# DIEBOLD NIXDORF, Inc: Form 10-Q for the period ended Jun 30, 2017

- Company: [DIEBOLD NIXDORF, Inc](/companies/dbd.md) (CIK 28823)
- Form: 10-Q
- Filed: 2017-07-26
- Accepted by EDGAR: Jul 26, 2017, 06:55 ET
- Period: 2017-06-30
- Accession: 0000028823-17-000116
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/28823/000002882317000116/dbd630201710q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/28823/000002882317000116/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 6 months, 2017-01-01 to 2017-06-30 | $2.24bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2017-04-01 to 2017-06-30 | $896.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2017-01-01 to 2017-06-30 | $1.76bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2017-04-01 to 2017-06-30 | $237.8m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2017-01-01 to 2017-06-30 | $480.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2017-04-01 to 2017-06-30 | $38.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2017-01-01 to 2017-06-30 | $80.2m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2017-04-01 to 2017-06-30 | $236.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2017-01-01 to 2017-06-30 | $483.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2017-04-01 to 2017-06-30 | −$30.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2017-01-01 to 2017-06-30 | −$78.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-04-01 to 2017-06-30 | $32.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2017-01-01 to 2017-06-30 | $63.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2017-04-01 to 2017-06-30 | −$36.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2017-01-01 to 2017-06-30 | −$58.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-04-01 to 2017-06-30 | −$30.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2017-01-01 to 2017-06-30 | −$89.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-04-01 to 2017-06-30 | −$0.41 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2017-01-01 to 2017-06-30 | −$1.19 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-04-01 to 2017-06-30 | −$0.41 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2017-01-01 to 2017-06-30 | −$1.19 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-04-01 to 2017-06-30 | 75,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2017-01-01 to 2017-06-30 | 75,400,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2017-01-01 to 2017-06-30 | −$185.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2017-01-01 to 2017-06-30 | $26.4m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2017-04-01 to 2017-06-30 | $7.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 6 months, 2017-01-01 to 2017-06-30 | $15.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2017-01-01 to 2017-06-30 | $4.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2017-06-30 | $451.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-06-30 | $2.64bn | us-gaap:AssetsCurrent |
| Total assets | at 2017-06-30 | $5.46bn | us-gaap:Assets |
| Current liabilities | at 2017-06-30 | $1.88bn | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2017-06-30 | $587.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 73,410 characters.

### Significant Highlights

During the second quarter of 2017, the following significant items occurred:

- Announced product readiness to support the Microsoft® Windows 10 operating system. The move to the latest operating system and application platform is an opportunity for financial institutions to benefit from greater security against modern cyber threats, meet regulatory compliance standards, and enhance the consumer experience with future-looking services and transactions
- Announced Strategic Partnership with Kony to white label mobile application solutions for financial institutions and retailers
- Unveiled new ATM concept, Essence, with a sleeker, more modern design and advanced user interface
- Demonstrated two new kiosk solutions at the National Restaurant Association show. The free-standing Passport kiosk has a large touchscreen and an integrated EFT device to process card payments. The miniaturized footprint of the K-One Kiosk solution can be easily customized and processes cashless payments via card or near field communication.
- Awarded the prestigious Red Dot Product Design Award for product design quality and the intuitive, fast and convenient operation of two self-checkout systems
- Announced that all regulatory approvals have been received for closure of a redundant distribution facility in the Netherlands
- Launched a fully integrated brand and direct presence in the U.K. and Ireland following CMA approval of the sale of legacy Diebold business in those countries to Cennox Group

### 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

The Company provides connected commerce services, software and technology to enable millions of transactions each day. The Company’s approximately 24,000 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 and retail locations by integrating services, software and systems. This requires ongoing investment and development of its 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 research and development (R&D) priorities in support of a better transaction experience for consumers.

#### DN2020

Commensurate with its strategy, the Company is executing a multi-year integration and transformation program, called DN2020, which aligns employee activities with the Company's goal of delivering operating profit savings of $240 by the year 2020. By executing the program, the Company expects to deliver greater innovation for customers, career enrichment opportunities for employees, and enhanced value for shareholders. DN2020 consists of six inter-related elements:

*Advancing the Company's Connected Commerce Strategy -* the Company will continue to develop innovative technology and partner with external companies to deliver highly secure customer-centric solutions. This includes the application of cloud computing technology, mobile technology, sensors and the Internet of Things, as well as open and agile software delivered “as a service”.

*Pursuing Finance Excellence -* the Company will continuously improve its financial reporting, analysis and forecasting by emulating best practices from similar business entities. The Company's initiatives are designed to improve forecasting accuracy, optimize working capital management and pursue prudent capital allocation strategies which enhance

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shareholder value. At present, the Company's capital allocation priorities are to reduce its leverage and accelerate the realization of its synergies.

*Executing the Company's Integration Plans -* the Company is executing a detailed integration plan, which consists of 18 different work streams designed to harmonize legacy business practices and build upon the best practices from each legacy company. These integration plans will leverage the Company's global scale, reduce overlap and improve the profitability of the Company. Key areas of 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.

*Pursuing Operational Excellence -* the Company will implement best practices to improve operational efficiency and increase customer satisfaction. Robust reporting and tracking tools will be used to achieve best-in-class service and manufacturing levels.

*Retaining and Attracting Industry-Leading Talent -* the Company aims to become an employer of choice in the connected commerce space. We intend to build a culture characterized by innovation, customer collaboration, accountability and strong ethical behavior. The Company will encourage experiential learning and will invest in training resources for the purposes of developing a vibrant workforce and expanding its leadership in connected commerce. Performance-based rewards and recognition policies are aligned with Company objectives and growth opportunities.

*Pursuing Sales Excellence -* a capable and progressive sales organization is vital to the future growth of the Company. The Company will invest in the sales organization to ensure it has the skills, resources, and processes needed to support the growth of each LOB. At the country level, we will optimize sales staffing and invest in partner programs commensurate with overall market demand. As a result of these investments, the Company expects to increase its pipeline of opportunities and increase its win rate over time.

The Company expects to make investments to restructure the workforce, combine and optimize legacy business systems, streamline legal entities and consolidate real estate holdings of approximately $240 in restructuring and integration related costs.

#### Segments

In August 2016, in connection with the business combination agreement related to the Acquisition, the Company announced the realignment of its lines of business to drive greater efficiency and further improve customer service. As a result of the Acquisition, the Company has reorganized the management team reporting to the CODM and evaluated and assessed the LOB reporting structure. Effective January 1, 2017, the Company's reportable operating segments are based on the following three LOBs: Services, Software and Systems. As a result, the Company reclassified comparative periods for consistency. The CODM makes decisions, allocates resources and assesses performance by the LOBs.

