Diebold Nixdorf (DBD)

FORM 10-K | Annual Report
Feb. 24, 2017 9:56 AM
|
About: Diebold Nixdorf (DBD)View as PDF
DIEBOLD NIXDORF, Inc (Form: 10-K, Received: 02/24/2017 10:10:52)


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from    to
Commission file number 1-4879
Diebold Nixdorf, Incorporated
(Exact name of registrant as specified in its charter)
Ohio
34-0183970
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
5995 Mayfair Road,
P.O. Box 3077, North Canton, Ohio
44720-8077
(Address of principal
executive offices)
(Zip Code)
Registrants telephone number, including area code (330) 490-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Shares $1.25 Par Value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  x   No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes  o   No  x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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   o
Smaller reporting company   o
(do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  o   No  x

Approximate aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2016, based upon the closing price on the New York Stock Exchange on June 30, 2016, was $1,613,589,568 .

Number of shares of common stock outstanding as of February 16, 2017 was 75,347,468 .

DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents, portions of which are incorporated by reference, and the parts of this Form 10-K into which such portions are incorporated:
Diebold Nixdorf, Incorporated Proxy Statement for 2017 Annual Meeting of Shareholders to be held on or about April 26, 2017, portions of which are incorporated by reference into Part III of this Form 10-K.




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 
 
 
 
 
 
 
 
 
 
 
 






PART I

ITEM 1: BUSINESS
(dollars in millions)

GENERAL

Diebold Nixdorf, Incorporated (collectively with its subsidiaries, the Company) provides connected commerce services, software and technology to enable millions of transactions each day. The Company’s approximately 25,000 employees design and deliver convenient, “always on” and highly secure solutions that bridge the physical and the digital worlds of transactions. Customers of the Company include nearly all of the world’s top 100 financial institutions and a majority of the top 25 global retailers.

In 2016, the Company changed its name from Diebold to Diebold Nixdorf, following the transformational acquisition of Wincor Nixdorf Aktiengesellschaft (now known as Diebold Nixdorf AG). As a result of the acquisition, the Company has significantly increased its presence around the world and now conducts business in more than 130 countries. The Company was founded in 1859 and is incorporated under the laws of the state of Ohio.

Strategy
The Company’s Connected Commerce strategy seeks to continually enhance the customer experience at banking or retail locations by integrating services, software and systems. This requires ongoing investment and development of our industry-leading field services organization as well as the development and integration of innovative technology including cloud computing technology, sensors and connectivity to the Internet of Things, as well as open and agile software. The Company will continuously refine its R&D spend in support of a better transaction experience for consumers

Multi-Year Integration Program
The Company is executing a multi-year integration program designed to optimize the assets, business processes, and IT systems of Diebold Nixdorf. This program, in aggregate, has identified an opportunity to realize approximately $160 of cost synergies over three years. These cost synergies include:

Realizing volume discounts on direct materials
Harmonizing the solutions set
Increasing utilization rates of the service technicians
Rationalizing facilities in the regions
Streamlining corporate and general and administrative functions
Harmonizing back office solutions.

The Company has and will continue to invest significant dollars to restructure the workforce, optimize legacy systems, streamline legal entities and consolidate real estate holdings. By executing these integration activities, the Company expects to deliver greater innovation for customers, career enrichment opportunities for employees, and enhanced value for shareholders.

SERVICE AND PRODUCT SOLUTIONS

Financial Self-Service

The Company is a leader in providing connected commerce solutions to financial institutions. These solutions are supported by a dedicated field service organization. The combination of high reliability, industry-leading security, remote management capabilities and highly-trained field technicians has made the Company a preferred choice for financial self-service (FSS) solutions. Through managed services, banks entrust the management of their automated teller machine (ATM) and security operations to the Company, allowing their associates to focus on core competencies. Furthermore, the Company’s managed services deliver greater operational efficiencies and provide financial institutions with a leading-edge solutions that they need to stay competitive in the marketplace.

A significant demand driver in the global ATM marketplace is branch automation, which helps financial institutions grow revenue, reduce costs, and increase convenience and security for the banks’ customers by migrating routine transactions, typically done inside the branch, to lower-cost automated channels. The Company serves as a strategic partner to its customers by offering a complete branch automation solution - services, software and technology - that addresses the complete value chain of consult, design, build and operate. The Company’s advisory services team collaborates with its clients to help define the ideal customer experience, modify processes, refine existing staffing models and deploy technology to meet branch automation objectives. The in-lobby teller terminal provides branch automation technology by combining the speed and accuracy of a self-service terminal with intelligence from the bank’s core systems, as well as the ability to complete higher value transactions away from the teller line.


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The Company also offers hardware-agnostic, omni-channel software solutions for ATMs and a host of other self-service applications. These offerings include highly configurable, enterprise-wide software that automates and migrates financial services across channels, changing the way financial products are delivered to consumers.

The Company continues to invest in supporting current and developing new services, software and security solutions that align with the needs of its customers. At recent trade shows, the Company showcased several new FSS concepts. The Company is piloting advanced analytics capabilities with Banco Popular that enable financial institutions to have a complete view of the self-service channel and improve ATM availability by anticipating maintenance needs. Additionally, the Company introduced the new Extreme ATM™ concept - the smallest ATM ever developed - which utilizes a cardless Bluetooth-enabled mobile interface.

The Company offers an integrated line of self-service solutions and technology, including comprehensive ATM outsourcing, ATM security, deposit automation, recycling, payment terminals and software. The Company also offers advanced functionality terminals capable of supporting mobile cardless transactions and two-way video technology to enhance bank branch automation. The Company is a global supplier of ATMs and related services and holds a leading market position in many countries around the world.

Financial Self-Service Support & Maintenance. From analysis and consulting to monitoring and repair, the Company provides value and support to its customers every step of the way. Services include installation and ongoing maintenance of our products, availability management, branch automation and distribution channel consulting. Additionally, service revenue includes services and parts the Company provides on a billed work basis that are not covered by warranty or service contract.

Value-added Services.

Managed Services and Outsourcing - The Company provides end-to-end managed services and full outsourcing solutions, which include remote monitoring, troubleshooting for self-service customers, transaction processing, currency management, maintenance services and full support via person-to-person or online communication. This helps customers maximize their self-service channel by incorporating new technology, meeting compliance and regulatory mandates, protecting their institutions and reducing costs, all while ensuring a high level of service for their customers. The Company provides value to its customers by offering a comprehensive array of hardware-agnostic managed services and support.
Professional Services - The Company’s service organization provides strategic analysis and planning of new systems, systems integration, architectural engineering, consulting and project management that encompass all facets — services, software and technology — of a successful self-service implementation. The Company’s advisory services team collaborates with our customers to help define the ideal experience, modify processes, refine existing staffing models and deploy technology to meet branch automation objectives.
Multi-vendor Services - The Company recently sharpened its focus on securing multi-vendor services contracts primarily in North America. With the prevalence of mixed ATM fleets at financial institutions, the ability to service competitive units allows the Company to offer a differentiated, full service solution to its customers.

Financial Self-Service Software. The Company offers integrated, multi-vendor ATM software solutions designed to meet the evolving demands of a customer’s self-service network. There are five primary types of self-service software that the Company provides for customers, which include 1) terminal application software, 2) automation technology software, 3) operational software, 4) marketing software and 5) security. Terminal application software provides the ability to integrate seamlessly into traditional and multi-vendor environments while providing advanced service options to bring new functions quicker to market and improve the customer experience while providing the financial institution the ability to host this centrally or distribute the software at its terminals. Automation technology software enables the self-service platform to transform into a robust enterprise banking solution that can connect seamlessly to other banking channels and systems for a consistent user experience, advanced functionality and greater operational efficiencies. Operational software provides centralized management of the entire self-service fleet, providing better intelligence and operations for improved efficiencies and cost control using data analytics. Marketing software allows financial institutions to provide personalized interaction with the consumer through the self-service channel, enhancing customer satisfaction and revenue generation. All software has enhanced security functions built-in for providing financial institutions the flexibility and enhanced consumer experience while ensuring that they are the trusted partners in the eco-system.

Financial Self-Service Solutions. The Company offers a wide variety of self-service solutions, including a full range of teller automation terminals as well as ATMs capable of cash dispensing and a number of more advanced functionalities, including check and cash deposit automation, cash recycling, mobile capabilities and two-way video.

The Company offers a suite of next-generation self-service terminals (Diebold Series), which offer a wide range of available capabilities and give the Company the most modern fleet of ATMs in the market. The Diebold Series terminal consists of three new lines of ATMs — standard market, extended branch and high-performance. Each line is designed to meet specific market and branch needs: (1) the standard line is ideal for high-growth areas with mass-market applications; (2) the extended branch line offers rich transaction sets and advanced functionalities; and (3) the high-performance line offers highly personalized self-service experiences that are ideal for high-traffic, high-volume environments. This self-service platform, paired with the Company's industry-leading services and software, provide a complete end-to-end solution for financial institutions.


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The Company remains committed to collaborative innovation with its customers. In 2015, the Company introduced two new self-service concepts, Irving and Janus. Irving utilizes a number of different consumer recognition technologies and a secure mobile phone application to execute cardless transactions. The Company is a leader in self-service biometrics and the Irving concept leverages these capabilities with iris-scanning ATM technology that is being piloted by one of the largest banks in the United States. Janus is a dual-sided self-service terminal, that features video teller access and is capable of serving two consumers simultaneously.

Retail Solutions

The Company’s retail solutions primarily consist of omni-channel retailing, store transformation and global delivery excellence. Omni-channel retailing ensures a seamless consumer experience across all consumer touchpoints. Store transformation is focused on providing leading technologies that improve consumer experience and productivity. Global delivery excellence drives operational improvements that increase efficiency while reducing costs. The Company differentiates itself by developing, delivering and operating globally integrated information technology (IT) solutions for customers and adjusting them with the help of local experts to meet customer requirements globally. For the twelve months ended September 30, 2016, retail solution revenues were €1,035.3 as reported using International Financial Reporting Standards (IFRS) issued by the European Union (EU).

Software is a key differentiator for the retail business and in this sector the Company provides a comprehensive, modular solutions platform. Click & collect, reserve & collect, in-store ordering and return to store are typical shopping processes that consumers expect retailers to be able to deliver across their footprint and digital sales channels. With TP.net, the Company offers a comprehensive software solution to improve end-to-end store processes in support of omni-channel retailing. TP.net and the other components of the TP Application Suite are designed on a modular principle and can be integrated fully or partially into existing infrastructures. Data from typical information sources such as inventories, omni-channel transactions and customer information are available at the customer touchpoints in stores, including traditional point of sale (POS) terminals and self-service checkout systems, kiosk terminals and mobile devices like tablets, as well as at enterprise functions at the retailers’ headquarters.

Retail service experts are trained to install, monitor and operate store IT solutions on a global scale and provide retail companies with full service support throughout the store’s life cycle. The service experts can install and operate multi-vendor solutions. Retailers that aim to optimize their total cost of ownership utilize the Company’s services to increase system availability. The services ensure the rapid recovery of system failures and are provided on-site by field service engineers or by means of remote maintenance. The Company also provides cash cycle management services, which ensures the availability of cash recycling systems in both the front and back-offices.

Additionally, the Company also provides innovative and reliable POS technology that is being optimized continually to meet increasing automation requirements and to support omni-channel retailing. The checkout portfolio includes modular, integrated and mobile POS systems. Supplementing the POS systems is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio which offers a wide range of banknote and coin processing systems. Also in the portfolio, the Company provides self-checkout terminals that ensure a consistent purchasing experience with their focus on speed, convenience and flexibility. The latest hybrid product generation can be switched from attended operation to self-checkout by the cashier with the press of a button and is thus a highly attractive solution for retailers with fluctuating store traffic throughout the day.

Security Solutions

From the safes and vaults that the Company first manufactured in 1859 to the full range of physical and electronic security offerings it provides today, the Company’s security solutions combine an extensive services portfolio and advanced products to help address its customers’ unique needs. The Company provides its customers with the latest technological advances to better protect their assets, improve their workflow and increase their return on investment. All of these solutions are backed with experienced sales, installation and service teams.

Physical Security. The Company provides services for a portfolio of physical security offerings, in addition to serving as a national locksmith. The product portfolio consists of two primary product groups, facility products and barrier solutions. Facility products include pneumatic tube systems for drive-up lanes, as well as video and audio capability to support remote transactions. Barrier solutions include vaults, safes, depositories, bullet-resistive items and under-counter equipment. The Company recently launched its VeraPass® barrier solution, which is a unique access solution for financial institutions, retailers, and commercial property management firms that enhances the management of locks and keys.

Electronic Security. In international locations, the Company provides a broad range of electronic security services and products, as well as monitoring solutions. The Company provides security monitoring solutions, including remote monitoring and diagnostics, fire detection, intrusion protection, managed access control, energy management, remote video management and storage, logical security and web-based solutions through its SecureStat® platform.


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Brazil Other

The Company provides voting machines for official elections and the terminals for the governmental lottery and correspondent bank, which are distributed in more than 11,000 locations across Brazil. During 2015, the Company narrowed its scope in the Brazil other business to primarily focus on lottery and elections to help rationalize its solution set in that market.

OPERATIONS

The Company’s operating results and the amount and timing of revenue are affected by numerous factors, including production schedules, customer priorities, sales volume and sales mix. During the past several years, the Company has changed the focus of its FSS business to that of a total solutions provider with a focus on services and software.

The principal raw materials used by the Company in its manufacturing operations are steel, plastics, electronic parts and components, and spare parts, which are purchased from various major suppliers. These materials and components are generally available in ample quantities.

