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, 2017
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 Nixdorf, 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, smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth 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
Emerging growth company
o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Number of shares of common stock outstanding as of October 26, 2017 was 75,534,183.



DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Form 10-Q

Index
 

Table of Contents

Part I – Financial Information
Item 1: Financial Statements
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in millions, except share and per share amounts)
 
 
September 30,
2017

December 31,
2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents

$
380.7


$
652.7

Short-term investments

64.0


64.1

Trade receivables, less allowances for doubtful accounts of $70.6 and $50.4, respectively
 
911.9

 
835.9

Inventories
 
807.8

 
737.7

Prepaid expenses
 
64.5

 
60.7

Income taxes
 
132.0

 
85.2

Other current assets
 
215.4

 
183.3

Total current assets
 
2,576.3

 
2,619.6

Securities and other investments
 
92.5

 
94.7

Property, plant and equipment, net of accumulated depreciation and amortization of $428.1 and $477.0, respectively
 
367.7

 
387.0

Goodwill
 
1,105.9

 
998.3

Deferred income taxes
 
338.0

 
309.5

Finance lease receivables
 
16.4

 
25.2

Customer relationships, net
 
641.6

 
596.3

Other intangible assets, net
 
151.9

 
176.6

Other assets
 
71.1

 
63.1

Total assets
 
$
5,361.4

 
$
5,270.3

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Notes payable
 
$
71.9

 
$
106.9

Accounts payable
 
579.1

 
560.5

Deferred revenue
 
369.4

 
404.2

Payroll and other benefits liabilities
 
201.3

 
172.5

Other current liabilities
 
536.6

 
580.4

Total current liabilities
 
1,758.3

 
1,824.5

Long-term debt
 
1,834.5

 
1,691.4

Pensions, post-retirement and other benefits
 
281.5

 
297.2

Deferred income taxes
 
282.6

 
300.6

Other liabilities
 
107.1

 
87.7

Commitments and contingencies
 


 


Redeemable noncontrolling interests
 
485.7

 
44.1

Equity
 
 
 
 
Diebold Nixdorf, 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, 90,481,613 and 89,924,378 issued shares, 75,527,998 and 75,144,784 outstanding shares, respectively
 
113.1

 
112.4

Additional capital
 
710.7

 
720.0

Retained earnings
 
514.9

 
662.7

Treasury shares, at cost (14,953,615 and 14,779,597 shares, respectively)
 
(567.2
)
 
(562.4
)
Accumulated other comprehensive loss
 
(199.3
)
 
(341.3
)
Total Diebold Nixdorf, Incorporated shareholders' equity
 
572.2

 
591.4

Noncontrolling interests
 
39.5

 
433.4

Total equity
 
611.7

 
1,024.8

Total liabilities, redeemable noncontrolling interests and equity
 
$
5,361.4

 
$
5,270.3

See accompanying notes to condensed consolidated financial statements.

3
Table of Contents

DIEBOLD NIXDORF, 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,
 
2017
 
2016
 
2017
 
2016
Net sales
 
 
 
 
 
 
 
Services and software
$
725.7

 
$
571.0

 
$
2,097.2

 
$
1,270.5

Systems
397.0

 
412.3

 
1,262.2

 
802.4

 
1,122.7

 
983.3

 
3,359.4


2,072.9

Cost of sales
 
 
 
 
 
 
 
Services and software
553.7

 
400.0

 
1,595.6

 
867.7

Systems
328.0

 
385.7

 
1,042.5

 
713.7

 
881.7

 
785.7

 
2,638.1

 
1,581.4

Gross profit
241.0

 
197.6

 
721.3

 
491.5

Selling and administrative expense
208.8


253.5

 
692.6

 
506.4

Research, development and engineering expense
34.2


31.3

 
114.4

 
67.4

Impairment of assets
—


—

 
3.1

 
—

(Gain) loss on sale of assets, net
5.6

 
(0.5
)
 
(2.5
)
 
(0.2
)
 
248.6

 
284.3

 
807.6

 
573.6

Operating profit (loss)
(7.6
)
 
(86.7
)
 
(86.3
)

(82.1
)
Other income (expense)
 
 
 
 
 
 
 
Interest income
4.3

 
5.3

 
15.8

 
16.5

Interest expense
(27.7
)
 
(32.4
)
 
(90.7
)
 
(68.2
)
Foreign exchange gain (loss), net
3.2

 
2.0

 
(4.5
)
 
(1.6
)
Miscellaneous, net
(1.5
)
 
(4.2
)
 
1.7

 
3.6

Income (loss) from continuing operations before taxes
(29.3
)
 
(116.0
)
 
(164.0
)
 
(131.8
)
Income tax (benefit) expense
(0.5
)
 
(18.8
)
 
(59.4
)
 
(34.5
)
Income (loss) from continuing operations, net of tax
(28.8
)
 
(97.2
)
 
(104.6
)
 
(97.3
)
Income (loss) from discontinued operations, net of tax
—

 
(4.6
)
 
—

 
143.7

Net income (loss)
(28.8
)
 
(101.8
)
 
(104.6
)
 
46.4

Net income attributable to noncontrolling interests
6.6

 
0.5

 
20.2

 
1.6

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(35.4
)
 
$
(102.3
)
 
$
(124.8
)
 
$
44.8

 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
75.5

 
70.9

 
75.4

 
67.0

Diluted weighted-average shares outstanding
75.5

 
70.9

 
75.4

 
67.6

 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
 
 
 
 
 
 
Loss from continuing operations, net of tax
$
(0.47
)
 
$
(1.38
)
 
$
(1.66
)
 
