Document


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, 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 November 9, 2016 was 75,140,213.




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)
 
 
September 30,
2016

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

$
748.2


$
313.6

Short-term investments

39.9


39.9

Trade receivables, less allowances for doubtful accounts of $48.0 and $31.7, respectively
 
1,029.2

 
413.9

Inventories
 
887.5

 
369.3

Deferred income taxes
 
162.9

 
168.8

Prepaid expenses
 
62.7

 
23.6

Prepaid income taxes
 
108.3

 
18.0

Current assets held for sale
 
—

 
148.2

Other current assets
 
257.2

 
148.3

Total current assets
 
3,295.9

 
1,643.6

Securities and other investments
 
83.4

 
85.2

Property, plant and equipment, net of accumulated depreciation and amortization of $462.5 and $433.7, respectively
 
410.8

 
175.3

Goodwill
 
991.0

 
161.5

Deferred income taxes
 
67.4

 
65.3

Finance lease receivables
 
30.1

 
36.5

Intangible assets, net
 
869.7

 
67.5

Other assets
 
33.0

 
7.5

Total assets
 
$
5,781.3

 
$
2,242.4

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Notes payable
 
$
336.4

 
$
32.0

Accounts payable
 
698.2

 
281.7

Deferred revenue
 
312.7

 
229.2

Payroll and other benefits liabilities
 
274.4

 
76.5

Current liabilities held for sale
 
—

 
49.4

Other current liabilities
 
560.6

 
287.0

Total current liabilities
 
2,182.3

 
955.8

Long-term debt
 
1,722.5

 
606.2

Pensions and other benefits
 
296.8

 
195.6

Post-retirement and other benefits
 
19.8

 
18.7

Deferred income taxes
 
259.8

 
1.9

Other long-term liabilities
 
153.3

 
28.7

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, 89,916,879 and 79,696,694 issued shares, 75,139,661 and 65,001,602 outstanding shares, respectively
 
112.4

 
99.6

Additional capital
 
712.2

 
430.8

Retained earnings
 
748.1

 
760.3

Treasury shares, at cost (14,777,218 and 14,695,092 shares, respectively)
 
(562.3
)
 
(560.2
)
Accumulated other comprehensive loss
 
(274.2
)
 
(318.1
)
Total Diebold, Incorporated shareholders' equity
 
736.2

 
412.4

Noncontrolling interests
 
410.6

 
23.1

Total equity
 
1,146.8

 
435.5

Total liabilities and equity
 
$
5,781.3

 
$
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
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016
 
2015
 
2016
 
2015
Net sales
 
 
 
 
 
 
 
 
Services
 
$
542.7

 
$
346.4

 
$
1,235.9

 
$
1,040.9

Products
 
440.6

 
243.2

 
837.0

 
768.0

 
 
983.3

 
589.6

 
2,072.9


1,808.9

Cost of sales
 
 
 
 
 
 
 
 
Services
 
388.7

 
235.2

 
852.6

 
699.4

Products
 
397.0

 
204.1

 
728.8

 
629.2

 
 
785.7

 
439.3

 
1,581.4

 
1,328.6

Gross profit
 
197.6

 
150.3

 
491.5

 
480.3

Selling and administrative expense
 
253.5


117.8

 
506.4

 
363.2

Research, development and engineering expense
 
31.3


20.0

 
67.4

 
66.2

Impairment of assets
 
—


—

 
—

 
18.9

(Gain) loss on sale of assets, net
 
(0.5
)
 
0.1

 
(0.2
)
 
(1.4
)
 
 
284.3

 
137.9

 
573.6

 
446.9

Operating profit (loss)
 
(86.7
)
 
12.4

 
(82.1
)

33.4

Other income (expense)
 
 
 
 
 
 
 
 
Interest income
 
5.3

 
5.9

 
16.5

 
20.6

Interest expense
 
(32.4
)
 
(8.5
)
 
(68.2
)
 
(24.1
)
Foreign exchange gain (loss), net
 
2.0

 
1.3

 
(1.6
)
 
(9.2
)
Miscellaneous, net
 
(4.2
)
 
(1.4
)
 
3.6

 
(1.7
)
Income (loss) from continuing operations before taxes
 
(116.0
)
 
9.7

 
(131.8
)
 
19.0

Income tax (benefit) expense
 
(18.8
)
 
(8.5
)
 
(34.5
)
 
(8.8
)
Income (loss) from continuing operations, net of tax
 
(97.2
)
 
18.2

 
(97.3
)
 
27.8

Income (loss) from discontinued operations, net of tax
 
(4.6
)
 
4.7

 
143.7

 
13.4

Net income (loss)
 
(101.8
)
 
22.9

 
46.4

 
41.2

Net income attributable to noncontrolling interests
 
0.5

 
1.2

 
1.6

 
0.1

Net income (loss) attributable to Diebold, Incorporated
 
$
(102.3
)
 
$
21.7

 
$
44.8

 
$
41.1

 
 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
70.9

 
65.0

 
67.0

 
64.9

Diluted weighted-average shares outstanding
 
70.9

 
65.6

 
67.6

 
65.5

 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
(1.38
)
 