#### Services LOB

With approximately 15,000 highly-trained service employees and a global delivery network, Diebold Nixdorf is the global leader in servicing distributed IT assets for banking and retail customers. These services enable customers to meet the growing demand for transaction availability at ATMs, POS, self-checkout systems (SCO) and other distributed IT assets in a cost-effective manner. Diebold Nixdorf’s global customer care center offers round-the-clock availability and is proficient in supporting customers in more than 25 languages. The global service supply chain optimizes the process for obtaining replacement parts, making repairs, and implementing new features and functionalities. The Company also possesses deep experience in installing, maintaining and upgrading customer touchpoints manufactured by other vendors, also known as multi-vendor support.

Product-related services provided by the Company include proactive monitoring and rapid resolution of incidents through remote service capabilities or an on-site visit. First and second line maintenance, preventive maintenance and on-demand services keep the distributed assets of the Company's customers up and running through a standardized incident

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management process. Managed services and outsourcing consists of the end-to-end business processes, solution management, upgrades and transaction processing. The majority of these contracts include remote monitoring and establish a service level threshold for uptime, incident response times and other key performance metrics. Diebold Nixdorf provides managed solutions in order for banks and retailers to realize operational efficiencies and gain access to industry-leading innovations.

The Company also provides a full array of cash management services, which optimizes the availability and cost of physical currency across the enterprise through efficient forecasting, inventory and replenishment processes. These services mitigate customer risks by relying on proven monitoring and reporting processes, secure tools and partnerships with larger cash-in-transit companies.

Under DN2020, the Services LOB has a dual mandate of delivering moderate revenue growth and increased efficiency. We expect to generate modest top-line growth by increasing the Company's service attach rate on the unserved Diebold Nixdorf ATMs, POS and self-checkout systems in use, up-selling current customers on managed services and increasing billed work revenue by leveraging best practices across different countries and regions. The Company acquired a design company in Germany which advises and supports innovative solutions for branch modernization. The Services line will achieve higher levels of efficiency by standardizing the service offerings, service tools and processes, increasing the market acceptance of remote monitoring and resolution, and streamlining global delivery centers and stocking facilities.

#### Software LOB

The Company provides front-end applications for consumer connection points and back-end platforms that manage channel transactions, operations and integration. The Company’s hardware-agnostic software applications facilitate millions of transactions via ATMs, POS terminals, kiosks, and a host of other self-service devices. Diebold Nixdorf’s platform software is installed within bank and retail data centers to facilitate omni-channel transactions, endpoint monitoring, remote asset management, marketing, merchandise management and analytics. These offerings include highly configurable, application program interface enabled software that automates and migrates legacy banking and retail transactions across channels. As a result of these innovations, the Company's customers are transforming the shopping and banking experience to be more intelligent and highly personalized. The Company's software is supported by a global network of more than 1,600 professional service employees who tailor the software to meet customer needs.

The Company’s multi-vendor software solutions are designed to meet the evolving demands of a customer’s self-service and banking network and address these four primary categories: physical and digital connectivity; personal consumer experience; operations and management; and security and fraud control. The Company's self-service and branch automation solutions address the full banking ecosystem from transactional processes to front end user experience with the consumer.

For the retail business, the Company provides a comprehensive, modular solution suite called TP.net, which is capable of enabling the most advanced omni-channel retail use cases. With TP.net, the Company offers a full software platform to improve end-to-end store processes in support of omni-channel retailing. This includes click & collect, reserve & collect, in-store ordering and return to store processes across the retailers’ physical and digital sales channels. TP.net and the other components of the TP Application Suite are designed on a modular, Application Programming Interface (API) enabled architecture and can be integrated fully or partially into existing infrastructures. With the TP platform, data from a number of sources such as ERP, POS, store systems and customer relationship management systems (CRM), may be integrated across all customer connection points to create differentiated omni-channel experiences.

An important enabler of the Company’s software business is the professional services team which provides systems integration, customization, consulting and project management. The Company’s advisory services team collaborates with its customers to help define optimal user experience, improve business processes, refine existing staffing models and deploy technology to meet branch automation objectives.

In May 2017, the Company announced a strategic partnership with Kony to offer white label mobile application solutions for financial institutions and retailers. The Company’s next generation mobile application suite, DN Mobile, will enable a unified and highly personalized transaction experience by leveraging cross-platform data and integrating multiple channels.

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The Company views its software as a key differentiator in providing Connected Commerce solutions to customers and is a source of competitive advantage. The Company's world-class software portfolio is well positioned to capture gains from the persistent market demand for advanced cash automation and optimization solutions. Meanwhile, the industry trends of branch transformation, store transformation, and omnichannel solutions are well aligned to the Company's core competency of digital automation and are yielding new growth and differentiation opportunities for the Company's business.

#### Systems LOB

The Company is a global leader in providing systems to banks, retailers and other customers. Through collaboration with its customers, engineering excellence and an efficient supply chain, the Company delivers industry-leading customer touchpoints which process both physical and digital transactions. The Systems LOB seeks to optimize the total cost of ownership by maximizing transaction availability and creating a positive impression on consumers.

The systems portfolio for banking customers consists of cash recyclers and dispensers, intelligent deposit terminals, teller automation tools, and physical security devices. Recent innovation concepts include the miniaturized Extreme ATM and Essence. Extreme ATM is the smallest ATM ever developed at less than 10” wide, which allows customers to stage transactions on mobile phones and complete transactions using Bluetooth® devices or near-field communication. Essence is a highly-secure and miniaturized ATM that features a sleek, antimicrobial glass touchscreen display and enhanced user interface modeled after today’s smartphones and tablet computers.

For retail customers, the checkout portfolio includes modular, integrated and mobile POS systems that meet evolving automation and omni-channel requirements of consumers. Supplementing the POS system 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 and ordering kiosks which facilitate an efficient and user-friendly purchasing experience. The Company’s hybrid product line can alternate from attended operation to self-checkout by the cashier with the press of a button as traffic conditions warrant throughout the business day.

DN2020 empowers the Systems LOB to align the portfolio with market demand, deliver innovations and increase operating efficiencies on innovation and efficiency. With respect to innovation, the Company will continue to spend significant R&D dollars on the latest technology. Current areas of innovations include;

- mobile technologies to support advanced connectivity including contactless transactions;
- new sensors and the Internet of Things to support real-time monitoring activities;
- miniaturization technologies needed for branch/store transformation; and
- advanced security capabilities including anti-skimming card readers and biometric authentication.

With respect to operating efficiencies, the Systems LOB has initiated the following activities:

- leveraging the purchasing power of the Company through a new procurement partnership program;
- streamlining the product portfolio - including terminals, core technologies and components;
- developing a partner ecosystem to complement the Company's core technologies;
- consolidating manufacturing capacity to optimize fixed costs; and
- re-allocating R&D spend to areas of innovation.

Leveraging the broad portfolio from each LOB, the Company allows customers the flexibility to select the combination of services, software and systems that drives the most value to their business. For example, the Company offers end-to-end branch and store automation solutions that consist of the complete value chain of consult, design, build and operate. Branch and store automation 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 or store, to lower-cost automated channels. The Company’s advisory services team collaborates with its clients to define the ideal customer experience, modify processes, refine existing staffing models and deploy technologies that meet business objectives.

