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 March 31, 2016
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 April 25, 2016 was 65,146,560.




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 share and per share amounts)
 
 
March 31,
2016

December 31,
2015
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents

$
304.6


$
313.6

Restricted cash
 
116.1

 
—

Short-term investments

49.7


39.9

Trade receivables, less allowances for doubtful accounts of $31.9 and $31.7, respectively
 
459.3

 
413.9

Inventories
 
412.2

 
369.3

Deferred income taxes
 
116.8

 
168.8

Prepaid expenses
 
23.8

 
23.6

Prepaid income taxes
 
31.3

 
18.0

Current assets held for sale
 
—

 
148.2

Other current assets
 
173.8

 
148.3

Total current assets
 
1,687.6

 
1,643.6

Securities and other investments
 
83.0

 
85.2

Property, plant and equipment, net of accumulated depreciation and amortization of $445.3 and $433.7, respectively
 
169.7

 
175.3

Goodwill
 
167.0

 
161.5

Deferred income taxes
 
59.1

 
65.3

Finance lease receivables
 
33.4

 
36.5

Other assets
 
78.2

 
75.0

Total assets
 
$
2,278.0

 
$
2,242.4

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Notes payable
 
$
103.7

 
$
32.0

Accounts payable
 
248.9

 
281.7

Deferred revenue
 
236.4

 
229.2

Payroll and other benefits liabilities
 
68.8

 
76.5

Current liabilities held for sale
 
—

 
49.4

Other current liabilities
 
332.3

 
287.0

Total current liabilities
 
990.1

 
955.8

Long-term debt
 
428.9

 
606.2

Pensions and other benefits
 
194.9

 
195.6

Post-retirement and other benefits
 
19.2

 
18.7

Other long-term liabilities
 
25.8

 
30.6

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,79,904,044 and 79,696,694 issued shares, 65,144,571 and 65,001,602 outstanding shares, respectively
 
99.9

 
99.6

Additional capital
 
436.1

 
430.8

Retained earnings
 
909.8

 
760.3

Treasury shares, at cost (14,759,473 and 14,695,092 shares, respectively)
 
(561.9
)
 
(560.2
)
Accumulated other comprehensive loss
 
(288.3
)
 
(318.1
)
Total Diebold, Incorporated shareholders' equity
 
595.6

 
412.4

Noncontrolling interests
 
23.5

 
23.1

Total equity
 
619.1

 
435.5

Total liabilities and equity
 
$
2,278.0

 
$
2,242.4

See accompanying notes to condensed consolidated financial statements.

3
Table of Contents

DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
(in millions, except per share amounts)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Net sales
 
 
 
 
Services
 
$
336.7

 
$
341.6

Products
 
172.9

 
233.2

 
 
509.6


574.8

Cost of sales
 
 
 
 
Services
 
228.5

 
229.9

Products
 
142.3

 
185.6

 
 
370.8

 
415.5

Gross profit
 
138.8

 
159.3

Selling and administrative expense
 
125.6

 
120.5

Research, development and engineering expense
 
18.5

 
22.3

Impairment of assets
 
—

 
19.4

Loss on sale of assets, net
 
0.4

 
0.1

 
 
144.5

 
162.3

Operating loss
 
(5.7
)

(3.0
)
Other income (expense)
 
 
 
 
Investment income
 
4.9

 
7.9

Interest expense
 
(11.5
)
 
(8.0
)
Foreign exchange (loss) gain, net
 
(2.4
)
 
(9.2
)
Miscellaneous, net
 
34.6

 
(1.2
)
Income (loss) from continuing operations before taxes
 
19.9

 
(13.5
)
Income tax (benefit) expense
 
(0.8
)
 
(3.4
)
Income (loss) from continuing operations, net of tax
 
20.7

 
(10.1
)
Income from discontinued operations, net of tax
 
147.8

 
4.5

Net income (loss)
 
168.5

 
(5.6
)
Net income (loss) attributable to noncontrolling interests
 
0.3

 
(2.8
)
Net income (loss) attributable to Diebold, Incorporated
 
$
168.2

 
$
(2.8
)
 
 
 
 
 
Basic weighted-average shares outstanding
 
65.1

 
64.7

Diluted weighted-average shares outstanding
 
65.7

 
64.7

 
 
 
 
 
Basic earnings (loss) per share
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
0.31

 
$
(0.11
)
Income from discontinued operations, net of tax
 
2.27

 
0.07

Net income (loss) attributable to Diebold, Incorporated
 
$
2.58

 
$
(0.04
)
 
 
 
 
 
Diluted earnings (loss) per share
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
0.31

 
$
(0.11
)
Income from discontinued operations, net of tax
 
2.25

 
0.07

Net income (loss) attributable to Diebold, Incorporated
 
$
2.56

 
$
(0.04
)
 
 
 
 
 
Amounts attributable to Diebold, Incorporated
 
 
 
 
Income (loss) before discontinued operations, net of tax
 
$
20.4

 
$
(7.3
)
Income from discontinued operations, net of tax
 
147.8

 
4.5

Net income (loss) attributable to Diebold, Incorporated
 
$
168.2

 
$
(2.8
)
 
 
 
 
 
Common dividends declared and paid per share
 
$
0.2875

 
$
0.2875

See accompanying notes to condensed consolidated financial statements.


