# DIEBOLD NIXDORF, Inc: Form 10-Q for the period ended Jun 30, 2016

- Company: [DIEBOLD NIXDORF, Inc](/companies/dbd.md) (CIK 28823)
- Form: 10-Q
- Filed: 2016-07-28
- Accepted by EDGAR: Jul 28, 2016, 07:38 ET
- Period: 2016-06-30
- Accession: 0000028823-16-000214
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/28823/000002882316000214/dbd630201610q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/28823/000002882316000214/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-04-01 to 2016-06-30 | $580.0m | us-gaap:SalesRevenueNet |
| Revenue | 6 months, 2016-01-01 to 2016-06-30 | $1.09bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-04-01 to 2016-06-30 | $424.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2016-01-01 to 2016-06-30 | $795.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2016-04-01 to 2016-06-30 | $155.1m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2016-01-01 to 2016-06-30 | $293.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2016-04-01 to 2016-06-30 | $17.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2016-01-01 to 2016-06-30 | $36.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2016-04-01 to 2016-06-30 | $127.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2016-01-01 to 2016-06-30 | $252.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-04-01 to 2016-06-30 | $10.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2016-01-01 to 2016-06-30 | $4.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-04-01 to 2016-06-30 | $24.3m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2016-01-01 to 2016-06-30 | $35.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-04-01 to 2016-06-30 | −$14.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2016-01-01 to 2016-06-30 | −$15.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-04-01 to 2016-06-30 | −$21.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2016-01-01 to 2016-06-30 | $147.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-04-01 to 2016-06-30 | −$0.32 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2016-01-01 to 2016-06-30 | $2.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-04-01 to 2016-06-30 | −$0.32 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2016-01-01 to 2016-06-30 | $2.26 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-04-01 to 2016-06-30 | 65,200,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2016-01-01 to 2016-06-30 | 65,700,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2016-01-01 to 2016-06-30 | −$206.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2016-01-01 to 2016-06-30 | $11.3m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2016-04-01 to 2016-06-30 | $19.2m | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 6 months, 2016-01-01 to 2016-06-30 | $38.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2016-01-01 to 2016-06-30 | $2.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2016-06-30 | $335.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-06-30 | $3.46bn | us-gaap:AssetsCurrent |
| Total assets | at 2016-06-30 | $4.04bn | us-gaap:Assets |
| Current liabilities | at 2016-06-30 | $918.0m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2016-06-30 | $578.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 65,668 characters.

### Overview

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that appear within this quarterly report on Form 10-Q.

#### Introduction

Diebold, Incorporated and its subsidiaries provide the services, software and technology that connect people around the world with their money — bridging the physical and digital worlds of cash conveniently, securely and efficiently. Since its founding in 1859, Diebold has evolved to become a leading provider of exceptional self-service innovation, security and services to financial, retail, commercial and other markets. The Company employs approximately 15,000 associates globally, and its service staff is one of the financial industry's largest, with professionals in more than 600 locations and businesses in more than 90 countries worldwide. The Company continues to execute its multi-year transformation, Diebold 2.0, with the primary objective of transforming the Company into a world-class, services-led and software-enabled Company, supported by innovative hardware.

Diebold 2.0 consists of four pillars:

- Cost - Streamline the cost structure and improve near-term delivery and execution.
- Cash - Generate increased free cash flow in order to fund the investments necessary to drive profitable growth, while preserving the ability to return value to shareholders in the form of dividends and, as appropriate, share repurchases.
- Talent - Attract and retain the talent necessary to drive innovation and the focused execution of the transformation strategy.
- Growth - Return the Company to a sustainable, profitable growth trajectory.

In 2015, the Company fully transitioned into the “Walk” phase of Diebold 2.0 whereby the Company continued to build on each pillar of cost, cash, talent and growth. Compared to the “Crawl” phase, the main difference in “Walk” is a greater emphasis on increasing the mix of revenue from services and software, as well as shaping the Company’s portfolio of businesses. As it relates to increasing the mix of services and software, the Company has sharpened its focus on pursuing and winning managed services and multi-vendor services contracts. Through the second quarter of 2016, the Company has approximately 28,000 ATMs under a managed services agreement and approximately 12,000 competitor ATMs under a service contract in NA. For the software business, the acquisition of Phoenix has significantly enhanced the Company's ability to capture more of the market for ATM, multi-vendor, marketing and asset management software.

As it relates to shaping the portfolio of businesses, the Company is making progress towards completing the pending business combination with Wincor Nixdorf. During the first half of 2016, the Company successfully surpassed the minimum threshold for tendered ordinary shares of Wincor Nixdorf and completed the required financing for the Acquisition.The Company has obtained a number of antitrust approvals in certain jurisdictions for the Acquisition. The closing of the takeover offer remains subject to antitrust approval in Poland, the last country in which antitrust clearance is required as a closing condition, and remains on target to close in the summer of 2016. Additionally, the Company completed the sale of its NA electronic security business in the first quarter of 2016.

In December 2015, the Company announced it is forming a new joint venture with a subsidiary of the Inspur Group, a Chinese cloud computing and data center company, to develop, manufacture and distribute FSS solutions in China. The Inspur Group will hold a majority stake of 51 percent in the new joint venture, which will be named Inspur (Suzhou) Financial Technology Service Co. Ltd. (Inspur JV). The joint venture will offer a complete range of self-service terminals within the Chinese market, including ATMs. Diebold will serve as the exclusive distributor outside of China for all products developed by the new joint venture, which will be sold under the Diebold brand. The Company does not expect to consolidate Inspur JV once the joint venture is formed and will include its results of operations in equity in earnings of an investee included in other (expense) income of the condensed consolidated statements of operations.

In addition, to support Diebold's services-led approach to the market, the Inspur Group will acquire a minority share of Diebold's current China joint venture. Moving forward, this business will be focused on providing a whole suite of services, including installation, maintenance, professional and managed services related to ATMs and other automated transaction solutions.

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#### Solutions

The Company believes it is a leader in managed and maintenance services with a dedicated service network serving its customers across the globe. The combination of the Company’s differentiated security, remote management and highly-trained field technicians has made the Company a preferred choice for current and emerging self-service 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 provide banks and credit unions 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 Diebold Series in-lobby teller terminal (ILT) 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.

Mobile integration is an emerging trend in branch automation, as consumers look for more convenient ways to interact with their financial institutions. To address this need, the Company offers its innovative Mobile Cash Access software solution, which enables consumers to initiate ATM transactions with a mobile device. By eliminating the need for an ATM card, Mobile Cash Access dramatically speeds up transaction time, addresses the risk of card skimming, and reduces the risk of fraud and theft since sensitive customer information is never stored on the mobile device and is passed to the ATM via a secure virtual private network connection. The Company has demonstrated success with this solution in NA and EMEA.

As part of its branch automation solution, the Company offers two-way video capabilities. The solution provides consumers with on-demand access to bank call center representatives at the ATM for sales or bank account maintenance support. In addition to delivering a personal touch outside of regular business hours, it ultimately assists financial institutions by maximizing operational efficiencies, improving the consumer experience and enhancing the overall consumer relationship.

An innovation that enhances security for customers is Diebold’s ActivEdge™ secure card reader. This is the ATM industry’s first complete anti-skimming, EMV compliant card reader that prevents all known forms of skimming, the most prevalent type of ATM crime. ActivEdge™ can assist financial institutions avoid skimming-related fraud losses, which, according to the ATM Industry Association, totals more than $2,000.0 annually worldwide. ActivEdge™ requires users to insert cards into the reader via the long edge, instead of the traditional short edge. The Company believes by shifting a card’s angle 90 degrees, ActivEdge™ prevents modern skimming devices from reading the card’s full magnetic strip, eliminating the devices’ ability to steal card data. The Company continues to invest in supporting current and developing new services, software and security solutions that align with the needs of its customers.

#### 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 self-service equipment upgrades and/or replacement cycles;
- demand for products and solutions related to bank branch automation opportunities;
- demand for security products and services for the financial and commercial sectors; and
- high levels of deployment growth for new self-service products in emerging markets.

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### Significant Highlights

In the fourth quarter of 2015, the Company announced its intention to acquire all 29.8 Wincor Nixdorf ordinary shares outstanding (33.1 total Wincor Nixdorf ordinary shares issued inclusive of 3.3 treasury shares) through a voluntary tender offer for €38.98 in cash and 0.434 common shares of the Company per Wincor Nixdorf ordinary share outstanding. The Company considered a number of factors in connection with its evaluation of the proposed transaction, including significant strategic opportunities and potential synergies, as generally supporting its decision to enter into the business combination agreement with Wincor Nixdorf. As of March 29, 2016, the Company confirmed that it received 68.9 percent of total Wincor Nixdorf ordinary shares issued inclusive of treasury shares (76.5 percent of all Wincor Nixdorf ordinary shares outstanding) for purposes of satisfying the minimum tender condition of the offer. On April 15, 2016, the Company announced the final results of the offer that 22.9 Wincor Nixdorf ordinary shares had been tendered by the end of the statutory additional acceptance period on April 12, 2016, which (together with 0.2 voting proxies held by the Company) represented 69.9 percent of total Wincor Nixdorf ordinary shares issued inclusive of treasury shares (77.5 percent of all Wincor Nixdorf ordinary shares outstanding). The closing of the offer remains subject to antitrust approval in Poland, the last country in which antitrust clearance is required as a closing condition, and is on target to close in the summer of 2016. The Company intends to finance the cash portion of the offer consideration as well as any Wincor Nixdorf debt outstanding with funds available under the Company’s Credit Agreement and proceeds from the issuance and sale of the 2016 Senior Notes, which are required to be redeemed in the event that the offer has not closed by November 21, 2016. The Company will incur interest expense along with continuing to incur certain costs and fees, some of which will be payable even in the event the Acquisition is terminated or expires. Wincor Nixdorf has a fiscal year end of September 30 and is reported using IFRS, as issued by the EU. For the fiscal year ended September 30, 2015, Wincor Nixdorf recorded net sales of €2,427.0. For more information related to the Acquisition, the Company has filed a Registration Statement on Form S-4 with the SEC which was declared effective by the SEC on February 5, 2016.

On October 25, 2015, the Company entered into a definitive asset purchase agreement with Securitas Electronic Security to divest its electronic security business located in the United States and Canada for an aggregate purchase price of $350.0 in cash, 10.0 percent of which was contingent based on the successful transition of certain customer relationships. The Company received the full payment of $35.0 in the first quarter of 2016 now that all contingencies for this payment have been achieved. For the NA electronic security business to continue its growth, it would require resources and investment that the Company was not committed to make given its focus on the self-service market. 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 $0.5 and $149.6 for the three and six months ended June 30, 2016. The closing purchase price is subject to a customary working capital adjustment. The Company also agreed to provide certain transition services to Securitas Electronic Security after the closing, including providing Securitas Electronic Security a $6.0 credit for such services, of which $5.0 relates to a quarterly payment to Securitas Electronic Security and $1.0 is a credit against payments due from Securitas Electronic Security. During the three and six months ended June 30, 2016, $1.2 and $2.5, respectively, were paid as part of the quarterly payments and $0.7 and $1.0, respectively, was used against amounts owed by Securitas Electronic Security. The operating results for the NA electronic security business were previously included in the Company's NA segment and have been reclassified to discontinued operations for all of the periods presented.

On March 13, 2015, the Company acquired all of the equity interests of Phoenix for a total purchase price of $72.9, including $12.6 of deferred cash payment payable over the next three years. Acquiring Phoenix, a leader in developing innovative multi-vendor software solutions for ATMs and a host of other FSS applications, is a foundational move to accelerate the Company’s growth in the fast-growing managed services and branch automation spaces. The results of operations for Phoenix are primarily included in NA within the Company's condensed consolidated financial statements from the date of the acquisition.

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 for the six months ended June 30, 2015. During the remainder of 2015, the Company incurred an additional $0.4 related to uncollectible accounts receivable. The Company no longer has a consolidating entity in Venezuela but will continue to operate in Venezuela on an indirect basis.

Prior to the sale, the Company's Venezuela operations consisted of a fifty-percent owned subsidiary, which was consolidated. Venezuela was measured using the U.S. dollar as its functional currency because its economy is considered highly inflationary. On February 10, 2015, the Venezuela government introduced a new foreign currency exchange platform called the Marginal Currency System, or SIMADI, which replaced the SICAD 2 mechanism, yielding another significant increase in the exchange

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rate. As of March 31, 2015, management determined it was unlikely that the Company would be able to convert bolivars under a currency exchange other than SIMADI and remeasured its Venezuela balance sheet using the SIMADI rate of 192.95 compared to the previous SICAD 2 rate of 50.86, which resulted in a loss of $7.5 recorded within foreign exchange loss, net in the condensed consolidated statements of operations in the first quarter of 2015.

### Results of Operations

The following discussion of the Company’s financial condition and results of operations provides information that will assist in understanding the financial statements and the changes in certain key items in those financial statements. The following discussion should be read in conjunction with the condensed consolidated financial statements and the accompanying notes that appear elsewhere in this quarterly report on Form 10-Q.

|  | Three Months Ended June 30, 2016 Amount | % of Net sales | 2015 Amount | % of Net sales | Six Months Ended June 30, 2016 Amount | % of Net sales | 2015 Amount | % of Net sales |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $580.0 | 100.0 | $644.5 | 100.0 | $1,089.6 | 100.0 | $1,219.3 | 100.0 |
| Gross profit | $155.1 | 26.7 | $170.7 | 26.5 | $293.9 | 27.0 | $330.0 | 27.1 |
| Operating expenses | $144.8 | 25.0 | $146.7 | 22.8 | $289.3 | 26.6 | $309.0 | 25.3 |
| Operating profit | $10.3 | 1.8 | $24.0 | 3.7 | $4.6 | 0.4 | $21.0 | 1.7 |
| Net (loss) income | $(20.3) | (3.5) | $23.9 | 3.7 | $148.2 | 13.6 | $18.3 | 1.5 |
| Net income (loss) attributable to noncontrolling interests | $0.8 | 0.1 | $1.7 | 0.3 | $1.1 | 0.1 | $(1.1) | (0.1) |
| Net (loss) income attributable to Diebold, Incorporated | $(21.1) | (3.6) | $22.2 | 3.4 | $147.1 | 13.5 | $19.4 | 1.6 |

#### Net Sales

The following table represents information regarding our net sales:

|  | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Financial self-service | $493.1 | $567.9 | (13.2) | $939.6 | $1,062.9 | (11.6) |
| Security | 71.2 | 74.9 | (4.9) | 132.3 | 144.4 | (8.4) |
| Brazil other | 15.7 | 1.7 | N/M | 17.7 | 12.0 | 47.5 |
| Net sales | $580.0 | $644.5 | (10.0) | $1,089.6 | $1,219.3 | (10.6) |

FSS sales in the three months ended June 30, 2016 decreased $74.8 or 13.2 percent compared to the same period of 2015, including net unfavorable currency impact of $17.0 or 2.7 percent. FSS sales in the six months ended June 30, 2016 decreased $123.3 or 11.6 percent compared to the same period of 2015, including net unfavorable currency impact of $44.9 or 3.9 percent. The unfavorable currency impacts in the three and six months ended June 30, 2016 were related mainly to the Brazil real as well as smaller impacts from the South Africa rand, Turkish lira, India rupee, China renminbi and Canada dollar. The following results include the impact of foreign currency:

- NA FSS sales in the three and six months ended June 30, 2016 decreased $26.0 and $29.1 or 10.6 and 6.5 percent, respectively, compared to the prior year periods. Unfavorable currency impact of $1.7 and $4.1 negatively influenced the three and six months ended June 30, 2016, respectively. Additionally, the decline in both time periods principally resulted from lower product and installation revenue in the U.S. regional bank space related to the wind down of the Agilis 3/Windows 7 upgrade project and lower volume in Canada as a result of a large deposit automation upgrade project that ended in the third quarter of 2015. These declines were partially offset by higher service revenue attributable to increased multi-vendor service contracts as well as increased product sales with our national customer portfolio.
- AP FSS sales in the three and six months ended June 30, 2016 declined $23.9 and $53.0 or 22.9 and 25.1 percent, respectively, compared to the prior year periods. Unfavorable currency impact of $5.2 and $11.7 contributed to the decrease

### (unaudited)

### (in millions, except per share amounts)

in the three and six months ended June 30, 2016, respectively. In addition, the decrease in both time periods 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 contributed to the decline due to lower product sales volume and the correlating installation service revenue along with a decrease in managed services revenue compared to the prior periods.

- EMEA FSS sales in the three months ended June 30, 2016 were flat compared to the prior year period and impacted by unfavorable currency of $3.7. On a constant currency basis, service revenue increased primarily due to incremental installation services projects in Switzerland and France. In addition, lower product volume in Turkey as we completed a large project in the prior year and distributor channels which was partially offset by higher product project activity in the UK and in Africa. FSS sales in the six months ended June 30, 2016 compared to the same period of 2015 decreased $1.2 or 0.6 percent. Unfavorable currency of $9.2 adversely impacted the six months ended June 30, 2016. On a constant currency basis, sales increased $8.0 as a result of higher installation and maintenance revenue across a majority of the region while product sales remained relatively flat.
- LA FSS sales in the three and six months ended June 30, 2016 decreased $24.9 and $40.0 or 22.4 and 19.3 percent, respectively, compared to the prior year periods. Unfavorable currency impact of $6.4 and $19.9 related to the Brazil real negatively impacted the three and six months ended June 30, 2016, respectively. On a constant currency basis, the decrease in both time periods was principally a result of volume declines in Brazil, Central America and Chile that were partially offset by higher volume in Mexico and regional distributor channels. In addition, Venezuela contributed to the decrease in revenue for the six months ended June 30, 2016 as the Company sold its equity interest in the joint venture in April of 2015.

Security sales in the three and six months ended June 30, 2016 decreased $3.7 and $12.1 or 4.9 and 8.4 percent, respectively, compared to the same period in 2015 and was impacted by $0.7 and $1.9 of unfavorable currency, respectively. In addition to the currency impact, NA physical security business decreased due to overall volume declines more heavily weighted in the national bank space when compared to the prior year. The electronic security business declined in both the three and six months ended June 30, 2016 primarily in LA attributable to lower sales in Chile and Ecuador, which was partially offset by the transition services revenue in NA as a sub-contractor to Securitas.

Brazil other sales in the three and six months ended June 30, 2016 increased $14.0 and $5.7, respectively due to an increase in election equipment sales and a reduction in both information technology and lottery sales compared to the same prior year periods. Unfavorable currency impact of $0.2 and $3.3 adversely influenced the three and six months ended June 30, 2016.

#### Gross Profit

The following table represents information regarding our gross profit:

|  | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross profit - services | $121.1 | $118.6 | 2.1 | $229.3 | $230.3 | (0.4) |
| Gross profit - products | 34.0 | 52.1 | (34.7) | 64.6 | 99.7 | (35.2) |
| Total gross profit | $155.1 | $170.7 | (9.1) | $293.9 | $330.0 | (10.9) |
| Gross margin – services | 34.0% | 33.6% |  | 33.1% | 33.2% |  |
| Gross margin – products | 15.2% | 17.9% |  | 16.3% | 19.0% |  |
| Total gross margin | 26.7% | 26.5% |  | 27.0% | 27.1% |  |

Service gross margins for the three and six months ended June 30, 2016 were relatively flat as favorable service gross margins and profit in EMEA and NA, driven primarily by higher service volume, were partially offset by declines in AP related to customer service level agreement contract requirements in India and sales price reductions in Thailand. Additionally, LA declined due to revenue mix and restructuring charges of $1.3. In the three and six months ended June 30, 2016, service gross profit included restructuring charges of $1.4 and $1.7, respectively, compared to $1.1 in both the three and six months ended June 30, 2015.

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The decrease in product gross margin for the three months ended June 30, 2016 compared to the same period in 2015 was mainly due to lower volume combined with an unfavorable blend of country revenue and product solution mix as well as deteriorating market conditions in China. The decrease in product gross margin in the six months ended June 30, 2016 was due to the previously mentioned reasons for the decline in the three months ended June 30, 2016 with the exception of LA which had a product gross margin increase of 2.4 percent attributable to a favorable change in product solution mix in Brazil. Product gross profit included total restructuring charges and non-routine expenses of $0.3 and $0.6 in the three and six months ended June 30, 2016, respectively, compared to total restructuring charges and non-routine expenses of $1.8 in both the three and six months ended June 30, 2015.

#### Operating Expenses

The following table represents information regarding our operating expenses:

|  | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling and administrative expense | $127.3 | $124.9 | 1.9 | $252.9 | $245.4 | 3.1 |
| Research, development and engineering expense | 17.6 | 23.9 | (26.4) | 36.1 | 46.2 | (21.9) |
| Impairment of assets | — | (0.5) | 100.0 | — | 18.9 | (100.0) |
| (Gain) loss on sale of assets, net | (0.1) | (1.6) | 93.8 | 0.3 | (1.5) | N/M |
| Total operating expenses | $144.8 | $146.7 | (1.3) | $289.3 | $309.0 | (6.4) |

The increase in selling and administrative expense in the three and six months ended June 30, 2016 compared to the same period of 2015 primarily resulted from higher non-routine charges. These increases were partially offset by favorable selling expense primarily related to the recovery of bad debt expense in Brazil, lower IT and marketing expense tied to transformation initiatives and a favorable currency impact. Non-routine expenses of $17.9 and $4.9 were included in the three months ended June 30, 2016 and 2015, respectively. The primary component of the non-routine expenses in the three months ended June 30, 2016 pertained to acquisition and divestiture costs totaling $14.5 as well as $3.4 of legal, indemnification and professional fees related to the corporate monitor. Selling and administrative expense included restructuring charges of $3.7 and $4.7 in the three months ended June 30, 2016 and 2015, respectively. Non-routine expenses of $31.7 and $9.5 were included in the six months ended June 30, 2016 and 2015, respectively. The primary component of the non-routine expenses in the six months ended June 30, 2016 pertained to acquisition and divestiture costs totaling $25.5 as well as $6.2 of legal, indemnification and professional fees related to the corporate monitor. Selling and administrative expense included restructuring charges of $3.6 and $7.3 in the six months ended June 30, 2016 and 2015, respectively.

Research, development and engineering expense as a percent of net sales in the three and six months ended June 30, 2016 were 3.0 percent and 3.3 percent, respectively, compared with the same periods in 2015, which were 3.7 percent and 3.8 percent, respectively. The decrease in the three and six months ended June 30, 2016 is primarily related to lower reinvestment associated with transformation initiatives compared to the same prior year period. The six months ended June 30, 2016 was partially offset by an increase in incremental expense associated with the Phoenix business operations.

The (gain) loss on sale of assets in the three and six months ended June 30, 2015 was primarily due to the sale of a building in NA.

#### Operating Profit

The following table represents information regarding our operating profit:

|  | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Operating profit | $10.3 | $24.0 | (57.1) | $4.6 | $21.0 | (78.1) |
| Operating profit margin | 1.8% | 3.7% |  | 0.4% | 1.7% |  |

37

### (unaudited)

### (in millions, except per share amounts)

The change in operating profit for the three and six months ended June 30, 2016 compared to the same periods in 2015 were driven by a decline in product gross profit associated with volume declines and country revenue mix in all of the regions as well as the deteriorating market conditions in China, while service gross profit remained relatively flat. Additionally, a decline in operating expense helped to partially offset the decrease in gross profit primarily due to lower selling and R&D expense offset by higher non-routine charges.

#### Other (Expense) Income

The following table represents information regarding our other (expense) income, net:

|  | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | ---: |
| Interest income | $6.3 | $6.8 | (7.4) | $11.2 | $14.7 | (23.8) |
| Interest expense | (24.3) | (7.6) | N/M | (35.8) | (15.6) | N/M |
| Foreign exchange loss, net | (1.2) | (1.3) | 7.7 | (3.6) | (10.5) | 65.7 |
| Miscellaneous, net | (26.8) | 0.9 | N/M | 7.8 | (0.3) | N/M |
| Other (expense) income, net | $(46.0) | $(1.2) | N/M | $(20.4) | $(11.7) | (74.4) |

The decrease in interest income in the three and six months ended June 30, 2016, compared with the same period in 2015, was driven primarily by unfavorable currency impact and a decrease in customer financing in Brazil. Interest expense in the three and six months ended June 30, 2016 was higher than the prior year periods associated with the financing required for the Acquisition. The foreign exchange loss, net for the three months ended June 30, 2016 was flat compared to 2015. During the six months ended June 30, 2015, foreign exchange loss, net included $7.5 related to the devaluation of Venezuela currency. Miscellaneous, net in the three months ended June 30, 2016 included a mark-to-market loss of $22.7 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 debt undertaken for the acquisition of Wincor Nixdorf. In addition, the six months ended June 30, 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.

#### (Loss) Income From Continuing Operations, Net of Tax

The following table represents information regarding our (loss) income from continuing operations, net of tax:

|  | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | --- |
| (Loss) income from continuing operations, net of tax | $(20.8) | $19.7 | N/M | $(0.1) | $9.6 | N/M |
| Percent of net sales | (3.6)% | 3.1% |  | —% | 0.8% |  |
| Effective tax rate | 41.7% | 13.6% |  | 99.4% | (3.2)% |  |

(Loss) income from continuing operations, net of tax was $(20.8) and $19.7 for the three months ended June 30, 2016 and 2015, respectively, and was $(0.1) and $9.6 for the six months ended June 30, 2016 and 2015, respectively. The decrease is primarily due to the reasons described above and the change in income tax (benefit) expense.

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

### (unaudited)

### (in millions, except per share amounts)

#### Income From Discontinued Operations, Net of Tax

Income from discontinued operations, net of tax was $0.5 and $4.2 for the three months ended June 30, 2016 and 2015, respectively, and was $148.3 and $8.7 for the six months ended June 30, 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 $0.5 and $149.6 for the three and six months ended June 30, 2016. The closing purchase price is subject to a customary working capital adjustment which is expected to be finalized in the third quarter of 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 $4.2 and $8.7 for the three and six months ended June 30, 2015, respectively.

#### Net (Loss) Income

Net (loss) income decreased $44.2 to a net loss of $20.3 for the three months ended June 30, 2016, compared to income of $23.9 for the same period in 2015, and increased $129.9 to net income of $148.2 for the six months ended June 30, 2016, compared to income of $18.3 for the same period in 2015, due to the reasons described above.

### Segment Revenue and Operating Profit Summary

The following tables represent information regarding our revenue and operating profit by reporting segment:

| North America | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $275.2 | $302.5 | (9.0) | $526.9 | $561.7 | (6.2) |
| Segment operating profit | $63.0 | $66.8 | (5.7) | $116.4 | $127.9 | (9.0) |
| Segment operating profit margin | 22.9% | 22.1% |  | 22.1% | 22.8% |  |

NA revenue in the three and six months ended June 30, 2016 decreased compared to the prior year period primarily due to lower product revenue in the Canadian and U.S. regional 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, higher product sales with our national customer portfolio and the incremental benefit from Phoenix business operations. Segment operating profit decreased in both the three and six months ended June 30, 2016 due to lower product volume and unfavorable customer and product solution mix in the U.S., which adversely impacted gross profit and was partially offset by an increase in service gross profit driven by higher volume and incremental profit from Phoenix. Segment operating profit was also impacted by higher operating expense in both the three and six months ended June 30, 2016. In the three and six months ended June 30, 2015, segment operating profit was higher primarily due to the gain on sale of the Company’s Lexington, North Carolina manufacturing plant. The six months ended June 30, 2016 included incremental operating expense associated with Phoenix.

| Asia Pacific | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $85.5 | $109.4 | (21.8) | $166.0 | $219.9 | (24.5) |
| Segment operating profit | $6.2 | $14.3 | (56.6) | $14.9 | $32.5 | (54.2) |
| Segment operating profit margin | 7.3% | 13.1% |  | 9.0% | 14.8% |  |

AP revenue in the three and six months ended June 30, 2016 decreased from the prior year comparable periods 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 to lower product sales volume and corresponding installation service revenue as well as a decrease in managed services revenue. Revenue for the three and six months ended June 30, 2016 was also adversely impacted by unfavorable currency of $5.5 and $12.2, respectively. Segment operating profit in the three and six months ended June 30, 2016 compared to the same periods of 2015 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.

### (unaudited)

### (in millions, except per share amounts)

| Europe, Middle East and Africa | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $106.5 | $106.1 | 0.4 | $192.1 | $192.9 | (0.4) |
| Segment operating profit | $16.2 | $14.1 | 14.9 | $26.6 | $26.5 | 0.4 |
| Segment operating profit margin | 15.2% | 13.3% |  | 13.8% | 13.7% |  |

EMEA revenue in the three and six months ended June 30, 2016 was relatively flat compared to the prior year periods due to unfavorable currency impact of $3.7 and $9.2, respectively. Excluding currency impact, the three months ended June 30, 2016 increased $4.1, or 4.0 percent, due to higher service revenue primarily in Switzerland and France. In addition, lower product volume in Turkey and with our distributor channels was partially offset by higher product volume in the UK and in Africa. In the six months ended June 30, 2016, revenue increased $8.4, in constant currency, as a result of higher installation and contract service sales across a majority of the region while product sales remained relatively flat. Additionally, a significant increase in product volume in Switzerland was offset by a decline from the remaining region. Segment operating profit increased in the three months ended June 30, 2016 mainly due to higher service volume which was partially offset by a decrease in product gross profit mainly attributable to a volume decline and unfavorable product mix in our European distributor channels. In the six months ended June 30, 2016, segment operating profit was relatively flat compared to the prior year and increased $1.3 in constant currency driven by higher service gross profit.

| Latin America | Three Months Ended June 30, 2016 | 2015 | % Change | Six Months Ended June 30, 2016 | 2015 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $112.8 | $126.5 | (10.8) | $204.6 | $244.8 | (16.4) |
| Segment operating profit | $13.8 | $13.2 | 4.5 | $20.8 | $16.3 | 27.6 |
| Segment operating profit margin | 12.2% | 10.4% |  | 10.2% | 6.7% |  |

LA revenue decreased in the three and six months ended June 30, 2016 mainly driven by unfavorable currency impact related to the Brazil real of $7.0 and $24.5, respectively. On a constant currency basis, the decrease in both time periods resulted from lower FSS revenue in Brazil which was only partially offset by Brazil election systems and higher FSS volumes from Mexico and Argentina distributors. Segment operating profit in the three and six months ended June 30, 2016 increased as Brazil stabilized and lower product and service gross profit was more than offset by favorable operating expense which benefited from bad debt recovery and cost control measures.

Refer to note 18 to the condensed consolidated financial statements for further details of segment revenue and operating profit.

### Liquidity and Capital Resources

The Company's total cash and cash availability as of June 30, 2016 and December 31, 2015 was as follows:

|  | June 30, 2016 | December 31, 2015 |
| --- | ---: | ---: |
| Cash and cash equivalents | $335.5 | $313.6 |
| Additional cash availability from |  |  |
| Uncommitted lines of credit | 97.5 | 69.0 |
| Revolving credit facility | 210.0 | 352.0 |
| Restricted cash | 1,823.0 | — |
| Short-term investments | 26.6 | 39.9 |
| Total cash and cash availability | $2,492.6 | $774.5 |

Capital resources are obtained from income retained in the business, borrowings under the Company’s senior notes, committed and uncommitted credit facilities and operating and capital leasing arrangements. Management expects that the Company’s capital resources will be sufficient to finance planned working capital needs, research and development activities, investments in facilities or equipment, pension contributions, the payment of dividends on the Company’s common shares and any repurchases of the Company’s common shares for at least the next 12 months. As of June 30, 2016, $298.4 or 82.4 percent of the Company's unrestricted cash and cash equivalents and short-term investments reside in international tax jurisdictions. Repatriation of these funds could

### (unaudited)

### (in millions, except per share amounts)

be negatively impacted by potential payments for foreign and domestic taxes. The Company has approximately $150.0 that is available for repatriation with no additional tax expense as the Company has already provided for such taxes. Part of the Company’s growth strategy is to pursue acquisitions complementary to the Company's future structure. The Company has made acquisitions in the past and intends to make acquisitions in the future. The Company intends to finance any future acquisitions with either cash and short-term investments, cash provided from operations, borrowings under available credit facilities, proceeds from debt or equity offerings and/or the issuance of common shares. The Company has successfully obtained the appropriate financing for the Acquisition with the revolver and term loans under the Credit Agreement and the 2016 Senior Notes.

The following table summarizes the results of our condensed consolidated statement of cash flows for the six months ended June 30:

| Summary of cash flows: | 2016 | 2015 |
| --- | ---: | ---: |
| Net cash used by operating activities - continuing operations | $(200.0) | $(99.4) |
| Net cash used by investing activities - continuing operations | (1,724.5) | (82.5) |
| Net cash provided by financing activities | 1,584.9 | 122.6 |
| Discontinued operations, net | 358.9 | (0.4) |
| Effect of exchange rate changes on cash and cash equivalents | 4.1 | (17.8) |
| Increase (decrease) in cash and cash equivalents | $23.4 | $(77.5) |

### Operating Activities

Cash flows from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments for income taxes, restructuring activities, pension funding and other items impact reported cash flows.

Net cash used by operating activities - continuing operations was $200.0 for the six months ended June 30, 2016, an increase of $100.6 from $99.4 for the same period in 2015.

- The aggregate of trade accounts receivable, inventories and accounts payable used $167.4 in operating cash flows during the six months ended June 30, 2016, compared to $131.4 used during the same period of 2015. In general, the amount of cash flow provided or used by the aggregate of trade accounts receivable, inventories and trade accounts payable depends upon how effectively the Company manages the cash conversion cycle, which represents the number of days that elapse from the day it pays for the purchase of raw materials and components to the collection of cash from its customers and can be significantly impacted by the timing of collections and payments in a period. The accounts receivable use is lower due to an increase in collections compared to the prior year same period. Inventory was relatively consistent year over year. Accounts payable use is higher due to increased payments primarily in NA related to deal costs and reductions in purchases.
- In the aggregate the other combined certain assets and liabilities used $60.7 of operating cash during the six months ended June 30, 2016, compared to $44.3 provided in the same period of 2015. The decrease is primarily due to a reduction in collections of finance receivables and warranty accruals.
- Net income for the six months ended June 30, 2016 increased $129.9, which is primarily attributable to the gain from the NA electronic security business divestiture. Net (loss) income from continuing operations, net of tax, decreased $(9.7) primarily due to the increase in interest expense as a result of higher average outstanding borrowings during 2016 compared to the same period of 2015.

On November 23, 2015, the Company entered into two foreign currency option contracts to purchase €1,416.0 for $1,547.1 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro denominated deal related costs and any outstanding Wincor Nixdorf borrowings. At that time, the cash component of the purchase price consideration approximated €1,162.2. The foreign currency option contracts were sold during the second quarter of 2016 for cash proceeds of $42.6 which are included in investing activities in the condensed consolidated statements of cash flows resulting in a gain of $35.6 during the six months ended June 30, 2016 and $7.0 during the fourth quarter of 2015. The weighted average strike price was $1.09 per euro. These foreign currency option contracts were non-designated and included in other current assets as of December 31, 2015 based on the net asset position.

### (unaudited)

### (in millions, except per share amounts)

On April 29, 2016, the Company entered into one foreign currency forward contract to purchase €713.0 for $820.9 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro denominated deal related costs and any outstanding Wincor Nixdorf borrowings. The forward rate is $1.1514. This foreign currency forward contract is non-designated and included in other current assets or other current liabilities based on the net asset or net liability position, respectively, in the condensed consolidated balance sheets. The gains and losses from the revaluation of the foreign currency forward contract are included in other (expense) income miscellaneous, net on the condensed consolidated statements of operations.

During the three and six months ended June 30, 2016, the Company recorded a $(23.6) and $12.9, respectively, mark-to-market (loss) gain on foreign currency and forward option contracts reflected in miscellaneous, net. The fair value of the Company's foreign currency forward and option contracts were $(22.7) as of June 30, 2016 and $7.0 as of December 31, 2015, respectively, and are included in other current liabilities and other current assets, respectively.

### Investing Activities

Net cash used by investing activities - continuing operations was $1,724.5 for the six months ended June 30, 2016 compared to net cash used by investing activities of $82.5 for the same period in 2015. The $1,642.0 change was primarily related to the 2016 activities related to $1,768.1 restricted cash to be used for the Acquisition offset by the $42.6 proceeds from sale of foreign currency option contract. In March 2015, payments for acquisition, net of cash acquired of $59.4 related to the acquisition Phoenix.

### Financing Activities

Net cash provided by financing activities was $1,584.9 for the six months ended June 30, 2016 compared to net cash provided by financing activities of $122.6 for the same period in 2015 for a period over period increase of $1,462.3. The change was primarily due to the period over period increase of $1,521.4 in debt borrowings, net of repayments and $11.2 debt issuance costs associated with the debt borrowings for the Acquisition.

The cash flows related to debt borrowings and repayments were as follows:

|  | Six Months Ended June 30, 2016 June 30, 2016 | June 30, 2015 |
| --- | ---: | ---: |
| Revolving credit facility borrowings (repayments), net | $142.0 | $(68.0) |
| Proceeds from Term Loan A Facility under the Credit Agreement | $— | $230.0 |
| Proceeds from Term Loan B Facility ($1,000.0) under the Credit Agreement | 990.0 | — |
| Proceeds from Term Loan B Facility (€350.0) under the Credit Agreement | 398.1 | — |
| Proceeds from 2016 Senior Notes | 393.0 | — |
| International short-term uncommitted lines of credit borrowings | 25.9 | 41.2 |
| Other debt borrowings | $1,807.0 | $271.2 |
| Payments on 2006 Senior Notes | $(225.0) | $— |
| Payments on Term Loan A Facility under the Credit Agreement | (5.8) | — |
| International short-term uncommitted lines of credit and other repayments | (25.4) | (42.3) |
| Other debt repayments | $(256.2) | $(42.3) |

The cash provided (used) by the discontinued operations, net, primarily related to the $365.2 proceeds received for the NA electronic security business divestiture that includes a preliminary working capital adjustment which is expected to be finalized in the third quarter of 2016.

### (unaudited)

### (in millions, except per share amounts)

Effect of exchange rate changes on cash and cash equivalents was negatively impacted by $9.5 related to the currency devaluation in Venezuela for the six months ended June 30, 2015.

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

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

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

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

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

### (unaudited)

### (in millions, except per share amounts)

Below is a summary of financing and replacement facilities information, upon closing of the Acquisition and first compliance certificate:

| Financing and Replacement Facilities Credit Agreement facilities | Interest Rate Index and Margin | Maturity/Termination Dates | Term (Years) |
| --- | --- | --- | ---: |
| Revolving Facility | LIBOR + 2.00% | December 2020 | 5 |
| Term Loan A Facility | LIBOR + 2.00% | December 2020 | 5 |
| Delayed Draw Term Loan A | LIBOR + 2.00% | December 2020 | 5 |
| Term Loan B Facility ($1,000.0) | LIBOR(i) + 4.50% | November 2023 | 7.5 |
| Term Loan B Facility (€350.0) | EURIBOR(ii) + 4.25% | November 2023 | 7.5 |
| 2016 Senior Notes | 8.5% | April 2024 | 8 |

(i) LIBOR with a floor of 0.75%.

(ii) EURIBOR with a floor of 0.75%.

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

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

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

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

**Dividends** The Company paid dividends of $38.0 and $37.8 in the six months ended June 30, 2016 and 2015, respectively. Quarterly dividends were $0.2875 per share for both periods. The Company announced during the fourth quarter of 2015 its intention to pay a dividend at a rate less than the Company's current annual dividend rate following the close of the Acquisition which is expected during the third quarter of 2016.

**Contractual Obligations** In the first six months of 2015, the Company entered into purchase commitments due within one year for materials through contract manufacturing agreements for a total negotiated price. At June 30, 2016, the Company had purchase commitments due within one year totaling $6.8 for materials through contract manufacturing agreements at negotiated prices.

The Company has funded the term loans available under the Credit Agreement and issued $400.0 aggregate principal amount of the 2016 Senior Notes. Refer to the aforementioned debt section for more details.

Except for the items noted above, all contractual cash obligations with initial and remaining terms in excess of one year and contingent liabilities remained generally unchanged at June 30, 2016 compared to December 31, 2015.

### (unaudited)

### (in millions, except per share amounts)

**Off-Balance Sheet Arrangements** The Company enters into various arrangements not recognized in the condensed consolidated balance sheets that have or could have an effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources. The principal off-balance sheet arrangements that the Company enters into are guarantees, operating leases and sales of finance receivables. The Company provides its global operations guarantees and standby letters of credit through various financial institutions to suppliers, regulatory agencies and insurance providers. If the Company is not able to make payment, the suppliers, regulatory agencies and insurance providers may draw on the pertinent bank. Refer to note 13 to the condensed consolidated financial statements for further details of guarantees. The Company has sold finance receivables to financial institutions while continuing to service the receivables. The Company records these sales by removing finance receivables from the condensed consolidated balance sheets and recording gains and losses in the condensed consolidated statements of operations.

### Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s condensed consolidated financial statements. The preparation of these financial statements requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include revenue recognition, the valuation of trade, finance lease receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, guarantee obligations and assumptions used in the calculation of income taxes, pension and post-retirement benefits and customer incentives, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors the economic conditions and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Management believes there have been no significant changes during the six months ended June 30, 2016 to the items that the Company disclosed as its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

### Forward-Looking Statement Disclosure

In this quarterly report on Form 10-Q, statements that are not reported financial results or other historical information are “forward-looking statements.” Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. These forward-looking statements relate to, among other things, the Company's future operating performance, the Company's share of new and existing markets, the Company's short- and long-term revenue and earnings growth rates, and the Company's implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the Company's manufacturing capacity.

The use of the words “will,” “believes,” “anticipates,” “expects,” “intends” and similar expressions is intended to identify forward-looking statements that have been made and may in the future be made by or on behalf of the Company. Although the Company believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, the economy, its knowledge of its business, and on key performance indicators that impact the Company, these forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed in or implied by the forward-looking statements. The Company is not obligated to update forward-looking statements, whether as a result of new information, future events or otherwise.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to:

- the Company's ability to successfully consummate the Acquisition, including satisfying closing conditions;
- the ultimate outcome and results of integrating the operations of the Company and Wincor Nixdorf, the ultimate outcome of the Company’s pricing, operating and tax strategies applied to Wincor Nixdorf and the ultimate ability to realize synergies;
- the Company's ability to successfully consummate its transaction with the Inspur Group;
- the success of the Company's strategic business alliance with Securitas AB;
- the Company's ability to reduce stranded costs related to its NA electronic security business from its ongoing operations;
- competitive pressures, including pricing pressures and technological developments;
- changes in the Company's relationships with customers, suppliers, distributors and/or partners in its business ventures;
- changes in political, economic or other factors such as currency exchange rates, inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting the worldwide business in each of the Company's operations;
- global economic conditions, including any additional deterioration and disruptions in the financial markets, including bankruptcies, restructurings or consolidations of financial institutions or otherwise, which could reduce our customer base and/or adversely affect our customers’ ability to make capital expenditures, as well as adversely impact the availability and cost of credit;
- acceptance of the Company's product and technology introductions in the marketplace;
- the Company’s ability to maintain effective internal controls over financial reporting;
- changes in the Company’s intention to further repatriate cash and cash equivalents and short-term investments residing in international tax jurisdictions could negatively impact foreign and domestic taxes;
- unanticipated litigation, claims or assessments, as well as the outcome/impact of any current/pending litigation, claims or assessments;
- variations in consumer demand for FSS technologies, products and services;
- potential disruptions, breaches or other violations of the Company's information technology systems;
- the investment performance of the Company’s pension plan assets, which could require the Company to increase its pension contributions, and significant changes in healthcare costs, including those that may result from government action;
- the amount and timing of repurchases of the Company’s common shares, if any; and
- the Company's ability to achieve benefits from its cost-reduction initiatives and other strategic changes as well as its business process outsourcing initiative.

## Market risk

As filed, 2,218 characters.

On November 23, 2015, the Company entered into two foreign currency option contracts to purchase €1,416.0 for $1,547.1 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro denominated deal related costs and any outstanding Wincor Nixdorf borrowings. At the time, the cash component of the purchase price consideration approximated €1,162.2. The foreign currency option contracts were sold during the second quarter of 2016 for cash proceeds of $42.6 which are included in investing activities in the condensed consolidated statements of cash flows resulting in a gain of $35.6 during the six months ended June 30, 2016 and $7.0 during the fourth quarter of 2015. The weighted average strike price was $1.09 per euro. These foreign currency option contracts were non-designated and included in other current assets on the condensed consolidated balance sheets as of December 31, 2015 based on the net asset position.

On April 29, 2016, the Company entered into one foreign currency forward contract to purchase €713.0 for $820.9 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro denominated deal related costs and any outstanding Wincor Nixdorf borrowings. The forward rate is $1.1514. This foreign currency forward contract is non-designated and included in other current assets or other current liabilities based on the net asset or net liability position, respectively, in the condensed consolidated balance sheets. The gains and losses from the revaluation of the foreign currency forward contract are included in other (expense) income miscellaneous, net on the condensed consolidated statements of operations. Changes in foreign exchange rates between the U.S dollar and euro can create substantial gains and losses from the revaluation of the derivative instrument.

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2015 for a discussion of market risk exposures. There have been no material changes in this information since December 31, 2015.

### (in millions, except per share amounts)

## Controls and procedures

As filed, 2,405 characters.

This quarterly report on Form 10-Q includes the certifications of our chief executive officer (CEO) and chief financial officer (CFO) required by Rule 13a-14 of the Securities Exchange Act of 1934 (the Exchange Act). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

Based on the performance of procedures by management, designed to ensure the reliability of financial reporting, management believes that the unaudited condensed consolidated financial statements fairly present, in all material respects, the Company's financial position, results of operations and cash flows as of the dates, and for the periods presented.

### Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the CEO and CFO as appropriate, to allow timely decisions regarding required disclosures.

In connection with the preparation of this quarterly report on Form 10-Q, the Company's management, under the supervision and with the participation of the CEO and CFO, conducted an evaluation of disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that such disclosure controls and procedures were effective as of June 30, 2016.

### Change in Internal Controls

We continued a phased implementation of enterprise resource planning systems in our NA operations, a portion of which was completed during 2015 and the balance expected to be substantially completed during 2016. We believe we are maintaining and monitoring appropriate internal controls during the implementation period. During the quarter ended June 30, 2016, there have been no other changes in our internal control over financial reporting during the period covered by this quarterly report on 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### (in millions, except per share amounts)

## Risk factors

As filed, 1,126 characters.

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2015. Except as presented below, there has been no material change to this information since December 31, 2015.

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

Following a referendum in June in which voters in the United Kingdom (U.K.) approved an exit from the European Union (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 operations, financial condition and results of operations.

Filed Jul 28, 2016.
Source: SEC EDGAR, the filing index for accession 0000028823-16-000214. Last ingested by Listed: Oct 28, 2026, 07:18 ET. No prices; not investment advice.