$
(1.48
)
Income (loss) from discontinued operations, net of tax
—

 
(0.06
)
 
—

 
2.15

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(0.47
)
 
$
(1.44
)
 
$
(1.66
)
 
$
0.67

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
 
 
 
 
 
 
 
Loss from continuing operations, net of tax
$
(0.47
)
 
$
(1.38
)
 
$
(1.66
)
 
$
(1.46
)
Income (loss) from discontinued operations, net of tax
—

 
(0.06
)
 
—

 
2.12

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(0.47
)
 
$
(1.44
)
 
$
(1.66
)
 
$
0.66

 
 
 
 
 
 
 
 
Amounts attributable to Diebold Nixdorf, Incorporated
 
 
 
 
 
 
 
Loss before discontinued operations, net of tax
$
(35.4
)
 
$
(97.7
)
 
$
(124.8
)
 
$
(98.9
)
Income (loss) from discontinued operations, net of tax
—

 
(4.6
)
 
—

 
143.7

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(35.4
)
 
$
(102.3
)
 
$
(124.8
)
 
$
44.8

 
 
 
 
 
 
 
 
Common dividends declared and paid per share
$
0.1000

 
$
0.2875

 
$
0.3000

 
$
0.8625

See accompanying notes to condensed consolidated financial statements.

4
Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(in millions)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss)
 
$
(28.8
)
 
$
(101.8
)
 
$
(104.6
)
 
$
46.4

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
Translation adjustment
 
15.8

 
(4.2
)
 
145.0

 
49.6

Foreign currency hedges (net of tax of $1.2, $0.2, $(0.2) and $4.2, respectively)
 
(2.4
)
 
(0.4
)
 
1.0

 
(7.9
)
Interest rate hedges
 


 


 


 


Net gain recognized in other comprehensive income (net of tax of $(0.1) and $(0.6), respectively)
 
0.3

 
—

 
1.8

 
—

Reclassification adjustment for amounts recognized in net income
 
—

 
—

 
(0.4
)
 
(0.1
)
 
 
0.3

 
—

 
1.4

 
(0.1
)
Pension and other post-retirement benefits
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax of $(0.5), $(0.3), $0.5 and $(1.3), respectively)
 
1.0

 
(0.1
)
 
(2.0
)
 
1.8

Other comprehensive income (loss), net of tax
 
14.7

 
(4.7
)
 
145.4

 
43.4

Comprehensive income (loss)
 
(14.1
)
 
(106.5
)
 
40.8

 
89.8

Less: comprehensive income (loss) attributable to noncontrolling interests
 
8.4

 
0.5

 
23.7

 
1.1

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
 
$
(22.5
)
 
$
(107.0
)
 
$
17.1

 
$
88.7

See accompanying notes to condensed consolidated financial statements.

5
Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
 
 
Nine Months Ended
 
 
September 30,
 
 
2017
 
2016
Cash flow from operating activities
 
 
 
 
Net income (loss)
 
$
(104.6
)
 
$
46.4

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

 
143.7

Income (loss) from continuing operations, net of tax
 
(104.6
)
 
(97.3
)
Adjustments to reconcile net income (loss) to cash flow used by operating activities:
 
 
 
 
Depreciation and amortization
 
185.4

 
74.3

Share-based compensation
 
23.1

 
14.2

Other
 
4.7

 
(9.5
)
Changes in certain assets and liabilities, net of the effects of acquisitions
 
 
 
 
Trade receivables
 
(57.5
)
 
(85.3
)
Inventories
 
(48.8
)
 
(18.9
)
Income taxes
 
(46.8
)
 
(90.3
)
Accounts payable
 
10.0

 
14.2

Deferred revenue
 
(43.3
)
 
(42.9
)
Deferred income taxes
 
(36.3
)
 
(58.5
)
Restructuring payments
 
(57.8
)
 
(11.7
)
Certain other assets and liabilities
 
(63.4
)
 
125.3

Net cash used by operating activities - continuing operations
 
(235.3
)
 
(186.4
)
Net cash used by operating activities - discontinued operations
 
—

 
(8.2
)
Net cash used by operating activities
 
(235.3
)
 
(194.6
)
Cash flow from investing activities
 
 
 
 
Payment for acquisitions
 
(5.6
)
 
(890.6
)
Proceeds from maturities of investments
 
249.5

 
164.1

Proceeds from sale of foreign currency option contracts, net
 
—

 
16.2

Payments for purchases of investments
 
(260.7
)
 
(155.6
)
Proceeds from sale of assets
 
14.6

 
28.7

Capital expenditures
 
(41.7
)
 
(23.9
)
Restricted cash
 
(7.9
)
 
—

Increase in certain other assets
 
(26.9
)
 
(17.9
)
Net cash used by investing activities - continuing operations
 
(78.7
)
 
(879.0
)
Net cash provided by investing activities - discontinued operations
 
—

 
361.9

Net cash used by investing activities
 
(78.7
)
 
(517.1
)
Cash flow from financing activities
 
 
 
 
Dividends paid
 
(22.9
)
 
(57.0
)
Debt issuance costs
 
(1.1
)
 
(39.2
)
Revolving credit facility borrowings (repayments), net
 
120.0

 
(168.0
)
Other debt borrowings
 
381.0

 
1,825.7

Other debt repayments
 
(433.5
)
 
(419.2
)
Distributions and payments to noncontrolling interest holders
 
(16.3
)
 
(2.1
)
Issuance of common shares
 
0.3

 
0.3

Repurchase of common shares
 
(4.8
)
 
(2.1
)
Net cash provided by financing activities
 
22.7

 
1,138.4

Effect of exchange rate changes on cash and cash equivalents
 
19.3

 
9.4

(Decrease) increase in cash and cash equivalents
 
(272.0
)
 
436.1

Add: Cash overdraft included in assets held for sale at beginning of period
 
—

 
(1.5
)
Cash and cash equivalents at the beginning of the period
 
652.7

 
313.6

Cash and cash equivalents at the end of the period
 
$
380.7

 
$
748.2

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
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 Nixdorf, 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, 2016. 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, 2017 are not necessarily indicative of results to be expected for the full year.