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#### Business Drivers

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

- demand for services on distributed IT assets such as ATMs, POS and SCO, including managed services and professional services;
- timing of system upgrades and/or replacement cycles for ATMs, POS and SCO;
- demand for security products and services for the financial, retail and commercial sectors;
- integration of legacy salesforce, business processes, procurement, and internal IT systems; and
- realization of cost synergies, which leverage the Company's global scale, reduce overlap and improve operating efficiencies.

### 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, 2017 Amount | % of Net sales | 2016 Amount | % of Net sales | Six Months Ended June 30, 2017 Amount | % of Net sales | 2016 Amount | % of Net sales |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $1,133.9 | 100.0 | $580.0 | 100.0 | $2,236.7 | 100.0 | $1,089.6 | 100.0 |
| Gross profit | $237.8 | 21.0 | $155.1 | 26.7 | $480.3 | 21.5 | $293.9 | 27.0 |
| Operating expenses | $267.9 | 23.6 | $144.8 | 25.0 | $559.0 | 25.0 | $289.3 | 26.6 |
| Operating profit (loss) | $(30.1) | (2.7) | $10.3 | 1.8 | $(78.7) | (3.5) | $4.6 | 0.4 |
| Net income (loss)(1) | $(23.6) | (2.1) | $(20.3) | (3.5) | $(75.8) | (3.4) | $148.2 | 13.6 |
| Net income attributable to noncontrolling interests | $7.0 | 0.6 | $0.8 | 0.1 | $13.6 | 0.6 | $1.1 | 0.1 |
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $(30.6) | (2.7) | $(21.1) | (3.6) | $(89.4) | (4.0) | $147.1 | 13.5 |

(1) Net income (loss) for the the three and six months ended June 30, 2016 includes income from discontinued operations, net of tax of $0.5 and $148.3, respectively.

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

#### Net Sales

The following table represents information regarding the Company's net sales:

| Segments | Three Months Ended June 30, 2017 | 2016 | % Change | % Change in CC (1) | Percent of Total Net Sales for the Three Months Ended June 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $580.2 | $329.6 | 76.0 | 75.4 | 51.2 | 56.8 |
| Software | 107.7 | 30.6 | 252.0 | 248.5 | 9.5 | 5.3 |
| Systems | 446.0 | 219.8 | 102.9 | 102.9 | 39.3 | 37.9 |
| Net Sales | $1,133.9 | $580.0 | 95.5 | 95.0 | 100.0 | 100.0 |
| Geographic Regions |  |  |  |  |  |  |
| Americas | $390.3 | $388.0 | 0.6 | (0.2) | 34.4 | 66.9 |
| EMEA | 587.5 | 106.5 | 451.6 | 457.9 | 51.8 | 18.4 |
| AP | 156.1 | 85.5 | 82.6 | 83.4 | 13.8 | 14.7 |
| Net Sales | $1,133.9 | $580.0 | 95.5 | 95.0 | 100.0 | 100.0 |
| Solutions |  |  |  |  |  |  |
| Banking | $843.9 | $564.3 | 49.5 | 49.3 | 74.4 | 97.3 |
| Retail | 290.0 | 15.7 | N/M | N/M | 25.6 | 2.7 |
| Net Sales | $1,133.9 | $580.0 | 95.5 | 95.0 | 100.0 | 100.0 |

(1) The Company calculates constant currency by translating the prior-year period results at the current year exchange rate.

N/M = Not Meaningful

#### Three months ended June 30, 2017 compared with three months ended June 30, 2016

Net sales increased $553.9 or 95.5 percent including a net favorable currency impact of $1.5. The Acquisition accounted for $635.8 in net sales. In addition, net sales was adversely impacted $10.3 related to deferred revenue purchase accounting adjustments. The amounts attributable to the Acquisition are impacted by the alignment and integration of customer portfolios, solution offerings and operations between the legacy companies, which may result in unfavorable comparisons to prior year. The following results include the impact of foreign currency and purchase accounting adjustments:

### Segments

- Services net sales increased $250.6, with $266.2 attributable to the Acquisition and included an unfavorable impact of $5.1 related to purchase accounting adjustments. Excluding the impact of the Acquisition, services sales decreased $15.6 primarily due to the run-off of multi-vendor service contracts in the Americas, as well as, lower installation revenue tied to decreased Systems volumes in the Americas and Europe, Middle East, and Africa (EMEA).
- Software net sales increased $77.1, with $84.5 attributable to the Acquisition and included an unfavorable impact of $2.8 related to purchase accounting adjustments. Excluding the impact of the Acquisition, software sales decreased $7.4 primarily associated with lower Systems volume in the Americas.
- Systems net sales increased $226.2, with $285.1 attributable to the Acquisition and included an unfavorable impact of $2.4 related to purchase accounting adjustments. Excluding the impact of the Acquisition, systems sales decreased $58.9 primarily attributable to banking solutions activity across the Company. EMEA has been unfavorably impacted by the alignment of customer portfolio and solution offerings between the legacy companies which may be reflected as part of the sales attributable to the Acquisition. In the Americas, the volume declines were due to non-recurring projects and in Asia Pacific (AP) mainly due to structural changes in the market.

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A more detailed discussion of segment revenue is included under "Segment Revenue and Operating Profit Summary" below.

### Geographic Regions

- Americas net sales increased $2.3 or 0.6 percent, with $39.3 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales decreased in NA related to lower multi-vendor service contract revenue. In addition, there were fewer large systems projects across NA and Latin America (LA), that were partially offset by higher systems volume in Brazil.
- EMEA net sales increased $481.0 or 451.6 percent, with $513.9 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales has been unfavorably impacted as a result of the alignment of customer portfolio and solution offerings between the legacy companies which may be reflected as part of the sales attributable to the Acquisition. Additionally, there were two large projects in Switzerland in the prior year period that did not recur.
- AP net sales increased $70.6 or 82.6 percent, with $82.6 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales decreased primarily due to lower systems volume due to the market structure change in China. Also contributing to the decline, the sequencing of large system deployments in the current year is expected to be more weighted towards the second half of the year.

### Solutions

- Banking net sales increased $279.6 or 49.5 percent, with $352.3 attributable to the Acquisition and included an unfavorable impact of $6.2 related to purchase accounting adjustments. Excluding the impact of the Acquisition, net sales decreased primarily due to lower systems volumes and the associated installation activity across the Company, with lower large project activity impacting all regions. In addition, banking services decreased primarily due to the run-off of multi-vendor service contracts in the Americas.
- Retail net sales increased $274.3, with $283.5 attributable to the Acquisition and included an unfavorable impact of $4.1 related to purchase accounting adjustments. Excluding the impact of the Acquisition, net sales decreased primarily due to lower demand in Brazil for voting solutions.

| Segments | Six Months Ended June 30, 2017 | 2016 | % Change | % Change in CC (1) | Percent of Total Net Sales for the Six Months Ended June 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $1,153.4 | $646.5 | 78.4 | 77.0 | 51.6 | 59.3 |
| Software | 218.1 | 53.0 | 311.5 | 303.9 | 9.8 | 4.9 |
| Systems | 865.2 | 390.1 | 121.8 | 120.7 | 38.6 | 35.8 |
| Net Sales | $2,236.7 | $1,089.6 | 105.3 | 103.8 | 100.0 | 100.0 |
| Geographic Regions |  |  |  |  |  |  |
| Americas | $786.5 | $731.5 | 7.5 | 5.8 | 35.2 | 67.1 |
| EMEA | 1,149.5 | 192.1 | 498.4 | 504.7 | 51.4 | 17.6 |
| AP | 300.7 | 166.0 | 81.1 | 83.2 | 13.4 | 15.3 |
| Net Sales | $2,236.7 | $1,089.6 | 105.3 | 103.8 | 100.0 | 100.0 |
| Solutions |  |  |  |  |  |  |
| Banking | $1,663.5 | $1,071.9 | 55.2 | 54.2 | 74.4 | 98.4 |
| Retail | 573.2 | 17.7 | N/M | N/M | 25.6 | 1.6 |
| Net Sales | $2,236.7 | $1,089.6 | 105.3 | 103.8 | 100.0 | 100.0 |

(1) The Company calculates constant currency by translating the prior-year period results at the current year exchange rate.

N/M = Not Meaningful

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#### Six months ended June 30, 2017 compared with six months ended June 30, 2016

Net sales increased $1,147.1 or 105.3 percent including a net favorable currency impact of $7.9 primarily related to the Brazil real, which was partially offset by smaller unfavorable currency movements in Asia and Europe. The Acquisition accounted for $1,259.4 in net sales. In addition, net sales was adversely impacted $20.7 related to deferred revenue purchase accounting adjustments. The amounts attributable to the Acquisition are impacted by the alignment and integration of customer portfolios, solution offerings and operations between the legacy companies, which may result in unfavorable comparisons to prior year. The following results include the impact of foreign currency and purchase accounting adjustments:

### Segments

- Services net sales increased $506.9, with $529.1 attributable to the Acquisition and included an unfavorable impact of $10.3 related to purchase accounting adjustments. Excluding the impact of the Acquisition, services sales decreased $22.2 primarily due to the run-off of multi-vendor service contracts in the Americas, as well as lower installation revenue tied to decreased Systems volumes in the Americas and EMEA.
- Software net sales increased $165.1, with $168.6 attributable to the Acquisition and included an unfavorable impact of $2.8 related to purchase accounting adjustments. Excluding the impact of the Acquisition, software sales were relatively flat.
- Systems net sales increased $475.1, with $561.7 attributable to the Acquisition and included an unfavorable impact of $7.6 related to purchase accounting adjustments. Excluding the impact of the Acquisition, systems sales decreased $86.6 primarily attributable to banking solutions activity across the Company. EMEA has been unfavorably impacted by the alignment of customer portfolio and solution offerings between the legacy companies which may be reflected as part of the sales attributable to the Acquisition. In the Americas, the volume declines were due to non-recurring projects and in AP mainly due to structural changes in the market.

A more detailed discussion of segment revenue is included under "Segment Revenue and Operating Profit Summary" below.

### Geographic Regions

- Americas net sales increased $55.0 or 7.5 percent, with $92.2 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales decreased in NA related to lower multi-vendor service contract revenue. In addition, there were fewer large systems projects across NA and LA, that were partially offset by higher systems volume in Brazil.
- EMEA net sales increased $957.4 or 498.4 percent, with $1,009.1 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales has been unfavorably impacted as a result of the alignment of customer portfolio and solution offerings between the legacy companies which may be reflected as part of the sales attributable to the Acquisition. Additionally, there were two large projects in Switzerland in the prior-year period that did not recur.
- AP net sales increased $134.7 or 81.1 percent, with $158.1 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales decreased primarily due to lower systems volume due to the market structure change in China. Also contributing to the decline, the sequencing of large system deployments in the current year is more weighted towards the second half of the year.

### Solutions

- Banking net sales increased $591.6 or 55.2 percent, with $699.0 attributable to the Acquisition and included an unfavorable impact of $12.4 related to purchase accounting adjustments. Excluding the impact of the Acquisition, net sales decreased primarily due to lower systems volumes and the associated installation activity across the Company, with lower large project activity impacting all regions. In addition, banking services decreased primarily due to the run-off of multi-vendor service contracts in the Americas.

### (unaudited)

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

- Retail net sales increased $555.5, with $560.4 attributable to the Acquisition and included an unfavorable impact of $8.3 related to purchase accounting adjustments. Excluding the impact of the Acquisition, net sales decreased primarily due to lower demand in Brazil in Brazil for voting solutions.

#### Gross Profit

The following table represents information regarding the Company's gross profit:

|  | Three Months Ended June 30, 2017 | 2016 | % Change | Six Months Ended June 30, 2017 | 2016 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross profit - services and software | $151.5 | $123.4 | 22.8 | $329.6 | $231.8 | 42.2 |
| Gross profit - systems | 86.3 | 31.7 | N/M | 150.7 | 62.1 | 142.7 |
| Total gross profit | $237.8 | $155.1 | 53.3 | $480.3 | $293.9 | 63.4 |
| Gross margin - services and software | 22.0% | 34.3% |  | 24.0% | 33.1% |  |
| Gross margin - systems | 19.3% | 14.4% |  | 17.4% | 15.9% |  |
| Total gross margin | 21.0% | 26.7% |  | 21.5% | 27.0% |  |

Services and software gross margin was lower in the three and six months ended June 30, 2017 due in part to the impact of the Acquisition, which utilizes a higher third-party labor model to support its service and software revenue stream, resulting in a dilutive effect on margins. Gross margin in both the three and six months ended June 30, 2017 was also impacted by lower contract maintenance revenue in Americas combined with increased labor investments. The labor investments are a result of higher turnover rates of technicians and the associated training to support additional product lines. In the six months ended June 30, 2017, EMEA gross margin was unfavorably impacted by large systems projects in the prior year that carried a higher margin. In the three and six months ended June 30, 2017, services and software gross profit included non-routine charges of $20.6 and $26.0, respectively, primarily related to purchase accounting adjustments associated with the Acquisition. Services and software gross profit also included restructuring charges of $12.6 and $15.6 in the three and six months ended June 30, 2017, respectively. In the three and six months ended June 30, 2016, restructuring charges were $1.4 and $1.7, respectively.

Systems gross margin in the three months ended June 30, 2017 increased primarily as a result of incremental gross profit associated with the Acquisition, which has a larger mix of higher margin business across both banking and retail solutions, and included purchase accounting adjustments of $2.8. In the three month time period, systems gross margin was unfavorably impacted by EMEA due to large projects in the prior year period that carried a higher margin as well as unfavorable country revenue mix. Systems gross margin in the six months ended June 30, 2017 increased primarily as a result of incremental gross profit associated with the Acquisition and included purchase accounting adjustments of $20.8. In the six months ended, systems gross margin was adversely impacted by the previously mentioned non-recurring projects in EMEA in addition to lower volume of higher margin sales in LA in 2017. In the three and six months ended June 30, 2017, systems gross profit included non-routine charges of $16.1 and $22.0, respectively, primarily related to purchase accounting adjustments associated with the Acquisition. Systems gross profit also included restructuring charges of $0.9 and $1.6 in the three and six months ended June 30, 2017, respectively.

#### Operating Expenses

The following table represents information regarding the Company's operating expenses:

|  | Three Months Ended June 30, 2017 | 2016 | % Change | Six Months Ended June 30, 2017 | 2016 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling and administrative expense | $236.8 | $127.3 | 86.0 | $483.8 | $252.9 | 91.3 |
| Research, development and engineering expense | 38.8 | 17.6 | 120.5 | 80.2 | 36.1 | 122.2 |
| Impairment of assets | — | — | — | 3.1 | — | N/M |
| (Gain) loss on sale of assets, net | (7.7) | (0.1) | N/M | (8.1) | 0.3 | N/M |
| Total operating expenses | $267.9 | $144.8 | 85.0 | $559.0 | $289.3 | 93.2 |

54

### (unaudited)

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

Excluding the impact of incremental expense associated with the Acquisition of $109.6 and $231.0 in the three and six months ended June 30, 2017, respectively, selling and administrative expense were relatively flat compared to the same periods of 2016.

Non-routine expenses in selling and administrative expense of $39.8 and $17.9 were included in the three months ended June 30, 2017 and 2016, respectively. The primary components of the non-routine expenses pertained to acquisition and divestiture costs totaling $20.1 and purchase accounting adjustments of $20.2 related to intangible asset amortization. Selling and administrative expense included restructuring charges of $2.5 and $3.7 in the three months ended June 30, 2017 and 2016, respectively. Non-routine expenses in selling and administrative expense of $88.9 and $31.7 were included in the six months ended June 30, 2017 and 2016, respectively. The primary components of the non-routine expenses pertained to acquisition and divestiture costs totaling $50.2 and purchase accounting adjustments of $39.2 related to intangible asset amortization. Selling and administrative expense included restructuring charges of $10.9 and $3.6 in the six months ended June 30, 2017 and 2016, respectively.

Research, development and engineering expense as a percent of net sales was 3.4 and 3.6 percent in the three and six months ended June 30, 2017, respectively compared with 3.0 and 3.3 percent in the three and six months ended June 30, 2016. Excluding the impact of the Acquisition, research and development expense in both the three and six months ended June 30, 2017 decreased primarily as a result of the benefits of streamlining the cost structure as part of the Company's integration activities. Research, development and engineering expense included non-routine reversals of $(0.2) and restructuring reversals of $(1.6) in the three months ended June 30, 2017. Research, development and engineering expense in the six months ended June 30, 2017 included non-routine charges of $0.3 and restructuring reversals of $(0.7). The three and six months ended June 30, 2016, had no non-routine charges and $0.1 in restructuring charges.

In the six months ended June 30, 2017, the Company recorded impairments totaling $3.1 related to information technology transformation and integration activities.

In the three and six months ended June 30, 2017, the gain on sale of assets was primarily related to the Company's divestiture of the legacy business in the United Kingdom and the electronic security business located in Mexico.

Operating expense as a percent of net sales in the three months ended June 30, 2017 was 23.6 percent compared with 24.9 percent in the three months ended June 30, 2016. Operating expense as a percent of net sales in the six months ended June 30, 2017 was 25.0 percent compared with 26.6 percent in the six months ended June 30, 2016.

#### Operating Profit

The following table represents information regarding the Company's operating profit:

|  | Three Months Ended June 30, 2017 | 2016 | % Change | Six Months Ended June 30, 2017 | 2016 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | --- |
| Operating profit (loss) | $(30.1) | $10.3 | N/M | $(78.7) | $4.6 | N/M |
| Operating profit margin | (2.7)% | 1.8% |  | (3.5)% | 0.4% |  |

The decrease in operating profit in the three and six months ended June 30, 2017 compared to the same periods in 2016 was primarily due to higher operating expenses, which included amortization of acquired intangible assets, restructuring and non-routine costs related to acquisitions and divestitures.

### (unaudited)

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

#### Other Income (Expense)

The following table represents information regarding the Company's other income (expense), net:

|  | Three Months Ended June 30, 2017 | 2016 | % Change | Six Months Ended June 30, 2017 | 2016 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $5.1 | $6.3 | (19.0) | $11.5 | $11.2 | 2.7 |
| Interest expense | (32.2) | (24.3) | (32.5) | (63.0) | (35.8) | (76.0) |
| Foreign exchange gain (loss), net | (4.6) | (1.2) | — | (7.7) | (3.6) | (113.9) |
| Miscellaneous, net | 1.9 | (26.8) | N/M | 3.2 | 7.8 | (59.0) |
| Other income (expense), net | $(29.8) | $(46.0) | 35.2 | $(56.0) | $(20.4) | (174.5) |

The decrease in interest income in the three months ended June 30, 2017, compared with the same period in 2016, was as a result of lower interest income in Brazil. In addition, the Company's cash balances in the prior year three month time period included funds held for the purchase of Wincor Nixdorf which generated additional interest income. Interest expense was higher in both the three and six months ended compared to the same prior-year periods associated with the financing required for the Acquisition. Foreign exchange gain (loss), net in the three and six months ended was unfavorable as a result of the impact of the Acquisition. 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. 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.

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

The following table represents information regarding the Company's income (loss) from continuing operations, net of tax:

|  | Three Months Ended June 30, 2017 | 2016 | % Change | Six Months Ended June 30, 2017 | 2016 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | --- |
| Income (loss) from continuing operations, net of tax | $(23.6) | $(20.8) | 13.5 | $(75.8) | $(0.1) | N/M |
| Percent of net sales | (2.1)% | (3.6)% |  | (3.4)% | —% |  |
| Effective tax rate | 60.6% | 41.7% |  | 43.7% | 99.4% |  |

Income (loss) from continuing operations, net of tax was $(23.6) and $(20.8) for the three months ended June 30, 2017 and 2016, 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, 2017 increased due to the jurisdictional income (loss) mix and varying statutory rates in the Company’s global footprint. These increases to the overall tax rate for these periods was offset in part by additional discrete expense items recognized in the quarter related to uncertain tax positions.

The tax rate on the loss for the three and six months ended June 30, 2016 was 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 of 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.

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

Income from discontinued operations, net of tax was $0.5 for the three months ended June 30, 2016. The closing of the NA electronic security divestiture occurred on February 1, 2016 and the Company recorded a gain (loss) on sale, net of tax, of $149.6 for the six months ended June 30, 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.

