans is to contribute annually based on actuarial projections and applicable regulations. Plans covering hourly employees and union members generally provide benefits of stated amounts for each year of service. The Company’s funding policy for hourly plans is to make at least the minimum annual contributions required by applicable regulations. Employees of the Company’s operations in countries outside of the United States participate to varying degrees in local pension plans, which in the aggregate are not significant.
The Company has non-qualified pension plans to provide supplemental retirement benefits to certain officers. Benefits are payable at retirement based upon a percentage of the participant’s compensation, as defined. In addition to providing pension benefits, the Company provides post-retirement healthcare and life insurance benefits (referred to as other benefits) for certain retired employees. Eligible employees may be entitled to these benefits based upon years of service with the Company, age at retirement and collective bargaining agreements. Currently, the Company has made no commitments to increase these benefits for existing retirees or for employees who may become eligible for these benefits in the future. Currently there are no plan assets and the Company funds the benefits as the claims are paid.
The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans and other benefits for the three months ended September 30:
 
 
Pension Benefits
 
Other Benefits
 
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
Service cost
 
$
0.9

 
$
0.7

 
$
—

 
$
—

Interest cost
 
5.9

 
5.8

 
0.1

 
0.2

Expected return on plan assets
 
(6.7
)
 
(6.5
)
 
—

 
—

Amortization of prior service benefit
 
—

 
—

 
—

 
(0.1
)
Recognized net actuarial loss
 
1.7

 
0.8

 
0.1

 
0.1

Net periodic pension benefit cost
 
$
1.8

 
$
0.8

 
$
0.2

 
$
0.2


17
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans and other benefits for the nine months ended September 30:
 
 
Pension Benefits
 
Other Benefits
 
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
Service cost
 
$
2.7

 
$
2.2

 
$
—

 
$
—

Interest cost
 
17.8

 
17.3

 
0.4

 
0.5

Expected return on plan assets
 
(20.2
)
 
(19.4
)
 
—

 
—

Amortization of prior service benefit
 
—

 
(0.1
)
 
(0.1
)
 
(0.2
)
Recognized net actuarial loss
 
5.0

 
2.3

 
0.3

 
0.2

Net periodic pension benefit cost
 
$
5.3

 
$
2.3

 
$
0.6

 
$
0.5

Contributions
There have been no changes to the expected 2015 plan year contribution amounts previously disclosed. In the first quarter of 2015, the Company made a voluntary contribution to its qualified pension plan of $10.0. For the nine months ended September 30, 2015 and 2014, contributions of $12.9 and $8.7, respectively, were made to the qualified and non-qualified pension plans.
Note 13: Guarantees and Product Warranties
In 1997, industrial development revenue bonds were issued on behalf of the Company. The Company guaranteed the payments of principal and interest on the bonds (refer to note 11) by obtaining letters of credit. The carrying value of the bonds was $4.4 and $11.9 as of September 30, 2015 and December 31, 2014, respectively.
The Company provides its global operations guarantees and standby letters of credit through various financial institutions for suppliers, customers, regulatory agencies and insurance providers. If the Company is not able to make payment or fulfill contractual obligations, the suppliers, customers, regulatory agencies and insurance providers may draw on the pertinent bank. At September 30, 2015, the maximum future payment obligations related to these various guarantees totaled $105.0, of which $28.0 represented standby letters of credit to insurance providers, and no associated liability was recorded. At December 31, 2014, the maximum future payment obligations relative to these various guarantees totaled $111.1, of which $28.0 represented standby letters of credit to insurance providers, and no associated liability was recorded.
The Company provides its customers a manufacturer’s warranty and records, at the time of the sale, a corresponding estimated liability for potential warranty costs. Estimated future obligations due to warranty claims are based upon historical factors such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts. As of September 30, 2015 and 2014, the Company’s warranty liability balances were $77.3 and $107.0, respectively. During 2014, the increase in warranty was largely attributable to sales related to Brazil other in LA. The currency translation adjustment is primarily due to the strengthening U.S. dollar compared to the Brazil real during 2015.
Changes in the Company’s warranty liability balance are illustrated in the following table:
 
 
2015
 
2014
Balance at January 1
 
$
113.3

 
$
83.2

Current period accruals
 
26.1

 
66.4

Current period settlements
 
(36.3
)
 