In August 2016, the Company acquired Diebold Nixdorf AG, formerly known as Wincor Nixdorf Aktiengesellschaft (the Acquisition). 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. During the first quarter of 2017, the Company reorganized the management team reporting to the Chief Operating Decision Maker (CODM) and evaluated and assessed the line of business (LOB) reporting structure. The Company's reportable operating segments are based on the following three LOBs: Services, Software and Systems. As a result, the Company reclassified comparative periods for consistency.

The Company has reclassified the presentation of certain prior-year information to conform to the current presentation.

Recently Adopted Accounting Guidance

The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-09, Compensation, - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, at the beginning of 2017 and accordingly, retrospectively reclassified $0.3 of excess tax benefits from share-based compensation from financing activities to operating activities included in the condensed consolidated statements of cash flows for the nine months ended September 30, 2016.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. This ASU requires the recognition of the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs rather than deferring recognition until the asset is sold to an external party. For the Company, ASU 2016-16 is effective for annual periods beginning after December 15, 2017 and requires application of a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. The Company early adopted the standard in 2017. The adoption of ASU 2016-16 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. 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. 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. 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

7
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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. Additionally, 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 standard, along with its amendments, are effective for the Company on January 1, 2018. Early application was permitted on the original adoption date of January 1, 2017. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method. The Company has chosen to adopt the modified retrospective transition method as its recent acquisitions would impact the comparability under the retrospective model.

In 2015, the Company established a cross-functional steering committee and project implementation team to assess the impact of the standard on the Company's legacy revenue from contracts with customers. We utilized a bottom-up approach to assess and document the impact of the standard on the Company's contract portfolio by reviewing its current accounting policies and practices against application of the requirements of the new standard to identify potential differences. A broad-scope contract analysis was carried out to substantiate the results of the assessment and a business process, systems and controls review was performed to identify necessary changes to support recognition and disclosure under the new standard.

The implementation team reported the findings and progress of the project to management and the Audit Committee of the Company's board of directors on a frequent basis over the last year. In late 2016, the impact assessment was expanded to include Diebold Nixdorf AG revenue from contracts with customers. The Company's current assessment indicates no material impact related to the adoption of ASU 2014-06. The Company continues to evaluate all contracts, particularly on stand alone pricing methodology and variable consideration, which it believes are the gaps that provide the highest impact. The Company will continue its evaluation and assessment on the impact on the financial statements and related disclosures.

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 January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). The FASB issued the update to simplify the measurement of goodwill by eliminating step 2 from the goodwill impairment test. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 will be effective for public companies for fiscal years beginning after December 15, 2019, including interim periods. Early adoption is permitted. The Company is evaluating the effect that ASU 2017-04 will have on its financial statements and related disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). The FASB issued the update to provide clarity and reduce the cost and complexity when applying the guidance in Topic 718. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 will be effective for public companies for fiscal years beginning after December 15, 2017, including interim periods. Early adoption is permitted. The adoption of ASU 2017-09 is not expected to have a material impact on the financial statements of the Company.

In May 2017, the FASB issued ASU 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (ASU 2017-10). The FASB issued the update to eliminate uncertainty regarding how an operating entity determines the customer of the operation services for transactions within the scope of Topic 853. The amendments in this update clarify that the grantor is the customer of the operation services in all cases for service concession arrangements within the scope of Topic 853. ASU 2017-10 will be effective for public companies for fiscal years beginning after December 15, 2017, including interim periods. Early adoption is permitted. The adoption of ASU 2017-10 is not expected to have a material impact on the financial statements of the Company.


8
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The update to the standard is effective for the Company on June 1, 2019, with early adoption permitted in any interim period. The Company is currently evaluating the effect the guidance will have on its financial statements and related disclosures.

Note 2: Acquisitions

During 2017, the Company acquired all the capital stock of Moxx Group B.V. (Moxx) and certain assets and liabilities of Visio Objekt GmbH (Visio) for $5.6 in the aggregate, net of cash acquired, which are included in the Services LOB. During the third quarter of 2017, the Company acquired Moxx, which is a Netherlands based managed services company that provides managed mobility solutions for enterprises that use a large number of mobile assets in their business operations. In the second quarter of 2017, the Company acquired Visio, which is a design company based in Germany.

On August 15, 2016, the Company acquired, 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 Diebold Nixdorf AG ordinary shares representing 69.2 percent of total number of Diebold Nixdorf AG ordinary shares inclusive of treasury shares (76.7 percent of all Diebold Nixdorf AG ordinary shares outstanding) in exchange for an aggregate purchase price consideration of $1,265.7, which included the issuance of 9.9 common shares of the Company. The Company financed the cash portion of the Acquisition as well as the repayment of Diebold Nixdorf AG debt outstanding with funds available under the Company’s Credit Agreement (as defined in note 13) and proceeds from the issuance and sale of the $400.0 aggregate principal amount of 8.50 percent senior notes due 2024 (2024 Senior Notes).