4
Table of Contents

DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Net income (loss)
 
$
168.5

 
$
(5.6
)
Other comprehensive income (loss), net of tax
 
 
 
 
Translation adjustment
 
32.8

 
(68.4
)
Foreign currency hedges (net of tax $1.9 and $(2.3), respectively)
 
(3.6
)
 
4.3

Interest rate hedges
 


 


Net gain recognized in other comprehensive income (net of tax $(0.1) for the three months ended March 31, 2015)
 
—

 
0.2

Reclassification adjustment for amounts recognized in net income
 
(0.1
)
 
(0.1
)
 
 
(0.1
)
 
0.1

Pension and other post-retirement benefits
 
 
 
 
Net actuarial loss amortization (net of tax $(0.5) and $(0.6), respectively)
 
0.9

 
1.0

Net prior service benefit amortization, net of tax
 
—

 
0.1

 
 
0.9

 
1.1

Other comprehensive income (loss), net of tax
 
30.0

 
(62.9
)
Comprehensive income (loss)
 
198.5

 
(68.5
)
Less: comprehensive income (loss) attributable to noncontrolling interests
 
0.4

 
(2.6
)
Comprehensive income (loss) attributable to Diebold, Incorporated
 
$
198.1

 
$
(65.9
)
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)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Cash flow from operating activities
 
 
 
 
Net income (loss)
 
$
168.5

 
$
(5.6
)
Income from discontinued operations, net of tax
 
147.8

 
4.5

Income (loss) from continuing operations, net of tax
 
20.7

 
(10.1
)
Adjustments to reconcile net income to cash flow used by operating activities:
 
 
 
 
Depreciation and amortization
 
15.0

 
16.2

Share-based compensation
 
5.6

 
4.3

Excess tax benefits from share-based compensation
 
—

 
(0.1
)
Devaluation of Venezuela balance sheet
 
—

 
7.5

Gain on sale of assets, net
 
0.4

 
0.1

Impairment of assets
 
—

 
19.4

Gain on foreign currency option contracts
 
(36.5
)
 
—

Changes in certain assets and liabilities, net of the effects of acquisition
 
 
 
 
Trade receivables
 
(36.6
)
 
(76.0
)
Inventories
 
(31.9
)
 
(38.5
)
Prepaid expenses
 
0.1

 
(2.1
)
Prepaid income taxes
 
(13.3
)
 
(7.5
)
Other current assets
 
(9.7
)
 
(11.0
)
Accounts payable
 
(37.3
)
 
7.2

Deferred revenue
 
3.8

 
41.5

Certain other assets and liabilities
 
9.8

 
(15.5
)
Net cash used by operating activities - continuing operations
 
(109.9
)
 
(64.6
)
Net cash (used) provided by operating activities - discontinued operations
 
(5.3
)
 
2.4

Net cash used by operating activities
 
(115.2
)
 
(62.2
)
Cash flow from investing activities
 
 
 
 
Payments for acquisition, net of cash acquired
 
—

 
(59.4
)
Proceeds from maturities of investments
 
35.1

 
46.3

Payments for purchases of investments
 
(39.5
)
 
(44.5
)
Proceeds from sale of assets
 
0.2

 
0.4

Capital expenditures
 
(4.7
)
 
(10.5
)
Increase in certain other assets
 
(4.9
)
 
(2.1
)
Net cash used by investing activities - continuing operations
 
(13.8
)
 
(69.8
)
Net cash provided (used) by investing activities - discontinued operations
 
365.1

 
(0.3
)
Net cash provided (used) by investing activities
 
351.3

 
(70.1
)
Cash flow from financing activities
 
 
 
 
Dividends paid
 
(18.8
)
 
(18.9
)
Debt issuance costs
 
(0.8
)
 
—

Restricted cash, net
 
(116.1
)
 
—

Revolving debt borrowings, net
 
73.1

 
75.0

Other debt borrowings
 
17.3

 
13.9

Other debt repayments
 
(198.0
)
 
(16.3
)
Distributions to noncontrolling interest holders
 
(2.0
)
 
—

Excess tax benefits from share-based compensation
 
—

 
0.1

Issuance of common shares
 
—

 
1.0

Repurchase of common shares
 
(1.7
)
 
(2.6
)
Net cash (used) provided by financing activities - continuing operations
 
(247.0
)
 
52.2

Net cash provided (used) by financing activities - discontinued operations
 
—

 
—

Net cash (used) provided by financing activities
 
(247.0
)
 
52.2

Effect of exchange rate changes on cash and cash equivalents
 
3.4

 
(14.8
)
Decrease in cash and cash equivalents
 
(7.5
)
 
(94.9
)
Add: Cash overdraft included in assets held for sale at beginning of period
 
(1.5
)
 
(4.1
)
Less: Cash overdraft included in assets held for sale at end of period
 
—

 
(1.9
)
Cash and cash equivalents at the beginning of the period
 
313.6

 
326.1

Cash and cash equivalents at the end of the period
 
$
304.6

 
$
229.0

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements
(unaudited)
(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 (U.S. 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, 2015. 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 months ended March 31, 2016 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.

Recently Adopted Accounting Guidance

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. Additionally, in August 2015, the FASB issued ASU 2015-15, Interest-Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (ASU 2015-15). The standards became effective for the Company on January 1, 2016. The adoption of ASU 2015-03 and ASU 2015-15 resulted in $7.6 of debt issuance costs included in long-term debt as of March 31, 2016 and a reclassification of $6.9 from other assets to long-term debt as of December 31, 2015.

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 became effective for the Company on January 1, 2016. The adoption of ASU 2015-07 did not 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 became effective for the Company on January 1, 2016. The adoption of ASU 2015-12 did not 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

7
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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 became effective for the Company on January 1, 2016. The adoption of ASU 2015-16 did not have a material impact on the financial statements of the Company.