The Company carries working capital mainly related to trade receivables and inventories. Inventories generally are only manufactured or purchased as orders are received from customers. The Company’s normal and customary payment terms generally range from 30 to 90 days from date of invoice. The Company generally does not offer extended payment terms. The Company also provides financing arrangements to customers that are largely classified and accounted for as sales-type leases. As of December 31, 2016 , the Company’s net investment in finance lease receivables was $63.7 .

SEGMENTS AND FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

The Company’s operations are comprised of four geographic segments: North America (NA), Asia Pacific (AP), Europe, Middle East and Africa (EMEA), and Latin America (LA). The four geographic segments sell and service FSS, retail solutions and security systems around the globe through wholly-owned subsidiaries, strategic alliances, joint ventures and independent distributors in more than 130 countries.

Sales to customers outside the United States in relation to total consolidated net sales were $2,296.2 or 69.2 percent in 2016 , $1,405.0 or 58.1 percent in 2015 and $1,698.9 or 62.1 percent in 2014 .

Property, plant and equipment, net, located in the United States totaled $111.2 , $130.4 and $116.5 as of December 31, 2016 , 2015 and 2014 , respectively, and property, plant and equipment, net, located outside the United States totaled $275.8 , $44.9 and $49.2 as of December 31, 2016 , 2015 and 2014 , respectively.

Additional financial information regarding the Company’s international operations is included in note 22 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K. The Company’s non-U.S. operations are subject to normal international business risks not generally applicable to domestic business. These risks include currency fluctuation, new and different legal and regulatory requirements in local jurisdictions, political and economic changes and disruptions, tariffs or other barriers, potentially adverse tax consequences and difficulties in staffing and managing foreign operations.

PRODUCT BACKLOG

The Company's product backlog, was $1,060.0 and $641.1 as of December 31, 2016 and 2015 , respectively. The backlog includes orders estimated or projected to be shipped or installed within 12 months. Although the Company believes the orders included in the backlog are firm, some orders may be canceled by customers without penalty, and the Company may elect to permit cancellation of orders without penalty where management believes it is in the Company's best interests to do so. Historically, the Company has not experienced significant cancellations within its product backlog. Additionally, over 50 percent of the Company's revenues are derived from its service business, for which backlog information is not measured. Therefore, the Company does not believe that its product backlog, as of any particular date, is necessarily indicative of revenues for any future period.

COMPETITION

As described in more detail below, the Company participates in many highly competitive businesses in the services, software and technology space, with a mixture of local, regional and/or global competitors in its markets. In addition, the competitive environment for these types of solutions is evolving as the Company's customers are transforming their businesses utilizing innovative technology. Therefore, the Company’s product, software and service solutions must also provide cutting-edge capabilities to meet the customers emerging needs and compete with new innovators. The Company distinguishes itself by providing unique value with a wide range of innovative solutions to meet customers’ needs.

The Company believes, based upon outside independent industry surveys from Retail Banking Research (RBR), that it is an exceptional service provider for and manufacturer of self-service solutions across the globe. The Company maintains a global service infrastructure that allows it to provide services and support to satisfy its customers’ needs. Many of the Company’s customers are beginning to adopt branch automation solutions to transform their branches, which will improve the customer experience and

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enhance efficiency through the utilization of automated transactions, mobile solutions and other client-facing technologies. As the trend towards branch and store automation continues to build more momentum, the traditional lines of “behind the counter” and “in front of the counter” are starting to blur, which is allowing for more entrants into the market. As customer requirements evolve, separate markets will converge to fulfill new customer demand. The Company expects that this will increase the complexity and competitive nature of the business.

The Company’s competitors in the self-service market segment include global and multi-regional manufacturers and service providers, such as NCR, Nautilus Hyosung, GRG Banking Equipment, Glory Global Solutions, Oki Data and Triton Systems to a number of primarily local and regional manufacturers and service providers, including, but not limited to, Fujitsu and Hitachi-Omron in AP; Hantle/GenMega in NA; KEBA in EMEA; and Perto in LA. In addition, the Company faces competition in many markets from numerous independent ATM deployers.

In the self-service software market, the Company, in addition to the key hardware players highlighted above, competes with several smaller, niche software companies like KAL. In the managed services and outsourcing solutions market, apart from its traditional FSS competitors, the Company competes with a number of large technology competitors such as Fiserv, IBM and HP.

In the retail market, the Company, in addition to the key players highlighted above, competes with a number of large technology competitors such as MICROS, Toshiba, FEC and Cummins Allison.

In the security service and product markets, the Company competes with national, regional and local security companies. Of these competitors, some compete in only one or two product lines, while others sell a broad spectrum of security services and products. The unavailability of comparative sales information and the large variety of individual services and products make it difficult to give reasonable estimates of the Company’s competitive ranking in or share of the security market within the financial services, commercial, retail and government sectors. However, the Company believes it is a very well-positioned security service and solution provider to global, national, regional and local financial, commercial and industrial customers.

The Company provides election systems, product solutions and support to the Brazil government. Competition in this market segment is based upon technology pre-qualification demonstrations to the Brazil government.

RESEARCH, DEVELOPMENT AND ENGINEERING

Customer demand for FSS, retail and security technologies is growing. In order to meet this demand, the Company is focused on delivering innovation to its customers by continuing to invest in technology solutions that enable customers to reduce costs and improve efficiency. Expenditures for research, development and engineering initiatives were $110.2 , $86.9 and $93.6 in 2016 , 2015 and 2014 , respectively. The Company recently announced a number of new innovative solutions, such as the new Extreme ATM™ concept, biometric-enabled solutions, responsive banking concept, the ActivEdge™ secure card reader and the world’s greenest ATM.

PATENTS, TRADEMARKS, LICENSES

The Company owns patents, trademarks and licenses relating to certain products across the globe. While the Company regards these as items of importance, it does not deem its business as a whole, or any industry segment, to be materially dependent upon any one item or group of items. The Company intends to protect and defend its intellectual property, including pursuit of infringing third parties for damages and other appropriate remedies.

ENVIRONMENTAL

Compliance with federal, state and local environmental protection laws during 2016 had no material effect upon the Company’s business, financial condition or results of operations.

EMPLOYEES

At December 31, 2016 , the Company employed approximately 25,000 associates globally. As a result of the acquisition of Diebold Nixdorf AG, the Company has significantly increased its presence around the world and now conducts business in more than 130 countries.

EXECUTIVE OFFICERS

Refer to Part III, Item 10 of this annual report on Form 10-K for information on the Company's executive officers, which is incorporated herein by reference.

AVAILABLE INFORMATION

The Company uses its Investor Relations web site, http://investors.dieboldnixdorf.com , as a channel for routine distribution of important information, including stock information, news releases, investor presentations and financial information. The Company

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posts filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC), including its annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; its proxy statements; registration statements; and any amendments to those reports or statements. All such postings and filings are available on the Company’s Investor Relations web site free of charge. In addition, this web site allows investors and other interested persons to sign up to automatically receive e-mail alerts when the Company posts news releases and financial information on its web site. Investors and other interested persons can also follow the Company on Twitter at http://twitter.com/dieboldnixdorf . The SEC also maintains a web site, www.sec.gov , that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The content on any web site referred to in this annual report on Form 10-K is not incorporated by reference into this annual report unless expressly noted.


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ITEM 1A: RISK FACTORS
(dollars and euros in millions)

The following, including the risk factors relating to the integration of our acquisition of Diebold Nixdorf AG (the Acquisition), are certain risk factors that could affect our business, financial condition, operating results and cash flows. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this annual report on Form 10-K because they could cause actual results to differ materially from those expressed in any forward-looking statement. The risk factors highlighted below are not the only ones we face. If any of these events actually occur, our business, financial condition, operating results or cash flows could be negatively affected.

We caution the reader to keep these risk factors in mind and refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of this annual report on Form 10-K.

The Company may fail to realize the anticipated strategic and financial benefits sought from the Acquisition.

The Company may not realize all of the anticipated benefits of the Acquisition. The success of the Acquisition will depend on, among other things, the Company’s ability to combine its business with Diebold Nixdorf AG’s business in a manner that facilitates growth in the value-added services sector and realizes anticipated cost savings. The Company believes that the Acquisition will provide an opportunity for revenue growth in managed services, professional services, installation and maintenance services.

However, the Company must successfully combine the Acquisition in a manner that permits these anticipated benefits to be realized. In addition, the Company must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth. Further, providing managed services, professional services, installation and maintenance services can be highly complex and can involve the design, development, implementation and operation of new solutions and the transitioning of clients from their existing systems and processes to a new environment. If the Company is not able to effectively provide value-added services and successfully achieve the growth and cost savings objectives, the anticipated benefits of the Acquisition may not be realized fully, or at all, or may take longer to realize than expected.

The Company may experience operational challenges, negative synergies and loss of customers.

Integrating the operations and personnel of the Acquisition involve complex operational, technological and personnel-related challenges. This process will be time-consuming and expensive, and it may disrupt the businesses of the Company. The Company may not realize all of the anticipated benefits of the Acquisition. Difficulties in the integration of the business, which may result in significant costs and delays, include:

managing a significantly larger company;
integrating and unifying the offerings and services available to customers and coordinating distribution and marketing efforts;
coordinating corporate and administrative infrastructures and harmonizing insurance coverage;
unanticipated issues in coordinating accounting, information technology, communications, administration and other systems;
difficulty addressing possible differences in corporate cultures and management philosophies;
challenges associated with changing the Acquisition's financial reporting from IFRS to accounting principles generally accepted in the U.S. (U.S GAAP) and compliance with the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC;
legal and regulatory compliance;
creating and implementing uniform standards, controls, procedures and policies;
litigation relating to the transactions contemplated by a reorganization, including shareholder litigation;
diversion of management’s attention from other operations;
maintaining existing agreements and relationships with customers, distributors, providers and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers and vendors;
realizing the benefits from the Company’s restructuring programs;
unforeseen and unexpected liabilities related to the Acquisition, including the risk that certain of the Company's executive officers may be subject to additional fiduciary duties and liability;
identifying and eliminating redundant and underperforming functions and assets;
effecting actions that may be required in connection with obtaining regulatory approvals; and
a deterioration of credit ratings.

The Company may lose customers or its share of customers’ business as entities that were customers of both Diebold, Incorporated and Diebold Nixdorf AG seek to diversify their suppliers of services and products. Following the Acquisition, customers may no longer distinguish between Diebold, Incorporated and Diebold Nixdorf AG and their respective services and products. Banking customers in particular may turn to competitors of the Company for products and services that they received from the Company prior to the Acquisition. As a result, the Company may lose customers and anticipated revenues may decrease following the Acquisition. In addition, third parties with whom the Company currently has relationships may terminate or otherwise reduce the scope of their relationship. Any such loss of business could limit the Company’s ability to achieve the anticipated benefits of the

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Acquisition. Finally, certain regulatory agencies may propose restrictions, divestitures or other business structures as part of their review and approval process which, if adopted, could have a negative impact, or cause the loss of, certain customer or supplier relationships of the Company.

The Company is exposed to additional litigation risk and uncertainty with respect to the remaining minority shareholders of Diebold Nixdorf AG.

As a result of the Acquisition, the Company continues to be exposed to litigation risk and uncertainty associated with the remaining minority shareholders of Diebold Nixdorf AG. The Company’s willingness and/or ability to acquire all issued and outstanding shares of Diebold Nixdorf AG, and the timing of any such potential acquisition, is uncertain. In addition, the adequacy of both forms of compensation payments to minority shareholders agreed under the terms of the Domination and Profit and Loss Transfer Agreement between Diebold Holding Germany Inc. & Co. KGaA (Diebold KGaA), a wholly-owned subsidiary of the Company and Diebold Nixdorf AG (the DPLTA) is expected to be challenged by minority shareholders of Diebold Nixdorf AG by initiating court-led appraisal proceedings under German law. The Company cannot rule out that the competent court in such appraisal proceeding may adjudicate a higher exit compensation or recurring payment obligation (in each case, including interest thereon) than agreed upon in the DPLTA, the financial impact and timing of which is uncertain.

The Company incurred a substantial amount of indebtedness in connection with the Acquisition and, as a result, is highly leveraged. The Company’s failure to meet its debt service obligations could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company’s high level of indebtedness following the Acquisition could adversely affect the Company’s operations and liquidity. The Company’s level of indebtedness could, among other things:

make it more difficult for the Company to pay or refinance its debts as they become due during adverse economic and industry conditions because the Company may not have sufficient cash flows to make its scheduled debt payments;
cause the Company to use a larger portion of its cash flow to fund interest and principal payments, reducing the availability of cash to fund working capital, capital expenditures, research and development and other business activities;
limit the Company’s ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions;
cause the Company to be more vulnerable to general adverse economic and industry conditions;
cause the Company to be disadvantaged compared to competitors with less leverage;
result in a downgrade in the credit rating of the Company or indebtedness of the Company or its subsidiaries, which could increase the cost of borrowings; and
limit the Company’s ability to borrow additional monies in the future to fund working capital, capital expenditures, research and development and other general corporate purposes.

In addition, the agreements governing the Company's indebtedness contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. The Company's failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all its debt.

The Company may also incur additional long-term debt and working capital lines of credit to meet future financing needs, which would increase our total indebtedness. Although the terms of its existing and future credit agreements and of the indentures governing its debt contain restrictions on the incurrence of additional debt, including secured debt, these restrictions are subject to a number of important exceptions and debt incurred in compliance with these restrictions could be substantial. If the Company and its restricted subsidiaries incur significant additional debt, the related risks that the Company faces could intensify.

The terms of the credit agreement governing our senior credit facility and the Indenture restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The Indenture and the credit agreement governing our senior credit facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:

incur additional indebtedness and guarantee indebtedness;
pay dividends or make other distributions or repurchase or redeem capital stock;
prepay, redeem or repurchase certain debt;
issue certain preferred stock or similar equity securities;
make loans and investments;
sell assets;
incur liens;
enter into transactions with affiliates;
alter the businesses we conduct;
enter into agreements restricting our subsidiaries’ ability to pay dividends; and
consolidate, merge or sell all or substantially all of our assets.