The information included herein has been prepared based on the 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 aggregate consideration, excluding $110.7 of cash acquired, for the Acquisition was $1,265.7, which consisted of the following:
Cash paid
 
$
995.3

Less: cash acquired
 
(110.7
)
Payments for acquisition, net of cash acquired
 
884.6

Common shares issued to Diebold Nixdorf AG shareholders
 
279.7

Other consideration
 
(9.3
)
Total consideration, net of cash acquired
 
$
1,155.0


Other consideration of $(9.3) represents the pre-existing net trade balances the Company owed to Diebold Nixdorf AG, which were deemed settled as of the acquisition date.


9
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following table summarizes the final amounts of the fair value recognized for the assets acquired and liabilities assumed as of the acquisition date along with the measurement period adjustments based on the allocation of the total consideration, net of cash acquired:
 
 
Amounts recognized as of:
 
 
Preliminary
 
 
 
Final
 
 
December 31, 2016
 
Measurement Period
 
September 30, 2017
Trade receivables
 
$
474.1

 
$
(4.5
)
 
$
469.6

Inventories
 
487.2

 
10.9

 
498.1

Prepaid expenses
 
39.3

 
(0.3
)
 
39.0

Current assets held for sale
 
106.6

 
—

 
106.6

Other current assets
 
79.9

 
(0.3
)
 
79.6

Property, plant and equipment
 
247.1

 
(10.5
)
 
236.6

Intangible assets
 
802.1

 
29.0

 
831.1

Deferred income taxes
 
109.7

 
5.8

 
115.5

Other assets
 
27.0

 
—

 
27.0

Total assets acquired
 
2,373.0

 
30.1

 
2,403.1

 
 
 

 
 

 
 

Notes payable
 
159.8

 
—

 
159.8

Accounts payable
 
321.5

 
—

 
321.5

Deferred revenue
 
158.0

 
19.6

 
177.6

Payroll and other benefits liabilities
 
191.6

 
(7.3
)
 
184.3

Current liabilities held for sale
 
56.6

 
—

 
56.6

Other current liabilities
 
196.3

 
5.9

 
202.2

Pensions and other benefits
 
103.2

 
—

 
103.2

Other noncurrent liabilities
 
458.9

 
9.0

 
467.9

Total liabilities assumed
 
1,645.9

 
27.2

 
1,673.1

 
 
 
 
 
 
 
Redeemable noncontrolling interest
 
(46.8
)
 
—

 
(46.8
)
Fair value of noncontrolling interest
 
(407.9
)
 
—

 
(407.9
)
Total identifiable net assets acquired, including noncontrolling interest
 
272.4


2.9


275.3

Total consideration, net of cash acquired
 
1,155.0

 
—

 
1,155.0

Goodwill
 
$
882.6

 
$
(2.9
)
 
$
879.7


During the third quarter of 2017, the Company finalized the acquisition accounting for Diebold Nixdorf AG. The measurement period adjustments outlined above primarily related to changes in the fair value measurement of certain assets and liabilities. The trade receivables measurement period adjustment related to a reduction of $4.5 to certain customer accounts offset by certain deferred revenue adjustments primarily in the United Kingdom (U.K.). The inventories measurement period adjustment of $10.9 related to updated fair value measurement adjustments of certain inventory items along with certain deferred revenue adjustments, which resulted in an unfavorable impact of $2.8 and $1.9 to cost of sales-systems for the three and nine months ended September 30, 2017, respectively. The measurement period adjustments for prepaid expenses and other current assets relate to certain advances to suppliers and other miscellaneous receivables, respectively. The measurement period adjustment for property, plant and equipment of $10.5 related to the final fair value measurement of an acquired building which resulted in an unfavorable impact of $4.9 to cost of sales-systems and a favorable impact of $0.2 to selling and administrative expense related finalization of depreciation expense for the three and nine months ended September 30, 2017. The measurement period adjustment to intangible assets for $29.0 related to a change in the underlying valuation assumptions used in the fair value measurement of acquired customer relationships which resulted in an unfavorable impact of $0.2 and $0.8 in selling and administrative expense for the three and nine

10
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


months ended September 30, 2017, respectively. The deferred income tax measurement period adjustment of $5.8 related to the tax effects of adjustments. The deferred revenue measurement period adjustment of $19.6 primarily related to an adjustment to the inputs used in the fair value measurement primarily in the U.K. along with certain onerous contracts, which resulted in an unfavorable impact of $4.4 and $3.9 for the three and nine months ended September 30, 2017, respectively, which split near evenly between net sales-service and software and net sales-systems. The payroll and other benefits liabilities measurement period adjustment of $7.3 primarily related to the reduction of $8.2 related to the Delta Program restructuring accrual offset by certain bonus compensation accruals. The other current liabilities measurement period adjustment of $5.9 related primarily to certain onerous contracts and accrued taxes. The other noncurrent liabilities measurement period adjustment of $9.0 primarily relates to deferred income tax liabilities calculated in connection with the measurement period adjustments along with certain onerous contracts.

Included in the purchase price allocation are acquired identifiable intangibles of $831.1 the fair value of which was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance.

The Company recorded acquired intangible assets in the following table as of the acquisition date:
 
 
Classification on condensed consolidated statements of operations
 
Weighted-average useful lives
 
August 15, 2016
Trade name
 
Selling and administrative expense
 
3.0 years
 
$
30.1

Technologies
 
Cost of sales
 
4.0 years
 
107.2

Customer relationships
 
Selling and administrative expense
 
9.5 years
 
687.5

Other
 
various
 
various
 
6.3

Intangible assets
 
 
 
 
 
$
831.1


Noncontrolling interest reflects a fair value adjustment of $407.9 consisting of $386.7 related to the Diebold Nixdorf AG ordinary shares the Company did not acquire and $21.2 for the pre-existing noncontrolling interests. 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.