Recently Issued Accounting Guidance

In May 2014, the FASB issued 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. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. 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 November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17). This amendment requires the presentation of deferred tax assets and liabilities to be categorized as noncurrent on the balance sheet, instead of being classified as current or noncurrent. ASU 2015-17 is effective for the Company on January 1, 2017, with early adoption permitted. The adoption of ASU 2015-17 is not expected to have a material impact on the financial statements of the Company.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). This amendment requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This amendment simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. This amendment requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Additionally, the update requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments and requires an entity to separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 is effective for the Company on January 1, 2018, including interim periods, with early adoption permitted on a limited basis. The adoption of ASU 2016-01 is not expected to have a material impact on the financial statements of the Company.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). The FASB issued the update to require the recognition of lease assets and liabilities on the balance sheet of lessees. ASU 2016-02 will be effective for the Company on January 1, 2019, including interim periods. ASU 2016-02 requires a modified retrospective transition method with the option to elect a package of practical expedients. Early adoption is permitted. The Company is evaluating the effect that ASU 2016-02 will have on its financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (ASU 2016-05). The FASB issued the update to clarify the effect on an existing hedging relationship, if any, of a change in the counterparty to a derivative instrument that has been designated as a hedging instrument. The ASU clarifies the steps required to determine bifurcation of an embedded derivative. ASU 2016-05 will be effective for the Company on January 1, 2017, including interim periods. Early adoption is permitted. The adoption of ASU 2016-05 is not expected to have a material impact on the financial statements of the Company.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (ASU 2016-06). The FASB issued the update to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The standard will be effective for the Company on January 1, 2017, including interim periods. ASU 2016-06 requires a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. Early

8
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


adoption is permitted. The adoption of ASU 2016-06 is not expected to have a material impact on the financial statements of the Company.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08). The FASB issued the amendments to clarify the implementation guidance on principal versus agent considerations. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of ASU 2014-09. The Company is evaluating the effect that ASU 2016-08 will have on its financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The FASB issued the amendments to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. ASU 2016-09 is effective for the Company for annual periods beginning after December 15, 2016, with early adoption permitted. The adoption of ASU 2016-09 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 months ended March 31, 2016 and 2015, there was no impact in the per share amounts calculated under the two methods. Accordingly, the treasury stock method is disclosed below.


9
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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
 
 
March 31,
 
 
2016
 
2015
Numerator
 
 
 
 
Income (loss) used in basic and diluted earnings (loss) per share
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
20.7

 
$
(10.1
)
Net income (loss) attributable to noncontrolling interests
 
0.3

 
(2.8
)
Income (loss) before discontinued operations, net of tax
 
20.4

 
(7.3
)
Income from discontinued operations, net of tax
 
147.8

 
4.5

Net income (loss) attributable to Diebold, Incorporated
 
$
168.2

 
$
(2.8
)
Denominator
 
 
 
 
Weighted-average number of common shares used in basic earnings (loss) per share
 
65.1

 
64.7

Effect of dilutive shares (1)
 
0.6

 
—

Weighted-average number of shares used in diluted earnings (loss) per share
 
65.7

 
64.7

Basic earnings (loss) per share
 
 
 
 
Income (loss) before discontinued operations, net of tax
 
$
0.31

 
$
(0.11
)
Income from discontinued operations, net of tax
 
2.27

 
0.07

Net income (loss) attributable to Diebold, Incorporated
 
$
2.58

 
$
(0.04
)
Diluted earnings (loss) per share
 
 
 
 
Income (loss) before discontinued operations, net of tax
 
$
0.31

 
$
(0.11
)
Income from discontinued operations, net of tax
 
2.25

 
0.07

Net income (loss) attributable to Diebold, Incorporated
 
$
2.56

 
$
(0.04
)
 
 
 
 
 
Anti-dilutive shares
 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares
 
1.9

 
1.5

(1)
Incremental shares of 0.7 shares were excluded from the computation of diluted (loss) earnings per share for the three months ended March 31, 2015, because their effect is anti-dilutive due to the net loss attributable to Diebold, Incorporated.


10
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(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
 
 
March 31,
 
 
2016
 
2015
Diebold, Incorporated shareholders' equity
 
 
 
 
Balance at beginning of period
 
$
412.4

 
$
531.6

Comprehensive income (loss) attributable to Diebold, Incorporated
 
198.1

 
(65.9
)
Common shares
 
0.3

 
0.4

Additional capital
 
5.3

 
4.9

Treasury shares
 
(1.7
)
 
(2.6
)
Dividends paid
 
(18.8
)
 
(18.9
)
Balance at end of period
 
$
595.6

 
$
449.5

 
 
 
 
 
Noncontrolling interests
 
 
 
 
Balance at beginning of period
 
$
23.1

 
$
23.3

Comprehensive income attributable to noncontrolling interests, net (1)
 
0.4

 
—

Balance at end of period
 
$
23.5

 
$
23.3

(1)
Comprehensive income (loss) attributable to noncontrolling interests of $(2.6) is net of a $2.6 Venezuela noncontrolling interest adjustment for the three months ended March 31, 2015 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 March 31, 2016:

 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2016
 
$
(215.6
)
 
$
5.0

 
$
(0.1
)
 
$
(107.8
)
 
$
0.4

 
$
(318.1
)
Other comprehensive income (loss) before reclassifications (1)
 
32.6

 
(3.6
)
 
—

 
—

 
—

 
29.0

Amounts reclassified from AOCI
 
—

 
—

 
(0.1
)
 
0.9

 
—

 
0.8

Net current-period other comprehensive income (loss)
 
32.6

 
(3.6
)
 
(0.1
)
 
0.9

 
—

 
29.8

Balance at March 31, 2016
 
$
(183.0
)
 
$
1.4

 
$
(0.2
)
 
$
(106.9
)
 
$
0.4

 
$
(288.3
)
(1)
Other comprehensive income (loss) before reclassifications within the translation component excludes $0.2 of translation attributable to noncontrolling interests.


11
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(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 March 31, 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)
 
(68.6
)
 
4.3

 
0.2

 
—

 
—

 
(64.1
)
Amounts reclassified from AOCI
 
—

 
—

 
(0.1
)
 
1.1

 
—

 
1.0

Net current-period other comprehensive (loss) income
 
(68.6
)
 
4.3

 
0.1

 
1.1

 
—

 
(63.1
)
Balance at March 31, 2015
 
$
(143.5
)
 
$
2.9

 
$
(0.4
)
 
$
(112.9
)
 
$
0.3

 
$
(253.6
)
(1) Other comprehensive (loss) income before reclassifications within the translation component excludes $2.9 of translation attributable to noncontrolling interests.