### (unaudited)

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

#### Net Income (Loss)

Net income (loss) decreased $3.3 to a net loss of $(23.6) for the three months ended June 30, 2017, compared to income of $20.3 for the same period in 2016 due to the reasons described above.

### Segment Revenue and Operating Profit Summary

The following tables represent information regarding the Company's revenue and operating profit by reporting segment:

| Services: | Three Months Ended June 30, 2017 | 2016 | % Change | Six Months Ended June 30, 2017 | 2016 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $580.2 | $329.6 | 76.0 | $1,153.4 | $646.5 | 78.4 |
| Segment operating profit (loss) | $77.0 | $71.8 | 7.2 | $158.2 | $134.0 | 18.1 |
| Segment operating profit margin | 13.3% | 21.8% |  | 13.7% | 20.7% |  |

Services net sales increased $250.6 or 76.0 percent and included a net favorable currency impact of $1.2 in the three months ended June 30, 2017, with $266.2 attributable to the Acquisition and included an unfavorable impact of $5.1 related to purchase accounting adjustments. In the six months ended June 30, 2017, Services net sales increased $506.9 or 78.4 percent and included a net favorable currency impact of $5.0, with $529.1 attributable to the Acquisition and included an unfavorable impact of $10.3 related to purchase accounting adjustments. Excluding the impact of the Acquisition, Services net sales in both the three and six months ended decreased $15.5 and $22.1, respectively, primarily due to the run-off of multi-vendor service contracts in the Americas, as well as lower installation revenue tied to decreased Systems volumes in the Americas and EMEA.

Segment operating profit increased in both the three and six months ended June 30, 2017 as a result of $60.4 and $116.7 incremental gross profit, respectively, partially offset by $31.5 and $62.5 of operating expense, respectively, associated with the Acquisition. Segment operating profit was unfavorably impacted by lower contract maintenance revenue in Americas combined with increased labor investments. The labor investments are a result of higher turnover rates of technicians and the associated training to support additional product lines. In the six months ended June 30, 2017, EMEA gross margin was unfavorably impacted by large systems projects in the prior year that carried a higher margin.

| Software: | Three Months Ended June 30, 2017 | 2016 | % Change | Six Months Ended June 30, 2017 | 2016 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $107.7 | $30.6 | 252.0 | $218.1 | $53.0 | 311.5 |
| Segment operating profit (loss) | $6.4 | $0.2 | N/M | $11.7 | $(8.1) | 244.4 |
| Segment operating profit margin | 5.9% | 0.7% |  | 5.4% | (15.3)% |  |

Software net sales increased $77.1 or 251.9 percent and included a net favorable currency impact of $0.2 in the three months ended June 30, 2017, with $84.6 attributable to the Acquisition and included an unfavorable impact of $2.8 related to purchase accounting adjustments. In the six months ended June 30, 2017, Software revenue increased $165.1 or 311.5 percent and included a net favorable currency impact of $1.1, with $168.6 attributable to the Acquisition and included an unfavorable impact of $2.8 related to purchase accounting adjustments. Excluding the impact of the Acquisition, Software revenue for the three months ended June 30, 2017 decreased $7.5 when compared to the same period in the prior year, primarily associated with lower Systems volume in the Americas. Software revenue for the six months ended June 30, 2017, was relatively flat compared to the same period in the prior year.

Segment operating profit increased in both the three and six months ended June 30, 2017 as a result of $32.3 and $61.7 incremental gross profit, respectively, partially offset by $20.9 and $41.5 operating expense, respectively, associated with the Acquisition. Additionally, the three months ended was unfavorably impacted by lower gross profit in Americas related to a software project in the prior-year period that did not recur.

### (unaudited)

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

| Systems: | Three Months Ended June 30, 2017 | 2016 | % Change | Six Months Ended June 30, 2017 | 2016 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $446.0 | $219.8 | 102.9 | $865.2 | $390.1 | 121.8 |
| Segment operating profit (loss) | $(1.6) | $(14.0) | 88.6 | $(5.5) | $(29.1) | 81.1 |
| Segment operating profit margin | (0.4)% | (6.4)% |  | (0.6)% | (7.5)% |  |

Systems net sales increased $226.1 or 102.9 percent in the three months ended June 30, 2017, with $285.1 attributable to the Acquisition and included an unfavorable impact of $2.4 related to purchase accounting adjustments. In the six months ended June 30, 2017, Systems revenue increased $475.0 or 121.8 percent and included a net unfavorable currency impact of $1.9 with $561.7 attributable to the Acquisition and included an unfavorable impact of $7.6 related to purchase accounting adjustments. Excluding the impact of the Acquisition, Systems revenue decreased in both the three and six months ended June 30, 2017 primarily attributable to banking solutions activity across the Company. EMEA has been unfavorably impacted by the alignment of customer portfolio and solution offerings between the legacy companies which may be reflected as part of the sales attributable to the Acquisition. In the Americas, the volume declines were due to non-recurring projects and in AP mainly due to structural changes in the market

Segment operating profit increased in both the three and six months ended June 30, 2017 as a result of $78.9 and $150.1 incremental gross profit, respectively, partially offset by $48.5 and $94.7 operating expense, respectively, associated with the Acquisition. Systems gross margin in the three months ended June 30, 2017 increased primarily as a result of incremental gross profit associated with the Acquisition, which has a larger mix of higher margin business across both banking and retail solutions, and included purchase accounting adjustments of $2.8. In the three months ended June 30, 2017, systems gross margin was unfavorably impacted by EMEA due to large projects in the prior year period that carried a higher margin as well as unfavorable country revenue mix. Systems gross margin in the six months ended June 30, 2017 increased primarily as a result of incremental gross profit associated with the Acquisition and included purchase accounting adjustments of $20.8. In the six months ended June 30, 2017, systems gross margin was adversely impacted by the previously mentioned non-recurring projects in EMEA in addition to lower volume of higher margin sales in LA in 2017.

Refer to note 20 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, 2017 and December 31, 2016 was as follows:

|  | June 30, 2017 | December 31, 2016 |
| --- | ---: | ---: |
| Cash and cash equivalents | $451.3 | $652.7 |
| Additional cash availability from |  |  |
| Uncommitted lines of credit | 160.0 | 198.6 |
| Revolving credit facility | 440.9 | 520.0 |
| Short-term investments | 76.9 | 64.1 |
| Total cash and cash availability | $1,129.1 | $1,435.4 |

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, restructuring and integration activities, investments in facilities or equipment, pension contributions, repayments of debt, redemption payments for redeemable noncontrolling interests, 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, 2017, $519.5 or 98.3 percent of the Company's cash and cash equivalents and short-term investments reside in international tax jurisdictions. Repatriation of these funds could be negatively impacted by potential payments for foreign and domestic taxes. The Company has approximately $180 of earnings that are 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.

