# DIEBOLD NIXDORF, Inc: Form 10-Q for the period ended Jun 30, 2018

- Company: [DIEBOLD NIXDORF, Inc](/companies/dbd.md) (CIK 28823)
- Form: 10-Q
- Filed: 2018-08-06
- Accepted by EDGAR: Aug 6, 2018, 08:30 ET
- Period: 2018-06-30
- Accession: 0000028823-18-000135
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/28823/000002882318000135/dbd630201810q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/28823/000002882318000135/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2018-04-01 to 2018-06-30 | $885.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2018-01-01 to 2018-06-30 | $1.71bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2018-04-01 to 2018-06-30 | $219.7m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2018-01-01 to 2018-06-30 | $460.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2018-04-01 to 2018-06-30 | $40.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2018-01-01 to 2018-06-30 | $82.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2018-04-01 to 2018-06-30 | $219.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2018-01-01 to 2018-06-30 | $447.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-04-01 to 2018-06-30 | −$131.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2018-01-01 to 2018-06-30 | −$152.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-04-01 to 2018-06-30 | $28.4m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2018-01-01 to 2018-06-30 | $54.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-04-01 to 2018-06-30 | −$29.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2018-01-01 to 2018-06-30 | −$10.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-04-01 to 2018-06-30 | −$138.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2018-01-01 to 2018-06-30 | −$209.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-04-01 to 2018-06-30 | −$1.82 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2018-01-01 to 2018-06-30 | −$2.76 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-04-01 to 2018-06-30 | −$1.82 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2018-01-01 to 2018-06-30 | −$2.76 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-04-01 to 2018-06-30 | 76,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2018-01-01 to 2018-06-30 | 75,900,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2018-01-01 to 2018-06-30 | −$256.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2018-01-01 to 2018-06-30 | $30.6m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2018-04-01 to 2018-06-30 | $0 | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 6 months, 2018-01-01 to 2018-06-30 | $7.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2018-01-01 to 2018-06-30 | $2.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2018-06-30 | $299.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-06-30 | $2.29bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-06-30 | $4.81bn | us-gaap:Assets |
| Current liabilities | at 2018-06-30 | $1.65bn | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2018-06-30 | $227.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 59,510 characters.

### Significant Highlights

During the second quarter of 2018, Diebold Nixdorf:

- Continued to see positive Windows 10 ATM upgrade activity, including an order with a large U.S. regional bank.
- Won a new $42, multi-year contract to take over maintenance services for Diebold Nixdorf ATMs at a leading financial institution in Canada.
- Partnered with Mastercard® on key technology and services agreements to strengthen the company's connected commerce offerings and further bridge physical and digital transactions.
- Signed an agreement with Ecuadorian bank Banco Bolivariano to implement the Company's market-leading Vynamic™ Mobile Banking software to provide an optimal mobile banking experience with anywhere, anytime availability.
- Received initial orders for food ordering kiosks and related services from one of the largest quick service restaurants operating in the U.S. and Canada.
- Secured a three-year frame agreement for branch automation services and systems with a major French bank.
- Awarded a new five-year managed services and systems contract with Central Bank of India.
- Received an outsourcing agreement from Germany's Degussa Bank to manage the cash supply chain for its 220 ATMs through the Diebold Nixdorf AllConnect ServicesSM offering.

### 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 solutions which enable millions of transactions each day. The Company's approximately 23,000 employees service our customer's integrated solutions and 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 consumer experience at bank and retail locations while simultaneously streamlining cost structures and business processes through the smart integration of hardware, software and services. The business requires ongoing investment in the development of intelligent IT solutions and is the Company's industry-leading services organization. The Company partners with other leading technology companies and regularly refines its research and development (R&D) spend in support of a better transaction experience for consumers.

#### Integration and Transformation Program

Commensurate with its strategy, the Company has evolved its multi-year integration and transformation program to relentlessly focus on our customers, improve operational excellence and form a common culture across the Company. Key activities underway include:

- Implementing a new, streamlined and customer-centric operating model
- Refining internal processes and product range
- Employing a services improvement plan
- Making changes to drive a more sustainable supply chain and improve net working capital
- Optimizing the portfolio of businesses and worldwide cost structure

These actions are designed to build upon the Company’s previous integration and cost savings activities, which include:

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

### (unaudited)

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

- Harmonizing back office solutions.