The following table summarizes the details about amounts reclassified from AOCI:
 
 
Three Months Ended
 
 
 
 
2016
 
2015
 
 
 
 
Amount Reclassified from AOCI
 
Amount Reclassified from AOCI
 
Affected Line Item in the Statement of Operations
Interest rate hedges
 
$
(0.1
)
 
$
(0.1
)
 
Interest expense
Pension and post-retirement benefits:
 
 
 
 
 
 
Net actuarial loss amortization (net of tax $(0.5) and $(0.6), respectively)
 
0.9

 
1.0

 
(1)
Net prior service benefit amortization, net of tax
 
—

 
0.1

 
(1)
 
 
0.9

 
1.1

 
 
Total reclassifications for the period
 
$
0.8

 
$
1.0

 
 
(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 $5.6 and $4.3 for the three months ended March 31, 2016 and 2015, respectively.


12
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Options outstanding and exercisable as of March 31, 2016 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 three months ended March 31, 2016 were as follows:
 
 
Number of
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value (1)
 
 

 
(per share)
 
(in years)
 
 
Outstanding at January 1, 2016
 
1.7

 
$
34.21

 
 
 
 
Expired or forfeited
 
(0.2
)
 
$
38.23

 
 
 
 
Granted
 
0.5

 
$
27.39

 
 
 
 
Outstanding at March 31, 2016
 
2.0

 
$
32.34

 
8
 
$
0.8

Options exercisable at March 31, 2016
 
1.1

 
$
34.32

 
6
 
$
0.1

Options vested and expected to vest at March 31, 2016 (2)
 
2.0

 
$
32.43

 
7
 
$
0.8

(1)
The aggregate intrinsic value (the difference between the closing price of the Company’s common shares on the last trading day of the first quarter of 2016 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 March 31, 2016. 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.

The following table summarizes information on non-vested RSUs and performance shares relating to employees and non-employee directors for the three months ended March 31, 2016:
 
 
Number of
Shares
 
Weighted-Average
Grant-Date Fair
Value
 
 

 
(per share)
RSUs:
 
 
 
 
Non-vested at January 1, 2016
 
0.9

 
$
32.53

Forfeited
 
(0.1
)
 
$
32.39

Vested
 
(0.2
)
 
$
30.86

Granted
 
0.5

 
$
27.13

Non-vested at March 31, 2016
 
1.1

 
$
30.40

Performance Shares:
 
 
 
 
Non-vested at January 1, 2016
 
0.8

 
$
34.06

Forfeited
 
—

 
$
34.09

Vested
 
(0.2
)
 
$
29.32

Granted
 
0.6

 
$
30.49

Non-vested at March 31, 2016
 
1.2

 
$
33.00


Performance shares are granted to employees and vest based on the achievement of certain performance 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 are assessed after a three-year period as well as performance objectives that are assessed annually over a three-year period. No shares are vested unless certain performance threshold objectives are met.

As of March 31, 2016, there were 0.1 non-employee director deferred shares vested and outstanding.


13
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 6: Income Taxes

The effective tax rate on the income from continuing operations for the three months ended March 31, 2016 was (4.0) percent compared to 25.2 percent on the loss for the three months ended March 31, 2015. The significant decrease in the effective tax rate is primarily attributable to the nontaxable $36.5 mark-to-market gain on foreign currency option contracts related to the potential Wincor Nixdorf Aktiengesellschaft (Wincor Nixdorf) acquisition (the Acquisition) and the decrease in the deferred tax liability associated with the Company's undistributed foreign subsidiary earnings. This decrease was offset by discrete tax benefits that were recorded in the three months ended March 31, 2015, which benefits were primarily related to the Venezuela divestiture and the release of a valuation allowance.

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 months ended March 31, 2016 and March 31, 2015.

The Company’s investments, excluding cash surrender value of insurance contracts of $74.9 and $75.9 as of March 31, 2016 and December 31, 2015, respectively, consisted of the following:
 
 
Cost Basis
 
Unrealized Gain
 
Fair Value
As of March 31, 2016
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
49.7

 
$
—

 
$
49.7

Long-term investments
 
 
 
 
 
 
Assets held in a rabbi trust
 
$
7.9

 
$
0.2

 
$
8.1

 
 
 
 
 
 
 
As of December 31, 2015
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
39.9

 
$
—

 
$
39.9

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

 
$
—

 
$
9.3


Note 8: Allowance for Credit Losses

The following table summarizes the Company’s allowance for credit losses for the three months ended March 31, 2016 and 2015:
 
 
Finance
Leases
 
Notes
Receivable
 
Total
Allowance for credit losses
 
 
 
 
 
 
Balance at January 1, 2016
 
$
0.5

 
$
4.1

 
$
4.6

Provision for credit losses
 
—

 
—

 
—

Balance at March 31, 2016
 
$
0.5

 
$
4.1

 
$
4.6

 
 
 
 
 
 
 
Balance at January 1, 2015

$
0.4


$
4.1


$
4.5

Provision for credit losses

0.5


—


0.5

Balance at March 31, 2015

$
0.9


$
4.1


$
5.0


There were no significant changes in provision for credit losses, recoveries and write-offs during the three months ended March 31, 2016 and 2015. As of March 31, 2016, finance leases and notes receivable individually evaluated for impairment were $73.8 and $5.7, respectively. As of March 31, 2015, finance leases and notes receivable individually evaluated for impairment were $126.4 and $8.5, respectively. As of March 31, 2016 and December 31, 2015, the Company’s finance lease receivables in Latin America (LA) were $56.0 and $58.8, respectively. The decrease is related primarily to the strengthening of the U.S. dollar compared to the Brazil real and recurring customer payments for financing arrangements in LA.