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. The Company has allocated goodwill to its Services, Software and Systems reportable operating segments (refer to note 12).

Net sales, income (loss) from continuing operations before taxes and income (loss) attributable to Diebold Nixdorf, Incorporated from the Acquisition included in the Company’s results for the quarter ended September 30, 2017, are as follows:
 
Three Months Ended
September 30, 2017
 
Nine Months Ended
September 30, 2017
Net sales
$
587.2

 
$
1,846.6

Income (loss) from continuing operations before taxes
$
17.9

 
$
(20.5
)
Income (loss) attributable to Diebold Nixdorf, Incorporated
$
(2.5
)
 
$
(41.5
)

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 $9.7 and $30.4, amortization of acquired intangibles of $30.2 and $98.0, and $4.7 and $1.5 depreciation expense as a result of the change in fair value and useful lives for the three and nine months ended September 30, 2017, respectively. The measurement period adjustment include an inventory valuation adjustment of $2.8 and $1.9 for the three and nine months ended September 30. 2017, respectively.

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 for the three and nine months ended September 30, 2016, respectively. No Acquisition-related deal costs have been incurred in 2017.

11
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)



Unaudited pro forma Information The unaudited pro forma information is presented for illustrative purposes only. It is not necessarily indicative of the results of operations of future periods, or the results of operations that actually would have been realized had the entities been a single company during the periods presented or the results that the combined company will experience after the Acquisition. The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the Acquisition. The unaudited pro forma information also does not include any integration costs or remaining future transaction costs that the companies may incur related to the Acquisition as part of combining the operations of the companies. The Company's fiscal year ends on December 31 while Diebold Nixdorf AG's fiscal year ends on September 30.

The pro forma information in the table below for the three and nine months ended September 30, 2016 includes unaudited pro forma information that represents the consolidated results of the Company as if the Acquisition occurred as of January 1, 2015:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2016
Net sales
$
1,292.4

 
$
3,750.3

Gross profit
$
294.9

 
$
913.5

Operating profit
$
15.8

 
$
95.3

Net income (loss) attributable to Diebold Nixdorf, Incorporated (1)
$
(60.9
)
 
$
91.3

Net income (loss) attributable to Diebold Nixdorf, Incorporated per share - basic(1)
$
(0.81
)
 
$
1.22

Net income (loss) attributable to Diebold Nixdorf, Incorporated per share - diluted(1)
$
(0.80
)
 
$
1.21

Basic weighted-average shares outstanding
75.1

 
75.1

Diluted weighted-average shares outstanding
75.7

 
75.7

(1) Net income (loss) for the three and nine months ended September 30, 2016 includes income from discontinued operations, net of tax of $(4.6) and $143.7, respectively.


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 fair value adjustments to the existing Diebold Nixdorf AG 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.

Note 3: Redeemable Noncontrolling Interests

Changes in redeemable noncontrolling interests were as follows:
 
Redeemable Noncontrolling Interests
Balance at December 31, 2016
$
44.1

Other comprehensive income
25.6

Redemption value adjustment
32.0

Redemption of shares
(2.7
)
Reclassification of noncontrolling interest
386.7

Balance at September 30, 2017
$
485.7


12
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)



Subsequent to the closing of the Acquisition, the board of directors of the Company and the supervisory and management boards of Diebold Nixdorf AG, as well as the shareholders of Diebold KGaA and Diebold Nixdorf AG, on September 26, 2016 each approved the proposed the Domination and Profit and Loss Transfer Agreement (DPLTA). The DPLTA became effective by entry in the commercial register at the local court of Paderborn (Germany) on February 14, 2017. As a result, the carrying value of the noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire of $386.7, which was presented as a component of total equity as of December 31, 2016, was reclassified to redeemable noncontrolling interest during the first quarter of 2017. For the period of time that the DPLTA is effective, the noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire will remain in redeemable noncontrolling interest and presented outside of equity in the condensed consolidated balance sheets of the Company.

Pursuant to the DPLTA, subject to certain limitations pursuant to applicable law, (i) Diebold KGaA has the ability to issue binding instructions to the management board of Diebold Nixdorf AG, (ii) Diebold Nixdorf AG will transfer all of its annual profits to Diebold KGaA, and (iii) Diebold KGaA will generally absorb all annual losses incurred by Diebold Nixdorf AG. In addition, the DPLTA offers the Diebold Nixdorf AG minority shareholders, at their election, (i) the ability to put their Diebold Nixdorf AG ordinary shares to Diebold KGaA in exchange for cash compensation of €55.02 per Diebold Nixdorf AG ordinary share or (ii) to remain Diebold Nixdorf AG minority shareholders and receive a recurring compensation in cash of €3.13 (€2.82 net under the current taxation regime) per Diebold Nixdorf AG ordinary share for each full fiscal year of Diebold Nixdorf AG. The redemption value adjustment includes the updated cash compensation pursuant to the DPLTA. During 2017, the Company paid $2.7 in cash compensation to redeem Diebold Nixdorf AG ordinary shares in connection with the DPLTA. The ultimate timing and amount of any future cash payments related to the DPLTA are uncertain.

In connection with the Acquisition, the Company assumed pre-existing noncontrolling interests with certain redemption features, such as put rights that are not within the control of the issuer, which are considered redeemable noncontrolling interests. The redeemable noncontrolling interests were recorded at fair value as of the Acquisition date by applying the income approach using unobservable inputs for projected cash flows and a discount rate, which are considered Level 3 inputs. The Company adjusts the redeemable noncontrolling interest to redemption value (which approximates fair value) at each balance sheet date with changes recognized as an adjustment to additional paid-in capital. In the event the historical cost of the redeemable noncontrolling interest, which represents initial cost, adjusted for contributions, distributions and the allocation of profits or losses, is in excess of estimated fair value, the Company records the redeemable noncontrolling interest at historical cost. The ultimate amount and timing of any future cash payments related to the put rights are uncertain.