The Company refers to these activities collectively as DN Now which is designed to improve its profitability and net leverage. The Company has established a new savings target in excess of $200, of which $100 is anticipated to be realized over the next year from its new operating model. In order to achieve these savings, the Company has and will continue to restructure the workforce, integrate and optimize systems, streamline legal entities and consolidate real estate holdings. By executing on these and other operational improvement activities, the Company expects to increase customer satisfaction, provide career enrichment opportunities for employees and enhance value for shareholders.

#### Segments

The Company’s new operating structure is primarily focused on its two main industry segments - Banking and Retail. Leveraging a broad portfolio of solutions, the Company offers customers in these industries the flexibility to select the combination of services, software and systems that drive 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 and retailers grow revenue, reduce costs, and increase convenience and security for their 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.

#### Banking

The Company provides integrated solutions for financial institutions of all sizes - tailored to help drive operational efficiencies, grow revenue and manage risk. Operations are managed within two regions - Eurasia and the Americas. Eurasia includes the developed economies of Western Europe as well as the emerging economies of Eastern Europe, Asia, the Middle East and Africa. The Americas region encompasses the U.S., Canada, Mexico and Latin America.

For banking services, the Company provides clients with end-to-end solutions with a customer-first, outcome-driven approach. Diebold Nixdorf AllConnect Services is a new breed of as-a-service offering, designed to power the business operations of financial institutions of all sizes.

Product-related services resolve incidents through remote service capabilities or an on-site visit. The portfolio includes first and second line maintenance, preventive maintenance and on-demand services all the way to total implementation services. The Company leverages a standardized incident management process to increase uptime of distributed assets.

Managed services and outsourcing consists of managing the end-to-end business processes, technology integration and day-to-day operation of the self-service channel and the bank branch. Our integrated business solutions include self-service fleet management, branch lifecycle management and ATM as-a-service capabilities.

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 offerings enable customers to meet the growing demand for transaction availability at ATMs and other distributed assets in a cost-effective manner.

From a software perspective, the Company provides financial institutions with front-end applications for consumer connection points as well as back-end platforms that manage channel transactions, operations and integration. These hardware-agnostic software applications facilitate millions of transactions via ATMs, kiosks, and other self-service devices. The Company's platform software is installed within bank data centers to facilitate omnichannel transactions, endpoint monitoring, remote asset management, customer marketing, merchandise management and analytics.

In 2017, the Company introduced Vynamic, the first end-to-end Connected Commerce software portfolio in the banking marketplace. The Vynamic suite's open API architecture is built to eliminate the traditional focus on internal silos and enable tomorrow's inter-connected partnerships between financial institutions and payment providers.

An important enabler of the Company’s software offerings is the professional service employees who provide 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 automate both branches and stores.

### (unaudited)

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

The banking portfolio for financial institutions consists of cash recyclers and dispensers, intelligent deposit terminals, teller automation and kiosk technologies, as well as physical security solutions. Diebold Nixdorf stands ready to assist financial institutions to increase the functionality, availability and security within their ATM fleet. An important technology change facing financial institutions is the migration to Microsoft Windows 10 operating system. Benefits of upgrading to Windows 10 include:

- The ability to reduce operating costs while improving operating efficiencies;
- Advanced defense against logical threats also ensuring access to future security patches from Microsoft;
- The ability to offer end-user enhancements which leverage application-based platforms, faster processors and greater memory;
- Helping to maintain consistency with other platforms migrating to Windows 10; and
- Maintaining compliance with the Personal Card Industry (PCI) regulations.

#### Retail

In the retail business, the Company’s comprehensive portfolio of POS technology, software and retail automation solutions drives efficiencies by accelerating the checkout process and improving convenience for both retailers and consumers.

The Company’s suite of software for retailers provides a comprehensive, modular solution capable of enabling the most advanced omnichannel retail use cases. Also sold under the Vynamic brand portfolio, retail software improves end-to-end store processes and facilitates continuous connected consumer engagements in support of a digital ecosystem. This includes click & collect, reserve & collect, in-store ordering and return to store processes across the retailers' physical and digital sales channels. Data from a number of sources, such as enterprise resource planning (ERP), POS, store systems and customer relationship management systems (CRM), may be integrated across all customer connection points to create differentiated consumer experiences.

The retail systems portfolio includes modular, integrated and mobile POS and SCO terminals that meet evolving automation and omnichannel 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. The Company also provides SCO terminals and ordering kiosks which facilitate an efficient and user-friendly purchasing experience. The BEETLE /iSCAN EASY eXpress, hybrid products, can alternate from attended operation to self-checkout with the press of a button as traffic conditions warrant. The K-Two Kiosk automates routine tasks and in-store transactions, offers order-taking abilities at quick service restaurants (QSRs) and fast casual restaurants, provides customer service, supplies product information, sells tickets and presents functionality that furthers store digitalization.