### (unaudited)

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

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

| Summary of cash flows: | 2017 | 2016 |
| --- | ---: | ---: |
| Net cash used by operating activities - continuing operations | $(185.8) | $(199.8) |
| Net cash used by investing activities - continuing operations | (63.7) | (1,724.5) |
| Net cash provided by financing activities | 36.0 | 1,584.7 |
| Discontinued operations, net | — | 358.9 |
| Effect of exchange rate changes on cash and cash equivalents | 12.1 | 4.1 |
| (Decrease) increase in cash and cash equivalents | $(201.4) | $23.4 |

### 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 $185.8 for the six months ended June 30, 2017, a decrease in use of $14.0 from $199.8 for the same period in 2016.

- The net aggregate of trade accounts receivable, inventories and accounts payable used $81.2 and $167.4 in operating cash flows during the six months ended June 30, 2017 and 2016, respectively. In general, the amount of cash flow provided or used by the aggregate of trade accounts payable, inventories and trade accounts receivable 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. Accounts receivable cash use improved compared to prior-year same period improved primarily due to collections in AP and EMEA. Inventory cash use improved compared to the same period in the prior year due to normalization of inventory in the United States, primarily due to working capital initiatives, and in Europe along with inventory reductions in Brazil due to reduced demand. Accounts payable activities improved $63.0 from a use of $26.6 during the six months ended June 30, 2016 to cash provided of $36.4 during the six months ended June 30, 2017 due to a decrease in payments and working capital initiatives compared to the prior-year same period.
- In the aggregate, the other combined certain assets and liabilities used $158.1 and $60.7 of operating cash during the six months ended June 30, 2017 and 2016, respectively. The increase in use was primarily due to interest paid, restructuring payments, VAT payments and a transition service netting settlement with Securitas AB offset by deferred revenue cash provided by the collection of customer prepayments, mainly on service contracts compared to the same period in the prior year. Additionally, there were non-cash uses primarily related to taxes offset by non-cash sources of Diebold Nixdorf AG accrued noncontrolling interest dividend.

Adjustments to net income include (gain) loss on sale of assets, net, which consisted primarily of the gains from divestitures of the legacy Diebold business in the United Kingdom and the electronic security business located in Mexico. In connection with the Acquisition, the Company entered foreign currency option and forward contracts hedge against the effect of exchange rate fluctuations on the cash purchase consideration, acquisition-related costs and any outstanding Diebold Nixdorf AG borrowings that were euro denominated and expected to be paid on or near the closing of the Acquisition. During the six months ended June 30, 2016, the Company recorded a $12.9 mark-to-market net gain on foreign currency option and forward contracts which is reflected in miscellaneous, net.

### (unaudited)

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

### Investing Activities

Net cash used by investing activities - continuing operations was $63.7 and $1,724.5 for the six months ended June 30, 2017 and 2016, respectively. The maturities and purchases of investments primarily relate to short-term investment activity in Brazil and for 2017 also include the Company's investment in Kony. The proceeds from the sale of assets primarily include cash from the divestitures of the legacy Diebold business in the United Kingdom and the electronic security business located in Mexico. The $1,660.8 change was primarily due to the funding of the Acquisition through the use of $1,768.1 restricted cash offset by $42.6 of proceeds from sale of foreign currency option contracts and net proceeds from the other investing activities. This decrease was partially offset by an increase in capital expenditures and certain other assets of $15.1 and $8.3 primarily due to the incremental expenditures related to the Acquisition. The Company's capital expenditures reflect normal investment activities to support operations.

The cash provided by the discontinued operations, net, includes the cash provided by the operations of the NA electronic security business. In the first quarter of 2016, discontinued operations, net, primarily related to the $365.1 proceeds received for the NA electronic security business divestiture.

### Financing Activities

Net cash provided by financing activities was $36.0 and $1,584.7 for the six months ended June 30, 2017 and 2016, respectively, for decrease of $1,548.7. The change was primarily due to the decrease of $1,609.8 in debt borrowings, net of repayments primarily related to funding the Acquisition in 2016 and an increase of $14.3 cash distributions to noncontrolling interests primarily related to Diebold Nixdorf AG offset the reduction in dividends paid. Additionally, the six months ended June 30, 2016 included a $54.9 use related to restricted cash pursuant to the terms of the Credit Agreement. Refer to note 13 to the condensed consolidated financial statements for details of the Company's cash flows related to debt borrowings and repayments.

**Debt** As of June 30, 2017, the Company had various international short-term uncommitted lines of credit with borrowing limits of $225.5. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of June 30, 2017 and December 31, 2016 was 4.66 percent and 9.87 percent, respectively. The decrease in the weighted-average interest rate is attributable to a change in mix of borrowings of foreign entities. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at June 30, 2017 was $160.0.

The Company entered into a revolving and term loan credit agreement (the Credit Agreement), dated as of November 23, 2015, among the Company and certain of the Company's subsidiaries, as borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders named therein. The Credit Agreement included, among other things, mechanics for the Company’s existing revolving and term loan A facilities to be refinanced under the Credit Agreement. On December 23, 2015, the Company entered into a Replacement Facilities Effective Date Amendment, which amended the Credit Agreement, among the Company, certain of the Company’s subsidiaries, the lenders identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to which the Company refinanced its $520.0 revolving and $230.0 term loan A senior unsecured credit facilities (which have been terminated and repaid in full) with, respectively, a new unsecured revolving facility (the Revolving Facility) in an amount of up to $520.0 and a new (non-delayed draw) unsecured term loan A facility (the Term Loan A Facility) on substantially the same terms as the Delayed Draw Term Loan A Facility (as defined in the Credit Agreement) in the amount of up to $230.0. 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 Facility borrowings as of June 30, 2017 and December 31, 2016 was 3.00 percent and 2.56 percent, respectively, which is variable based on the London Interbank Offered Rate (LIBOR). The amount available under the Revolving Facility as of June 30, 2017 was $440.9.

On April 19, 2016, the Company issued the 2024 Senior Notes in an offering exempt from the registration requirements of the Securities Act of 1933 (the Securities Act) in connection with the Acquisition. The 2024 Senior Notes are and will be guaranteed by certain of the Company’s existing and future domestic subsidiaries.

On May 9, 2017 The Company entered into an incremental amendment to its Credit Agreement (Incremental Agreement) which reduced the initial term loan B facility (the Term Loan B Facility) of a $1,000.0 U.S. dollar-denominated tranche to $475.0. The reduction was funded using the $250.0 proceeds drawn from the Delayed Draw Term Loan A Facility, a replacement of $70.0 with Term Loan B Facility - Euro and previous principal payments.

### (unaudited)

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

In connection with the Incremental Agreement, the interest rate with respect to the Term Loan B Facility - USD is based on, at the Company’s option, adjusted LIBOR plus 2.75 percent (with a floor of 0.00 percent) or Alternate Base Rate (ABR) plus 1.75 percent (with an ABR floor of 1.00 percent) and the interest rate with respect to the Term Loan B Facility - Euro is based on adjusted Euro Interbank Offered Rate (EURIBOR) plus 3.00 percent (with a floor of 0.00 percent). Prior to the Incremental Agreement, the interest rate for the Term Loan B Facility - USD was 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 the interest rate for the Term Loan B Facility - Euro was at the EURIBOR plus an applicable margin of 4.25 percent. As a result of the Incremental Agreement, the Company anticipates an approximate $5.0 reduction in interest expense per quarter.