$
0.26

 
$
(1.48
)
 
$
0.43

Income (loss) from discontinued operations, net of tax
 
(0.06
)
 
0.07

 
2.15

 
0.20

Net income (loss) attributable to Diebold, Incorporated
 
$
(1.44
)
 
$
0.33

 
$
0.67

 
$
0.63

 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
(1.38
)
 
$
0.26

 
$
(1.46
)
 
$
0.43

Income (loss) from discontinued operations, net of tax
 
(0.06
)
 
0.07

 
2.12

 
0.20

Net income (loss) attributable to Diebold, Incorporated
 
$
(1.44
)
 
$
0.33

 
$
0.66

 
$
0.63

 
 
 
 
 
 
 
 
 
Amounts attributable to Diebold, Incorporated
 
 
 
 
 
 
 
 
Income (loss) before discontinued operations, net of tax
 
$
(97.7
)
 
$
17.0

 
$
(98.9
)
 
$
27.7

Income (loss) from discontinued operations, net of tax
 
(4.6
)
 
4.7

 
143.7

 
13.4

Net income (loss) attributable to Diebold, Incorporated
 
$
(102.3
)
 
$
21.7

 
$
44.8

 
$
41.1

 
 
 
 
 
 
 
 
 
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 Income (Loss)
(unaudited)
(in millions)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income (loss)
 
$
(101.8
)
 
$
22.9

 
$
46.4

 
$
41.2

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
Translation adjustment
 
(4.2
)
 
(75.3
)
 
49.6

 
(137.4
)
Foreign currency hedges (net of tax $0.2, $(2.2), $4.2 and $(4.0), respectively)
 
(0.4
)
 
4.0

 
(7.9
)
 
7.3

Interest rate hedges
 


 


 


 


Net gain recognized in other comprehensive income (net of tax $(0.1) and $(0.3) for the three and nine months ended September 30, 2015, respectively)
 
—

 
0.2

 
—

 
0.5

Reclassification adjustment for amounts recognized in net income
 
—

 
(0.1
)
 
(0.1
)
 
(0.2
)
 
 
—

 
0.1

 
(0.1
)
 
0.3

Pension and other post-retirement benefits
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax $(0.3), $(0.6), $(1.3) and $(1.9), respectively)
 
(0.1
)
 
1.1

 
1.8

 
3.4

Net prior service benefit amortization, net of tax
 
—

 
—

 
—

 
(0.1
)
 
 
(0.1
)
 
1.1

 
1.8

 
3.3

Other comprehensive income (loss), net of tax
 
(4.7
)
 
(70.1
)
 
43.4

 
(126.5
)
Comprehensive income (loss)
 
(106.5
)
 
(47.2
)
 
89.8

 
(85.3
)
Less: comprehensive income (loss) attributable to noncontrolling interests
 
0.5

 
0.5

 
1.1

 
(0.3
)
Comprehensive income (loss) attributable to Diebold, Incorporated
 
$
(107.0
)
 
$
(47.7
)
 
$
88.7

 
$
(85.0
)
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,
 
 
2016
 
2015
Cash flow from operating activities
 
 
 
 
Net income (loss)
 
$
46.4

 
$
41.2

Income (loss) from discontinued operations, net of tax
 
143.7

 
13.4

Income (loss) from continuing operations, net of tax
 
(97.3
)
 
27.8

Adjustments to reconcile net income (loss) to cash flow used by operating activities:
 
 
 
 
Depreciation and amortization
 
74.3

 
48.3

Share-based compensation
 
14.2

 
10.9

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

 
7.5

(Gain) loss on sale of assets, net
 
(0.2
)
 
(1.4
)
Impairment of assets
 
—

 
18.9

Gain on foreign currency option and forward contracts, net
 
(9.3
)
 
—

Changes in certain assets and liabilities, net of the effects of acquisition
 
 
 
 
Trade receivables
 
(85.3
)
 
(128.6
)
Inventories
 
(18.9
)
 
(57.6
)
Prepaid expenses
 
0.7

 
(3.0
)
Prepaid income taxes
 
(90.3
)
 
(30.5
)
Other current assets
 
51.5

 
(17.3
)
Accounts payable
 
14.2

 
24.4

Deferred revenue
 
(42.9
)
 
(35.9
)
Deferred income taxes
 
(58.5
)
 
9.0

Certain other assets and liabilities
 
61.4

 
5.2

Net cash used by operating activities - continuing operations
 
(186.7
)
 
(122.6
)
Net cash (used) provided by operating activities - discontinued operations
 
(8.2
)
 
2.5

Net cash used by operating activities
 
(194.9
)
 
(120.1
)
Cash flow from investing activities
 
 
 
 
Payments for acquisition, net of cash acquired
 
(890.6
)
 
(59.4
)
Proceeds from maturities of investments
 
164.1

 
101.0

Proceeds from sale of foreign currency option and forward contracts, net
 
16.2

 
—

Payments for purchases of investments
 
(155.6
)
 