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In addition, the restrictive covenants in the credit agreement governing our senior credit facility require us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we may be unable to meet them.

A breach of the covenants or restrictions under the Indenture or under the credit agreement governing our senior credit facility could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our senior credit facility would permit the lenders under our senior credit facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our senior credit facility, those lenders could proceed against the collateral granted them to secure that indebtedness. In the event our lenders or noteholders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of these restrictions, we may be:

limited in how we conduct our business;
unable to raise additional debt or equity financing to operate during general economic or business downturns; and
unable to compete effectively or to take advantage of new business opportunities.

These restrictions may affect our ability to grow in accordance with our strategy. In addition, our financial results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of our financing.

In addition to the Acquisition, the Company may be unable to successfully and effectively manage acquisitions, divestitures and other significant transactions, which could harm our operating results, business and prospects.

As part of our business strategy, including and in addition to the Acquisition, we frequently engage in discussions with third parties regarding possible investments, acquisitions, strategic alliances, joint ventures, divestitures and outsourcing arrangements, and we enter into agreements relating to such transactions in order to further our business objectives. In order to pursue this strategy successfully, we must identify suitable candidates, successfully complete transactions, some of which may be large and complex, and manage post-closing issues such as the integration of acquired companies or employees and the divestiture of combined businesses, operations and employees. Integration, divestiture and other risks of these transactions can be more pronounced in larger and more complicated transactions, or if multiple transactions are pursued simultaneously. If we fail to identify and successfully complete transactions that further our strategic objectives, we may be required to expend resources to develop products and technology internally. This may put us at a competitive disadvantage and we may be adversely affected by negative market perceptions, any of which may have a material adverse effect on our revenue, gross margin and profitability.

Integration and divestiture issues are complex, time-consuming and expensive and, without proper planning and implementation, could significantly disrupt our business. The challenges involved in integrating and divesting include:

combining service and product offerings and entering into new markets in which we are not experienced;
convincing customers and distributors that any such transaction will not diminish client service standards or business focus, preventing customers and distributors from deferring purchasing decisions or switching to other suppliers or service providers (which could result in additional obligations to address customer uncertainty), and coordinating service, sales, marketing and distribution efforts;
consolidating and rationalizing corporate information technology infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code;
minimizing the diversion of management attention from ongoing business concerns;
persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees, integrating employees into our company, correctly estimating employee benefit costs and implementing restructuring programs;
coordinating and combining administrative, service, manufacturing, research and development and other operations, subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures; 
achieving savings from supply chain and administration integration; and
efficiently divesting combined business operations which may cause increased costs as divested businesses are de-integrated from embedded systems and operations.

We evaluate and enter into these types of transactions on an ongoing basis. We may not fully realize all of the anticipated benefits of any transaction and the time frame for achieving benefits of a transaction may depend partially upon the actions of employees, suppliers or other third parties. In addition, the pricing and other terms of our contracts for these transactions require us to make estimates and assumptions at the time we enter into these contracts, and, during the course of our due diligence, we may not identify all of the factors necessary to estimate costs accurately. Any increased or unexpected costs, unanticipated delays or failure to achieve contractual obligations could make these agreements less profitable or unprofitable.

Managing these types of transactions requires varying levels of management resources, which may divert our attention from other business operations. These transactions could result in significant costs and expenses and charges to earnings, including those

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related to severance pay, early retirement costs, employee benefit costs, asset impairment charges, charges from the elimination of duplicative facilities and contracts, in-process research and development charges, inventory adjustments, assumed litigation, regulatory compliance and other liabilities, legal, accounting and financial advisory fees and required payments to executive officers and key employees under retention plans. Moreover, we could incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with these transactions, and, to the extent that the value of goodwill or intangible assets with indefinite lives acquired in connection with a transaction becomes impaired, we may be required to incur additional material charges relating to the impairment of those assets. In order to complete an acquisition, we may issue common shares, potentially creating dilution for existing shareholders, or borrow funds, which could affect our financial condition, results of operations and potentially our credit ratings. Any prior or future downgrades in our credit rating associated with a transaction could adversely affect our ability to borrow and our borrowing cost, and result in more restrictive borrowing terms. In addition, our effective tax rate on an ongoing basis is uncertain, and such transactions could impact our effective tax rate. We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced transaction may not close. As a result, any completed, pending or future transactions may contribute to financial results that differ materially from the investment community’s expectations.

Demand for and supply of our services and products may be adversely affected by numerous factors, some of which we cannot predict or control. This could adversely affect our operating results.

Numerous factors may affect the demand for and supply of our services and products, including:

changes in the market acceptance of our services and products;
customer and competitor consolidation;
changes in customer preferences;
declines in general economic conditions;
changes in environmental regulations that would limit our ability to service and sell products in specific markets;
macro-economic factors affecting retail stores and banks, credit unions and other financial institutions may lead to cost-cutting efforts by customers, which could cause us to lose current or potential customers or achieve less revenue per customer; and
availability of purchased products.

If any of these factors occur, the demand for and supply of our services and products could suffer, and which could adversely affect our results of operations.

Increased energy and raw material costs could reduce our income.

Energy prices, particularly petroleum prices, are cost drivers for our business. In recent years, the price of petroleum has been highly volatile, particularly due to the unstable political conditions in the Middle East and increasing international demand from emerging markets. Price increases in fuel and electricity costs, such as those increases that may occur from climate change legislation or other environmental mandates, may continue to increase our cost of operations. Any increase in the costs of energy would also increase our transportation costs.

The primary raw materials in our FSS, retail and security product solutions are steel, plastics, and electronic parts and components. The majority of our raw materials are purchased from various local, regional and global suppliers pursuant to supply contracts. However, the price of these materials can fluctuate under these contracts in tandem with the pricing of raw materials.

Although we attempt to pass on higher energy and raw material costs to our customers, it is often not possible given the competitive markets in which we operate.

Our business may be affected by general economic conditions, cyclicality and uncertainty and could be adversely affected during economic downturns.

Demand for our services and products is affected by general economic conditions and the business conditions of the industries in which we sell our services and products. The business of most of our customers, particularly our financial institution and retail customers, is, to varying degrees, cyclical and has historically experienced periodic downturns. Under difficult economic conditions, customers may seek to reduce discretionary spending by forgoing purchases of our services and products. This risk is magnified for capital goods purchases such as ATMs, retail systems and physical security products. In addition, downturns in our customers’ industries, even during periods of strong general economic conditions, could adversely affect the demand for our services and products, and our sales and operating results.

In particular, continuing economic difficulties in the global markets have led to an economic recession in many of the markets in which we operate. As a result of these difficulties and other factors, including new or increased regulatory burdens, financial institutions and retail customers have failed and may continue to fail, resulting in a loss of current or potential customers, or deferred or canceled orders, including orders previously placed. Any customer deferrals or cancellations could materially affect our sales and operating results.


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Additionally, the unstable political conditions in the Middle East, among others, or the sovereign debt concerns of certain countries could lead to further financial, economic and political instability, and this could lead to an additional deterioration in general economic conditions.

We may be unable to achieve, or may be delayed in achieving, our cost-cutting initiatives, and this may adversely affect our operating results and cash flow.

We have launched a number of cost-cutting initiatives, including restructuring initiatives, to improve operating efficiencies and reduce operating costs. Although we have achieved a substantial amount of annual cost savings associated with these cost-cutting initiatives, we may be unable to sustain the cost savings that we have achieved. In addition, if we are unable to achieve, or have any unexpected delays in achieving, additional cost savings, our results of operations and cash flows may be adversely affected. Even if we meet our goals as a result of these initiatives, we may not receive the expected financial benefits of these initiatives.

We face competition that could adversely affect our sales and financial condition.

All phases of our business are highly competitive. Some of our services and products are in direct competition with similar or alternative services or products provided by our competitors. We encounter competition in price, delivery, service, performance, product innovation, product recognition and quality.

Because of the potential for consolidation in any market, our competitors may become larger, which could make them more efficient and permit them to be more price-competitive. Increased size could also permit them to operate in wider geographic areas and enhance their abilities in other areas such as research and development and customer service. As a result, this could also reduce our profitability.

We expect that our competitors will continue to develop and introduce new and enhanced services and products. This could cause a decline in market acceptance of our services and products. In addition, our competitors could cause a reduction in the prices for some of our services and products as a result of intensified price competition. Also, we may be unable to effectively anticipate and react to new entrants in the marketplace competing with our services and products.

Competitive pressures can also result in the loss of major customers. An inability to compete successfully could have an adverse effect on our operating results, financial condition and cash flows in any given period.

Additional tax expense or additional tax exposures could affect our future profitability.

We are subject to income taxes in both the United States (U.S.) and various non-U.S. jurisdictions, and our domestic and international tax liabilities are dependent upon the distribution of income among these different jurisdictions. If we decide to repatriate cash and cash equivalents and short-term investments residing in international tax jurisdictions, there could be further negative impact on foreign and domestic taxes. Our tax expense includes estimates of additional tax that may be incurred for tax exposures and reflects various estimates and assumptions, including assessments of future earnings of the Company that could affect the valuation of our net deferred tax assets. Our future results could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax legislation, changes in the valuation of deferred tax assets and liabilities, the results of audits and examinations of previously filed tax returns and continuing assessments of our income tax exposures.

Additionally, our future results could be adversely affected by the results of indirect tax audits and examinations, and continuing assessments of our indirect tax exposures. For example, in August 2012, one of the Company’s Brazil subsidiaries was notified of a tax assessment of approximately R$270.0, including penalties and interest, regarding certain Brazil federal indirect taxes (Industrialized Products Tax, Import Tax, Programa de Integração Social and Contribution to Social Security Financing) for 2008 and 2009. The assessment alleges improper importation of certain components into Brazil’s free trade zone that would nullify certain indirect tax incentives. In September 2012, the Company filed its administrative defenses with the tax authorities.

In response to an order by the administrative court, the tax inspector provided further analysis with respect to the initial assessment in December 2013 that indicates a potential exposure that is significantly lower than the initial tax assessment received in August 2012. This revised analysis has been accepted by the initial administrative court and lower level appellate court; however, this matter remains subject to ongoing administrative proceedings and appeals. Accordingly, the Company cannot provide any assurance that its exposure pursuant to the initial assessment will be lowered significantly or at all. In addition, this matter could negatively impact Brazil federal indirect taxes in other years that remain open under statute. It is reasonably possible that the Company could be required to pay taxes, penalties and interest related to this matter, which could be material to the Company’s consolidated financial statements. The Company continues to defend itself in this matter.

Furthermore, the Company has challenged customs rulings in Thailand seeking to retroactively collect customs duties on previous imports of ATMs. Management believes that the customs authority’s attempt to retroactively assess customs duties is in contravention of World Trade Organization agreements and, accordingly, is challenging the rulings. In the third quarter of 2015, the Company received a prospective ruling from the U.S. Customs Border Protection that is consistent with the Company's interpretation of the treaty in question. The Company has submitted that ruling for consideration in our ongoing dispute with

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Thailand. In August 2016, the tax court of appeals rendered a decision in favor of the Company related to approximately half of the assessments at issue. The remaining matters are currently in various stages of the appeals process and management continues to believe that the Company has a valid legal position in these appeals. Accordingly, the Company has not accrued any amount for this contingency; however, the Company cannot provide any assurance that it will not ultimately be subject to retroactive assessments.

A loss contingency is reasonably possible if it has a more than remote but less than probable chance of occurring. Although management believes the Company has valid defenses with respect to its indirect tax positions, it is reasonably possible that a loss could occur in excess of the estimated accrual. The Company estimated the aggregate risk at December 31, 2016 to be up to approximately $172.9 for its material indirect tax matters, of which approximately $125.9 and $24.0 , respectively, relates to the Brazil indirect tax matter and Thailand customs matter disclosed above. The aggregate risk related to indirect taxes is adjusted as the applicable statutes of limitations expire. It is reasonably possible that we could be required to pay taxes, penalties and interest related to this matter or other open years, which could be material to our financial condition and results of operations.

In international markets, we compete with local service providers that may have competitive advantages.

In a number of international markets in each region where we operate, for instance in Brazil and China, we face substantial competition from local service providers that offer competing services and products. Some of these companies may have a dominant market share in their territories and may be owned by local stakeholders. This could give them a competitive advantage. Local providers of competing services and products may also have a substantial advantage in attracting customers in their countries due to more established branding in that country, greater knowledge with respect to the tastes and preferences of customers residing in that country and/or their focus on a single market. As a U.S. based multi-national corporation, we must ensure our compliance with both U.S. and foreign regulatory requirements.

Because our operations are conducted worldwide, they are affected by risks of doing business abroad.

We generate a significant percentage of revenue from operations conducted outside the U.S. Revenue from international operations amounted to approximately 69.2 percent in 2016, 58.1 percent in 2015 and 62.1 percent in 2014 of total revenue during these respective years. We expect more of our future revenue to be generated outside the U.S. with the integration of the Acquisition.

Accordingly, international operations are subject to the risks of doing business abroad, including, among other things, the following:

fluctuations in currency exchange rates, particularly in EMEA (primarily the euro and Great Britain pound sterling), China (renminbi) and Brazil (real);
transportation delays and interruptions;
political and economic instability and disruptions;
the failure of foreign governments to abide by international agreements and treaties;
restrictions on the transfer of funds;
the imposition of duties, tariffs and other taxes;
import and export controls;
changes in governmental policies and regulatory environments;
ensuring our compliance with U.S. laws and regulations and applicable laws and regulations in other jurisdictions, including the Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act, and applicable laws and regulations in other jurisdictions;
labor unrest and current and changing regulatory environments;
the uncertainty of product acceptance by different cultures;
the risks of divergent business expectations or cultural incompatibility inherent in establishing joint ventures with foreign partners;
difficulties in staffing and managing multi-national operations;
limitations on the ability to enforce legal rights and remedies;
reduced protection for intellectual property rights in some countries; and
potentially adverse tax consequences, including repatriation of profits.