The Incremental Amendment also renewed the repricing premium of 1.00 percent in relation to the Term Loan B Facility to the date that is six months after the Incremental Effective Date, removed the requirement to prepay the Repriced Dollar Term Loan and the Repriced Euro Term Loan upon any asset sale or casualty event if the Company is below a Total Net Leverage Ratio of 2.5:1.0 on a pro forma basis for such asset sale or casualty event and provides additional restricted payments and investment carveouts in regards to assets acquired with the Acquisition. All other material provisions under the Credit Agreement were unchanged.

On May 6 and August 16, 2016, the Company entered into the Second and Third Amendments to the Credit Agreement, which re-denominated a portion of the Term Loan B Facility into euros and guaranteed the prompt and complete payment and performance of the obligations when due under the Credit Agreement. On February 14, 2017, the Company entered into the Fourth Amendment to the Credit Agreement, which allows the proceeds from the Delayed Draw Term Loan A Facility to be used for general corporate purposes.

The Credit Agreement financial covenant ratios at June 30, 2017 are as follows:

- a maximum total net debt to adjusted EBITDA leverage ratio of 4.50 to 1.00 for the three months ended June 30, 2017 (reducing to 4.25 on December 31, 2017, further reduced to 4.00 on December 31, 2018, and further reduced to 3.75 on June 30, 2019); and
- a minimum adjusted EBITDA to net interest expense coverage ratio of not less than 3.00 to 1.00

Below is a summary of financing and replacement facilities information:

| Financing and Replacement Facilities Credit Agreement facilities | Interest Rate Index and Margin | Maturity/Termination Dates | Term (Years) |
| --- | --- | --- | ---: |
| Revolving Facility | LIBOR + 1.75% | December 2020 | 5 |
| Term Loan A Facility | LIBOR + 1.75% | December 2020 | 5 |
| Delayed Draw Term Loan A Facility | LIBOR + 1.75% | December 2020 | 5 |
| Term Loan B Facility - USD | LIBOR(i) + 2.75% | November 2023 | 7.5 |
| Term Loan B Facility - Euro | EURIBOR(ii) + 3.00% | November 2023 | 7.5 |
| 2024 Senior Notes | 8.5% | April 2024 | 8 |

(i) LIBOR with a floor of 0.0%.

(ii) EURIBOR with a floor of 0.0%.

In November 2016, the Company entered into multiple pay-fixed receive-variable interest rate swaps outstanding with an aggregate notional amount of $400.0.

Following the close of the Acquisition, the debt facilities under the Credit Agreement are 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.

The Company’s financing agreements contain various restrictive financial covenants, including net debt to EBITDA and net interest coverage ratios. As of June 30, 2017, the Company was in compliance with the financial and other covenants within its debt agreements.

### (unaudited)

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

**Dividends** The Company paid dividends of $15.3 and $38.0 in the six months ended June 30, 2017 and 2016, respectively. Quarterly dividends were $0.10 per share for the six months ended June 30, 2017 compared to $0.2875 per share for the six months ended June 30, 2016.

**Contractual Obligations** In the first six months of 2017, the Company entered into purchase commitments due within one year for materials through contract manufacturing agreements for a total negotiated price. At June 30, 2017, the Company had purchase commitments due within one year totaling $15.0 for materials through contract manufacturing agreements at negotiated prices.

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.

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, 2017 compared to December 31, 2016.

**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 15 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, 2017 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, 2016.

### (unaudited)

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

### 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 within the meaning of the Private Securities Litigation Reform Act of 1995.” 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 ultimate impact of the DPLTA with Diebold Nixdorf AG and the outcome of the appraisal proceedings initiated in connection with the implementation of the DPLTA;
- the ultimate outcome and results of integrating the operations of the Company and Diebold Nixdorf AG;
- the ultimate outcome of the Company’s pricing, operating and tax strategies applied to Diebold Nixdorf AG and the ultimate ability to realize synergies;
- the Company's ability to successfully launch and operate its joint ventures in China with the Inspur Group and Aisino Corp.;
- the impact of market and economic conditions on the financial services industry;
- the capacity of the Company's technology to keep pace with a rapidly evolving marketplace;
- pricing and other actions by competitors;
- the effect of legislative and regulatory actions in the United States and internationally;
- the Company's ability to comply with government regulations;
- the impact of a security breach or operational failure on the Company's business;
- the Company's ability to successfully integrate acquisitions into its operations; and
- the impact of the Company's strategic initiatives, including the Company's DN2020 plan.

## Market risk

As filed, 1,645 characters.

On August 15, 2016, the Company designated its €350.0 euro-denominated Term Loan B Facility as a net investment hedge of its investments in certain subsidiaries that use the Euro as their functional currency in order to reduce volatility in stockholders' equity caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar. Effectiveness is assessed at least quarterly by confirming that the respective designated net investments' net equity balances at the beginning of any period collectively continues to equal or exceed the balance outstanding on the Company's Euro-denominated term loan. Changes in value that are deemed effective are accumulated in AOCI. When the respective net investments are sold or substantially liquidated, the balance of the cumulative translation adjustment in AOCI will be reclassified into earnings. The net gain (loss) recognized in AOCI on net investment hedge foreign currency borrowings was $(19.7) in the three months ended June 30, 2017 and $(25.8) and for the six months ended June 30, 2017. On March 30, 2017, the Company de-designated €130.6 of its euro-denominated Term Loan B Facility and on May 9, 2017, the Company designated an additional €66.8 of its euro-denominated Term Loan B Facility as a result of its repricing described under note 13 to the condensed consolidated financial statements.

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2016 for a discussion of market risk exposures. There have been no material changes in this information since December 31, 2016.

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

## Controls and procedures

As filed, 2,532 characters.

This quarterly report on Form 10-Q includes the certifications of the Company's 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, 2017.

### Change in Internal Controls

On August 15, 2016, the Company completed the acquisition of Diebold Nixdorf AG. As permitted by SEC guidance, the scope of management’s evaluation of internal control over financing reporting as of June 30, 2017 did not include the internal control over financial reporting of Diebold Nixdorf AG. However, we are extending the Company's oversight and monitoring processes that support its internal control over financial reporting to include Diebold Nixdorf AG's operations.

During the quarter ended June 30, 2017, there have been no other changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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

## Risk factors

As filed, 1,302 characters.

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2016, and the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2017. There has been no material change to this information since March 31, 2017.

***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 DPLTA has been challenged by several 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.

Filed Jul 26, 2017.
Source: SEC EDGAR, the filing index for accession 0000028823-17-000116. Last ingested by Listed: Oct 28, 2026, 07:18 ET. No prices; not investment advice.