(107.1
)
Proceeds from sale of assets
 
28.7

 
5.6

Capital expenditures
 
(23.9
)
 
(40.6
)
Increase in certain other assets
 
(17.9
)
 
(2.9
)
Net cash used by investing activities - continuing operations
 
(879.0
)
 
(103.4
)
Net cash provided (used) by investing activities - discontinued operations
 
361.9

 
(2.4
)
Net cash used by investing activities
 
(517.1
)
 
(105.8
)
Cash flow from financing activities
 
 
 
 
Dividends paid
 
(57.0
)
 
(56.5
)
Debt issuance costs
 
(39.2
)
 
(0.7
)
Revolving credit facility borrowings (repayments), net
 
(168.0
)
 
(36.4
)
Other debt borrowings
 
1,825.7

 
317.7

Other debt repayments
 
(419.2
)
 
(91.2
)
Distributions to noncontrolling interest holders
 
(2.1
)
 
(0.2
)
Excess tax benefits from share-based compensation
 
0.3

 
0.3

Issuance of common shares
 
0.3

 
3.4

Repurchase of common shares
 
(2.1
)
 
(3.0
)
Net cash provided by financing activities
 
1,138.7

 
133.4

Effect of exchange rate changes on cash and cash equivalents
 
9.4

 
(31.0
)
Increase (decrease) in cash and cash equivalents
 
436.1

 
(123.5
)
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
 
—

 
(3.9
)
Cash and cash equivalents at the beginning of the period
 
313.6

 
326.1

Cash and cash equivalents at the end of the period
 
$
748.2

 
$
202.4

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 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 and nine months ended September 30, 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 disclosed in the notes included elsewhere in this quarterly report on Form 10-Q.

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 $64.5 of debt issuance costs included in long-term debt as of September 30, 2016 and a reclassification of $6.9 from other assets to long-term debt as of December 31, 2015.

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 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 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08). The FASB issued the amendment to clarify the implementation guidance on principal versus agent considerations. The effective date and transition requirements for the

7
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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 April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). The FASB issued the amendment to clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. 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 2016-10 will have on its financial statements and related disclosures.

In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (ASU 2016-11). The FASB issued the amendment to rescind the following aspects of Topic 606. Specifically, registrants should not rely on the following SEC Staff Observer comments upon adoption of Topic 606: Revenue and Expense Recognition for Freight Services in Process, which is codified in paragraph 605-20-S99-2; Accounting for Shipping and Handling Fees and Costs, which is codified in paragraph 605-45-S99-1; Accounting for Consideration Given by a Vendor to a Customer (including Reseller of the Vendor’s Products), which is codified in paragraph 605-50-S99-1; Accounting for Gas-Balancing Arrangements (that is, use of the “entitlements method”), which is codified in paragraph 932-10-S99-5. 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 2016-11 will have on its financial statements and related disclosures.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing: Narrow-Scope Improvements and Practical Expedients (ASU 2016-12). The FASB issued the amendment to improve Topic 606 by reducing the potential for diversity in practice at initial application and reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. 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 2016-12 will have on its financial statements and related disclosures.

8
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 2: Acquisitions

Wincor Nixdorf

Wincor Nixdorf Aktiengesellschaft (Wincor Nixdorf) is one of the world's leading providers of IT solutions and services to retail banks and the retail industry. The acquisition of Wincor Nixdorf (the Acquisition) is consistent with the Company's transformation into a world-class, services-led and software-enabled company, supported by innovative hardware. Wincor Nixdorf complements and extends our existing capabilities. The Company considered a number of factors in connection with its evaluation of the proposed transaction, including significant strategic opportunities and potential synergies, as generally supporting its decision to enter into the business combination agreement with Wincor Nixdorf. The Acquisition expands the Company's presence substantially, especially in Europe, Middle East, and Africa (EMEA). The Wincor Nixdorf business enhances the Company's existing portfolio. Wincor Nixdorf has a fiscal year end of September 30. For the fiscal year ended September 30, 2015, Wincor Nixdorf recorded net sales of €2,427.0 as reported using International Financial Reporting Standards (IFRS) as issued by the European Union (EU).

In the fourth quarter of 2015, the Company announced its intention to acquire all 29.8 Wincor Nixdorf ordinary shares outstanding (33.1 total Wincor Nixdorf ordinary shares issued inclusive of 3.3 treasury shares) through a voluntary tender offer for €38.98 in cash and 0.434 common shares of the Company per Wincor Nixdorf ordinary share outstanding.

On August 15, 2016, the Company consummated the Acquisition by acquiring, through Diebold Holding Germany Inc. & Co. KGaA (Diebold KGaA), a German partnership limited by shares and a wholly owned subsidiary of the Company, 22.9 Wincor Nixdorf ordinary shares representing 69.2 percent of total number of Wincor Nixdorf ordinary shares inclusive of treasury shares (76.7 percent of all Wincor Nixdorf ordinary shares outstanding) in exchange for an aggregate preliminary purchase price consideration of $1,265.7, which included the issuance of 9.9 common shares of the Company.

