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 June 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 July 25, 2016 was 65,189,266.





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)
 
 
June 30,
2016

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

$
335.5


$
313.6

Restricted cash
 
1,823.0

 

Short-term investments

26.6


39.9

Trade receivables, less allowances for doubtful accounts of $28.5 and $31.7, respectively
 
520.1

 
413.9

Inventories
 
430.8

 
369.3

Deferred income taxes
 
116.5

 
168.8

Prepaid expenses
 
22.4

 
23.6

Prepaid income taxes
 
34.7

 
18.0

Current assets held for sale
 

 
148.2

Other current assets
 
148.6

 
148.3

Total current assets
 
3,458.2

 
1,643.6

Securities and other investments
 
84.0

 
85.2

Property, plant and equipment, net of accumulated depreciation and amortization of $447.7 and $433.7, respectively
 
166.1

 
175.3

Goodwill
 
169.2

 
161.5

Deferred income taxes
 
60.5

 
65.3

Finance lease receivables
 
22.7

 
36.5

Other assets
 
79.8

 
75.0

Total assets
 
$
4,040.5

 
$
2,242.4

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Notes payable
 
$
39.0

 
$
32.0

Accounts payable
 
261.1

 
281.7

Deferred revenue
 
217.6

 
229.2

Payroll and other benefits liabilities
 
77.6

 
76.5

Current liabilities held for sale
 

 
49.4

Other current liabilities
 
322.7

 
287.0

Total current liabilities
 
918.0

 
955.8

Long-term debt
 
2,274.0

 
606.2

Pensions and other benefits
 
194.6

 
195.6

Post-retirement and other benefits
 
19.4

 
18.7

Other long-term liabilities
 
32.5

 
30.6

Commitments and contingencies
 


 


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

 

Common shares, $1.25 par value, 125,000,000 authorized shares,79,961,528 and 79,696,694 issued shares, 65,189,266 and 65,001,602 outstanding shares, respectively
 
100.0

 
99.6

Additional capital
 
440.6

 
430.8

Retained earnings
 
869.3

 
760.3

Treasury shares, at cost (14,772,262 and 14,695,092 shares, respectively)
 
(562.2
)
 
(560.2
)
Accumulated other comprehensive loss
 
(269.4
)
 
(318.1
)
Total Diebold, Incorporated shareholders' equity
 
578.3

 
412.4

Noncontrolling interests
 
23.7

 
23.1

Total equity
 
602.0

 
435.5

Total liabilities and equity
 
$
4,040.5

 
$
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
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Net sales
 
 
 
 
 
 
 
 
Services
 
$
356.5

 
$
352.9

 
$
693.2

 
$
694.5

Products
 
223.5

 
291.6

 
396.4

 
524.8

 
 
580.0

 
644.5

 
1,089.6


1,219.3

Cost of sales
 
 
 
 
 
 
 
 
Services
 
235.4

 
234.3

 
463.9

 
464.2

Products
 
189.5

 
239.5

 
331.8

 
425.1

 
 
424.9

 
473.8

 
795.7

 
889.3

Gross profit
 
155.1

 
170.7

 
293.9

 
330.0

Selling and administrative expense
 
127.3


124.9

 
252.9

 
245.4

Research, development and engineering expense
 
17.6


23.9

 
36.1

 
46.2

Impairment of assets
 


(0.5
)
 

 
18.9

(Gain) loss on sale of assets, net
 
(0.1
)
 
(1.6
)
 
0.3

 
(1.5
)
 
 
144.8

 
146.7

 
289.3

 
309.0

Operating profit
 
10.3

 
24.0

 
4.6


21.0

Other (expense) income
 
 
 
 
 
 
 
 
Interest income
 
6.3

 
6.8

 
11.2

 
14.7

Interest expense
 
(24.3
)
 
(7.6
)
 
(35.8
)
 
(15.6
)
Foreign exchange loss, net
 
(1.2
)
 
(1.3
)
 
(3.6
)
 
(10.5
)
Miscellaneous, net
 
(26.8
)
 
0.9

 
7.8

 
(0.3
)
(Loss) income from continuing operations before taxes
 
(35.7
)
 
22.8

 
(15.8
)
 
9.3

Income tax (benefit) expense
 
(14.9
)
 
3.1

 
(15.7
)
 
(0.3
)
(Loss) income from continuing operations, net of tax
 
(20.8
)
 
19.7

 
(0.1
)
 
9.6

Income from discontinued operations, net of tax
 
0.5

 
4.2

 
148.3

 
8.7

Net (loss) income
 
(20.3
)
 
23.9

 
148.2

 
18.3

Net income (loss) attributable to noncontrolling interests
 
0.8

 
1.7

 
1.1

 
(1.1
)
Net (loss) income attributable to Diebold, Incorporated
 
$
(21.1
)
 
$
22.2

 
$
147.1

 
$
19.4

 
 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
65.2

 
64.9

 
65.1

 
64.8

Diluted weighted-average shares outstanding
 
65.2

 
65.6

 
65.7

 
65.5

 
 
 
 
 
 
 
 
 
Basic (loss) earnings per share
 
 
 
 
 
 
 
 
(Loss) income from continuing operations, net of tax
 
$
(0.33
)
 
$
0.28

 
$
(0.02
)
 
$
0.17

Income from discontinued operations, net of tax
 
0.01

 
0.06

 
2.28

 
0.13

Net (loss) income attributable to Diebold, Incorporated
 
$
(0.32
)
 
$
0.34

 
$
2.26

 
$
0.30

 
 
 
 
 
 
 
 
 
Diluted (loss) earnings per share
 
 
 
 
 
 
 
 
(Loss) income from continuing operations, net of tax
 
$
(0.33
)
 
$
0.28

 
$
(0.02
)
 
$
0.17

Income from discontinued operations, net of tax
 
0.01

 
0.06

 
2.26

 
0.13

Net (loss) income attributable to Diebold, Incorporated
 
$
(0.32
)
 
$
0.34

 
$
2.24

 
$
0.30

 
 
 
 
 
 
 
 
 
Amounts attributable to Diebold, Incorporated
 
 
 
 
 
 
 
 
(Loss) income before discontinued operations, net of tax
 
$
(21.6
)
 
$
18.0

 
$
(1.2
)
 
$
10.7

Income from discontinued operations, net of tax
 
0.5

 
4.2

 
148.3

 
8.7

Net (loss) income attributable to Diebold, Incorporated
 
$
(21.1
)
 
$
22.2

 
$
147.1

 
$
19.4

 
 
 
 
 
 
 
 
 
Common dividends declared and paid per share
 
$
0.2875

 
$
0.2875

 
$
0.5750

 
$
0.5750

See accompanying notes to condensed consolidated financial statements.


4

Table of Contents

DIEBOLD, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
(in millions)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Net (loss) income
 
$
(20.3
)
 
$
23.9

 
$
148.2

 
$
18.3

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
Translation adjustment
 
21.0

 
6.3

 
53.8

 
(62.1
)
Foreign currency hedges (net of tax $2.1, $0.5, $4.0 and $(1.8), respectively)
 
(3.9
)
 
(1.0
)
 
(7.5
)
 
3.3

Interest rate hedges
 


 


 


 


Net gain recognized in other comprehensive income (net of tax $(0.1) and $(0.2) for the three and six months ended June 30, 2015, respectively)
 

 
0.1

 

 
0.3

Reclassification adjustment for amounts recognized in net income
 

 

 
(0.1
)
 
(0.1
)
 
 

 
0.1

 
(0.1
)
 
0.2

Pension and other post-retirement benefits
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax $(0.5), $(0.6), $(1.0) and $(1.2), respectively)
 
1.0

 
1.2

 
1.9

 
2.3

Net prior service benefit amortization, net of tax
 

 
(0.1
)
 

 
(0.1
)
 
 
1.0

 
1.1

 
1.9

 
2.2

Other comprehensive income (loss), net of tax
 
18.1

 
6.5

 
48.1

 
(56.4
)
Comprehensive (loss) income
 
(2.2
)
 
30.4

 
196.3

 
(38.1
)
Less: comprehensive income (loss) attributable to noncontrolling interests
 
0.2

 
1.8

 
0.6

 
(0.8
)
Comprehensive (loss) income attributable to Diebold, Incorporated
 
$
(2.4
)
 
$
28.6

 
$
195.7

 
$
(37.3
)
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)
 
 
Six Months Ended
 
 
June 30,
 
 
2016
 
2015
Cash flow from operating activities
 
 
 
 
Net income
 
$
148.2

 
$
18.3

Income from discontinued operations, net of tax
 
148.3

 
8.7

(Loss) income from continuing operations, net of tax
 
(0.1
)
 
9.6

Adjustments to reconcile net (loss) income to cash flow used by operating activities:
 
 
 
 
Depreciation and amortization
 
30.9

 
32.9

Share-based compensation
 
10.1

 
9.1

Excess tax benefits from share-based compensation
 
(0.2
)
 
(0.2
)
Devaluation of Venezuela balance sheet
 

 
7.5

Loss (gain) on sale of assets, net
 
0.3

 
(1.5
)
Impairment of assets
 

 
18.9

Gain on foreign currency option and forward contracts, net
 
(12.9
)
 

Changes in certain assets and liabilities, net of the effects of acquisition
 
 
 
 
Trade receivables
 
(94.4
)
 
(127.8
)
Inventories
 
(46.4
)
 
(41.2
)
Prepaid income taxes
 
(16.7
)
 
(14.3
)
Other current assets
 
(18.1
)
 
(21.1
)
Accounts payable
 
(26.6
)
 
37.6

Deferred revenue
 
(13.0
)
 
(15.8
)
Deferred income taxes
 
6.0

 
4.4

Certain other assets and liabilities
 
(18.9
)
 
2.5

Net cash used by operating activities - continuing operations
 
(200.0
)
 
(99.4
)
Net cash (used) provided by operating activities - discontinued operations
 
(6.2
)
 
0.3

Net cash used by operating activities
 
(206.2
)
 
(99.1
)
Cash flow from investing activities
 
 
 
 
Payments for acquisition, net of cash acquired
 

 
(59.4
)
Proceeds from maturities of investments
 
107.1

 
72.7

Proceeds from sale of foreign currency option contract
 
42.6

 

Payments for purchases of investments
 
(85.9
)
 
(74.0
)
Proceeds from sale of assets
 
0.4

 
5.5

Capital expenditures
 
(11.3
)
 
(24.7
)
Restricted cash, net
 
(1,768.1
)
 

Increase in certain other assets
 
(9.3
)
 
(2.6
)
Net cash used by investing activities - continuing operations
 
(1,724.5
)
 
(82.5
)
Net cash provided (used) by investing activities - discontinued operations
 
365.1

 
(0.7
)
Net cash used by investing activities
 
(1,359.4
)
 
(83.2
)
Cash flow from financing activities
 
 
 
 
Dividends paid
 
(38.0
)
 
(37.8
)
Debt issuance costs
 
(11.2
)
 
(0.7
)
Restricted cash, net
 
(54.9
)
 

Revolving credit facility borrowings (repayments), net
 
142.0

 
(68.0
)
Other debt borrowings
 
1,807.0

 
271.2

Other debt repayments
 
(256.2
)
 
(42.3
)
Distributions to noncontrolling interest holders
 
(2.0
)
 

Excess tax benefits from share-based compensation
 
0.2

 
0.2

Issuance of common shares
 

 
2.8

Repurchase of common shares
 
(2.0
)
 
(2.8
)
Net cash provided by financing activities
 
1,584.9

 
122.6

Effect of exchange rate changes on cash and cash equivalents
 
4.1

 
(17.8
)
Increase (decrease) in cash and cash equivalents
 
23.4

 
(77.5
)
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
 

 
(4.4
)
Cash and cash equivalents at the beginning of the period
 
313.6

 
326.1

Cash and cash equivalents at the end of the period
 
$
335.5

 
$
248.9

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 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 six months ended June 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 $28.3 of debt issuance costs included in long-term debt as of June 30, 2016 and a reclassification of $6.9 from other assets to long-term debt as of December 31, 2015.

In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share or Its Equivalent (ASU 2015-07). The amendment in this update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The standard became effective for the Company on January 1, 2016. The adoption of ASU 2015-07 did not have a material impact on the financial statements of the Company.

In July 2015, the FASB issued ASU 2015-12, Plan Accounting: Defined Benefit Plan (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient (ASU 2015-12), which is a three-part update with the objective of simplifying benefit plan reporting to make the information presented more useful to the reader. Part I designates contract value as the only required measure for fully benefit-responsive investment contracts (FBRIC). A FBRIC is a guaranteed investment contract between the plan and an issuer in which the issuer agrees to pay a predetermined interest rate and principal for a set amount deposited with the issuer. Part II simplifies the investment disclosure requirements for employee benefits plans. Part III provides an alternative measurement date for fiscal periods that do not coincide with a month-end date. This guidance is effective for fiscal years beginning after December 15, 2015. The amendments in Parts I and II of this standard are effective retrospectively. The standard became effective for the Company on January 1, 2016. The adoption of ASU 2015-12 did not have a material impact on the financial statements of the Company.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16). The amendment in this update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period's financial statements, the effect

7

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


on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date and presented separately on the face of the income statement or disclosed in the notes by line item. The standard became effective for the Company on January 1, 2016. The adoption of ASU 2015-16 did not have a material impact on the financial statements of the Company.

Recently Issued Accounting Guidance

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard is effective for the Company on January 1, 2018. Early application is permitted on the original adoption date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

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

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

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

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

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

8

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


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

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

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The FASB issued the amendment to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. ASU 2016-09 is effective for the Company for annual periods beginning after December 15, 2016, with early adoption permitted. The adoption of ASU 2016-09 is not expected to have a material impact on the financial statements of the Company.

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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The FASB issued the amendment to require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The updates will be effective for the Company on January 1, 2020. The Company is evaluating the effect that ASU 2016-13 will have on its financial statements and related disclosures.


9

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


Note 2: Earnings Per Share

Basic earnings per share is based on the weighted-average number of common shares outstanding. Diluted earnings per share includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing earnings per share, non-vested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating securities. The Company’s participating securities include restricted stock units (RSUs), deferred shares, and shares that were vested, but deferred by the employee. The Company calculated basic and diluted earnings per share under both the treasury stock method and the two-class method. For the six months ended June 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.

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
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Numerator
 
 
 
 
 
 
 
 
(Loss) income used in basic and diluted (loss) earnings per share
 
 
 
 
 
 
 
 
(Loss) income from continuing operations, net of tax
 
$
(20.8
)
 
$
19.7

 
$
(0.1
)
 
$
9.6

Net income (loss) attributable to noncontrolling interests
 
0.8

 
1.7

 
1.1

 
(1.1
)
(Loss) income before discontinued operations, net of tax
 
(21.6
)
 
18.0

 
(1.2
)
 
10.7

Income from discontinued operations, net of tax
 
0.5

 
4.2

 
148.3

 
8.7

Net (loss) income attributable to Diebold, Incorporated
 
$
(21.1
)
 
$
22.2

 
$
147.1

 
$
19.4

Denominator
 
 
 
 
 
 
 
 
Weighted-average number of common shares used in basic (loss) earnings per share
 
65.2

 
64.9

 
65.1

 
64.8

Effect of dilutive shares (1)
 

 
0.7

 
0.6

 
0.7

Weighted-average number of shares used in diluted (loss) earnings per share
 
65.2

 
65.6

 
65.7

 
65.5

Basic (loss) earnings per share
 
 
 
 
 
 
 
 
(Loss) income from continuing operations, net of tax
 
$
(0.33
)
 
$
0.28

 
$
(0.02
)
 
$
0.17

Income from discontinued operations, net of tax
 
0.01

 
0.06

 
2.28

 
0.13

Net (loss) income attributable to Diebold, Incorporated
 
$
(0.32
)
 
$
0.34

 
$
2.26

 
$
0.30

Diluted (loss) earnings per share
 
 
 
 
 
 
 
 
(Loss) income from continuing operations, net of tax
 
$
(0.33
)
 
$
0.28

 
$
(0.02
)
 
$
0.17

Income from discontinued operations, net of tax
 
0.01

 
0.06

 
2.26

 
0.13

Net (loss) income attributable to Diebold, Incorporated
 
$
(0.32
)
 
$
0.34

 
$
2.24

 
$
0.30

 
 
 
 
 
 
 
 
 
Anti-dilutive shares
 
 
 
 
 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares
 
2.3

 
1.2

 
2.2

 
1.3

(1)
Incremental shares of 0.5 shares were excluded from the computation of diluted (loss) earnings per share for the three months ended June 30, 2016, because their effect is anti-dilutive due to the net loss attributable to Diebold, Incorporated.


10

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


Note 3: Equity

The following table presents changes in shareholders' equity attributable to Diebold, Incorporated and the noncontrolling interests:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Diebold, Incorporated shareholders' equity
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
595.6

 
$
449.5

 
$
412.4

 
$
531.6

Comprehensive (loss) income attributable to Diebold, Incorporated
 
(2.4
)
 
28.6

 
195.7

 
(37.3
)
Common shares
 
0.1

 
0.2

 
0.4

 
0.6

Additional capital
 
4.5

 
6.4

 
9.8

 
11.3

Treasury shares
 
(0.3
)
 
(0.2
)
 
(2.0
)
 
(2.8
)
Dividends paid
 
(19.2
)
 
(18.9
)
 
(38.0
)
 
(37.8
)
Balance at end of period
 
$
578.3

 
$
465.6

 
$
578.3

 
$
465.6

 
 
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
23.5

 
$
23.3

 
$
23.1

 
$
23.3

Comprehensive income attributable to noncontrolling interests, net (1)
 
0.2

 
1.3

 
0.6

 
1.3

Balance at end of period
 
$
23.7

 
$
24.6

 
$
23.7

 
$
24.6

(1)
Comprehensive income (loss) attributable to noncontrolling interests of $1.8 and $(0.8) for the three and six months ended June 30, 2015, respectively, is net of a $(0.5) and $2.1 Venezuela noncontrolling interest adjustment for the three and six months ended June 30, 2015, respectively, to reduce the carrying value to the estimated fair market value.

Note 4: Accumulated Other Comprehensive Loss

The following table summarizes the changes in the Company’s accumulated other comprehensive (loss) income (AOCI), net of tax, by component for the three months ended June 30, 2016:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at March 31, 2016
 
$
(183.0
)
 
$
1.4

 
$
(0.2
)
 
$
(106.9
)
 
$
0.4

 
$
(288.3
)
Other comprehensive income (loss) before reclassifications (1)
 
21.8

 
(3.9
)
 

 

 

 
17.9

Amounts reclassified from AOCI
 

 

 

 
1.0

 

 
1.0

Net current-period other comprehensive income (loss)
 
21.8

 
(3.9
)
 

 
1.0

 

 
18.9

Balance at June 30, 2016
 
$
(161.2
)
 
$
(2.5
)
 
$
(0.2
)
 
$
(105.9
)
 
$
0.4

 
$
(269.4
)
(1)
Other comprehensive income (loss) before reclassifications within the translation component excludes $(0.8) of translation attributable to noncontrolling interests.


11

Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 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 June 30, 2015:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at March 31, 2015
 
$
(143.5
)
 
$
2.9

 
$
(0.4
)
 
$
(112.9
)
 
$
0.3

 
$
(253.6
)
Other comprehensive income (loss) before reclassifications (1)
 
6.2

 
(1.0
)
 
0.1

 

 

 
5.3

Amounts reclassified from AOCI
 

 

 

 
1.1

 

 
1.1

Net current-period other comprehensive income (loss)
 
6.2

 
(1.0
)
 
0.1

 
1.1

 

 
6.4

Balance at June 30, 2015
 
$
(137.3
)
 
$
1.9

 
$
(0.3
)
 
$
(111.8
)
 
$
0.3

 
$
(247.2
)
(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 six months ended June 30, 2016:

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

 
$
(0.1
)
 
$
(107.8
)
 
$
0.4

 
$
(318.1
)
Other comprehensive income (loss) before reclassifications (1)
 
54.4

 
(7.5
)
 

 

 

 
46.9

Amounts reclassified from AOCI
 

 

 
(0.1
)
 
1.9

 

 
1.8

Net current-period other comprehensive income (loss)
 
54.4

 
(7.5
)
 
(0.1
)
 
1.9

 

 
48.7

Balance at June 30, 2016
 
$
(161.2
)
 
$
(2.5
)
 
$
(0.2
)
 
$
(105.9
)
 
$
0.4

 
$
(269.4
)
(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 six months ended June 30, 2015:
 
 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2015
 
$
(74.9
)
 
$
(1.4
)
 
$
(0.5
)
 
$
(114.0
)
 
$
0.3

 
$
(190.5
)
Other comprehensive (loss) income before reclassifications (1)
 
(62.4
)
 
3.3

 
0.3

 

 

 
(58.8
)
Amounts reclassified from AOCI
 

 

 
(0.1
)
 
2.2

 

 
2.1

Net current-period other comprehensive (loss) income
 
(62.4
)
 
3.3

 
0.2

 
2.2

 

 
(56.7
)
Balance at June 30, 2015
 
$
(137.3
)
 
$
1.9

 
$
(0.3
)
 
$
(111.8
)
 
$
0.3

 
$
(247.2
)
(1)
Other comprehensive (loss) income before reclassifications within the translation component excludes $0.3 of translation attributable to noncontrolling interests.


12

Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 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
 
Six Months Ended
 
Affected Line Item in the Statement of Operations
 
 
2016
 
2015
 
2016
 
2015
 
Interest rate hedges
 
$

 
$

 
$
(0.1
)
 
$
(0.1
)
 
Interest expense
Pension and post-retirement benefits:
 
 
 
 
 
 
 
 
 
 
Net actuarial loss amortization (net of tax $(0.5), $(0.6), $(1.0) and $(1.2), respectively)
 
1.0

 
1.2

 
1.9

 
2.3

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

 
(0.1
)
 

 
(0.1
)
 
(1)
 
 
1.0

 
1.1

 
1.9

 
2.2

 
 
Total reclassifications for the period
 
$
1.0

 
$
1.1

 
$
1.8

 
$
2.1

 
 
(1)
Pension and other post-retirement benefits AOCI components are included in the computation of net periodic benefit cost (refer to note 12).
 
Note 5: Share-Based Compensation

The Company’s share-based compensation payments to employees are recognized based on their grant-date fair values during the period in which the employee is required to provide services in exchange for the award. Share-based compensation is primarily recognized as a component of selling and administrative expense. Total share-based compensation expense was $4.5 and $4.8 for the three months ended June 30, 2016 and 2015, respectively, and was $10.1 and $9.1 for the six months ended June 30, 2016 and 2015, respectively.

Options outstanding and exercisable as of June 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 six months ended June 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
 
(0.2
)
 
$
39.30

 
 
 
 
Granted
 
0.5

 
$
27.39

 
 
 
 
Outstanding at June 30, 2016
 
2.0

 
$
32.09

 
8
 
$

Options exercisable at June 30, 2016
 
1.1

 
$
33.87

 
6
 
$

Options vested and expected to vest at June 30, 2016 (2)
 
1.9

 
$
32.17

 
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 second 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 June 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.


13

Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 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 six months ended June 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
)
 
$
31.71

Granted
 
0.5

 
$
27.13

Non-vested at June 30, 2016
 
1.1

 
$
30.12

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

 
$
34.06

Forfeited
 

 
$
32.58

Vested
 
(0.2
)
 
$
29.35

Granted
 
0.6

 
$
27.26

Non-vested at June 30, 2016
 
1.2

 
$
31.48


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

Note 6: Income Taxes

The effective tax rate on the income from the continuing operations was 41.7 percent and 13.6 percent for the three months ended June 30, 2016 and 2015, respectively. The effective tax rate was 99.4 percent and (3.2) percent for the six months ended June 30, 2016 and 2015, respectively. The tax rate on the loss for the three and six months ended June 30, 2016 increased due to the recognition of favorable discrete items, including the release of an uncertain tax position and discrete expenses related to the potential Wincor Nixdorf Aktiengesellschaft (Wincor Nixdorf) acquisition (the Acquisition). The tax rate for these periods was also increased by a reduction in the deferred tax liability associated with the Company’s undistributed foreign subsidiary earnings. The foreign currency hedges related to the Acquisition generated a loss for the three months ended June 30, 2016 and a net gain for six months ended June 30, 2016. The non-taxable treatment of these hedges had the impact of decreasing the rate in the three months ended June 30, 2016 and increasing the rate for the six months ended June 30, 2016. The tax rate on income for the three and six months ended June 30, 2015 benefited from a release of an uncertain tax position due to the expiration of the statute of limitations. Additionally, the tax rate for the six months ended June 30, 2015 benefited from discrete tax items related to the Venezuela divestiture and the release of a valuation allowance.

Note 7: Investments

The Company’s investments, primarily in Brazil, consist of certificates of deposit that are classified as available-for-sale and stated at fair value based upon quoted market prices. Unrealized gains and losses are recorded in AOCI. Realized gains and losses are recognized in investment income and are determined using the specific identification method. There were no realized gains from the sale of securities and proceeds from the sale of available-for-sale securities for the three and six months ended June 30, 2016 and 2015.


14

Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 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 $75.9 at both June 30, 2016 and December 31, 2015, consisted of the following:
 
 
Cost Basis
 
Unrealized Gain
 
Fair Value
As of June 30, 2016
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
26.6

 
$

 
$
26.6

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

 
$
0.4

 
$
8.1

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

 
$

 
$
39.9

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

 
$

 
$
9.3


Note 8: Allowance for Credit Losses

The following table summarizes the Company’s allowance for credit losses for the six months ended June 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
 

 

 

Balance at June 30, 2016
 
$
0.5

 
$
4.1

 
$
4.6

 
 
 
 
 
 
 
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 June 30, 2015

$
0.6


$
4.1


$
4.7


There were no significant changes in provision for credit losses, recoveries and write-offs during the six months ended June 30, 2016 and 2015. As of June 30, 2016, finance leases and notes receivable individually evaluated for impairment were $63.5 and $8.7, respectively. As of June 30, 2015, finance leases and notes receivable individually evaluated for impairment were $118.9 and $14.6, respectively. As of June 30, 2016 and December 31, 2015, the Company’s finance lease receivables in Latin America were $49.5 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 June 30, 2016 and December 31, 2015, the recorded investment in past due financing receivables on nonaccrual status was $0.6 and $0.7, respectively, and there were no recorded investments in finance receivables past due 90 days or more and still accruing interest. The recorded investment in impaired notes receivable was $4.1 as of June 30, 2016 and December 31, 2015 and was fully reserved.


15

Table of Contents
DIEBOLD, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 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:
 
 
June 30, 2016
 
December 31, 2015
30-59 days past due
 
$
0.1

 
$
0.1

60-89 days past due
 

 

> 89 days past due (1)
 
3.8

 
3.0

Total past due
 
$
3.9

 
$
3.1

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

Note 9: Inventories

Major classes of inventories are summarized as follows:
 
 
June 30, 2016
 
December 31, 2015
Finished goods
 
$
180.1

 
$
145.8

Service parts
 
155.8

 
155.7

Raw materials and work in process
 
94.9

 
67.8

Total inventories
 
$
430.8

 
$
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.

Note 10: Goodwill and Other Assets

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

 
$
40.0

 
$
168.7

 
$
143.7

 
$
428.8

Accumulated impairment losses
(13.2
)
 

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

 
$
40.0

 
$

 
$
34.9

 
$
138.1

Goodwill acquired
39.7

 

 

 

 
39.7

Currency translation adjustment
(3.4
)
 
(2.4
)
 

 
(10.5
)
 
(16.3
)
Goodwill
$
112.7

 
$
37.6

 
$
168.7

 
$
133.2

 
$
452.2

Accumulated impairment losses
(13.2
)
 

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

 
$
37.6

 
$

 
$
24.4

 
$
161.5

Goodwill adjustment
(0.5
)
 

 

 

 
(0.5
)
Currency translation adjustment
3.3

 
0.3

 

 
4.6

 
8.2

Goodwill
115.5

 
37.9

 
168.7

 
137.8

 
459.9

Accumulated impairment losses
(13.2
)
 

 
(168.7
)
 
(108.8
)
 
(290.7
)
Balance at June 30, 2016
$
102.3

 
$
37.9

 
$

 
$
29.0

 
$
169.2


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

There have been no impairment indicators identified during the six months ended June 30, 2016.