Any of these events could have an adverse effect on our international operations by reducing the demand for our services and products or decreasing the prices at which we can sell our services and products, thereby adversely affecting our financial condition or operating results. We may not be able to continue to operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to which we may be subject. In addition, these laws or regulations may be modified in the future, and we may not be able to operate in compliance with those modifications.

Additionally, there are ongoing concerns regarding the short- and long-term stability of the euro and its ability to serve as a single currency for a variety of individual countries. These concerns could lead individual countries to revert, or threaten to revert, to their former local currencies, which could lead to the dissolution of the euro. Should this occur, the assets we hold in a country that re-introduces its local currency could be significantly devalued. Furthermore, the dissolution of the euro could cause significant volatility and disruption to the global economy, which could impact our financial results. Finally, if it were necessary for us to conduct our business in additional currencies, we would be subjected to additional earnings volatility as amounts in these currencies are translated into U.S. dollars.

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We may be exposed to liabilities under the FCPA, which could harm our reputation and have a material adverse effect on our business.

We are subject to compliance with various laws and regulations, including the FCPA and similar worldwide anti-bribery laws, which generally prohibit companies and their intermediaries from engaging in bribery or making other improper payments to foreign officials for the purpose of obtaining or retaining business or gaining an unfair business advantage. The FCPA also requires proper record keeping and characterization of such payments in our reports filed with the SEC.

Our employees and agents are required to comply with these laws. We operate in many parts of the world that have experienced governmental and commercial corruption to some degree, and strict compliance with anti-bribery laws may conflict with local customs and practices. Foreign companies, including some that may compete with us, may not be subject to the FCPA and may follow local customs and practices. Accordingly, such companies may be more likely to engage in activities prohibited by the FCPA, which could have a significant adverse impact on our ability to compete for business in such countries.

Despite our commitment to legal compliance and corporate ethics, we cannot ensure that our policies and procedures will always protect us from intentional, reckless or negligent acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in financial penalties, debarment from government contracts and other consequences that may have a material adverse effect on our reputation, business, financial condition or results of operations. Future changes in anti-bribery or economic sanctions laws and enforcement could also result in increased compliance requirements and related expenses that may also have a material adverse effect on our business, financial condition or results of operations.

In addition, our business opportunities in select geographies have been or may be adversely affected by the settlement of the FCPA matter that we settled with the U.S. government in late 2013. Some countries in which we do business may also initiate their own reviews and impose penalties, including prohibition of our participating in or curtailment of business operations in those jurisdictions. We could also face third-party claims in connection with this matter or as a result of the outcome of the current or any future government reviews. Our disclosure, internal review and any current or future governmental review of this matter could, individually or in the aggregate, have a material adverse effect on our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets.

We may expand operations into international markets in which we may have limited experience or rely on business partners.

We continually look to expand our services and products into international markets. We have currently developed, through joint ventures, strategic investments, subsidiaries and branch offices, service and product offerings in more than 130 countries outside of the U.S. As we expand into new international markets, we will have only limited experience in marketing and operating services and products in such markets. In other instances, we may rely on the efforts and abilities of foreign business partners in such markets. Certain international markets may be slower than domestic markets in adopting our services and products, and our operations in international markets may not develop at a rate that supports our level of investment. Further, violations of laws by our foreign business partners, or allegations of such violations, could disrupt our business and result in financial penalties and other consequences that may have a material adverse effect on our business, financial condition or results of operations.

We have a significant amount of long-term assets, including goodwill and other intangible assets, and any future impairment charges could adversely impact our results of operations.

We review long-lived assets, including property, plant and equipment and identifiable amortizing intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. Factors which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative industry or market trends, a significant under-performance relative to historical or projected future operating results, or a likely sale or disposal of the asset before the end of its estimated useful life.

As of December 31, 2016, we had $998.3  of goodwill. We assess all existing goodwill at least annually for impairment on a reporting unit basis. The Company’s four reporting units were defined as Domestic and Canada, AP, EMEA and LA. The techniques used in our qualitative and quantitative assessment and goodwill impairment tests incorporate a number of estimates and assumptions that are subject to change. Although we believe these estimates and assumptions are reasonable and reflect market conditions forecast at the assessment date, any changes to these assumptions and estimates due to market conditions or otherwise may lead to an outcome where impairment charges would be required in future periods.

System security risks, systems integration and cybersecurity issues could disrupt our internal operations or services provided to customers, and any such disruption could adversely affect revenue, increase costs, and harm our reputation and stock price.

Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate our own confidential information or those of our customers, corrupt data, create system disruptions or cause shutdowns. A network security breach could be particularly harmful if it remains undetected for an extended period of time. Groups of hackers may also act in a coordinated manner to launch distributed denial of service attacks, or other coordinated attacks, that may cause service outages

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or other interruptions. We could incur significant expenses in addressing problems created by network security breaches, such as the expenses of deploying additional personnel, enhancing or implementing new protection measures, training employees or hiring consultants. Further, such corrective measures may later prove inadequate. Moreover, actual or perceived security vulnerabilities in our services and products could cause significant reputational harm, causing us to lose existing or potential customers. Reputational damage could also result in diminished investor confidence. Actual or perceived vulnerabilities may also lead to claims against us. Although our license agreements typically contain provisions that eliminate or limit our exposure to such liability, there is no assurance these provisions will withstand legal challenges. We could also incur significant expenses in connection with customers’ system failures.

In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of the system. The costs to eliminate or alleviate security problems, viruses and bugs could be significant, and the efforts to address these problems could result in interruptions, delays or cessation of service that could impede sales, manufacturing, distribution or other critical functions.

Portions of our information technology infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems, and transitioning data and other aspects of the process could be expensive, time consuming, disruptive and resource-intensive. Such disruptions could adversely impact the ability to fulfill orders and interrupt other processes and, in addition, could adversely impact our ability to maintain effective internal control over financial reporting. Delayed sales, lower margins, lost customers or diminished investor confidence resulting from these disruptions could adversely affect our financial results, stock price and reputation.

An inability to attract, retain and motivate key employees could harm current and future operations.

In order to be successful, we must attract, retain and motivate executives and other key employees, including those in managerial, professional, administrative, technical, sales, marketing and information technology support positions. We also must keep employees focused on our strategies and goals. Hiring and retaining qualified executives, engineers and qualified sales representatives are critical to our future, and competition for experienced employees in these areas can be intense. The failure to hire or loss of key employees could have a significant impact on our operations.

We may not be able to generate sufficient cash flows to fund our operations and make adequate capital investments, or to pay dividends.

Our cash flows from operations depend primarily on sales and service margins. To develop new service and product technologies, support future growth, achieve operating efficiencies and maintain service and product quality, we must make significant capital investments in manufacturing technology, facilities and capital equipment, research and development, and service and product technology. In addition to cash provided from operations, we have from time to time utilized external sources of financing. Depending upon general market conditions or other factors, we may not be able to generate sufficient cash flows to fund our operations and make adequate capital investments, or to continue to pay dividends, either in whole or in part. In addition, any tightening of the credit markets may limit our ability to obtain alternative sources of cash to fund our operations.

Although the Company has paid dividends on its common shares in the past the declaration and payment of future dividends, as well as the amount thereof, are subject to the declaration by the Company’s board of directors. The amount and size of any future dividends will depend on the Company’s results of operations, financial condition, capital levels, cash requirements, future prospects and other factors.

New service and product developments may be unsuccessful.

We are constantly looking to develop new services and products that complement or leverage the underlying design or process technology of our traditional service and product offerings. We make significant investments in service and product technologies and anticipate expending significant resources for new software-led services and product development over the next several years. There can be no assurance that our service and product development efforts will be successful, that we will be able to cost effectively develop or manufacture these new services and products, that we will be able to successfully market these services and products or that margins generated from sales of these services and products will recover costs of development efforts.

Our ability to maintain effective internal control over financial reporting may be insufficient to allow us to accurately report our financial results or prevent fraud, and this could cause our financial statements to become materially misleading and adversely affect the trading price of our common shares.

We require effective internal control over financial reporting in order to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If the Company cannot provide reasonable assurance with respect to our financial statements and effectively

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prevent fraud, our financial statements could become materially misleading, which could adversely affect the trading price of our common shares.

If the Company is not able to maintain the adequacy of our internal control over financial reporting, including any failure to implement required new or improved controls, or if the Company experiences difficulties in the implementation of or the implemented controls required in connection with the Acquisition, our business, financial condition and operating results could be harmed. Any material weakness could affect investor confidence in the accuracy and completeness of our financial statements. As a result, our ability to obtain any additional financing, or additional financing on favorable terms, could be materially and adversely affected. This, in turn, could materially and adversely affect our business, financial condition and the market value of our securities and require us to incur additional costs to improve our internal control systems and procedures. In addition, perceptions of the Company among customers, lenders, investors, securities analysts and others could also be adversely affected.

The Company had material weaknesses in its internal control over financial reporting in the past, and can give no assurances that any additional material weaknesses will not arise in the future due to our failure to implement and maintain adequate internal control over financial reporting. In addition, although the Company has been successful historically in strengthening our controls and procedures, those controls and procedures may not be adequate to prevent or identify irregularities or ensure the fair presentation of our financial statements included in our periodic reports filed with the SEC.

Low investment performance by our pension plan assets may result in an increase to our net pension liability and expense, which may require us to fund a portion of our pension obligations and divert funds from other potential uses.

We sponsor several defined benefit pension plans that cover certain eligible employees across the globe. Our pension expense and required contributions to our pension plans are directly affected by the value of plan assets, the projected rate of return on plan assets, the actual rate of return on plan assets and the actuarial assumptions we use to measure the defined benefit pension plan obligations.

A significant market downturn could occur in future periods resulting in a decline in the funded status of our pension plans and causing actual asset returns to be below the assumed rate of return used to determine pension expense. If return on plan assets in future periods perform below expectations, future pension expense will increase. Further, as a result of global economic instability in recent years, our pension plan investment portfolio has been volatile.

We establish the discount rate used to determine the present value of the projected and accumulated benefit obligations at the end of each year based upon the available market rates for high quality, fixed income investments. We match the projected cash flows of our pension plans against those generated by high-quality corporate bonds. The yield of the resulting bond portfolio provides a basis for the selected discount rate. An increase in the discount rate would reduce the future pension expense and, conversely, a decrease in the discount rate would increase the future pension expense.

Based on current guidelines, assumptions and estimates, including investment returns and interest rates, we plan to make contributions to our pension plans of approximately $26.7 in 2017. Changes in the current assumptions and estimates could result in contributions in years beyond 2017 that are greater than the projected 2017 contributions required. We cannot predict whether changing market or economic conditions, regulatory changes or other factors will further increase our pension expenses or funding obligations, diverting funds we would otherwise apply to other uses.

Our businesses are subject to inherent risks, some for which we maintain third-party insurance and some for which we self-insure. We may incur losses and be subject to liability claims that could have a material adverse effect on our financial condition, results of operations or cash flows.

We maintain insurance policies that provide limited coverage for some, but not all, of the potential risks and liabilities associated with our businesses. The policies are subject to deductibles and exclusions that result in our retention of a level of risk on a self-insurance basis. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Even where insurance coverage applies, insurers may contest their obligations to make payments. Our financial condition, results of operations and cash flows could be materially and adversely affected by losses and liabilities from uninsured or under-insured events, as well as by delays in the payment of insurance proceeds, or the failure by insurers to make payments. We also may incur costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations.

Our assumptions used to determine our self-insurance liability could be wrong and materially impact our business.

We evaluate our self-insurance liability based on historical claims experience, demographic factors, severity factors and other actuarial assumptions. However, if future occurrences and claims differ from these assumptions and historical trends, our business, financial results and financial condition could be materially impacted by claims and other expenses.


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An adverse determination that our services, products or manufacturing processes infringe the intellectual property rights of others, an adverse determination that a competitor has infringed our intellectual property rights, or our failure to enforce our intellectual property rights could have a materially adverse effect on our business, operating results or financial condition.

As is common in any high technology industry, others have asserted from time to time, and may assert in the future, that our services, products or manufacturing processes infringe their intellectual property rights. A court determination that our services, products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or require us to make material changes to our services, products and/or manufacturing processes. We are unable to predict the outcome of assertions of infringement made against us.

The Company also seeks to enforce our intellectual property rights against infringement. In October 2015, the Company filed a complaint with the U.S. International Trade Commission (ITC) and the U.S. District Court for the Northern District of Ohio alleging that Nautilus Hyosung Inc., and its subsidiary Nautilus Hyosung America Inc., infringe the Company's patents. The ITC instituted an investigation and, in December 2016, the Administrative Law Judge (ALJ) issued an initial determination that Nautilus Hyosung infringes on two of the Company's patents. The ALJ further recommended an exclusion order barring the importation of certain Nautilus Hyosung deposit automation enabled ATMs and modules. The ITC has set a target date to complete the investigation and issue its final ruling in the first quarter of 2017. In response to these actions taken by the Company, in February 2016 Nautilus Hyosung filed complaints against the Company in front of the ITC and U.S. District Court for the Northern District of Texas alleging the Company infringes certain Nautilus Hyosung patents. The Company is aggressively defending the claims asserted by Nautilus Hyosung.

The Company cannot predict the outcome of actions to enforce our intellectual property rights, and, although we seek to enforce our intellectual property rights, we cannot guarantee that we will be successful in doing so. Any of the foregoing could have a materially adverse effect on our business, operating results or financial condition.

Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.

New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or enforcement, could increase our cost of doing business and restrict our ability to operate our business or execute our strategies. This includes, among other things, the possible taxation under U.S. law of certain income from foreign operations, compliance costs and enforcement under applicable securities laws, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the German Securities Trading Act (Wertpapierhandelsgesetz) and Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014 as well as costs associated with complying with the Patient Protection and Affordable Care Act of 2010 and the regulations promulgated thereunder. For example, under Section 1502 of the Dodd-Frank Act, the SEC has adopted additional disclosure requirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or product manufactured, or contracted to be manufactured, by that issuer. The metals covered by the rules include tin, tantalum, tungsten and gold, commonly referred to as “3TG.” Our suppliers may use some or all of these materials in their production processes. The SEC’s rules require us to perform supply chain due diligence on our supply chain, including the mine owner and operator. Global supply chains can have multiple layers, thus the costs of complying with these requirements could be substantial. These requirements may also reduce the number of suppliers who provide conflict free metals, and may affect our ability to obtain products in sufficient quantities or at competitive prices. Compliance costs and the unavailability of raw materials could have a material adverse effect on our results of operations. As another example, the customs authority in Thailand has unilaterally changed its position with respect to its obligations under the World Trade Organization’s International Technology Agreement (ITA), which provides duty-free treatment for the importation of ATMs into Thailand from other member countries that have signed the ITA.

Anti-takeover provisions could make it more difficult for a third party to acquire us.

Certain provisions of our charter documents, including provisions limiting the ability of shareholders to raise matters at a meeting of shareholders without giving advance notice and permitting cumulative voting, may make it more difficult for a third party to gain control of our board of directors and may have the effect of delaying or preventing changes in our control or management. This could have an adverse effect on the market price of our common shares. Additionally, Ohio corporate law provides that certain notice and informational filings and special shareholder meeting and voting procedures must be followed prior to consummation of a proposed control share acquisition, as defined in the Ohio Revised Code. Assuming compliance with the prescribed notice and information filings, a proposed control share acquisition may be made only if, at a special meeting of shareholders, the acquisition is approved by both a majority of our voting power represented at the meeting and a majority of the voting power remaining after excluding the combined voting power of the interested shares, as defined in the Ohio Revised Code. The application of these provisions of the Ohio Revised Code also could have the effect of delaying or preventing a change of control.

The Company may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

The Company's ability to make scheduled payments or refinance its debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business,

18


legislative, regulatory and other factors beyond our control. The Company may be unable to maintain a level of cash flows from operating activities sufficient to permit the payment of principal, premium, if any, and interest on its indebtedness.

If the Company's cash flows and capital resources are insufficient to fund its debt service obligations, the Company could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness. The Company may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow the Company to meet its scheduled debt service obligations. In addition, the terms of the Company's existing or future debt arrangements may restrict it from effecting any of these alternatives.

The Company's inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its indebtedness on commercially reasonable terms or at all, would materially and adversely affect its financial position and results of operations.

The Acquisition remains subject to antitrust review by the Competition and Markets Authority of the United Kingdom, which, if approval is delayed or not granted, may impact our ability to integrate successfully.

While the Acquisition closed on August 15, 2016, it still remains subject to review by the Competition and Markets Authority of the United Kingdom (CMA). As a result, Diebold Nixdorf, Inc. and Diebold Nixdorf AG are required to operate their businesses in the U.K. separately until such clearance has been received. The CMA has broad discretion in administering the governing regulations and may impose requirements, limitations or costs, mandate remedies, such as divestitures of certain business assets, or place additional restrictions on the conduct of our businesses, to ensure sufficient competition in the U.K. market. No assurance can be given as to the ultimate impact and outcome of the CMA review, that approval from the CMA will be obtained, or the terms, conditions and timing of such approval. Any delay or uncertainty relating to such approval may result in additional transaction costs and make it more difficult for us to maintain or pursue particular business strategies and integrate successfully. Conditions imposed by the CMA may restrict our ability to modify the operations of our business in response to changing circumstances or our ability to expend cash for other uses or otherwise have an adverse effect on the anticipated benefits of the Acquisition, thereby adversely impacting the business, financial condition and results of operations of the Company.

Economic conditions and regulatory changes leading up to and following the United Kingdom’s likely exit from the EU could have a material adverse effect on our business and results of operations.

Following a referendum in June 2016 in which voters in the U.K. approved an exit from the EU, it is expected that the U.K. government will initiate a process to leave the EU (often referred to as Brexit) and begin negotiating the terms of the U.K.’s future relationship with the EU. The Company faces uncertainty regarding the impact of the likely exit of the U.K. from the EU. Adverse consequences such as deterioration in global economic conditions, stability in global financial markets, volatility in currency exchange rates or adverse changes in regulation of the cross-border agreements could have a negative impact on our financial condition and results of operations.


19


ITEM 1B: UNRESOLVED STAFF COMMENTS

None.

ITEM 2: PROPERTIES

The Company's corporate offices are located in North Canton, Ohio and Paderborn, Germany. Within NA, the Company leases manufacturing facilities in Greensboro, North Carolina and has selling, service and administrative offices throughout the United States and Canada, including a software development center in Canada. AP owns and operates manufacturing facilities in China and India and selling, service and administrative offices in the following locations: Australia, China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand and Vietnam. EMEA owns or leases and operates manufacturing facilities in Germany, Belgium and Hungary and has selling, service and administrative offices in the following locations: Algeria, Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Israel, Italy, Luxembourg, Malta, Morocco, Namibia, the Netherlands, Nigeria, Norway, Poland, Portugal, Russia, Slovakia, South Africa, Spain, Sweden, Switzerland, Turkey, Uganda, Ukraine, the United Arab Emirates and the United Kingdom. LA has selling, service and administrative offices in the following locations: Barbados, Belize, Bolivia, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. In addition, LA owns and operates manufacturing facilities and has selling, service and administrative offices throughout Brazil. The Company leases a majority of the selling, service and administrative offices under operating lease agreements.

The Company considers that its properties are generally in good condition, are well maintained, and are generally suitable and adequate to carry on the Company's business.

ITEM 3: LEGAL PROCEEDINGS
(dollars in millions)

At December 31, 2016 , the Company was a party to several lawsuits that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the Company's financial position or results of operations. In management's opinion, the Company's consolidated financial statements would not be materially affected by the outcome of those legal proceedings, commitments, or asserted claims.

In addition to the routine legal proceedings noted above, the Company was a party to the legal proceedings described below at December 31, 2016 :

Indirect Tax Contingencies

The Company accrues non-income tax liabilities for indirect tax matters when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they are charged against income. In evaluating indirect tax matters, management takes into consideration factors such as historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. Management evaluates and updates accruals as matters progress over time. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably to the Company and could require recognizing future expenditures. Also, statutes of limitations could expire without the Company paying the taxes for matters for which accruals have been established, which could result in the recognition of future gains upon reversal of these accruals at that time.

At December 31, 2016 , the Company was a party to several routine indirect tax claims from various taxing authorities globally that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the consolidated financial statements would not be materially affected by the outcome of these indirect tax claims and/or proceedings or asserted claims.

In addition to these routine indirect tax matters, the Company was a party to the proceedings described below:

In August 2012, one of the Company's Brazil subsidiaries was notified of a tax assessment of approximately R$270.0 , including penalties and interest, regarding certain Brazil federal indirect taxes (Industrialized Products Tax, Import Tax, Programa de Integração Social and Contribution to Social Security Financing) for 2008 and 2009. The assessment alleges improper importation of certain components into Brazil's free trade zone that would nullify certain indirect tax incentives. In September 2012, the Company filed its administrative defenses with the tax authorities.

In response to an order by the administrative court, the tax inspector provided further analysis with respect to the initial assessment in December 2013 that indicates a potential exposure that is significantly lower than the initial tax assessment received in August 2012. This revised analysis has been accepted by the initial administrative court and lower level appellate court; however, this matter remains subject to ongoing administrative proceedings and appeals. Accordingly, the Company cannot provide any assurance that its exposure pursuant to the initial assessment will be lowered significantly or at all. In addition, this matter could negatively impact Brazil federal indirect taxes in other years that remain open under statute. It is reasonably possible that the

20


Company could be required to pay taxes, penalties and interest related to this matter, which could be material to the Company's consolidated financial statements. The Company continues to defend itself in this matter.

The Company has challenged customs rulings in Thailand seeking to retroactively collect customs duties on previous imports of ATMs. Management believes that the customs authority’s attempt to retroactively assess customs duties is in contravention of World Trade Organization agreements and, accordingly, is challenging the rulings. In the third quarter of 2015, the Company received a prospective ruling from the U.S. Customs Border Protection, which is consistent with the Company's interpretation of the treaty in question. The Company has submitted that ruling for consideration in its ongoing dispute with Thailand. In August 2016, the tax court of appeals rendered a decision in favor of the Company related to approximately half of the assessments at issue. The remaining matters are currently in various stages of the appeals process and management continues to believe that the Company has a valid legal position in these appeals. Accordingly, the Company has not accrued any amount for this contingency; however, the Company cannot provide any assurance that it will not ultimately be subject to retroactive assessments.

At December 31, 2016 and 2015 , the Company had an accrual related to the Brazil indirect tax matter disclosed above of $7.3 and $7.5 , respectively. The movement between periods relates to the currency fluctuation in the Brazil real.

A loss contingency is reasonably possible if it has a more than remote but less than probable chance of occurring. Although management believes the Company has valid defenses with respect to its indirect tax positions, it is reasonably possible that a loss could occur in excess of the estimated accrual. The Company estimated the aggregate risk at December 31, 2016 to be up to approximately $172.9 for its material indirect tax matters, of which approximately $125.9 and $24.0 , respectively, relates to the Brazil indirect tax matter and Thailand customs matter disclosed above. The aggregate risk related to indirect taxes is adjusted as the applicable statutes of limitations expire.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

21


PART II

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The common shares of the Company are listed on the New York Stock Exchange with a symbol of “DBD.” The price ranges of common shares of the Company for the periods indicated below are as follows:
 
2016
 
2015
 
2014
 
High
 
Low
 
High
 
Low
 
High
 
Low
1st Quarter
$
29.80

 
$
22.84

 
$
36.49

 
$
30.63

 
$
40.78

 
$
32.05

2nd Quarter
$
28.81

 
$
23.10

 
$
38.94

 
$
33.21

 
$
41.45

 
$
36.20

3rd Quarter
$
29.01

 
$
23.95

 
$
35.79

 
$
29.16

 
$
40.90

 
$
35.00

4th Quarter
$
25.90

 
$
21.05

 
$
37.98

 
$
29.60

 
$
38.67

 
$
32.31

Full Year
$
29.80

 
$
21.05

 
$
38.94

 
$
29.16

 
$
41.45

 
$
32.05


There were 51,410  shareholders of the Company at December 31, 2016 , which includes an estimated number of shareholders who have shares held in their accounts by banks, brokers, and trustees for benefit plans and the agent for the dividend reinvestment plan.

On the basis of amounts paid and declared quarterly, the annualized dividends per share were $0.96 in 2016 , $1.15 in 2015 and $1.15 in 2014 .

Information concerning the Company’s share repurchases made during the fourth quarter of 2016 :
Period
 
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans (2)
October
 
174

 
$
25.95

 

 
2,426,177

November
 
1,220

 
$
22.49

 

 
2,426,177

December
 
1,629

 
$
24.65

 

 
2,426,177

Total
 
3,023

 
$
23.85

 

 
 

(1)
All shares were surrendered or deemed surrendered to the Company in connection with the Company’s stock-based compensation plans.

(2)
The total number of shares repurchased as part of the publicly announced share repurchase plan was 13,450,772 as of December 31, 2016 . The plan was approved by the Board of Directors in April 1997. The Company may purchase shares from time to time in open market purchases or privately negotiated transactions. The Company may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans. The plan has no expiration date. The following table provides a summary of Board of Director approvals to repurchase the Company's outstanding common shares:

 
 
Total Number of Shares
Approved for Repurchase
1997
 
2,000,000
2004
 
2,000,000
2005
 
6,000,000
2007
 
2,000,000
2011
 
1,876,949
2012
 
2,000,000
 
 
15,876,949

22


PERFORMANCE GRAPH

The graph below compares the cumulative 5-Year total return provided shareholders on Diebold Nixdorf, Inc.'s common shares relative to the cumulative total returns of the S&P 500 index, the S&P Midcap 400 index and two customized peer groups both consisting of twenty-three companies whose individual companies are listed in footnotes 1 and 2 below. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common shares, in each index and in each of the peer groups on 12/31/2011 and its relative performance is tracked through 12/31/2016.

DBD2016AJSUPDATESA02.JPGClick to enlarge
(1)
There are twenty-three companies included in the Company's first customized peer group which are: Actuant Corp., Allegion PLC, Benchmark Electronics Inc., Brady Corp., Brinks Co, Convergys Corp., DST Systems Inc., Fidelity National Information Services Inc., Fiserv Inc., Global Payments Inc., Harris Corp., International Game Technology PLC, Intuit Inc., Logitech International SA, Mettler-Toledo International Inc., NCR Corp., Netapp Inc., Pitney Bowes Inc., Sensata Technologies Holding NV, Timken Co., Unisys Corp., Western Union Co and Woodward Inc.

(2)
The twenty-three companies included in the Company's second customized peer group are: Actuant Corp., Allegion PLC, Benchmark Electronics Inc., Brady Corp., Brinks Co., Convergys Corp., DST Systems Inc., Fidelity National Information Services Inc., Fiserv Inc., Global Payments Inc., Harris Corp., International Game Technology PLC, Intuit Inc., Logitech International Sa, Mettler-Toledo International Inc., NCR Corp., Netapp Inc., Pitney Bowes Inc., Sensata Technologies Holding NV, Timkensteel Corp., Unisys Corp., Western Union Co and Woodward Inc.

23


ITEM 6: SELECTED FINANCIAL DATA

The following table should be read in conjunction with “Part II - Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II - Item 8 - Financial Statements and Supplementary Data” of this Form 10-K.
 
Years Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
 
(in millions, except per share data)
Results of operations
 
 
 
 
 
 
 
 
(unaudited)
Net sales
$
3,316.3

 
$
2,419.3

 
$
2,734.8

 
$
2,582.7

 
$
2,724.3

Cost of sales
2,594.6

 
1,767.3

 
2,008.6

 
1,996.7

 
2,044.1

Gross profit
$
721.7

 
$
652.0

 
$
726.2

 
$
586.0

 
$
680.2

 
 
 
 
 
 
 
 
 
 
Amounts attributable to Diebold Nixdorf, Incorporated
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
(176.7
)
 
$
57.8

 
$
104.7

 
$
(195.3
)
 
$
62.6

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

 
15.9

 
9.7

 
13.7

 
11.0

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(33.0
)
 
$
73.7

 
$
114.4

 
$
(181.6
)
 
$
73.6

 
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
(2.56
)
 
$
0.89

 
$
1.62

 
$
(3.06
)
 
$
1.00

Income (loss) from discontinued operations, net of tax
2.08

 
0.24

 
0.15

 
0.21

 
0.17

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(0.48
)
 
$
1.13

 
$
1.77

 
$
(2.85
)
 
$
1.17

 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per common share
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
(2.56
)
 
$
0.88

 
$
1.61

 
$
(3.06
)
 
$
0.98

Income (loss) from discontinued operations, net of tax
2.08

 
0.24

 
0.15

 
0.21

 
0.17

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(0.48
)
 
$
1.12

 
$
1.76

 
$
(2.85
)
 
$
1.15

 
 
 
 
 
 
 
 
 
 
Number of weighted-average shares outstanding
 
 
 
 
 
 
 
 
 
Basic shares
69.1

 
64.9

 
64.5

 
63.7

 
63.1

Diluted shares
69.1

 
65.6

 
65.2

 
63.7

 
63.9

 
 
 
 
 
 
 
 
 
 
Dividends
 
 
 
 
 
 
 
 
 
Common dividends paid
$
64.6

 
$
75.6

 
$
74.9

 
$
74.0

 
$
72.8

Common dividends paid per share
$
0.96

 
$
1.15

 
$
1.15

 
$
1.15

 
$
1.14

 
 
 
 
 
 
 
 
 
 
Consolidated balance sheet data (as of period end)
 
 
 
 
 
 
(unaudited)
 
(unaudited)
Current assets
$
2,619.6

 
$
1,643.6

 
$
1,655.5

 
$
1,555.4

 
$
1,814.9

Current liabilities
$
1,824.5

 
$
955.8

 
$
1,027.8

 
$
893.8

 
$
838.8

Net working capital
$
795.1

 
$
687.8

 
$
627.7

 
$
661.6

 
$
976.1

Property, plant and equipment, net
$
387.0

 
$
175.3

 
$
165.7

 
$
160.9

 
$
184.3

Total long-term liabilities
$
2,376.9

 
$
851.1

 
$
759.5

 
$
668.9

 
$
908.8

Total assets
$
5,270.3

 
$
2,242.4

 
$
2,342.1

 
$
2,183.5

 
$
2,592.9

Total equity
$
1,024.8

 
$
435.5

 
$
554.8

 
$
620.8

 
$
845.3



24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Management’s discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes that appear elsewhere in this annual report on Form 10-K.

Introduction

Diebold Nixdorf, Incorporated (collectively with its subsidiaries, the Company) provides connected commerce services, software and technology to enable millions of transactions each day. The Company’s approximately 25,000 employees design and deliver convenient, “always on” and highly secure solutions that bridge the physical and the digital worlds of transactions. Customers of the Company include nearly all of the world’s top 100 financial institutions and a majority of the top 25 global retailers.

Strategy
The Company’s Connected Commerce strategy seeks to continually enhance the customer experience at banking or retail locations by integrating services, software and systems. This requires ongoing investment and development of our industry-leading field services organization as well as the development and integration of innovative technology including cloud computing technology, sensors and connectivity to the Internet of Things, as well as open and agile software. The Company will continuously refine its R&D spend in support of a better transaction experience for consumers

Multi-Year Integration Program
The Company is executing a multi-year integration program designed to optimize the assets, business processes, and IT systems of Diebold Nixdorf. This program, in aggregate, has identified an opportunity to realize approximately $160 of cost synergies over three years. These cost synergies include:

Realizing volume discounts on direct materials
Harmonizing the solutions set
Increasing utilization rates of the service technicians
Rationalizing facilities in the regions
Streamlining corporate and general and administrative functions
Harmonizing back office solutions.

The Company has and will continue to invest significant dollars to restructure the workforce, optimize legacy systems, streamline legal entities and consolidate real estate holdings. By executing these integration activities, the Company expects to deliver greater innovation for customers, career enrichment opportunities for employees, and enhanced value for shareholders.

Financial Self-Service Solutions

The Company is a leader in providing connected commerce solutions to financial institutions. These solutions are supported by a dedicated field service organization. The combination of high reliability, industry-leading security, remote management capabilities and highly-trained field technicians has made the Company a preferred choice for FSS solutions. Through managed services, banks entrust the management of their ATM and security operations to the Company, allowing their associates to focus on core competencies. Furthermore, the Company’s managed services deliver greater operational efficiencies and provide financial institutions with a leading-edge solutions that they need to stay competitive in the marketplace.

A significant demand driver in the global ATM marketplace is branch automation, which helps financial institutions grow revenue, reduce costs, and increase convenience and security for the banks’ customers by migrating routine transactions, typically done inside the branch, to lower-cost automated channels. The Company serves as a strategic partner to its customers by offering a complete branch automation solution - services, software and technology - that addresses the complete value chain of consult, design, build and operate. The Company’s advisory services team collaborates with its clients to help define the ideal customer experience, modify processes, refine existing staffing models and deploy technology to meet branch automation objectives. The in-lobby teller terminal provides branch automation technology by combining the speed and accuracy of a self-service terminal with intelligence from the bank’s core systems, as well as the ability to complete higher value transactions away from the teller line.

The Company also offers hardware-agnostic, omni-channel software solutions for ATMs and a host of other self-service applications. These offerings include highly configurable, enterprise-wide software that automates and migrates financial services across channels, changing the way financial products are delivered to consumers.

25

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)


The Company continues to invest in supporting current and developing new services, software and security solutions that align with the needs of its customers. At recent trade shows, the Company showcased several new FSS concepts. The Company is piloting advanced analytics capabilities with Banco Popular that enable financial institutions to have a complete view of the self-service channel and improve ATM availability by anticipating maintenance needs. Additionally, the Company introduced the new Extreme ATM™ concept - the smallest ATM ever developed - which utilizes a cardless Bluetooth-enabled mobile interface.

The Company offers an integrated line of self-service solutions and technology, including comprehensive ATM outsourcing, ATM security, deposit automation, recycling, payment terminals and software. The Company also offers advanced functionality terminals capable of supporting mobile cardless transactions and two-way video technology to enhance bank branch automation. The Company is a global supplier of ATMs and related services and holds a leading market position in many countries around the world.

Retail Solutions

The Company’s retail solutions primarily consist of omni-channel retailing, store transformation and global delivery excellence. Omni-channel retailing ensures a seamless consumer experience across all consumer touchpoints. Store transformation is focused on providing leading technologies that improve consumer experience and productivity. Global delivery excellence drives operational improvements that increase efficiency while reducing costs. The Company differentiates itself by developing, delivering and operating globally integrated IT solutions for customers and adjusting them with the help of local experts to meet customer requirements globally. For the twelve months ended September 30, 2016, retail solution revenues were €1,035.3 as reported using IFRS issued by the EU.

Software is a key differentiator for the retail business and in this sector the Company provides a comprehensive, modular solutions platform. Click & collect, reserve & collect, in-store ordering and return to store are typical shopping processes that consumers expect retailers to be able to deliver across their footprint and digital sales channels. With TP.net, the Company offers a comprehensive software solution to improve end-to-end store processes in support of omni-channel retailing. TP.net and the other components of the TP Application Suite are designed on a modular principle and can be integrated fully or partially into existing infrastructures. Data from typical information sources such as inventories, omni-channel transactions and customer information are available at the customer touchpoints in stores, including traditional Point of Sale (POS) terminals and self-service checkout systems, kiosk terminals and mobile devices like tablets, as well as at enterprise functions at the retailers’ headquarter.

Retail service experts are trained to install, monitor and operate store IT solutions on a global scale and provide retail companies with full service support throughout the store’s life cycle. The service experts can install and operate multi-vendor solutions. Retailers that aim to optimize their total cost of ownership utilize the Company’s services to increase system availability. The services ensure the rapid recovery of system failures and are provided on-site by field service engineers or by means of remote maintenance. The Company also provides cash cycle management services, which ensures the availability of cash recycling systems in both the front and back-offices.

The Company also provides innovative and reliable POS technology that is being optimized continually to meet increasing automation requirements and to support omni-channel retailing. The checkout portfolio includes modular, integrated and mobile POS systems. Supplementing the POS systems is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio which offers a wide range of banknote and coin processing systems. Also in the portfolio, the Company provides self-checkout terminals that ensure a consistent purchasing experience with their focus on speed, convenience and flexibility. The latest hybrid product generation can be switched from attended operation to self-checkout by the cashier with the press of a button and is thus a highly attractive solution for retailers with fluctuating store traffic throughout the day.

Business Drivers

The business drivers of the Company's future performance include, but are not limited to:

demand for services and software, including managed services and professional services;
timing of equipment upgrades and/or replacement cycles;
demand for products and solutions related to branch and store transformation;
demand for security products and services for the financial, retail and commercial sectors; and
high levels of deployment growth for new self-service products in emerging markets.


26

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Acquisition of Diebold Nixdorf AG

Diebold Nixdorf AG is one of the world's leading providers of IT solutions and services to retail banks and the retail industry. The Acquisition is consistent with the Company's transformation into a world-class, services-led and software-enabled company, supported by innovative hardware. Diebold Nixdorf AG complements and extends our existing capabilities. The Company considered a number of factors in connection with its evaluation of the transaction, including significant strategic opportunities and potential synergies, as generally supporting its decision to enter into the business combination agreement with Diebold Nixdorf AG. The Acquisition expands the Company's presence substantially, especially in EMEA. The Diebold Nixdorf AG business enhances the Company's existing portfolio. Diebold Nixdorf AG has a fiscal year end of September 30. For the twelve months ended September 30, 2016, Diebold Nixdorf AG recorded net sales of €2,578.6 as reported using IFRS as issued by the EU.

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

On August 15, 2016, the Company consummated the Acquisition by acquiring, through 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 preliminary 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 14 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K) and proceeds from the issuance and sale of $400.0 aggregate principal amount of 8.5 percent senior notes due 2024 (the 2024 Senior Notes).

Subsequent to the closing of the Acquisition, the board of directors of the Company, the supervisory and management boards of Diebold Nixdorf AG as well as the extraordinary shareholder meetings of Diebold KGaA and Diebold Nixdorf AG on September 26, 2016 each approved the proposed DPLTA. The DPLTA became effective by entry in the commercial register at the local court of Paderborn (Germany) on February 14, 2017.

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 ultimate timing and amount of any future cash payments related to the DPLTA are uncertain.



27

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

The table below presents the changes in comparative financial data for the years ended December 31, 2016 , 2015 and 2014 . Comments on significant year-to-year fluctuations follow the table. The following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes that appear elsewhere in this annual report on Form 10-K.
 