13
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 4: Earnings (Loss) Per Share

Basic earnings (loss) per share is based on the weighted-average number of common shares outstanding. Diluted earnings (loss) per share includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing earnings (loss) 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 (loss) per share under both the treasury stock method and the two-class method. For the three and nine months ended September 30, 2017 and 2016, there was no impact in the per share amounts calculated under the two methods. Accordingly, the treasury stock method is disclosed.

The following represents amounts used in computing earnings (loss) 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,
 
 
2017
 
2016
 
2017
 
2016
Numerator
 
 
 
 
 
 
 
 
Income (loss) used in basic and diluted earnings (loss) per share
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
(28.8
)
 
$
(97.2
)
 
$
(104.6
)
 
$
(97.3
)
Net income attributable to noncontrolling interests
 
6.6

 
0.5

 
20.2

 
1.6

Loss before discontinued operations, net of tax
 
(35.4
)
 
(97.7
)
 
(124.8
)
 
(98.9
)
Income (loss) from discontinued operations, net of tax
 
—

 
(4.6
)
 
—

 
143.7

Net income (loss) attributable to Diebold Nixdorf, Incorporated
 
$
(35.4
)
 
$
(102.3
)
 
$
(124.8
)
 
$
44.8

Denominator
 
 
 
 
 
 
 
 
Weighted-average number of common shares used in basic earnings (loss) per share
 
75.5

 
70.9

 
75.4

 
67.0

Effect of dilutive shares (1)
 
—

 
—

 
—

 
0.6

Weighted-average number of shares used in diluted earnings (loss) per share
 
75.5

 
70.9

 
75.4

 
67.6

Basic earnings (loss) per share
 
 
 
 
 
 
 
 
Loss from continuing operations, net of tax
 
$
(0.47
)
 
$
(1.38
)
 
$
(1.66
)
 
$
(1.48
)
Income (loss) from discontinued operations, net of tax
 
—

 
(0.06
)
 
—

 
2.15

Net income (loss) attributable to Diebold Nixdorf, Incorporated
 
$
(0.47
)
 
$
(1.44
)
 
$
(1.66
)
 
$
0.67

Diluted earnings (loss) per share
 
 
 
 
 
 
 
 
Loss from continuing operations, net of tax
 
$
(0.47
)
 
$
(1.38
)
 
$
(1.66
)
 
$
(1.46
)
Income (loss) from discontinued operations, net of tax
 
—

 
(0.06
)
 
—

 
2.12

Net income (loss) attributable to Diebold Nixdorf, Incorporated
 
$
(0.47
)
 
$
(1.44
)
 
$
(1.66
)
 
$
0.66

 
 
 
 
 
 
 
 
 
Anti-dilutive shares
 
 
 
 
 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares
 
2.8

 
2.1

 
2.6

 
2.2

(1) 
Incremental shares of 0.8 and 0.6 shares for the three months ended September 30, 2017 and 2016, respectively, and 0.7 shares for the nine months ended September 30, 2017, were excluded from the computation of diluted earnings (loss) per share because their effect is anti-dilutive due to the net loss attributable to Diebold Nixdorf, Incorporated.


14
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 5: Equity

The following table presents changes in shareholders' equity attributable to Diebold Nixdorf, Incorporated and the noncontrolling
interests:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Diebold Nixdorf, Incorporated shareholders' equity
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
587.2

 
$
578.3

 
$
591.4

 
$
412.4

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
 
(22.5
)
 
(107.0
)
 
17.1

 
88.7

Common shares
 
—

 
12.4

 
0.7

 
12.8

Additional capital (1)
 
15.4

 
271.6

 
(9.3
)
 
281.4

Treasury shares
 
(0.3
)
 
(0.1
)
 
(4.8
)
 
(2.1
)
Dividends paid
 
(7.6
)
 
(19.0
)
 
(22.9
)
 
(57.0
)
Balance at end of period
 
$
572.2

 
$
736.2

 
$
572.2

 
$
736.2

 
 
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
37.5

 
$
23.7

 
$
433.4

 
$
23.1

Comprehensive income attributable to noncontrolling interests, net
 
8.4

 
386.9

 
23.7

 
387.5

Reclassification to redeemable noncontrolling interest
 
—

 
—

 
(386.7
)
 
—

Reclassification of guaranteed dividend to accrued liabilities
 
(6.4
)
 
—

 
(18.1
)
 
—

Distributions to noncontrolling interest holders
 
—

 
—

 
(12.8
)
 
—

Balance at end of period
 
$
39.5

 
$
410.6

 
$
39.5

 
$
410.6

(1) 
The decrease for the nine months ended September 30, 2017 is primarily attributable to the redemption value adjustment to the redeemable noncontrolling interest.

Note 6: Accumulated Other Comprehensive Income (Loss) (AOCI)

The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the three months ended September 30, 2017:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive Income (Loss)
Balance at June 30, 2017
 
$
(123.7
)
 
$
(2.3
)
 
$
5.7

 
$
(92.3
)
 
$
0.3

 
$
(212.3
)
Other comprehensive income (loss) before reclassifications (1)
 
14.1

 
(2.4
)
 
0.3

 
—

 
—

 
12.0

Amounts reclassified from AOCI
 
—

 
—

 
—

 
1.0

 
—

 
1.0

Net current-period other comprehensive income (loss)
 
14.1

 
(2.4
)
 
0.3

 
1.0

 
—

 
13.0

Balance at September 30, 2017
 
$
(109.6
)
 
$
(4.7
)
 
$
6.0

 
$
(91.3
)
 
$
0.3

 
$
(199.3
)
(1)Other comprehensive income (loss) before reclassifications within the translation component excludes $1.7 of translation attributable to noncontrolling interests.