(38.3
)
Currency translation adjustment
 
(25.8
)
 
(4.3
)
Balance at September 30
 
$
77.3

 
$
107.0


18
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



Note 14: Commitments and Contingencies
Contractual Obligation
At September 30, 2015, the Company had purchase commitments due within one year totaling $10.8 for materials through contract manufacturing agreements at negotiated prices.
Indirect Tax Contingencies
The Company accrues non-income-tax liabilities for indirect tax matters when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they are charged against income. In evaluating indirect tax matters, management takes into consideration factors such as historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. Management evaluates and updates accruals as matters progress over time. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably to the Company and could require recognizing future expenditures. Also, statutes of limitations could expire without the Company paying the taxes for matters for which accruals have been established, which could result in the recognition of future gains upon reversal of these accruals at that time.
At September 30, 2015, the Company was a party to several routine indirect tax claims from various taxing authorities globally that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the consolidated financial statements would not be materially affected by the outcome of these indirect tax claims and/or proceedings or asserted claims.
In addition to these routine indirect tax matters, the Company was a party to the proceedings described below:
In August 2012, one of the Company's Brazil subsidiaries was notified of a tax assessment of approximately R$270.0, including penalties and interest, regarding certain Brazil federal indirect taxes (Industrialized Products Tax, Import Tax, Programa de Integração Social and Contribution to Social Security Financing) for 2008 and 2009. The assessment alleges improper importation of certain components into Brazil's free trade zone that would nullify certain indirect tax incentives. On September 10, 2012, the Company filed its administrative defenses with the tax authorities.
In response to an order by the administrative court, the tax inspector provided further analysis with respect to the initial assessment in December 2013 that indicates a potential exposure that is significantly lower than the initial tax assessment received in August 2012. This revised analysis has been accepted by the initial administrative court; however, this matter remains subject to ongoing administrative proceedings and appeals. Accordingly, the Company cannot provide any assurance that its exposure pursuant to the initial assessment will be lowered significantly or at all. In addition, this matter could negatively impact Brazil federal indirect taxes in other years that remain open under statute. It is reasonably possible that the Company could be required to pay taxes, penalties and interest related to this matter, which could be material to the Company's consolidated financial statements. The Company continues to defend itself in this matter.
At September 30, 2015 and December 31, 2014, the Company had an accrual related to the Brazil indirect tax matter disclosed above of approximately $8.4 and $12.5, respectively. The movement between periods relates to the currency fluctuation in the Brazil real.
Beginning in July 2014, the Company challenged customs rulings in Thailand seeking to retroactively collect customs duties on previous imports of ATMs. Management believes that the customs authority’s attempt to retroactively assess customs duties is in contravention of World Trade Organization agreements and, accordingly, is challenging the rulings. In the third quarter of 2015, the Company received a prospective ruling from the United States Customs Border Protection which is consistent with our interpretation of the treaty in question. We are submitting that ruling for consideration in our ongoing dispute with Thailand. The matters are currently in the appeals process and management continues to believe that the Company has a valid legal position in these appeals. Accordingly, the Company has not accrued any amount for this contingency; however, the Company cannot provide any assurance that it will not ultimately be subject to retroactive assessments.
A loss contingency is reasonably possible if it has a more than remote but less than probable chance of occurring. Although management believes the Company has valid defenses with respect to its indirect tax positions, it is reasonably possible that a loss could occur in excess of the estimated accrual. The Company estimated the aggregate risk at September 30, 2015 to be up to approximately $166.9 for its material indirect tax matters, of which approximately $118.3 and $26.0, respectively, relates to the Brazil indirect tax matter and Thailand customs matter disclosed above. The aggregate risk related to indirect taxes is adjusted as the applicable statutes of limitations expire.