On August 15, 2016, the Company consummated the Acquisition. The Company financed the cash portion of the Acquisition as well as the Wincor Nixdorf debt outstanding with funds available under the Company’s Credit Agreement (as defined in note 12) and proceeds from the issuance and sale of the $400.0 aggregate principal amount of 8.50 percent senior notes due 2024 (the 2024 Senior Notes).

The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of assets acquired and liabilities assumed which were determined with the assistance of independent valuations using discounted cash flow and comparative market multiple approaches, quoted market prices and estimates made by management. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets and liabilities acquired are fully evaluated by the Company, including but not limited to, the fair value accounting, legal and tax matters, obligations, deferred taxes and the allocation of goodwill.
 
The aggregate preliminary consideration, excluding $104.7 of cash acquired, for the Acquisition was $1,265.7, which consisted of the following:
Cash paid
 
$
995.3

Less: cash acquired
 
(104.7
)
Payments for acquisition, net of cash acquired
 
890.6

Common shares issued to Wincor Nixdorf shareholders
 
279.7

Other consideration
 
(9.3
)
Total preliminary consideration, net of cash acquired
 
$
1,161.0


Other consideration of $(9.3) represents the preexisting net trade balances the Company owed to Wincor Nixdorf, which were deemed settled as of the acquisition date.

9
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following table presents the preliminary estimated fair value of the assets acquired and liabilities assumed from the Acquisition as of the date of acquisition based on the allocation of the total preliminary consideration, net of cash acquired:
 
 
August 15, 2016
Trade receivables
 
$
474.1

Inventories
 
487.2

Deferred income taxes
 
46.5

Prepaid expenses
 
39.3

Current assets held for sale
 
100.5

Other current assets
 
79.7

Property, plant and equipment
 
236.9

Intangible assets
 
803.6

Other assets
 
27.0

Total assets acquired
 
2,294.8

 
 
 

Notes payable
 
159.8

Accounts payable
 
321.5

Deferred revenue
 
164.8

Payroll and other benefits liabilities
 
191.0

Current liabilities held for sale
 
62.5

Other current liabilities
 
183.4

Pensions and other benefits
 
87.6

Other noncurrent liabilities
 
393.5

Total liabilities assumed
 
1,564.1

 
 
 
Fair value of noncontrolling interest
 
(386.7
)
Total identifiable net assets acquired, including noncontrolling interest
 
344.0

Goodwill
 
$
817.0



The Company preliminarily recorded acquired intangible assets in the following table as of the acquisition date:
 
 
Weighted-average useful lives
 
August 15, 2016
Trade name
 
3.0 years
 
$
37.9

Technologies
 
4.0 years
 
107.2

Customer relationships
 
9.5 years
 
658.5

Intangible assets
 
 
 
$
803.6


Noncontrolling interest reflects a fair value adjustment of $386.7 related to the minority shareholders. Subsequent to the closing of the Acquisition, the board of directors of the Company and the supervisory and management boards of Wincor Nixdorf approved the proposed Domination and Profit and Loss Transfer Agreement (DPLTA). The Company and Wincor Nixdorf executed the agreement at an extraordinary meeting of shareholders of Wincor Nixdorf on September 26, 2016. Upon effectiveness and registration of the DPLTA, Wincor Nixdorf minority shareholders will be offered to elect either (1) to continue to hold their Wincor Nixdorf ordinary shares and receive an adequate fixed or variable annual guaranteed dividend or annual share of profit in the amount of the guaranteed dividend or (2) receive adequate cash compensation for the tender of the share. The ultimate timing of any future cash payments related to the DPLTA are uncertain. Noncontrolling interests with certain redemption features, such as put rights that are not within the control of the issuer and are considered redeemable noncontrolling interests. As of September 30, 2016, the DPLTA was and will not be effective until registration with the commercial register of the local court of Paderborn. As a result the carrying value of the noncontrolling interest has been presented as a component of total equity. As of and for the period of time that the DPLTA is effective, the carrying value of the noncontrolling interest will be reclassified from total equity to redeemable noncontrolling interest and presented outside of equity in the consolidated balance sheets of the Company.

10
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)



Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed from the Acquisition, and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. This goodwill is primarily the result of anticipated synergies achieved through increased scale, a streamlined portfolio of products and solutions, higher utilization of the service organization, workforce rationalization in overlapping regions and shared back office resources. The Company has yet to allocate goodwill to its Domestic and Canada, EMEA, Asia Pacific (AP) and Latin America (LA) reporting units. The goodwill associated with the Acquisition is not deductible for income tax purposes.


Net sales, income (loss) from continuing operations before taxes and net income (loss) attributable to Diebold, Incorporated from the Acquisition included in the Company’s results since August 15, 2016, the date of the Acquisition, are as follows:
 
August 15, 2016 to
September 30, 2016
Net sales
$
405.3

Income (loss) from continuing operations before taxes
$
(57.9
)
Net income (loss) attributable to Diebold, Incorporated
$
(41.6
)

The Acquisition's income (loss) from continuing operations before taxes subsequent to the acquisition date includes purchase accounting pretax charges related to deferred revenue of $4.9, inventory valuation adjustment of $31.7 and amortization of acquired intangibles of $17.9, offset by a reduction of $0.8 depreciation expense related to the change in useful lives.