15
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
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, 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.

The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the nine months ended September 30, 2017:

 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2017
 
$
(251.2
)
 
$
(5.7
)
 
$
4.6

 
$
(89.3
)
 
$
0.3

 
$
(341.3
)
Other comprehensive income (loss) before reclassifications (1)
 
141.6

 
1.0

 
1.8

 
—

 
—

 
144.4

Amounts reclassified from AOCI
 
—

 
—

 
(0.4
)
 
(2.0
)
 
—

 
(2.4
)
Net current-period other comprehensive income (loss)
 
141.6

 
1.0

 
1.4

 
(2.0
)
 
—

 
142.0

Balance at September 30, 2017
 
$
(109.6
)
 
$
(4.7
)
 
$
6.0

 
$
(91.3
)
 
$
0.3

 
$
(199.3
)
(1)Other comprehensive income (loss) before reclassifications within the translation component excludes $3.4 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.


16
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
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
 
 
2017
 
2016
 
2017
 
2016
 
Interest rate hedges
 
$
—

 
$
—

 
$
(0.4
)
 
$
(0.1
)
 
Interest expense
Pension and post-retirement benefits:
 
 
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax of $(0.5), $(0.3), $0.5 and $(1.3), respectively)
 
1.0

 
(0.1
)
 
(2.0
)
 
1.8

 
(1) 
Total reclassifications for the period
 
$
1.0

 
$
(0.1
)
 
$
(2.4
)
 
$
1.7

 
 
(1) 
Pension and other post-retirement benefits AOCI components are included in the computation of net periodic benefit cost (refer to note 14).
 
Note 7: 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 $8.1 and $4.1 for the three months ended September 30, 2017 and 2016, respectively, and was $23.1 and $14.2 for the nine months ended September 30, 2017 and 2016, respectively.

Options outstanding and exercisable as of September 30, 2017 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, 2017 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, 2017
 
1.7

 
$
31.98

 
 
 
 
Expired or forfeited
 
(0.2
)
 
$
39.41

 
 
 
 
Granted
 
0.8

 
$
26.57

 
 
 
 
Outstanding at September 30, 2017
 
2.3

 
$
29.68

 
8
 
$
—

Options exercisable September 30, 2017
 
1.1

 
$
32.15

 
6
 
$
—

Options vested and expected to vest September 30, 2017
 
2.2

 
$
29.80

 
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 third quarter of 2017 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, 2017. 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.


17
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
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, 2017:
 
 
Number of
Shares
 
Weighted-Average
Grant-Date Fair
Value
 
 
 
 
 
RSUs:
 
 
 
 
Non-vested at January 1, 2017
 
1.2

 
$
29.50

Forfeited
 
(0.1
)
 
$
28.87

Vested
 
(0.5
)
 
$
30.77

Granted
 
0.7

 
$
26.82

Non-vested at September 30, 2017
 
1.3

 
$
27.73

Performance Shares:
 
 
 
 
Non-vested at January 1, 2017
 
1.2

 
$
31.77

Forfeited
 
(0.3
)
 
$
37.40

Vested
 
(0.2
)
 
$
23.64

Granted
 
1.8

 
$
31.32

Non-vested at September 30, 2017
 
2.5

 
$
31.38


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, 2017, there were 0.1 non-employee director deferred shares vested and outstanding.

On April 26, 2017, the Company's shareholders approved the Company's 2017 Equity and Performance Incentive Plan (the 2017 Plan), which provides for approximately 4.9 of common shares available for grant. The 2017 Plan is expected to attract and retain directors, officers and employees of the Company by providing incentives and rewards for performance.

Note 8: Income Taxes

The effective tax rate on the loss from continuing operations was 1.7 percent for the three months ended September 30, 2017 and 36.2 percent for the nine months ended September 30, 2017. The tax rate for the three months ended September 30, 2017 reflects an unfavorable adjustment relating to year-to-date changes in the Company's valuation allowance as well as higher than anticipated losses incurred in jurisdictions with a full valuation allowance throughout the period. During the three and nine months ended September 30, 2017, the overall reduction in the tax benefit was offset by the repatriation of foreign earnings and the associated recognition of foreign tax credits as well as favorable discrete items associated with the release of uncertain tax positions due to the expiration of the statute of limitations and reductions in the Company's deferred tax liability relating to undistributed foreign subsidiary earnings.

The effective tax rate on loss from 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 months 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 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 the nine months ended September 30, 2016, resulting in a decrease in the tax benefit for the three months ended September 30, 2016 and an increase in the tax benefit for the nine months ended September 30, 2016.


18
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 9: 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, 2017 and 2016.

The Company’s investments subject to fair value measurement consist of the following:
 
 
Cost Basis
 
Unrealized Gain
 
Fair Value
As of September 30, 2017
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
64.0

 
$
—

 
$
64.0

Long-term investments
 
 
 
 
 
 
Assets held in a rabbi trust
 
$
7.7

 
$
1.4

 
$
9.1

 
 
 
 
 
 
 
As of December 31, 2016
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
64.1

 
$
—

 
$
64.1

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

 
$
0.6

 
$
8.5


The Company has certain strategic alliances that are not consolidated. The Company tests these strategic alliances annually, individually and in aggregate, to determine materiality. The Company owns 40.0 percent of Inspur (Suzhou) Financial Technology Service Co. Ltd. (Inspur JV) and 43.6 percent of Aisino-Wincor Retail & Banking Systems (Shanghai) Co., Ltd. (Aisino JV). The Company engages in transactions in the ordinary course of business. The Company's strategic alliances are not significant subsidiaries and are accounted for under the equity method of investments. In May 2017, the Company announced a strategic partnership with Kony Inc. (Kony), which is located in Texas, a leading enterprise mobility and application company, to offer white label mobile application solutions for financial institutions and retailers. The Company acquired a minority equity stake in Kony, which is accounted for using the cost method of accounting.