#### 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 software products and professional services;
- Demand for security products and services for the financial, retail and commercial sectors;
- Demand for innovative technology in connection with our Connected Commerce strategy;
- Integration of sales force, business processes, procurement and internal IT systems; and
- Realization of cost reductions and synergies, which leverage the Company's global scale, reduce overlap and improve operating efficiencies.

### (unaudited)

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

### 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.

#### Net Sales

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

| Segments Eurasia Banking | Three Months Ended June 30, 2018 | 2017 | % Change | % Change in CC (1) | Percent of Total Net Sales for the Three Months Ended June 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services and software | $285.0 | $281.4 | 1.3 | (3.6) | 25.8 | 24.8 |
| Products | 152.5 | 192.1 | (20.6) | (23.4) | 13.8 | 16.9 |
| Total Eurasia Banking | 437.5 | 473.5 | (7.6) | (11.6) | 39.6 | 41.7 |
| Americas Banking |  |  |  |  |  |  |
| Services and software | 269.0 | 259.6 | 3.6 | 4.7 | 24.3 | 22.9 |
| Products | 101.6 | 110.8 | (8.3) | (5.9) | 9.2 | 9.8 |
| Total Americas Banking | 370.6 | 370.4 | 0.1 | 1.6 | 33.5 | 32.7 |
| Retail |  |  |  |  |  |  |
| Services and software | 162.3 | 146.9 | 10.5 | 4.4 | 14.7 | 13.0 |
| Products | 135.2 | 143.1 | (5.5) | (10.6) | 12.2 | 12.6 |
| Total Retail | 297.5 | 290.0 | 2.6 | (3.0) | 26.9 | 25.6 |
| Total net sales | $1,105.6 | $1,133.9 | (2.5) | (5.2) | 100.0 | 100.0 |

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

#### Three months ended June 30, 2018 compared with three months ended June 30, 2017

Net sales decreased $28.3 or 2.5 percent including a net favorable currency impact of $32.4 primarily related to the euro. In addition, net sales in the three months ended June 30, 2017 were adversely impacted $10.3 related to deferred revenue purchase accounting adjustments (Deferred Revenue Adjustments). The following results include the impact of foreign currency and purchase accounting adjustments.

### Segments

- Eurasia Banking net sales decreased $36.0 including a net favorable currency impact of $21.3 mainly related to the euro. In addition, net sales in the prior-year quarter were adversely impacted $6.2 related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $63.5 due to lower product volume in various countries throughout the segment related to fewer product deployments and projects in addition to decreased services in India as a result of a lower maintenance contract base.
- Americas Banking net sales were flat including a net unfavorable currency impact of $5.5 related to the Brazil real. Excluding currency, net sales increased $5.7 from higher national account volume in North America and increased product related project activity in Latin America, specifically in Mexico and Ecuador. These increases were partially offset by product volume declines in Brazil and North America regional customers.

### (unaudited)

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

- Retail net sales increased $7.5 including a net favorable currency impact of $16.6 mainly related to the euro. In addition, prior year net sales were adversely impacted $4.1 related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $13.2 due to lower POS and kiosk volume, particularly in Germany. These declines were partially offset by higher volume in France, Benelux and Central Eastern Europe and a large retail kiosk project in North America.

| Segments Eurasia Banking | Six Months Ended June 30, 2018 | 2017 | % Change | % Change in CC (1) | Percent of Total Net Sales for the Six Months Ended June 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services and software | $572.9 | $552.0 | 3.8 | (4.3) | 26.4 | 24.7 |
| Products | 299.7 | 359.5 | (16.6) | (22.4) | 13.8 | 16.1 |
| Total Eurasia Banking | 872.6 | 911.5 | (4.3) | (11.4) | 40.2 | 40.8 |
| Americas Banking |  |  |  |  |  |  |
| Services and software | 530.0 | 535.1 | (1.0) | (0.5) | 24.4 | 23.9 |
| Products | 174.3 | 216.9 | (19.6) | (18.5) | 8.0 | 9.7 |
| Total Americas Banking | 704.3 | 752.0 | (6.3) | (5.6) | 32.4 | 33.6 |
| Retail |  |  |  |  |  |  |
| Services and software | 325.1 | 284.4 | 14.3 | 4.7 | 15.0 | 12.7 |
| Products | 267.8 | 288.8 | (7.3) | (15.3) | 12.3 | 12.9 |
| Total Retail | 592.9 | 573.2 | 3.4 | (5.4) | 27.4 | 25.6 |
| Total net sales | $2,169.8 | $2,236.7 | (3.0) | (8.0) | 100.0 | 100.0 |