14
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)



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 March 31, 2016 and December 31, 2015, the recorded investment in past due financing receivables on nonaccrual status was $0.6 and $0.7, 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 March 31, 2016 and December 31, 2015 and was fully reserved.

The following table summarizes the Company’s aging of past-due notes receivable balances:
 
 
March 31, 2016
 
December 31, 2015
30-59 days past due
 
$
—

 
$
0.1

60-89 days past due
 
—

 
—

> 89 days past due (1)
 
3.1

 
3.0

Total past due
 
$
3.1

 
$
3.1

(1)
Past due notes receivable balances greater than 89 days are fully reserved.

Note 9: Inventories

Major classes of inventories are summarized as follows:
 
 
March 31, 2016
 
December 31, 2015
Finished goods
 
$
174.4

 
$
145.8

Service parts
 
156.7

 
155.7

Raw materials and work in process
 
81.1

 
67.8

Total inventories
 
$
412.2

 
$
369.3


Certain inventory items of $19.7 were reclassified as of December 31, 2015 between service parts and raw materials and work in process to conform with the current presentation.


15
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 10: Goodwill and Other Assets

The Company’s four reportable operating segments are North America (NA), Asia Pacific (AP), Europe, Middle East, and Africa (EMEA) and Latin America (LA). The changes in carrying amounts of goodwill within the Company's segments are summarized as follows:
 
NA
 
AP
 
EMEA
 
LA
 
Total
Goodwill
$
76.4

 
$
40.0

 
$
168.7

 
$
143.7

 
$
428.8

Accumulated impairment losses
(13.2
)
 
—

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at January 1, 2015
$
63.2

 
$
40.0

 
$
—

 
$
34.9

 
$
138.1

Goodwill acquired
39.7

 
—

 
—

 
—

 
39.7

Currency translation adjustment
(3.4
)
 
(2.4
)
 
—

 
(10.5
)
 
(16.3
)
Goodwill
$
112.7

 
$
37.6

 
$
168.7

 
$
133.2

 
$
452.2

Accumulated impairment losses
(13.2
)
 
—

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at December 31, 2015
$
99.5

 
$
37.6

 
$
—

 
$
24.4

 
$
161.5

Goodwill adjustment
0.2

 
—

 
—

 
—

 
0.2

Currency translation adjustment
2.5

 
0.7

 
—

 
2.1

 
5.3

Goodwill
115.4

 
38.3

 
168.7

 
135.3

 
457.7

Accumulated impairment losses
(13.2
)
 
—

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at March 31, 2016
$
102.2

 
$
38.3

 
$
—

 
$
26.5

 
$
167.0


In March 2015, the Company acquired Phoenix Interactive Design, Inc. (Phoenix), a leader in developing innovative multi-vendor software solutions for automated teller machines (ATMs) and a host of other financial self-service (FSS) applications. During the first quarter of 2016, the Company adjusted the preliminary goodwill by $0.2 primarily to reflect adjustments to the finalization of deferred income taxes.

There have been no impairment indicators identified during the three months ended March 31, 2016.

The following summarizes information on intangible assets by major category:
 
March 31, 2016
 
December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Internally-developed
software
$
92.4

 
$
(46.6
)
 
$
45.8

 
$
92.4

 
$
(48.5
)
 
$
43.9

Other intangibles
37.3

 
(16.7
)
 
20.6

 
36.7

 
(16.3
)
 
20.4

Total
$
129.7

 
$
(63.3
)
 
$
66.4

 
$
129.1

 
$
(64.8
)
 
$
64.3


Amortization expense on capitalized software of $3.2 and $3.5 was included in product cost of sales for the three months ended March 31, 2016 and 2015, respectively.


16
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 11: Debt and Restricted Cash

Debt

Outstanding debt balances were as follows:
 
 
March 31, 2016
 
December 31, 2015
Notes payable
 
 
 
 
Uncommitted lines of credit
 
$
39.3

 
$
19.2

Term loan
 
12.9

 
11.5

Senior notes (5.50 percent)
 
50.0

 
—

Other
 
1.5

 
1.3

 
 
$
103.7

 
$
32.0

Long-term debt
 
 
 
 
Revolving credit facility
 
$
221.1

 
$
168.0

Term loan
 
214.2

 
218.5

Senior notes (5.50 percent)
 
—

 
225.0

Other
 
1.2

 
1.6

Long-term deferred financing fees
 
(7.6
)
 
(6.9
)
 
 
$
428.9

 
$
606.2


As of March 31, 2016, the Company had various international short-term uncommitted lines of credit with borrowing limits of $109.0. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of March 31, 2016 and December 31, 2015 was 3.78 percent and 5.66 percent, respectively. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at March 31, 2016 was $68.8.

The Company entered into a revolving and term loan credit agreement (the Credit Agreement), dated as of November 23, 2015, among the Company and certain of the Company's subsidiaries, as borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders named therein. The Credit Agreement included, among other things, mechanics for the Company’s existing revolving and term loan A facilities to be refinanced under the Credit Agreement. On December 23, 2015, the Company entered into a Replacement Facilities Effective Date Amendment among the Company, certain of the Company’s subsidiaries, the lenders identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to which the Company is refinancing its existing $520.0 revolving and $230.0 term loan A senior unsecured credit facilities (which have been terminated and repaid in full) with, respectively, a new unsecured revolving facility (the Revolving Facility) in an amount of up to $520.0 and a new (non-delayed draw) unsecured term loan A facility (the Term A Facility) on substantially the same terms as the Delayed Draw Term Facility (as defined in the Credit Agreement) in the amount of up to $230.0. The Delayed Draw Term Facility of $250.0 may be drawn up to one year after the closing date of the Acquisition. The Revolving Facility and Term A Facility will be subject to the same maximum consolidated net leverage ratio and minimum consolidated interest coverage ratio as the Delayed Draw Term Facility. On December 23, 2020, the Term A Facility will mature and the Revolving Facility will automatically terminate. The weighted-average interest rate on outstanding revolving credit facility borrowings as of March 31, 2016 and December 31, 2015 was 2.30 percent and 2.33 percent, respectively, which is variable based on the London Interbank Offered Rate (LIBOR). The amount available under the revolving credit facility as of March 31, 2016 was $298.9.