Securities and other investments also includes a cash surrender value of insurance contracts of $77.4 and $77.8 as of September 30, 2017 and December 31, 2016, respectively. In addition, securities and other investments includes interest rate swap assets carrying value of $6.0 and $8.4 as of September 30, 2017 and December 31, 2016, respectively, which also represents fair value (refer to note 18).

Note 10: Allowance for Credit Losses

The following table summarizes the Company’s allowance for credit losses for the nine months ended September 30, 2017 and 2016:
 
 
Finance
Leases
 
Notes
Receivable
 
Total
Allowance for credit losses
 
 
 
 
 
 
Balance at January 1, 2017
 
$
0.3

 
$
4.1

 
$
4.4

Write-offs
 
(0.1
)
 
—

 
(0.1
)
Balance at September 30, 2017
 
$
0.2

 
$
4.1

 
$
4.3

 
 
 
 
 
 
 
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



19
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


There were no significant changes in provision for credit losses, recoveries and write-offs during the nine months ended September 30, 2017 and 2016. As of September 30, 2017, finance leases and notes receivable individually evaluated for impairment were $32.4 and $21.0, respectively, of which $23.4 and $13.3, respectively, relates to the Acquisition, with no provision recorded. 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. As of September 30, 2017 and December 31, 2016, the Company’s finance lease receivables in Brazil were $1.5 and $26.1, 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, 2017 and December 31, 2016, the recorded investment in past due financing receivables on nonaccrual status was $0.6 and $0.4, 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 $4.0 as of September 30, 2017 and December 31, 2016 and was fully reserved.

The following table summarizes the Company’s aging of past-due notes receivable balances:
 
 
September 30, 2017
 
December 31, 2016
30-59 days past due
 
$
—

 
$
0.1

60-89 days past due
 
—

 
—

> 89 days past due (1)
 
4.0

 
3.9

Total past due
 
$
4.0

 
$
4.0

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

Note 11: Inventories

Major classes of inventories are summarized as follows:
 
 
September 30, 2017
 
December 31, 2016
Finished goods
 
$
357.0

 
$
330.5

Service parts
 
267.8

 
235.2

Raw materials and work in process
 
183.0

 
172.0

Total inventories
 
$
807.8

 
$
737.7



20
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 12: Goodwill and Other Assets

The Company’s three reportable operating segments are Services, Software and Systems. The Company has allocated goodwill to its Services, Software and Systems reportable operating segments. The changes in carrying amounts of goodwill within the Company's segments are summarized as follows:
 
Services
 
Software
 
Systems
 
Total
Goodwill
$
452.2

 
$
—

 
$
—

 
$
452.2

Accumulated impairment losses
(290.7
)
 
—

 
—

 
(290.7
)
Balance at January 1, 2016
$
161.5

 
$
—

 
$
—

 
$
161.5

Goodwill acquired
459.1

 
238.7

 
184.8

 
882.6

Goodwill adjustment
(0.5
)
 
—

 
—

 
(0.5
)
Currency translation adjustment
(20.8
)
 
(13.8
)
 
(10.7
)
 
(45.3
)
Goodwill
$
890.0

 
$
224.9

 
$
174.1

 
$
1,289.0

Accumulated impairment losses
(290.7
)
 
—

 
—

 
(290.7
)
Balance at December 31, 2016
$
599.3

 
$
224.9

 
$
174.1

 
$
998.3

Goodwill acquired
5.6

 
—

 
—

 
5.6

Goodwill adjustment
(1.1
)
 
(1.0
)
 
(0.8
)
 
(2.9
)
Currency translation adjustment
56.9

 
27.1

 
20.9

 
104.9

Goodwill
$
951.4

 
$
251.0

 
$
194.2

 
$
1,396.6

Accumulated impairment losses
(290.7
)
 
—

 
—

 
(290.7
)
Balance at September 30, 2017
$
660.7

 
$
251.0

 
$
194.2

 
$
1,105.9


In August 2016, the Company acquired Diebold Nixdorf AG. During the first quarter of 2017, in connection with the business combination agreement related to the Acquisition, the Company realigned its reportable operating segment to its lines of business to drive greater efficiency and further improve customer service.

The $5.6 acquired goodwill from Moxx and Visio primarily relates to anticipated synergies achieved through increased scale and higher utilization of the service organization.

The acquired Diebold Nixdorf AG 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, after completion of the business combination and related integration, to generate strong free cash flow, which would be used to make investments in innovative software and solutions and reduce debt. The Company has allocated goodwill to its Services, Software and Systems reportable operating segments. The goodwill associated with the Acquisition is not deductible for income tax purposes.

In connection with the recasting from geographical regions to lines of business reportable operating segments, the Company has identified nine reporting units, which are summarized below.
Services
 
Software
 
Systems
EMEA
 
EMEA
 
EMEA
Americas
 
Americas
 
Americas
AP
 
AP
 
AP

There have been no impairment indicators identified during the nine months ended September 30, 2017.


21
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of September 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following summarizes information on intangible assets by major category: