Acquisitions

Diebold Nixdorf AG is one of the world's leading providers of information technology (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 its 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 global presence substantially, especially in Europe, Middle East, and Africa (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 International Financial Reporting Standards (IFRS) as issued by the European Union (EU).

In the fourth quarter of 2015, the Company announced its intention to acquire all 29.8 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 Holding Germany Inc. & Co. KGaA (Diebold KGaA), a German partnership limited by shares and a wholly owned subsidiary of the Company, 22.9 Diebold Nixdorf AG ordinary shares representing 69.2 percent of total number of Diebold Nixdorf AG ordinary shares inclusive of treasury shares (76.7 percent of all Diebold Nixdorf AG ordinary shares outstanding) in exchange for an aggregate 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 13) and proceeds from the issuance and sale of the $400.0 aggregate principal amount of 8.50 percent senior notes due 2024 (the 2024 Senior Notes).

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 shareholders of Diebold KGaA and Diebold Nixdorf AG on September 26, 2016 each approved the proposed the Domination and Profit and Loss Transfer Agreement (DPLTA). The DPLTA became effective by entry in the commercial register at the local court of Paderborn (Germany) on February 14, 2017.

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.

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

The aggregate preliminary consideration, excluding $110.7 of cash acquired, for the Acquisition was $1,265.7, which consisted of the following:



Cash paid	$	995.3
Less: cash acquired	(110.7		)
Payments for acquisition, net of cash acquired	884.6
Common shares issued to Diebold Nixdorf AG shareholders	279.7
Other consideration	(9.3		)
Total preliminary consideration, net of cash acquired	$	1,155.0

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

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



	Preliminary amounts recognized as of:
	March 31, 2017
Trade receivables	$	474.1
Inventories	487.2
Prepaid expenses	39.3
Current assets held for sale	106.6
Other current assets	79.9
Property, plant and equipment	247.1
Intangible assets	802.1
Deferred income taxes	109.7
Other assets	27.0
Total assets acquired	2,373.0

Notes payable	159.8
Accounts payable	321.5
Deferred revenue	158.0
Payroll and other benefits liabilities	191.6
Current liabilities held for sale	56.6
Other current liabilities	196.3
Pensions and other benefits	103.2
Other noncurrent liabilities	458.9
Total liabilities assumed	1,645.9

Redeemable noncontrolling interest	(46.8		)
Fair value of noncontrolling interest	(407.9		)
Total identifiable net assets acquired, including noncontrolling interest	272.4
Total preliminary consideration, net of cash acquired	1,155.0
Goodwill	$	882.6

Included in the preliminary purchase price allocation are acquired identifiable intangibles of $802.1, the fair value of which was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance.

The Company preliminarily recorded acquired intangible assets in the following table as of the acquisition date:



	Weighted-average useful lives	August 15, 2016
Trade name	3.0 years	$	30.1
Technologies	4.0 years	107.2
Customer relationships	9.5 years	658.5
Other	various	6.3
Intangible assets		$	802.1

Noncontrolling interest reflects a fair value adjustment of $407.9 consisting of $386.7 related to the Diebold Nixdorf AG ordinary shares the Company did not acquire and $21.2 for the pre-existing noncontrolling interests. Noncontrolling interests with certain redemption features, such as put rights that are not within the control of the issuer and are considered redeemable noncontrolling interests. On February 14, 2017, the DPLTA became effective by entry in the commercial register of the local court of Paderborn. As a result, the carrying value of the noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire of $386.7, which was presented as a component of total equity as of December 31, 2016, has been reclassified to redeemable noncontrolling interest during the first quarter of 2017. For the period of time that the DPLTA is effective, the noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire will remain in redeemable noncontrolling interest and presented outside of equity in the condensed consolidated balance sheets of the Company.

Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed from the Acquisition, and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. This goodwill is primarily the result of anticipated synergies achieved through increased scale, a streamlined portfolio of products and solutions, higher utilization of the service organization, workforce rationalization in overlapping regions and shared back office resources. The Company has preliminarily allocated goodwill to its Services, Software and Systems reportable operating segments (refer to note 12). The goodwill associated with the Acquisition is not deductible for income tax purposes.

Net sales, income (loss) from continuing operations before taxes and net income (loss) attributable to Diebold Nixdorf, Incorporated from the Acquisition included in the Company’s results for the quarter ended March 31, 2017, are as follows:



	Three Months Ended March 31, 2017
Net sales	$	623.6
Income (loss) from continuing operations before taxes	$	(29.6	)
Net income (loss) attributable to Diebold Nixdorf, Incorporated	$	(24.4	)

The Acquisition's income (loss) from continuing operations before taxes subsequent to the acquisition date includes purchase accounting pretax charges related to deferred revenue of $10.4 and amortization of acquired intangibles of $31.8, offset by a reduction of $1.6 depreciation expense related to the change in useful lives.

The Company incurred deal-related costs in connection with the Acquisition, of $14.9, which are included in selling, general and administrative expenses in the Company's condensed consolidated statements of operations for three months ended March 31, 2016. No Acquisition-related deal costs have been incurred during the three months ended March 31, 2017.

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

The pro forma information in the table below for the three months ended March 31, 2016 includes unaudited pro forma information that represents the consolidated results of the Company as if the Acquisition occurred as of January 1, 2015:



	Unaudited pro forma information
	March 31, 2016
Net sales	$	1,158.5
Gross profit	$	294.6
Operating profit	$	35.3
Net income (loss) attributable to Diebold Nixdorf, Incorporated⁽¹⁾	$	185.0
Net income (loss) attributable to Diebold Nixdorf, Incorporated per share - basic⁽¹⁾	2.47
Net income (loss) attributable to Diebold Nixdorf, Incorporated per share - diluted⁽¹⁾	2.45
Basic weighted-average shares outstanding	75.0
Diluted weighted-average shares outstanding	75.6

(1) Net income (loss) for the the three months ended March 31, 2016 includes income from discontinued operations, net of tax of $147.8.

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


•	Additional depreciation and amortization expenses that would have been recognized assuming preliminary fair value adjustments to the existing Diebold Nixdorf AG assets acquired and liabilities assumed, including intangible assets, fixed assets and expense associated with the valuation of inventory acquired.


•	Increased interest expense due to additional borrowings to fund the Acquisition.

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