16

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


The following summarizes information on intangible assets by major category:
 
June 30, 2016
 
December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Internally-developed
software
$
97.6

 
$
(49.1
)
 
$
48.5

 
$
92.4

 
$
(48.5
)
 
$
43.9

Other intangibles
37.1

 
(17.7
)
 
19.4

 
36.7

 
(16.3
)
 
20.4

Total
$
134.7

 
$
(66.8
)
 
$
67.9

 
$
129.1

 
$
(64.8
)
 
$
64.3


Amortization expense on capitalized software of $2.6 and $4.1 was included in product cost of sales for the three months ended June 30, 2016 and 2015, respectively, and $5.8 and $7.6 for the six months ended June 30, 2016 and 2015, respectively.

Note 11: Debt and Restricted Cash

Debt

Outstanding debt balances were as follows:
 
 
June 30, 2016
 
December 31, 2015
Notes payable
 
 
 
 
Uncommitted lines of credit
 
$
16.0

 
$
19.2

Term loans
 
21.3

 
11.5

Other
 
1.7

 
1.3

 
 
$
39.0

 
$
32.0

Long-term debt
 
 
 
 
Revolving credit facility
 
$
310.0

 
$
168.0

Term loans
 
1,591.5

 
218.5

2016 Senior Notes
 
400.0

 

2006 Senior Notes
 

 
225.0

Other
 
0.8

 
1.6

Long-term deferred financing fees
 
(28.3
)
 
(6.9
)
 
 
$
2,274.0

 
$
606.2


As of June 30, 2016, the Company had various international short-term uncommitted lines of credit with borrowing limits of $113.5. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of June 30, 2016 and December 31, 2015 was 10.49 percent and 5.66 percent, respectively. The increase in the weighted-average interest rate is attributable to a change in mix of borrowings of foreign entities. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at June 30, 2016 was $97.5.


17

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


The cash flows related to debt borrowings and repayments were as follows:
 
 
Six Months Ended
 
 
June 30, 2016
 
 
June 30, 2016
 
June 30, 2015
Revolving credit facility borrowings (repayments), net
 
$
142.0

 
$
(68.0
)
 
 
 
 
 
Proceeds from Term Loan A Facility under the Credit Agreement
 
$

 
$
230.0

Proceeds from Term Loan B Facility ($1,000.0) under the Credit Agreement
 
990.0

 

Proceeds from Term Loan B Facility (€350.0) under the Credit Agreement
 
398.1

 

Proceeds from 2016 Senior Notes
 
393.0

 

International short-term uncommitted lines of credit borrowings
 
25.9

 
41.2

Other debt borrowings
 
$
1,807.0

 
$
271.2

 
 
 
 
 
Payments on 2006 Senior Notes
 
$
(225.0
)
 
$

Payments on Term Loan A Facility under the Credit Agreement
 
(5.8
)
 

International short-term uncommitted lines of credit and other repayments
 
(25.4
)
 
(42.3
)
Other debt repayments
 
$
(256.2
)
 
$
(42.3
)

The Company entered into a revolving and term loan credit agreement (the Credit Agreement), dated as of November 23, 2015, among the Company and certain of the Company's subsidiaries, as borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders named therein. The Credit Agreement included, among other things, mechanics for the Company’s existing revolving and term loan A facilities to be refinanced under the Credit Agreement. On December 23, 2015, the Company entered into a Replacement Facilities Effective Date Amendment, which amended the Credit Agreement, among the Company, certain of the Company’s subsidiaries, the lenders identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to which the Company refinanced its $520.0 revolving and $230.0 term loan A senior unsecured credit facilities (which have been terminated and repaid in full) with, respectively, a new unsecured revolving facility (the Revolving Facility) in an amount of up to $520.0 and a new (non-delayed draw) unsecured term loan A facility (the Term Loan A Facility) on substantially the same terms as the Delayed Draw Term Facility (as defined in the Credit Agreement) in the amount of up to $230.0. The Delayed Draw Term Facility of $250.0 may be drawn up to one year after the closing date of the Acquisition. The Revolving Facility and Term Loan A Facility are subject to the same maximum consolidated net leverage ratio and minimum consolidated interest coverage ratio as the Delayed Draw Term Facility. On December 23, 2020, the Term Loan A Facility will mature and the Revolving Facility will automatically terminate. The weighted-average interest rate on outstanding revolving credit facility borrowings as of June 30, 2016 and December 31, 2015 was 1.88 percent and 2.33 percent, respectively, which is variable based on the London Interbank Offered Rate (LIBOR). The amount available under the revolving credit facility as of June 30, 2016 was $210.0.

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

Also in April 2016, allocation and pricing of the term loan B facility (the Term Loan B Facility) provided under the Credit Agreement (which the Term Loan B Facility is intended to provide part of the financing for the Acquisition) was completed. The Term Loan B Facility consists of a $1,000.0 U.S. dollar-denominated tranche that bears interest at LIBOR plus an applicable margin of 4.50 percent (or, at the Company’s option, prime plus an applicable margin of 3.50 percent), and a €350.0 euro-denominated tranche that will bear interest at the Euro Interbank Offered Rate (EURIBOR) plus an applicable margin of 4.25 percent. Each tranche was funded during the second quarter of 2016 at 99 percent of par.