Years ended December 31,
 
2016
 
2015
 
2014
 
 
 
% of Net Sales
 
% Change
 
 
 
% of Net Sales
 
% Change
 
 
 
% of Net Sales
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Services
$
1,907.9

 
57.5
 
36.8
 
$
1,394.2

 
57.6
 
(2.7)
 
$
1,432.8

 
52.4
Products
1,408.4

 
42.5
 
37.4
 
1,025.1

 
42.4
 
(21.3)
 
1,302.0

 
47.6
 
3,316.3

 
100.0
 
37.1
 
2,419.3

 
100.0
 
(11.5)
 
2,734.8

 
100.0
Cost of sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Services
1,373.1

 
41.4
 
47.2
 
932.8

 
38.6
 
(4.3)
 
974.8

 
35.6
Products
1,221.5

 
36.8
 
46.4
 
834.5

 
34.5
 
(19.3)
 
1,033.8

 
37.8
 
2,594.6

 
78.2
 
46.8
 
1,767.3

 
73.1
 
(12.0)
 
2,008.6

 
73.4
Gross profit
721.7

 
21.8
 
10.7
 
652.0

 
26.9
 
(10.2)
 
726.2

 
26.6
Selling and administrative expense
761.2

 
23.0
 
55.9
 
488.2

 
20.2
 
2.0
 
478.4

 
17.5
Research, development and engineering expense
110.2

 
3.3
 
26.8
 
86.9

 
3.6
 
(7.2)
 
93.6

 
3.4
Impairment of assets
9.8

 
0.3
 
(48.1)
 
18.9

 
0.8
 
N/M
 
2.1

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

 
 
N/M
 
(0.6
)
 
 
(95.3)
 
(12.9
)
 
(0.5)
 
881.5

 
26.6
 
48.6
 
593.4

 
24.5
 
5.7
 
561.2

 
20.5
Operating profit (loss)
(159.8
)
 
(4.8)
 
N/M
 
58.6

 
2.4
 
(64.5)
 
165.0

 
6.0
Other income (expense)
(78.5
)
 
(2.4)
 
N/M
 
(12.8
)
 
(0.5)
 
24.3
 
(10.3
)
 
(0.4)
Income (loss) from continuing operations before taxes
(238.3
)
 
(7.2)
 
N/M
 
45.8

 
1.9
 
(70.4)
 
154.7

 
5.7
Income tax (benefit) expense
(67.6
)
 
(2.0)
 
N/M
 
(13.7
)
 
(0.6)
 
N/M
 
47.4

 
1.7
Income (loss) from continuing operations, net of tax
(170.7
)
 
(5.1)
 
N/M
 
59.5

 
2.5
 
(44.5)
 
107.3

 
3.9
Income (loss) from discontinued operations, net of tax
143.7

 
4.3
 
N/M
 
15.9

 
0.6
 
63.9
 
9.7

 
0.4
Net income (loss)
(27.0
)
 
(0.8)
 
N/M
 
75.4

 
3.1
 
(35.6)
 
117.0

 
4.3
Net income attributable to noncontrolling interests, net of tax
6.0

 
0.2
 
N/M
 
1.7

 
0.1
 
(34.6)
 
2.6

 
0.1
Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(33.0
)
 
(1.0)
 
N/M
 
$
73.7

 
3.0
 
(35.6)
 
$
114.4

 
4.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts attributable to Diebold Nixdorf, Incorporated
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before discontinued operations, net of tax
$
(176.7
)
 
(5.3)
 
 
 
$
57.8

 
2.4
 
 
 
$
104.7

 
3.8
Income (loss) from discontinued operations, net of tax
143.7

 
4.3
 
 
 
15.9

 
0.6
 
 
 
9.7

 
0.4
Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(33.0
)
 
(1.0)
 
 
 
$
73.7

 
3.0
 
 
 
$
114.4

 
4.2

28

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

RESULTS OF OPERATIONS

2016 comparison with 2015

Net Sales

The following table represents information regarding our net sales for the years ended December 31:
 
2016
 
2015
 
$ Change
 
% Change
Financial self-service
$
2,526.5

 
$
2,108.7

 
$
417.8

 
19.8
Retail
438.1



 
438.1


N/M
Security
273.4

 
292.8

 
(19.4
)
 
(6.6)
Brazil other
78.3

 
17.8

 
60.5

 
N/M
Total net sales
$
3,316.3

 
$
2,419.3

 
$
897.0

 
37.1

FSS sales increased $417.8 or 19.8 percent inclusive of a net unfavorable currency impact of $49.0 . The Acquisition accounted for $616.7 in FSS sales. FSS revenue was negatively impacted $9.8 related to purchase accounting adjustments. The following results include the impact of foreign currency and purchase accounting adjustments:

NA FSS sales increased $9.7 or 1.1 percent including unfavorable currency impact of $4.1 related to the Canada dollar. Excluding the impact of the Acquisition of $36.6 and currency, FSS sales decreased as a result of a decline in product revenue in the U.S. regional bank space related to the completion of the Agilis 3/Windows 7 upgrade activity and lower volume in Canada as a result of a large deposit automation upgrade project that ended in the third quarter of 2015. This decline was partially offset by an increase in product revenue in the U.S. national bank space as well as higher maintenance service revenue related to an increase in multi-vendor service contracts.

AP FSS sales decreased $8.7 or 2.1 percent impacted by $18.6 in unfavorable currency mainly related to the China renminbi and India rupee of $9.0 and $6.7, respectively. Excluding the impact of the Acquisition of $108.3 and currency, the decrease was largely attributable to a decline in product revenue stemming from lower volume primarily in China, where the government continues to encourage banks to increase their use of domestic ATM suppliers. India also significantly contributed to the decline as the government’s demonetization program in the current year hindered customer growth which negatively impacted both product and service revenue.

EMEA FSS sales increased $415.0 or 105.7 percent and included an unfavorable currency impact of $15.6 mainly related to the South Africa rand, Turkey lira and Great Britain pound sterling of $6.4, $4.0 and $2.8, respectively. Excluding the impact of the Acquisition of $447.1 and currency, FSS revenue decreased due to lower product volume within our distributor channels and Poland as well as an unfavorable mix of product sales in Italy. Additionally, lower product revenue from large projects in the prior year which did not recur, primarily in Belgium and Russia also contributed to the decline. In Belgium, the Company had project revenue in 2015 related to a Window 7 upgrade activity that did not recur in 2016. A significant increase in product volume in Switzerland, Spain and South Africa helped to partially offset the overall decline in product revenue. FSS service revenue increased slightly as lower billed work revenue was more than offset by higher contract service and installation revenue.

LA FSS sales increased $1.8 or 0.4 percent inclusive of a $10.8 unfavorable currency impact related primarily to the Brazil real. Excluding the impact of the Acquisition of $24.7 and currency, the decrease in the period was primarily the result of product volume declines in Central America, Colombia, Peru and Chile as several large customers were renewing and increasing their ATM installation base in the prior year. Lower product volume within LA distributor channels also contributed to the decline. Product volume increases in Mexico and Brazil partially offset these declines as well as higher service contract revenue across a majority of the region, based on the renewals noted in the prior year.

Retail sales were $438.1 as a result of the Acquisition and were negatively impacted by $6.4 related to purchase accounting adjustments.

Security sales decreased $19.4 or 6.6 percent impacted by $1.2 in unfavorable currency. Excluding the impact of currency, the NA physical security business decreased due to a decline in service contract base and product volume declines more heavily weighted in the national bank space when compared to the prior year. The decrease in the electronic security business was attributable to LA as a result of lower sales in Chile, Colombia, Ecuador and Brazil, which was partially offset by the transition services revenue in NA as a sub-contractor to Securitas AB.

29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)


Brazil other sales increased $60.5 inclusive of an unfavorable currency impact of $2.4 . The increase was due to higher election and lottery equipment sales that was partially offset by a reduction in information technology sales, consistent with the Company's narrowing of scope in the Brazil other business to primarily focus on lottery and elections to rationalize the solution set in the market.

Gross Profit

The following table represents information regarding our gross profit for the years ended December 31:
 
2016
 
2015
 
$ Change
 
% Change
Gross profit - services
$
534.8

 
$
461.4

 
$
73.4

 
15.9
Gross profit - products
186.9

 
190.6

 
(3.7
)
 
(1.9)
Total gross profit
$
721.7

 
$
652.0

 
$
69.7

 
10.7
 
 
 
 
 
 
 
 
Gross margin - services
28.0
%
 
33.1
%
 

 
 
Gross margin - products
13.3
%
 
18.6
%
 


 
 
Total gross margin
21.8
%
 
26.9
%
 


 
 

Service gross margin was lower due to the impact of the Acquisition as well as declines in AP related to customer mix in addition to service level agreement penalties in the region. Diebold Nixdorf AG utilizes an outsourcing model to support its service revenue stream, which generally results in lower margins. Additionally, NA was unfavorably impacted due to retro-active contract adjustments and customer service level agreement penalties. Service gross profit included non-routine charges of $8.1 related to purchase accounting adjustments associated with the Acquisition in 2016. Service gross profit also included restructuring charges of $18.4 and $3.1 in 2016 and 2015, respectively.

Product gross margin decreased as a result of purchase accounting valuation adjustments associated with the Acquisition, primarily related to inventory revaluation. Purchase accounting adjustments included an $8.1 reduction in product revenue and an increase in product cost of sales of $82.6. Product gross profit included total restructuring charges of $7.1 and $1.4 in 2016 and 2015, respectively. Excluding the impact of non-routine and restructuring, product gross margin increased slightly related to the impact of the Acquisition. NA product gross margin declined due to unfavorable customer and product solution mix in the current year. Additionally, product gross margins in EMEA, LA and AP were relatively flat due to the favorable impact of the Acquisition, which was partially offset by an unfavorable blend of country revenue and the deteriorating market conditions in China.

Operating Expenses

The following table represents information regarding our operating expenses for the years ended December 31:
 
2016
 
2015
 
$ Change
 
% Change
Selling and administrative expense
$
761.2

 
$
488.2

 
$
273.0

 
55.9
Research, development and engineering expense
110.2

 
86.9

 
23.3

 
26.8
Impairment of assets
9.8

 
18.9

 
(9.1
)
 
(48.1)
(Gain) loss on sale of assets, net
0.3

 
(0.6
)
 
0.9

 
N/M
Total operating expenses
$
881.5

 
$
593.4

 
$
288.1

 
48.6

Excluding the impact of incremental expense associated with the Acquisition of $220.6, the increase in selling and administrative expense primarily resulted from higher total non-routine charges. To a lesser extent, an increase in bad debt expense in NA and higher corporate legal and professional fees also negatively impacted selling and administrative expense in the current year. These increases were partially offset by favorable selling expense primarily related to the recovery of bad debt expense in Brazil, a decrease in sales commission expense, lower IT and marketing expenses related to transformation initiatives and a favorable currency impact.

Non-routine expenses in selling and administrative expense of $150.8 and $36.3 were included in 2016 and 2015, respectively. The primary components of the non-routine expenses pertained to acquisition and divestiture costs totaling $118.9 and purchase accounting adjustments of $29.7 related to intangible asset amortization. Selling and administrative expense included restructuring charges of $28.8 and $16.1 in 2016 and 2015, respectively.


30

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Research, development and engineering expense as a percent of net sales in 2016 and 2015 was 3.3 percent and 3.6 percent, respectively. Excluding the impact of the Acquisition, research and development expense decreased primarily as a result of lower reinvestment associated with the maturity of the Company's transformation initiatives compared to the prior year. Research, development and engineering expense included restructuring charges of $5.1 and $0.6 in 2016 and 2015, respectively.

During the fourth quarter of 2016, the Company recorded a $9.8 impairment charge related to redundant legacy Diebold internally-developed software and an indefinite-lived trade name in NA as a result of the Acquisition. The decrease in the gross carrying value of internally-developed software is primarily due to a $9.1 impairment during the first quarter of 2015 of certain internally-developed software related to redundant legacy Diebold software as a result of the acquisition of Phoenix.

Operating Profit (Loss)

The following table represents information regarding our operating profit (loss) for the years ended December 31:
 
2016
 
2015
 
$ Change
 
% Change
Operating profit (loss)
$
(159.8
)
 
$
58.6

 
$
(218.4
)
 
N/M
Operating margin
(4.8
)%
 
2.4
%
 

 
 

The decrease in operating profit was due to a decline in product gross profit primarily associated with the inventory valuation adjustment from the Acquisition and higher operating expenses. These operating expenses included amortization of acquired intangible assets, restructuring and non-routine costs of acquisitions and divestitures.

Other Income (Expense)

The following table represents information regarding our other income (expense) for the years ended December 31:
 
2016
 
2015
 
$ Change
 
% Change
Interest income
$
21.5

 
$
26.0

 
$
(4.5
)
 
(17.3)
Interest expense
(101.4
)
 
(32.5
)
 
(68.9
)
 
N/M
Foreign exchange loss, net
(2.1
)
 
(10.0
)
 
7.9

 
79.0
Miscellaneous, net
3.5

 
3.7

 
(0.2
)
 
(5.4)
Other income (expense)
$
(78.5
)
 
$
(12.8
)
 
$
(65.7
)
 
N/M

The decrease in interest income was driven primarily by a decrease in customer financing in Brazil and was negatively impacted by currency of $1.2. Interest expense was higher than the prior year associated with the financing required for the Acquisition. The foreign exchange loss, net in 2015 included $7.5 related to the devaluation of Venezuela currency. Miscellaneous, net in 2016 included a mark-to-market gain of $35.6 associated with the Company's foreign currency option contracts entered into on November 23, 2015, a mark-to-market loss of $26.4 associated with the Company’s foreign currency forward contract entered into on April 29, 2016 and $6.3 in financing fees related to the Company’s bridge financing required for the Acquisition.

Net Income from Continuing Operations, net of tax

The following table represents information regarding our net income from continuing operations, net of tax for the years ended December 31:
 
2016
 
2015
 
$ Change
 
% Change
Income (loss) from continuing operations, net of tax
$
(170.7
)
 
$
59.5

 
$
(230.2
)
 
N/M
Percent of net sales
(5.1
)%
 
2.5
 %
 

 
 
Effective tax rate (benefit)
(28.4
)%
 
(29.9
)%
 


 
 

Income (loss) from continuing operations, net of tax was $(170.7) . This was primarily due to higher non-routine expenses, increased interest expense and the change in income tax benefit.

The effective tax rate for 2016 was 28.4 percent on the overall loss from continued operations. The benefit on the overall loss was negatively impacted by the Acquisition including a valuation allowance for certain post-acquisition losses and non-deductible acquisition related expenses. The overall effective tax rate was decreased further by the jurisdictional income (loss) mix and varying statutory rates within the acquired entities.

31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)


In 2015, the overall negative effective tax rate of (29.9) percent on income from continued operations resulted from the repatriation of foreign earnings, the associated recognition of foreign tax credits and related benefits due to the passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015. In addition, the overall negative effective tax rate was due to the combined income mix and varying statutory rates in the Company's foreign operations.

Income (Loss) from Discontinued Operations, Net of Tax

Income from discontinued operations, net of tax was $143.7 and $15.9 for the years ended December 31, 2016 and 2015 , respectively. The closing of the NA electronic security divestiture occurred on February 1, 2016 and the Company recorded a gain on sale, net of tax, of $145.0 for the year ended December 31, 2016 . Additionally, the income from discontinued operations, net of tax includes a net loss of $1.3 as a result of the operations included through February 1, 2016 and net income of $15.9 for the year ended December 31, 2015. The closing purchase price was subject to a customary working capital adjustment, which was finalized in the third quarter of 2016.