The Company incurred deal-related costs in connection with the Acquisition, of $28.1 and $53.3, which are included in selling, general and administrative expenses in the Company's consolidated statements of operations for the three and nine months ended September 30, 2016, respectively.

The DPLTA registration is expected to occur following fast-track clearance or final dismissal of pending shareholder litigation in Germany aimed at preventing the effectiveness of the DPLTA. The Company is currently aware of certain Wincor Nixdorf minority shareholders who have filed contestation actions against the DPLTA resolutions adopted at Wincor Nixdorf’s extraordinary meeting of shareholders on September 26, 2016. Wincor Nixdorf initiated fast-track proceedings to obtain court approval to register the DPLTA despite such pending shareholder litigation. While the conclusion of fast-track proceedings typically takes between three to five months following the initial filing, no assurance can be given as to the duration and outcome of such proceedings.

Under the DPLTA, when effective and subject to certain limitations pursuant to applicable law, (i) Diebold KGaA will be entitled to issue binding instructions to the management board of Wincor Nixdorf, (ii) Wincor Nixdorf will transfer all of its annual profits to Diebold KGaA, subject to, among other things, the creation or dissolution of certain reserves, and (iii) Diebold KGaA will generally absorb all annual losses incurred by Wincor Nixdorf. In addition, when effective and subject to certain limitations pursuant to applicable law, the DPLTA will provide that Wincor Nixdorf minority shareholders be offered, at their election, (i) to put their Wincor Nixdorf ordinary shares to Diebold KGaA in exchange for a compensation in cash of €55.02 per Wincor Nixdorf ordinary share, or (ii) to remain Wincor Nixdorf minority shareholders and receive a recurring compensation in cash of €3.13 (€2.82 net under the current taxation regime) for each full fiscal year of Wincor Nixdorf and for each Wincor Nixdorf ordinary share.

In connection with the DPLTA and pursuant to the German stock corporation act, Diebold KGaA and Wincor Nixdorf published a joint contract report, dated August 16, 2016, of the management board of Wincor Nixdorf and the management of Diebold KGaA that includes a description of the transactions contemplated by the DPLTA and other information (the Contract Report), attaching the form of the proposed DPLTA and a valuation report of PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft, dated August 16, 2016, regarding the enterprise value of Wincor Nixdorf as of September 26, 2016, and other information. In connection with the proposed DPLTA, Diebold KGaA and Wincor Nixdorf also obtained an audit report by an independent court-appointed auditor, ADKL AG, dated August 16, 2016 (the Audit Report). Diebold KGaA’s obligations under the DPLTA will be fully guaranteed by the Company.


11
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)



 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net sales - pro forma
$
1,291.0

 
$
1,315.0

 
$
3,738.1

 
$
3,765.7

Net income (loss) attributable to Diebold, Incorporated - pro forma
$
(51.2
)
 
$
(98.9
)
 
$
97.1

 
$
(250.8
)
Net income (loss) attributable to Diebold, Incorporated per share - basic - pro forma
$
(0.68
)
 
$
(1.32
)
 
$
1.29

 
$
(3.35
)
Net income (loss) attributable to Diebold, Incorporated per share - diluted - pro forma
$
(0.68
)
 
$
(1.31
)
 
$
1.28

 
$
(3.33
)
Basic weighted-average shares outstanding - pro forma
75.1

 
74.9

 
75.1

 
74.8

Diluted weighted-average shares outstanding - pro forma
75.7

 
75.5

 
75.7

 
75.4



The unaudited pro forma information has been adjusted with respect to certain aspects of the Acquisition to reflect the following:

•
Additional depreciation and amortization expenses that would have been recognized assuming preliminary fair value adjustments to the existing Wincor Nixdorf assets acquired and liabilities assumed, including intangible assets, fixed assets and expense associated with the valuation of inventory acquired.
•
Increased interest expense due to additional borrowings to fund the Acquisition.


The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of the acquired business. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the Acquisition been completed as of January 1, 2015, nor are they indicative of the future operating results of the Company.

Phoenix Interactive Design, Inc.

In the first quarter of 2015, the Company acquired 100 percent of the equity interests of Phoenix Interactive Design, Inc. (Phoenix) for a total purchase price of $72.9, including $12.6 of deferred cash payment payable over the next three years. Acquiring Phoenix, a leading developer of innovative multi-vendor software solutions for automated teller machines (ATMs) and a host of other financial self-service (FSS) applications, was 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 NA reportable operating segment within the Company's condensed consolidated financial statements from the date of its acquisition.

Note 3: 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 nine months ended September 30, 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.


12
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 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
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016
 
2015
 
2016
 
2015
Numerator
 
 
 
 
 
 
 
 
Income (loss) used in basic and diluted earnings (loss) per share
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
(97.2
)
 
$
18.2

 
$
(97.3
)
 
$
27.8

Net income attributable to noncontrolling interests
 
0.5

 
1.2

 
1.6

 
0.1

Income (loss) before discontinued operations, net of tax
 
(97.7
)
 
17.0

 
(98.9
)
 
27.7

Income (loss) from discontinued operations, net of tax
 
(4.6
)
 
4.7

 
143.7

 
13.4

Net income (loss) attributable to Diebold, Incorporated
 
$
(102.3
)
 
$
21.7

 
$
44.8

 
$
41.1

Denominator
 
 
 
 
 
 
 
 
Weighted-average number of common shares used in basic earnings (loss) per share
 
70.9

 
65.0

 
67.0

 
64.9

Effect of dilutive shares (1)
 
—

 
0.6

 
0.6

 
0.6

Weighted-average number of shares used in diluted earnings (loss) per share
 
70.9

 
65.6

 
67.6

 
65.5

Basic earnings (loss) per share
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
(1.38
)
 
$
0.26

 
$
(1.48
)
 
$
0.43

Income (loss) from discontinued operations, net of tax
 
(0.06
)
 
0.07

 
2.15

 
0.20

Net income (loss) attributable to Diebold, Incorporated
 
$
(1.44
)
 
$
0.33

 
$
0.67

 
$
0.63

Diluted earnings (loss) per share
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
(1.38
)
 
$
0.26

 
$
(1.46
)
 
$
0.43

Income (loss) from discontinued operations, net of tax
 
(0.06
)
 
0.07

 
2.12

 
0.20

Net income (loss) attributable to Diebold, Incorporated
 
$
(1.44
)
 
$
0.33

 
$
0.66

 
$
0.63

 
 
 
 
 
 
 
 
 
Anti-dilutive shares
 
 
 
 
 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares
 
2.1

 
1.5

 
2.2

 
1.5

(1)
Incremental shares of 0.6 shares were excluded from the computation of diluted earnings (loss) per share for the three months ended September 30, 2016, because their effect is anti-dilutive due to the net loss attributable to Diebold, Incorporated.


13
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 4: 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,
 
 
2016
 
2015
 
2016
 
2015
Diebold, Incorporated shareholders' equity
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
578.3

 
$
465.6

 
$
412.4

 
$
531.6

Comprehensive income (loss) attributable to Diebold, Incorporated
 
(107.0
)
 
(47.7
)
 
88.7

 
(85.0
)
Common shares
 
12.4

 
—

 
12.8

 
0.6

Additional capital
 
271.6

 
2.4

 
281.4

 
13.7

Treasury shares
 
(0.1
)
 
(0.2
)
 
(2.1
)
 
(3.0
)
Dividends paid
 
(19.0
)
 
(18.7
)
 
(57.0
)
 
(56.5
)
Balance at end of period
 
$
736.2

 
$
401.4

 
$
736.2

 
$
401.4

 
 
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
23.7

 
$
24.6

 
$
23.1

 
$
23.3

Comprehensive income attributable to noncontrolling interests, net (1)
 
386.9

 
0.7

 
387.5

 
2.0

Distributions to noncontrolling interest holders
 
—

 
(0.2
)
 
—

 
(0.2
)
Balance at end of period
 
$
410.6

 
$
25.1

 
$
410.6

 
$
25.1

(1)
The increase in comprehensive income attributable to noncontrolling interests, net for the three and nine months ended September 30, 2016 is primarily attributable to the fair value of the noncontrolling interest from the Acquisition. Comprehensive income (loss) attributable to noncontrolling interests of $(0.1) for the nine months ended September 30, 2015, and is net of $2.1 Venezuela noncontrolling interest adjustment for the nine months ended September 30, 2015, to reduce the carrying value to the estimated fair market value.

Note 5: Accumulated Other Comprehensive Loss

The following table summarizes the changes in the Company’s accumulated other comprehensive income (loss) (AOCI), net of tax, by component for the three months ended September 30, 2016:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive Income (Loss)
Balance at June 30, 2016
 
$
(161.2
)
 
$
(2.5
)
 
$
(0.2
)
 
$
(105.9
)
 
$
0.4

 
$
(269.4
)
Other comprehensive income (loss) before reclassifications (1)
 
(4.3
)
 
(0.4
)
 
—

 
—

 
—

 
(4.7
)
Amounts reclassified from AOCI
 
—

 
—

 
—

 
(0.1
)
 
—

 
(0.1
)
Net current-period other comprehensive income (loss)
 
(4.3
)
 
(0.4
)
 
—

 
(0.1
)
 
—

 
(4.8
)
Balance at September 30, 2016
 
$
(165.5
)
 
$
(2.9
)
 
$
(0.2
)
 
$
(106.0
)
 
$
0.4

 
$
(274.2
)
(1)
Other comprehensive income (loss) before reclassifications within the translation component excludes $0.1 of translation attributable to noncontrolling interests.


14
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 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 September 30, 2015:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive Income (Loss)
Balance at June 30, 2015
 
$
(137.3
)
 
$
1.9

 
$
(0.3
)
 
$
(111.8
)
 
$
0.3

 
$
(247.2
)
Other comprehensive income (loss) 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 income (loss)
 
(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 income (loss) before reclassifications within the translation component excludes $(0.6) 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, 2016:

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

 
$
(0.1
)
 
$
(107.8
)
 
$
0.4

 
$
(318.1
)
Other comprehensive income (loss) before reclassifications (1)
 
50.1

 
(7.9
)
 
—

 
—

 
—

 
42.2

Amounts reclassified from AOCI
 
—

 
—

 
(0.1
)
 
1.8

 
—

 
1.7

Net current-period other comprehensive income (loss)
 
50.1

 
(7.9
)
 
(0.1
)
 
1.8

 
—

 
43.9

Balance at September 30, 2016
 
$
(165.5
)
 
$
(2.9
)
 
$
(0.2
)
 
$
(106.0
)
 
$
0.4

 
$
(274.2
)
(1)
Other comprehensive income (loss) before reclassifications within the translation component excludes $(0.5) 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 Income (Loss)
Balance at January 1, 2015
 
$
(74.9
)
 
$
(1.4
)
 
$
(0.5
)
 
$
(114.0
)
 
$
0.3

 
$
(190.5
)
Other comprehensive income (loss) 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 income (loss)
 
(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 income (loss) before reclassifications within the translation component excludes $(0.3) of translation attributable to noncontrolling interests.


15
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following table summarizes the details about amounts reclassified from AOCI:
 
 
Three Months Ended
 
Nine Months Ended
 
Affected Line Item in the Statement of Operations
 
 
2016
 
2015
 
2016
 
2015
 
Interest rate hedges
 
$
—

 
$
(0.1
)
 
$
(0.1
)
 
$
(0.2
)
 
Interest expense
Pension and post-retirement benefits:
 
 
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax $(0.3), $(0.6), $(1.3) and $(1.9), respectively)
 
(0.1
)
 
1.1

 
1.8

 
3.4

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

 
—

 
—

 
(0.1
)
 
(1)
 
 
(0.1
)
 
1.1

 
1.8

 
3.3

 
 
Total reclassifications for the period
 
$
(0.1
)
 
$
1.0

 
$
1.7

 
$
3.1

 
 
(1)
Pension and other post-retirement benefits AOCI components are included in the computation of net periodic benefit cost (refer to note 13).
 
Note 6: 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 $4.1 and $1.8 for the three months ended September 30, 2016 and 2015, respectively, and was $14.2 and $10.9 for the nine months ended September 30, 2016 and 2015, respectively.

Options outstanding and exercisable as of September 30, 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 nine months ended September 30, 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
 
(0.5
)
 
$
35.60

 
 
 
 
Granted
 
0.5

 
$
27.39

 
 
 
 
Outstanding at September 30, 2016
 
1.7

 
$
31.99

 
7
 
$
—

Options exercisable at September 30, 2016
 
0.9

 
$
33.99

 
6
 
$
—

Options vested and expected to vest at September 30, 2016 (2)
 
1.6

 
$
32.07

 
7
 
$
—

(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 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 September 30, 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.


16
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(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, 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
)
 
$
31.74

Vested
 
(0.2
)
 
$
31.67

Granted
 
0.5

 
$
27.05

Non-vested at September 30, 2016
 
1.1

 
$
29.92

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

 
$
34.06

Forfeited
 
(0.1
)
 
$
31.56

Vested
 
(0.2
)
 
$
29.36

Granted
 
0.6

 
$
27.27

Non-vested at September 30, 2016
 
1.1

 
$
31.59


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 September 30, 2016, there were 0.1 non-employee director deferred shares vested and outstanding.

Note 7: Income Taxes

The effective tax rate on loss from the continuing operations was 16.2 percent for the three months ended September 30, 2016 and 26.2 percent for the nine months ended September 30, 2016. The tax rate benefit on the loss for the three and nine months ended September 30, 2016 was negatively impacted due to the recognition of unfavorable discrete items and expenses relating to the Acquisition. The tax rate benefit on the loss for the nine months ended September 30, 2016 was also impacted by the favorable release of an uncertain tax position due to the expiration of the statute of limitations. The rates for both periods were also negatively impacted by an increase in the deferred tax liability associated with the Company's undistributed foreign subsidiary earnings. The non-taxable foreign currency hedges related to the Acquisition generated a loss for the three months ended September 30, 2016 and a net gain for nine months ended September 30, 2016, resulting in a decrease in the rate for the three months ended September 30, 2016 and an increase in the tax benefit rate for the nine months ended September 30, 2016.

The effective tax rate on income from continuing operations was (87.6) percent for the three months ended September 30, 2015 and (46.3) percent on the income for the nine months ended September 30, 2015. The tax rate benefit on income for the three months 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 discrete tax items related to the Venezuela divestiture and the release of a valuation allowance.

Note 8: 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, 2016 and 2015.