On April 19, 2016, the Company issued $400.0 aggregate principal amount of 8.50 percent senior notes due 2024 (the Notes) in an offering exempt from the registration requirements of the Securities Act of 1933 in connection with the Acquisition. The Notes are and will be guaranteed by certain of the Company’s existing and future domestic subsidiaries. The Company incurred $0.8 of fees in the three months ended March 31, 2016 related to the offering of the Notes, which are amortized as a component of interest expense over the term of the Notes. If the Acquisition has not closed by November 21, 2016, the Company will be required to redeem the Notes in whole at a redemption price equal to 100 percent of the aggregate principal amount of the Notes, plus accrued and unpaid interest on the Notes to, but excluding, the redemption date.

In addition, in April 2016, allocation and pricing of the Term Loan B facility provided under the Credit Agreement (which Term Loan B facility is intended to provide part of the financing for the Acquisition) was completed. The Company expects as a result that the Term Loan B facility will, at funding thereof, consist of a $1,000.0 U.S. dollar-denominated tranche that will bear interest at LIBOR plus an applicable margin of 4.50 percent (or, at the Company’s option, prime plus an applicable margin of 3.50 percent),

17
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


and a €350.0 euro-denominated tranche that will bear interest at the Euro Interbank Offered Rate (EURIBOR) plus an applicable margin of 4.25 percent, and to enter into an amendment to the Credit Agreement in respect of the foregoing within 31 days of the pricing of the Term Loan B facility. Each tranche is expected to be funded during the second quarter of 2016 at 99 percent of par.

Below is a summary of anticipated financing and replacement facilities information, upon closing of the Acquisition and first compliance certificate:
Anticipated Financing and Replacement Facilities
 
Interest Rate
Index and Margin
 
Maturity/Termination Dates
 
Term (Years)
Revolving Facility
 
LIBOR + 2.00%
 
December 2020
 
5
Term Loan A Facility
 
LIBOR + 2.00%
 
December 2020
 
5
Delayed Draw Term Loan A
 
LIBOR + 2.00%
 
December 2020
 
5
Term Loan B Facility ($1,000.0)
 
LIBOR(i) + 4.50%
 
November 2023
 
7.5
Term Loan B Facility (€350.0)
 
EURIBOR(ii) + 4.25%
 
November 2023
 
7.5
Senior Notes due 2024
 
8.5%
 
April 2024
 
8
(i) 
LIBOR with a floor of 0.75%.
(ii) 
EURIBOR with a floor of 0.75%.

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 aggregate principal amount of the senior notes at maturity in March 2013 using borrowings under its revolving credit facility and the repayment of $175.0 aggregate principal amount of the Company's senior notes maturing in March 2016 through the use of proceeds from the divestiture of the Company's NA electronic security business. As of March 31, 2016, the remaining $50.0 aggregate principal amount of the senior notes due 2018 were reclassified to notes payable from long-term debt as the Company sent a prepayment notice informing the holders of the senior notes of the Company's intent to prepay the senior notes in full on May 2, 2016. The notice included an estimated make-whole premium of $3.9 to be paid in addition to the principal and interest of the senior notes and is included in interest expense for the three months ended March 31, 2016.

The Company’s financing agreements contain various restrictive financial covenants, including net debt to capitalization, net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) and net interest coverage ratios. As of March 31, 2016, the Company was in compliance with the financial and other covenants in its debt agreements.

Restricted Cash

As of March 31, 2016, the Company had $116.1 in restricted cash to be used for paying off existing debt and related interest, as well as any deal costs pursuant to the terms of the Credit Agreement. The carrying value of restricted cash approximates its fair value and is included in cash flows from financing activities. Restricted cash consists of the domestic net proceeds from the NA electronic security divestiture offset by the $175.0 payment of the senior notes during the first quarter of 2016. Restricted cash is expected to be fully utilized by December 31, 2016.

Note 12: Benefit Plans

The Company has qualified pension plans covering certain U.S. employees that have been closed to new participants since 2003 and frozen in July 2013. 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 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, which was also frozen in July 2013. 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. Currently, there are no plan assets and the Company funds the benefits as the claims are paid.

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.

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 March 31:
 
 
Pension Benefits
 
Other Benefits
 
 
2016
 
2015
 
2016
 
2015
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
Service cost
 
$
0.9

 
$
0.9

 
$
—

 
$
—

Interest cost
 
6.2

 
5.9

 
0.1

 
0.1

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

 
—

Recognized net actuarial loss
 
1.4

 
1.7

 
0.1

 
0.1

Net periodic pension benefit cost
 
$
1.8

 
$
1.8

 
$
0.2

 
$
0.2


Contributions

There have been no changes to the expected 2016 plan year contribution amounts previously disclosed. For the three months ended March 31, 2016 and 2015, contributions of $1.1 and $11.1, respectively, were made to the qualified and non-qualified pension plans.

Note 13: Guarantees and Product Warranties

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 March 31, 2016, the maximum future payment obligations related to these various guarantees totaled $92.6, of which $30.0 represented standby letters of credit to insurance providers, and no associated liability was recorded. At December 31, 2015, the maximum future payment obligations relative to these various guarantees totaled $89.9, of which $30.0 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 March 31, 2016 and 2015, the Company’s warranty liability balances were $68.6 and $97.1, respectively. The decrease in the warranty liability was largely attributable to settlements and currency translation adjustment in Brazil other in our LA segment.