18

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


The Company incurred $10.4 and $11.2 of fees in the three and six months ended June 30, 2016, respectively, related to the debt, which are amortized as a component of interest expense over the terms.

Below is a summary of financing and replacement facilities information, upon closing of the Acquisition and first compliance certificate:
Financing and Replacement Facilities
 
Interest Rate
Index and Margin
 
Maturity/Termination Dates
 
Term (Years)
Credit Agreement facilities
 
 
 
 
 
 
Revolving Facility
 
LIBOR + 2.00%
 
December 2020
 
5
Term Loan A Facility
 
LIBOR + 2.00%
 
December 2020
 
5
Delayed Draw Term Loan A
 
LIBOR + 2.00%
 
December 2020
 
5
Term Loan B Facility ($1,000.0)
 
LIBOR(i) + 4.50%
 
November 2023
 
7.5
Term Loan B Facility (€350.0)
 
EURIBOR(ii) + 4.25%
 
November 2023
 
7.5
2016 Senior Notes
 
8.5%
 
April 2024
 
8
(i) 
LIBOR with a floor of 0.75%.
(ii) 
EURIBOR with a floor of 0.75%.

Following the close of the Acquisition, the debt facilities under the Credit Agreement will be secured by substantially all assets of the Company and its domestic subsidiaries that are borrowers or guarantors under the Credit Agreement, subject to certain exceptions and permitted liens.

In March 2006, the Company issued senior notes (2006 Senior Notes) in an aggregate principal amount of $300.0. The Company funded the repayment of $75.0 aggregate principal amount of the 2006 Senior Notes at maturity in March 2013 using borrowings under its revolving credit facility and the repayment of $175.0 aggregate principal amount of the Company's 2006 Senior Notes which matured in March 2016 through the use of proceeds from the divestiture of the Company's NA electronic security business. Prepayment of the remaining $50.0 aggregate principal amount of the 2006 Senior Notes were paid in full on May 2, 2016. The prepayment included a make-whole premium of $3.9, which was paid in addition to the principal and interest of the 2006 Senior Notes and is included in interest expense for the six months ended June 30, 2016.

The Company’s financing agreements contain various restrictive financial covenants, including net debt to capitalization, net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) and net interest coverage ratios. As of June 30, 2016, the Company was in compliance with the financial and other covenants in its debt agreements.

Restricted Cash

As of June 30, 2016, the Company had $1,823.0 in restricted cash to be used for the cash portion of the Acquisition, paying off existing debt and related interest, as well as any deal costs pursuant to the terms of the Credit Agreement. The carrying value of restricted cash approximates its fair value and is included in cash flows from investing and financing activities. Restricted cash in investing activities consists of the proceeds from the debt borrowings related to the Acquisition. Restricted cash in financing activities consists of the domestic net proceeds from the NA electronic security divestiture offset by the $175.0 and $50.0 payments of the 2006 Senior Notes during the first and second quarter of 2016, respectively. Restricted cash is expected to be fully utilized or unrestricted no later than the fourth quarter of 2016.


19

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


Note 12: Benefit Plans

The Company has qualified pension plans covering certain U.S. employees that have been closed to new participants since 2003 and frozen since December 2013. Plans that cover salaried employees provide pension benefits based on the employee’s compensation during the ten years before retirement. The Company’s funding policy for salaried plans is to contribute annually based on actuarial projections and applicable regulations. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The Company’s funding policy for hourly plans is to make at least the minimum annual contributions required by applicable regulations. Employees of the Company’s operations in countries outside of the United States participate to varying degrees in local pension plans, which in the aggregate, are not significant.

The Company has non-qualified pension plans to provide supplemental retirement benefits to certain officers, which was also frozen since December 2013. Benefits are payable at retirement based upon a percentage of the participant’s compensation, as defined. In addition to providing pension benefits, the Company provides post-retirement healthcare and life insurance benefits (referred to as other benefits) for certain retired employees. Currently, there are no plan assets and the Company funds the benefits as the claims are paid.

Eligible employees may be entitled to these benefits based upon years of service with the Company, age at retirement and collective bargaining agreements. Currently, the Company has made no commitments to increase these benefits for existing retirees.

The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans and other benefits for the three months ended June 30:
 
 
Pension Benefits
 
Other Benefits
 
 
2016
 
2015
 
2016
 
2015
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
Service cost
 
$
0.9

 
$
0.9

 
$

 
$

Interest cost
 
6.2

 
6.0

 
0.1

 
0.2

Expected return on plan assets
 
(6.8
)
 
(6.8
)
 

 

Amortization of prior service benefit