17
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The Company’s investments, excluding cash surrender value of insurance contracts of $75.1 and $75.9 as of September 30, 2016 and December 31, 2015, respectively, consisted of the following:
 
 
Cost Basis
 
Unrealized Gain
 
Fair Value
As of September 30, 2016
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
39.9

 
$
—

 
$
39.9

Long-term investments
 
 
 
 
 
 
Assets held in a rabbi trust
 
$
7.6

 
$
0.7

 
$
8.3

 
 
 
 
 
 
 
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 9: Allowance for Credit Losses

The following table summarizes the Company’s allowance for credit losses for the nine months ended September 30, 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
 
(0.1
)
 
—

 
(0.1
)
Write-offs
 
(0.1
)
 
—

 
(0.1
)
Balance at September 30, 2016
 
$
0.3

 
$
4.1

 
$
4.4

 
 
 
 
 
 
 
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


There were no significant changes in provision for credit losses, recoveries and write-offs during the nine months ended September 30, 2016 and 2015. In the nine months ended September 30, 2016 and 2015, the Company sold finance lease receivables of $7.4 and $5.4, respectively. As of September 30, 2016, finance leases and notes receivable individually evaluated for impairment were $78.7 and $20.7, respectively, of which $24.3 and $12.2, respectively, relates to the Acquisition, were assessed with no provision recorded. 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, 2016 and December 31, 2015, the Company’s finance lease receivables in LA were $43.4 and $58.8, respectively. The decrease is related primarily to recurring customer payments for financing arrangements.

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, 2016 and December 31, 2015, the recorded investment in past due financing receivables on nonaccrual status was $0.5 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 September 30, 2016 and December 31, 2015 and was fully reserved.


18
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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

 
$
0.1

60-89 days past due
 
—

 
—

> 89 days past due (1)
 
3.9

 
3.0

Total past due
 
$
3.9

 
$
3.1

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

Note 10: Inventories

Major classes of inventories are summarized as follows:
 
 
September 30, 2016
 
December 31, 2015
Finished goods
 
$
447.2

 
$
145.8

Service parts
 
246.0

 
155.7

Raw materials and work in process
 
194.3

 
67.8

Total inventories
 
$
887.5

 
$
369.3


Certain inventory items of $19.7 were reclassified as of December 31, 2015 from service parts to raw materials and work in process to conform with the current presentation. The increase in inventory from December 31, 2015 is primarily related to the Acquisition.

Note 11: Goodwill and Other Assets

The Company’s four reportable operating segments are NA, AP, EMEA, LA and unallocated amounts related to the Acquisition. The changes in carrying amounts of goodwill within the Company's segments are summarized as follows:
 
NA
 
AP
 
EMEA
 
LA
 
Unallocated
 
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 acquired
—

 
—

 
—

 
—

 
817.0

 
817.0

Goodwill adjustment
(0.5
)
 
—

 
—

 
—

 
—

 
(0.5
)
Currency translation adjustment
2.7

 
0.7

 
—

 
4.2

 
5.4

 
13.0

Goodwill
114.9

 
38.3

 
168.7

 
137.4

 
822.4

 
1,281.7

Accumulated impairment losses
(13.2
)
 
—

 
(168.7
)
 
(108.8
)
 
—

 
(290.7
)
Balance at September 30, 2016
$
101.7

 
$
38.3

 
$
—

 
$
28.6

 
$
822.4

 
$
991.0


In March 2015, the Company acquired Phoenix, a leader in developing innovative multi-vendor software solutions for ATMs and a host of other FSS applications. During the second quarter of 2016, the Company adjusted the preliminary goodwill by $(0.5) primarily to reflect adjustments to the finalization of deferred income taxes.

In August 2016, the Company acquired Wincor Nixdorf. The unallocated portion of acquired goodwill as of September 30, 2016 of $817.0 is attributable to Wincor Nixdorf. In connection with the business combination agreement related to the Acquisition, the Company announced the realignment of its lines of business to drive greater efficiency and further improve customer service. The Company began evaluating and assessing the line of business reporting structure and its impact on the allocation of the Wincor

19
Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2016
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Nixdorf acquired goodwill among the reporting units. The Company does not anticipate the assessment to be completed until the first quarter of 2017. Beginning with the first quarter of 2017, the Company anticipates allocating goodwill to its reporting units based on the conclusion of the assessment on the following lines of business: Software, Systems, and Services.

The acquired Wincor Nixdorf goodwill is primarily the result of anticipated synergies achieved through increased scale, a streamlined portfolio of products and solutions, higher utilization of the service organization, workforce rationalization in overlapping regions and shared back office resources. The Company also expects that, after completion of the business combination and integration, we will generate strong free cash flow, which would be used to make investments in innovative software and solutions and reduce debt.

There have been no impairment indicators identified during the nine months ended September 30, 2016.

The following summarizes information on intangible assets by major category:
 
September 30, 2016
 
December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Internally-developed
software
$
159.4

 
$
(47.7
)
 
$
111.7

 
$
92.4

 
$
(48.5
)
 
$
43.9

Development costs non-software
51.7

 
(4.0
)
 
47.7

 
1.1

 
(0.6
)
 
0.5

Customer relationships
662.8

 
(9.1
)
 
653.7

 
—

 
—

 
—

Other intangibles
101.6

 
(45.0
)
 
56.6

 
60.7