18
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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Changes in the Company’s warranty liability balance are illustrated in the following table:
 
 
2016
 
2015
Balance at January 1
 
$
73.6

 
$
113.3

Current period accruals
 
1.7

 
9.9

Current period settlements
 
(10.7
)
 
(12.7
)
Currency translation adjustment
 
4.0

 
(13.4
)
Balance at March 31
 
$
68.6

 
$
97.1


Note 14: Commitments and Contingencies

Contractual Obligations

At March 31, 2016, the Company had purchase commitments due within one year totaling $7.5 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 March 31, 2016, 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.

The Company has 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 the Company's interpretation of the treaty in question. The Company has submitted that ruling for consideration in its ongoing dispute with

19
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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.

At March 31, 2016 and December 31, 2015, the Company had an accrual related to the Brazil indirect tax matter disclosed above of $8.3 and $7.5, respectively. The movement between periods relates to the currency fluctuation in the Brazil real.

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 March 31, 2016 to be up to approximately $196.7 for its material indirect tax matters, of which $160.2 and $24.0, 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.

Legal Contingencies

At March 31, 2016, 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 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. The following table summarizes the gain (loss) recognized on derivative instruments for the three months ended March 31:
Derivative instrument
 
Classification on consolidated statements of operations
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Cash flow hedges
 
Interest expense
 
$
(1.0
)
 
$
(1.3
)
Gain on foreign currency option contracts
 
Miscellaneous, net
 
36.5

 
—

Foreign exchange forward contracts
 
Foreign exchange (loss) gain, net
 
(3.8
)
 
5.0

Total
 
 
 
$
31.7

 
$
3.7


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 $(4.5) and $1.0 as of March 31, 2016 and December 31, 2015, respectively. The net (loss) gain recognized in AOCI on net investment hedge derivative instruments was $(5.5) and $6.6 in the three months ended March 31, 2016 and 2015, 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 (loss) gain, net and forward-based gains/losses represent interest expense. The fair value of

20
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


the Company’s non-designated foreign exchange forward contracts was $1.9 and $0.9 as of March 31, 2016 and December 31, 2015, respectively.

Foreign Currency Option Contracts On November 23, 2015, the Company entered into foreign currency option contracts to purchase €1,416.0 for $1,547.1 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro denominated deal related costs and any outstanding Wincor Nixdorf borrowings. The cash component of the purchase price consideration approximates €1,162.2. The weighted average strike price is $1.09 per euro. These foreign currency option contracts are non-designated and are included in other current assets or other current liabilities based on the net asset or net liability position, respectively, in the condensed consolidated balance sheets. The arrangement will net settle with an additional maximum payout of $60.0 that relates to a delayed premium due at maturity of the contracts in November 2016. During the three months ended March 31, 2016, the Company recorded a $36.5 mark-to-market gain on foreign currency option contracts reflected in miscellaneous, net. The fair value of the Company's foreign currency option contracts were $43.5 and $7.0 as of March 31, 2016 and December 31, 2015, respectively, and are included in other current assets. As of April 25, 2016, the fair value of the foreign currency option contracts was $27.6.
 
 
 
 
Notional Amounts
Instrument
 
Number of Instruments
 
Call
 
Put
Foreign currency option contracts
 
2

 
€
1,416.0

 
$
1,547.1


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 March 31, 2016, the Company had one pay-fixed receive-variable interest rate swap, with a total notional amount of $25.0, 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 minimal as of March 31, 2016 and December 31, 2015.

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 were reclassified on a straight-line basis through February 2016.

The gain recognized on designated cash flow hedge derivative instruments was minimal for the three months ended March 31, 2016 and $0.3 for the three months ended March 31, 2015. Gains and losses related to interest rate contracts that are reclassified from AOCI are recorded in interest expense on the condensed consolidated statements of operations. The Company does not anticipate reclassifying any amount 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 operations:
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Cost of sales – services
 
$
0.3

 
$
—

Selling and administrative expense
 
0.1

 
2.5

Research, development and engineering expense
 
—

 
0.6

Total
 
$
0.4

 
$
3.1


The following table summarizes the Company’s restructuring charges by reportable operating segment:
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Severance
 
 
 
 
NA (1)
 
$
—

 
$
1.5

AP
 
—

 
—

EMEA
 
0.1

 
0.9

LA
 
0.3

 
0.7

Total severance
 
$
0.4

 
$
3.1

(1) NA includes corporate and global restructuring costs.

During the first quarter of 2013, the Company announced a multi-year transformation plan. Certain aspects of this plan were previously disclosed under the Company's global realignment plan and global shared services plan. This multi-year transformation focuses on globalizing the Company's service organization and creating a unified center-led global organization for research and development, as well as transforming the Company's general and administrative cost structure. Restructuring charges of $0.4 and $3.1 for the three months ended March 31, 2016 and 2015, respectively, related to the Company's multi-year transformation plan. Restructuring charges for the three months ended March 31, 2015 consisted primarily of severance costs related to the Company's business process outsourcing initiative. As of March 31, 2016, the restructuring accrual balance consists primarily of severance restructuring activities in connection with the multi-year transformation plan. As of March 31, 2016, the Company anticipates additional restructuring costs in NA, AP and LA of approximately $7.0 to $10.0 to be incurred through the end of 2016. As management finalizes certain aspects of the transformation plan, the anticipated future costs related to this plan are subject to change.

The following table summarizes the Company's cumulative total restructuring costs for the multi-year transformation plan as of March 31, 2016:
 
Severance
 
Other
 
Total
Cumulative total restructuring costs for the multi-year transformation plan
 
 
 
 
 
NA (1)
$
67.9

 
$
2.0

 
$
69.9

AP
3.8

 
0.6

 
4.4

EMEA
5.7

 
0.9

 
6.6

LA
20.3

 
—

 
20.3

Total
$
97.7

 
$
3.5

 
$
101.2

(1) NA includes corporate and global restructuring costs.

The following table summarizes the Company’s restructuring accrual balances and related activity for the three months ended March 31:
 
 
2016
 
2015
Balance at January 1
 
$
4.7

 
$
7.6

Liabilities incurred
 
0.4

 
3.1

Liabilities paid/settled
 
(1.3
)
 
(5.2
)
Balance at March 31
 
$
3.8

 
$
5.5


Impairment and Other Charges

During the first quarter of 2015, the Company recorded an impairment of certain capitalized software of $9.1 related to redundant legacy Diebold software as a result of the acquisition of Phoenix. In addition, 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 (refer to note 19).

Other charges consist of items that the Company has determined are non-routine in nature and are not expected to recur in future operations. Net non-routine expense of $14.1 and $4.6 impacted the three months ended March 31, 2016 and 2015, respectively.

21
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DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Net non-routine expense was partially due to legal, indemnification and professional fees related to corporate monitor efforts. Additionally, net non-routine expense for the three months ended March 31, 2016 included potential acquisition and divestiture related costs of $11.0 within selling and administrative expense.

Note 17: Fair Value of Assets and Liabilities

Assets and Liabilities Recorded at Fair Value

Assets and liabilities subject to fair value measurement are as follows:
 
 
March 31, 2016
 
December 31, 2015
 
 
 
 
Fair Value Measurements Using
 
 
 
Fair Value Measurements Using
 
 
Fair Value
 
Level 1
 
Level 2
 
Fair Value
 
Level 1
 
Level 2
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
$
49.7

 
$
49.7

 
$
—

 
$
39.9

 
$
39.9

 
$
—

Restricted cash
 
116.1

 
116.1

 
—

 
—

 
—

 
—

Assets held in rabbi trusts
 
8.1

 
8.1

 
—

 
9.3

 
9.3

 
—

Foreign exchange forward contracts
 
4.9

 
—

 
4.9

 
3.5

 
—

 
3.5

Foreign currency option contracts
 
43.5

 
—

 
43.5

 
7.0

 
—

 
7.0

Total
 
$
222.3

 
$
173.9

 
$
48.4

 
$
59.7

 
$
49.2

 
$
10.5

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation
 
$
8.1

 
$
8.1

 
$
—

 
$
9.3

 
$
9.3

 
$
—

Foreign exchange forward contracts
 
7.5

 
—

 
7.5

 
1.5

 
—

 
1.5

Total
 
$
15.6

 
$
8.1

 
$
7.5

 
$
10.8

 
$
9.3

 
$
1.5


The Company uses the end of period when determining the timing of transfers between levels. During the three months ended March 31, 2016, there were no transfers between levels.

The fair value and carrying value of the Company’s debt instruments are summarized as follows:
 
 
March 31, 2016
 
December 31, 2015
 
 
Fair Value
 
Carrying
Value
 
Fair Value
 
Carrying
Value
Notes payable
 
$
103.7

 
$
103.7

 
$
32.0

 
$
32.0

Long-term debt
 
428.9

 
428.9

 
613.0

 
606.2

Total debt instruments
 
$
532.6

 
$
532.6

 
$
645.0

 
$
638.2


The increase in notes payable as of March 31, 2016 compared to December 31, 2015 is primarily related to the reclassification of $50.0 of senior notes from long-term debt as the Company sent a prepayment notice informing the holders of the senior notes of the Company's intent to prepay the senior notes in full (refer to note 11). The carrying value of the long-term debt as of March 31, 2016 approximates fair value as the underlying debt instruments have market-based interest rates.

Note 18: Segment Information

The Company considers its operating structure and the information subject to regular review by its President and Chief Executive Officer, who is the Chief Operating Decision Maker (CODM), to identify reportable operating segments. The CODM makes decisions, allocates resources and assesses performance by the following regions, which are also the Company’s four reportable operating segments: NA, AP, EMEA and LA. The four geographic segments sell and service FSS and security systems around the globe, as well as elections, lottery and information technology solutions in Brazil other, through wholly-owned subsidiaries, majority-owned joint ventures and independent distributors in most major countries.

Certain information not routinely used in the management of the segments, information not allocated back to the segments or information that is impractical to report is not shown. Segment operating profit is defined as revenues less expenses identifiable to those segments. Segment operating income reconciles to consolidated income before income taxes by deducting corporate costs

22
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


and other income or expense items that are not attributed to the segments (refer to note 16). Total assets are not allocated to segments and are not included in the assessment of segment performance and therefore are excluded from the segment information disclosed as follows.

The following tables represent information regarding the Company’s segment information and provides a reconciliation between segment operating profit and the consolidated income (loss) from continuing operations before income taxes:
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Revenue summary by segment
 
 
 
 
NA
 
$
251.7

 
$
259.2

AP
 
80.5

 
110.5

EMEA
 
85.6

 
86.8

LA
 
91.8

 
118.3

Total revenue
 
$
509.6

 
$
574.8

 
 
 
 
 
Intersegment revenue
 
 
 
 
NA
 
$
17.9

 
$
21.1

AP
 
19.9

 
19.4

EMEA
 
27.7

 
11.1

LA
 
0.1

 
0.1

Total intersegment revenue
 
$
65.6

 
$
51.7

 
 
 
 
 
Segment operating profit
 
 
 
 
NA
 
$
53.4

 
$
61.1

AP
 
8.7

 
18.2

EMEA
 
10.4

 
12.4

LA
 
7.0

 
3.1

Total segment operating profit
 
$
79.5

 
$
94.8

 
 
 
 
 
Corporate charges not allocated to segments (1)
 
(70.7
)
 
(70.7
)
Asset impairment charges
 
—

 
(19.4
)
Restructuring charges
 
(0.4
)
 
(3.1
)
Net non-routine expense
 
(14.1
)
 
(4.6
)
 
 
(85.2<