Segment Revenue and Operating Profit Summary

The following tables represent information regarding our revenue and operating profit by reporting segment for the years ended December 31:
North America:
2016
 
2015
 
$ Change
 
% Change
Revenue
$
1,118.2

 
$
1,094.5

 
$
23.7

 
2.2
Segment operating profit
$
214.3

 
$
250.1

 
$
(35.8
)
 
(14.3)
Segment operating profit margin
19.2
%
 
22.9
%
 
 
 
 

NA revenue increased $23.7 and included an unfavorable currency impact of $4.1 . Excluding the impact of the Acquisition of $59.8 and currency, NA revenue decreased compared to the prior year period primarily due to lower product revenue in the U.S. regional and Canada FSS businesses as well as lower revenue from physical security. These decreases were partially offset by higher service revenue in the U.S. as a result of increased multi-vendor service contracts and higher product sales within our national customer portfolio.

Segment operating profit decreased due to lower product volume and unfavorable customer and product solution mix, which adversely impacted gross profit. An increase in service gross profit attributable to the incremental impact of the Acquisition partially offset the decline in product gross profit. Segment operating profit was also impacted by higher operating expense as a result of incremental expense associated with acquisitions and higher bad debt expense.
Asia Pacific:
2016
 
2015
 
$ Change
 
% Change
Revenue
$
470.0

 
$
439.6

 
$
30.4

 
6.9
Segment operating profit
$
52.6

 
$
63.1

 
$
(10.5
)
 
(16.6)
Segment operating profit margin
11.2
%
 
14.4
%
 
 
 
 

AP revenue increased $30.4 inclusive of an unfavorable currency impact of $19.2 . Excluding the impact of the Acquisition of $145.5 and currency, AP revenue decreased from the prior year mainly as a result of a decline in product revenue stemming from lower volume, particularly in China, where the government continues to encourage banks to increase their use of domestic ATM suppliers. India also contributed to the decline due in part to the government’s demonetization program which led to lower product sales volume and corresponding installation service revenue as well as a decrease in managed services revenue.

Segment operating profit benefited from incremental gross profit associated with the Acquisition but was more than offset by higher operating expense, also associated with the Acquisition. Excluding the impact of the Acquisition, operating profit decreased from a combination of lower product gross profit primarily driven by volume declines and deteriorating market conditions in China and lower service gross profit related to customer service level agreement contract requirements in India. These declines were partially offset by lower operating expense primarily in China.


32

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Europe, Middle East and Africa:
2016
 
2015
 
$ Change
 
% Change
Revenue
$
1,181.2

 
$
393.1

 
$
788.1

 
N/M
Segment operating profit
$
115.8

 
$
55.3

 
$
60.5

 
N/M
Segment operating profit margin
9.8
%
 
14.1
%
 
 
 
 

EMEA revenue increased $788.1 and was adversely impacted by unfavorable currency of $15.6 . Excluding the impact of the Acquisition of $820.0 and currency, revenue decreased as a result of lower product volume within distributor channels and Poland as well as an unfavorable mix of product sales in Italy. Additionally, lower product revenue due to large projects in the prior year that did not recur, primarily in Belgium and Russia also contributed to the decline. A significant increase in product volume in Switzerland, Spain and South Africa helped to partially offset the overall decline in product revenue. Service revenue increased nominally as lower billed work revenue was more than offset by higher contract service and installation revenue.

Segment operating profit increased due to the additional gross profit contributed as a result of the Acquisition. Excluding the impact of the Acquisition and related purchase accounting adjustments, operating profit decreased mainly attributable to volume declines and an unfavorable product and customer mix. Operating expenses increased as a result of incremental expense associated with the Acquisition.
Latin America:
2016
 
2015
 
$ Change
 
% Change
Revenue
$
546.9

 
$
492.1

 
$
54.8

 
11.1
Segment operating profit
$
53.3

 
$
37.4

 
$
15.9

 
42.5
Segment operating profit margin
9.7
%
 
7.6
%
 
 
 
 

LA revenue increased $54.8 inclusive of an unfavorable currency impact of $13.6 . Excluding the impact of the Acquisition of $29.6 and currency, LA revenue increased mainly by higher election equipment sales in Brazil and partially offset by a decrease in FSS product and information technology sales. Additionally, service revenue was higher, primarily in Mexico and Colombia, and was partially offset by a decrease in Venezuela as the Company divested its equity interest in the joint venture in April 2015.

Segment operating profit increased primarily as a result of higher product gross profit in Brazil as well as incremental product and service gross profit associated with the Acquisition. Lower operating expenses benefited from bad debt recovery and cost control measures while being partially offset by incremental expense associated with the Acquisition.

Refer to note 22 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K, for further details of segment revenue and operating profit.

2015 comparison with 2014

Net Sales

The following table represents information regarding our net sales for the years ended December 31:
 
2015
 
2014
 
$ Change
 
% Change
Total financial self-service
$
2,108.7

 
$
2,197.2

 
$
(88.5
)
 
(4.0)
Total security
292.8

 
312.4

 
(19.6
)
 
(6.3)
Brazil other
17.8

 
225.2

 
(207.4
)
 
(92.1)
Total net sales
$
2,419.3

 
$
2,734.8

 
$
(315.5
)
 
(11.5)

FSS sales decreased $88.5 or 4.0 percent inclusive of a net unfavorable currency impact of $161.2. The unfavorable currency impact was related primarily to the Brazil real and the euro. The following segment results include the impact of foreign currency.

NA FSS sales increased $6.4 or 0.7 percent due primarily to increased volume in Canada from a large deposit automation upgrade project combined with the incremental sales from the acquisition of Phoenix in the first quarter of 2015. The U.S. experienced growth in multi-vendor services within the national bank space as significant contracts were won in the first, third and fourth quarters of 2015. This favorability was partially offset by a product volume decline related to two large enterprise accounts in the U.S. and the winding down of the Agilis 3 and Windows 7 upgrade project in the U.S. regional bank space.


33

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Asia Pacific FSS sales decreased $55.9 or 11.7 percent impacted by $17.8 in unfavorable currency. The decline was primarily attributable to a decrease in product revenue in China where the government is encouraging banks to increase their use of domestic ATM suppliers. This decline was partially offset by an increase in service revenue as India, Philippines and China have experienced growth in their service installation base as well as higher professional services volume across a majority of the region.

EMEA FSS sales decreased $28.3 or 6.7 percent inclusive of a $66.6 unfavorable currency impact mainly related to the weakening of the euro. Excluding the unfavorable currency impact, EMEA FSS sales increased $38.3 due to higher product volume in Turkey and with European distributors, as well as a full year benefit of Cryptera, which was acquired in the third quarter of 2014. In addition to the unfavorable currency, offsetting declines occurred in Italy due to lower product volume while Belgium, Austria and the U.K. had large projects in 2014.

Latin America FSS sales decreased $10.7 or 2.5 percent inclusive of $69.5 unfavorable currency impact mainly related to the weakening of the Brazil real. Excluding the unfavorable currency impact, LA FSS sales increased $58.8 due to growth across a majority of the region, including Mexico which experienced double digit growth related to several customers renewing their existing ATM fleets. This was offset by the unfavorable currency impact and the sale of the Company’s equity interest in the Venezuelan joint venture.

Security sales decreased $19.6 or 6.3 percent impacted by $6.1 in unfavorable currency. Approximately two-thirds of the decrease was related to continuing electronic security business, driven by volume declines in LA due to government mandated security updates in 2014. There were volume declines in AP as a result of exiting the business in Australia. Physical security was down due to volume declines in AP, LA and both the regional and national bank space in the U.S.

Brazil other sales included an unfavorable currency impact of $62.8 and a decrease related to deliveries of IT equipment to the Brazil education ministry in the prior year. Additionally, market-specific economic and political factors continue to weigh on the purchasing environment driving lower volume in country.

Gross Profit

The following table represents information regarding our gross profit for the years ended December 31:
 
2015
 
2014
 
$ Change
 
% Change
Gross profit - services
$
461.4

 
$
458.0

 
$
3.4

 
0.7
Gross profit - products
190.6

 
268.2

 
(77.6
)
 
(28.9)
Total gross profit
$
652.0

 
$
726.2

 
$
(74.2
)
 
(10.2)
 
 
 
 
 
 
 
 
Gross margin - services
33.1
%
 
32.0
%
 

 
 
Gross margin - products
18.6
%
 
20.6
%
 

 
 
Total gross margin
26.9
%
 
26.6
%
 

 
 

Service gross margin increased during the time period with slight improvements throughout the international regions. AP service gross margin increased largely due to operational efficiencies gained through organizational restructuring while EMEA was driven primarily by higher service parts volume with EMEA distributors. LA’s margin improvement was driven by Venezuela, which had a lower cost of market adjustment in 2014 that favorably affected margins between the time periods. NA experienced a declines in gross margin and gross profit as a result of volume and service mix. Service gross profit in 2015 and 2014 included restructuring charges of $3.1 and $1.3, respectively.

Product gross margin decreased during the time period due to a decline in volume and a shift in product solution mix. In addition, product gross margin was adversely impacted by $4.7 of inventory reserves related to the cancellation of certain projects in connection with the current Brazil economic and political environment. Product gross profit included total restructuring charges and non-routine expenses of $1.6 in 2015 and net benefit of $5.2 in 2014, which was related to Brazil indirect tax reversals.


34

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Operating Expenses

The following table represents information regarding our operating expenses for the years ended December 31:
 
2015
 
2014
 
$ Change
 
% Change
Selling and administrative expense
$
488.2

 
$
478.4

 
$
9.8

 
2.0
Research, development and engineering expense
86.9

 
93.6

 
(6.7
)
 
(7.2)
Impairment of assets
18.9

 
2.1

 
16.8

 
N/M
Gain on sale of assets, net
(0.6
)
 
(12.9
)
 
12.3

 
(95.3)
Total operating expenses
$
593.4

 
$
561.2

 
$
32.2

 
5.7

The increase in selling and administrative expense resulted primarily from higher non-routine and restructuring charges and an increase in the bad debt reserve of $4.6 in the third quarter of 2015 related to the cancellation of a previously awarded government contract in connection with the current Brazil economic and political environment, net of lower operational spend and favorable currency impact.

Non-routine expenses of $36.3 and $9.2 were included in 2015 and 2014, respectively. The non-routine expenses pertained to legal, indemnification and professional fees related to corporate monitor efforts, which was $14.7 and $9.2 in 2015 and 2014, respectively. Additionally, 2015 included divestiture and potential acquisition costs of $21.1 in non-routine expense, with no comparable expense in 2014. Selling and administrative expense also included $16.7 and $9.7 of restructuring charges in 2015 and 2014, respectively. Restructuring charges in 2015 and 2014 consisted of the Company's transformation and business process outsourcing initiative. There were additional costs in 2015 associated with executive delayering.

Research, development and engineering expense as a percent of net sales in 2015 and 2014 were relatively flat. The Company increased investment in 2015 related to the acquisition and integration of Phoenix as well as incremental expense associated with the acquisition of Cryptera, which was completed in the second half of 2014. This increase was offset by favorable currency impact and a decrease between the time periods mainly due to higher material and labor costs in 2014 related to the launch of new ATM models and enhanced modules.

As of March 31, 2015, the Company agreed to sell its equity interest in its Venezuela joint venture to its joint venture partner and recorded a $10.3 impairment of assets in the first quarter of 2015. On April 29, 2015, the Company closed the sale for the estimated fair market value and recorded a $1.0 reversal of impairment of assets based on final adjustments in the second quarter of 2015, resulting in a $9.3 impairment of assets. Final fair value adjustments resulted in an overall impairment of $9.7. Additionally, the Company recorded an impairment related to other intangibles in LA in the second quarter of 2015 and an impairment of $9.1 related to redundant legacy Diebold internally-developed software as a result of the acquisition of Phoenix in the first quarter of 2015 in which the carrying amounts of the assets were not recoverable.

During the second quarter of 2014, the Company divested its Eras subsidiary, resulting in a gain on sale of assets of $13.7.

Operating Profit (Loss)

The following table represents information regarding our operating profit (loss) for the years ended December 31:
 
2015
 
2014
 
$ Change
 
% Change
Operating profit (loss)
$
58.6

 
$
165.0

 
$
(106.4
)
 
(64.5)
Operating profit (loss) margin
2.4
%
 
6.0
%
 

 
 

The decrease in operating profit resulted from lower product revenue primarily in Brazil and China combined with higher net non-routine and restructuring charges. Impairment of assets and gain on sales of assets unfavorably impacted operating profit as a result of impairments in the first half of 2015 and the gain on the sale of Eras in 2014. Improvement in service margin helped to partially offset these declines.


35

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2016
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(dollars in millions, except per share amounts)

Other Income (Expense)

The following table represents information regarding our other income (expense) for the years ended December 31:
 
2015
 
2014
 
$ Change
 
 % Change
Interest income
$
26.0

 
$
34.5

 
$
(8.5
)
 
(24.6)
Interest expense
(32.5
)
 
(31.4
)
 
(1.1
)
 
3.5
Foreign exchange gain (loss), net
(10.0
)
 
(11.8
)
 
1.8

 
15.3
Miscellaneous, net
3.7

 
(1.6
)
 
5.3

 
N/M
Other income (expense)
$
(12.8
)
 
$
(10.3
)
 
$
(2.5
)
 
24.3

The decrease in interest income was driven primarily by unfavorable currency impact in Brazil. The foreign exchange loss net for 2015 and 2014 included $7.5 and $12.1, respectively, related to the devaluation of the Venezuela currency. The change in miscellaneous, net was primarily related to income derived from the fair value re-measurement of foreign currency option contracts.

Income (Loss) from Continuing Operations, Net of Tax

The following table represents information regarding our income (loss) from continuing operations, net of tax, for the years ended December 31:
 
2015
 
2014
 
$ Change
 
% Change
Income (loss) from continuing operations, net of tax
$
59.5

 
$
107.3

 
$
(47.8