19
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



Legal Contingencies
At September 30, 2015, the Company was a party to several lawsuits that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s financial position or results of operations. In addition, the Company has indemnification obligations with certain former employees, and costs associated with these indemnifications are expensed as incurred. In management’s opinion, the Company's condensed consolidated financial statements would not be materially affected by the outcome of these legal proceedings, commitments or asserted claims.
Note 15: Derivative Instruments and Hedging Activities
The Company uses derivatives to mitigate the economic consequences associated with fluctuations in currencies and interest rates.
Foreign Exchange
Net Investment Hedges The Company has international subsidiaries with net balance sheet positions that generate cumulative translation adjustments within AOCI. The Company uses derivatives to manage potential changes in value of its net investments in LA. The Company uses the forward-to-forward method for its quarterly retrospective and prospective assessments of hedge effectiveness. No ineffectiveness results if the notional amount of the derivative matches the portion of the net investment designated as being hedged because the Company uses derivative instruments with underlying exchange rates consistent with its functional currency and the functional currency of the hedged net investment. Changes in value that are deemed effective are accumulated in AOCI where they will remain until they are reclassified to income together with the gain or loss on the entire investment upon substantial liquidation of the subsidiary. The fair value of the Company’s net investment hedge contracts were $0.3 and $1.2 as of September 30, 2015 and December 31, 2014, respectively. The net gain (loss) recognized in AOCI on net investment hedge derivative instruments was $6.2 and $3.8 in the three months ended September 30, 2015 and 2014, respectively, and $11.3 and $(1.7) in the nine months ended September 30, 2015 and 2014, respectively.
Non-Designated Hedges A substantial portion of the Company’s operations and revenues are international. As a result, changes in foreign exchange rates can create substantial foreign exchange gains and losses from the revaluation of non-functional currency monetary assets and liabilities. The Company’s policy allows the use of foreign exchange forward contracts with maturities of up to 24 months to mitigate the impact of currency fluctuations on those foreign currency asset and liability balances. The Company elected not to apply hedge accounting to its foreign exchange forward contracts. Thus, spot-based gains/losses offset revaluation gains/losses within foreign exchange gain (loss), net and forward-based gains/losses represent interest expense. The fair value of the Company’s non-designated foreign exchange forward contracts was $1.8 and $0.7 as of September 30, 2015 and December 31, 2014, respectively.
The following table summarizes the gain recognized on non-designated foreign-exchange derivative instruments:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,

 
2015
 
2014
 
2015
 
2014
Interest expense
 
$
(1.4
)
 
$
(1.4
)
 
$
(3.5
)
 
$
(4.4
)
Foreign exchange gain (loss), net
 
6.6

 
9.1

 
9.5

 
10.7

 
 
$
5.2

 
$
7.7

 
$
6.0

 
$
6.3

Interest Rate
Cash Flow Hedges The Company has variable rate debt that is subject to fluctuations in interest related cash flows due to changes in market interest rates. As of September 30, 2015, the Company had two pay-fixed receive-variable interest rate swaps, with a total notional amount of $50.0, to hedge against changes in the LIBOR benchmark interest rate on a portion of the Company’s LIBOR-based borrowings. Changes in value that are deemed effective are accumulated in AOCI and reclassified to interest expense when the hedged interest is accrued. To the extent that it becomes probable that the Company’s variable rate borrowings will not occur, the gains or losses on the related cash flow hedges will be reclassified from AOCI to interest expense. The fair value of the Company’s interest rate contracts was $(0.4) and $(1.2) as of September 30, 2015 and December 31, 2014, respectively.
In December 2005 and January 2006, the Company executed cash flow hedges by entering into receive-variable and pay-fixed interest rate swaps, with a total notional amount of $200.0, related to the senior notes issuance in March 2006. Amounts previously recorded in AOCI related to the pre-issuance cash flow hedges will continue to be reclassified on a straight-line basis through February 2016.

20
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2015
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollars in millions, except per share amounts)



The gain recognized on designated cash flow hedge derivative instruments was $0.3 and $0.4 for the three months ended September 30, 2015 and 2014, respectively, and $0.8 and $0.9 for the nine months ended September 30, 2015 and 2014, respectively. Gains and losses related to interest rate contracts that are reclassified from AOCI are recorded in interest expense on the statements of income. The Company anticipates reclassifying $0.2 from AOCI to interest expense within the next 12 months.
Note 16: Restructuring and Other Charges
Restructuring Charges
The following table summarizes the impact of the Company’s restructuring charges on the condensed consolidated statements of income:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Cost of sales – services
 
$
1.6

 
$
0.6

 
$
2.8

 
$
1.4

Cost of sales – products
 
0.1

 
—

 
1.4

 
0.1

Selling and administrative expense
 
5.9

 
0.4

 
13.1

 
5.3

Research, development and engineering expense
 
—