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

#### Six months ended June 30, 2018 compared with six months ended June 30, 2017

Net sales decreased $66.9 or 3.0 percent including a net favorable currency impact of $121.0 primarily related to the euro. In addition, net sales in the prior-year quarter were adversely impacted $20.7 related to Deferred Revenue Adjustments. The following results include the impact of foreign currency and Deferred Revenue Adjustments:

### Segments

- Eurasia Banking net sales decreased $38.9 including a net favorable currency impact of $73.2 mainly related to the euro. In addition, net sales in the prior-year quarter were adversely impacted $12.4 related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $124.5 due to lower product volume in various countries throughout the segment related to fewer product deployments and projects, particularly in Indonesia, southern Europe and Australia, in addition to decreased services in India as a result of a lower maintenance contract base.
- Americas Banking net sales decreased $47.7 including a net unfavorable currency impact of $5.7 related to the Brazil real. Excluding currency, net sales decreased $42.0 due to lower product volume in Brazil as well as the North America regional business, which was adversely impacted by supply chain delays in the first quarter of 2018. These declines were partially offset by additional product volume in Mexico and Ecuador.
- Retail net sales increased $19.7 including a net favorable currency impact of $53.5 mainly related to the euro. In addition, prior year net sales were adversely impacted $8.3 related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $42.1 due to lower POS and kiosk volume, particularly in Germany. These declines were partially offset by higher volume in France, Benelux and Central Eastern Europe and a large retail kiosk project in North America.

### (unaudited)

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

#### Gross Profit

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

|  | Three Months Ended June 30, 2018 | 2017 | % Change | Six Months Ended June 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross profit - services and software | $156.6 | $151.5 | 3.4 | $329.1 | $329.6 | (0.2) |
| Gross profit - products | 63.1 | 86.3 | (26.9) | 131.5 | 150.7 | (12.7) |
| Total gross profit | $219.7 | $237.8 | (7.6) | $460.6 | $480.3 | (4.1) |
| Gross margin - services and software | 21.9% | 22.0% |  | 23.0% | 24.0% |  |
| Gross margin - products | 16.2% | 19.3% |  | 17.7% | 17.4% |  |
| Total gross margin | 19.9% | 21.0% |  | 21.2% | 21.5% |  |

Services and software gross margin was relatively flat in the three months ended June 30, 2018 and 1.0% lower in the six months ended June 30, 2018 compared to the same periods of the prior year. Both the three and six months ended June 30, 2018 were favorably impacted by lower restructuring charges of $12.9 and $13.9 and lower non-routine charges of $15.7 and $16.2, respectively, primarily related to lower purchase accounting adjustments inclusive of amortization and prior-year quarter deferred revenue. Excluding restructuring and non-routine charges, services and software gross margin decreased in both the three and six months ended June 30, 2018 by 4.0 and 3.0 percent, respectively, as a function of higher non-recurring services and software cost in Brazil banking as well as an unfavorable customer and solutions mix negatively impacting software margin in Eurasia.

Product gross margin in the three months ended June 30, 2018 decreased 3.1 percent and increased 0.3 percent in the six months ended June 30, 2018. Both the three and six months ended June 30, 2018 were favorably impacted by lower restructuring charges of $1.4 and $1.5, respectively, and the six months ended were favorably impacted by lower non-routine charges of $19.5, primarily related to $14.0 lower Purchase Accounting Adjustments inclusive of amortization and prior-year deferred revenue, and a $3.7 benefit from the Brazil indirect tax accrual reversal in the first quarter of 2018. Excluding restructuring and non-routine charges, product gross margin decreased 3.2 and 1.9 percent in the three and six months ended June 30, 2018, respectively, primarily in the Americas as a result of an unfavorable customer mix, unfavorable banking product mix, supply chain delays and corresponding expedited freight costs.

#### Operating Expenses

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

|  | Three Months Ended June 30, 2018 | 2017 | % Change | Six Months Ended June 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling and administrative expense | $219.8 | $236.8 | (7.2) | $447.7 | $483.8 | (7.5) |
| Research, development and engineering expense | 40.6 | 38.8 | 4.6 | 82.3 | 80.2 | 2.6 |
| Impairment of assets | 90.0 | — | — | 90.0 | 3.1 | N/M |
| (Gain) loss on sale of assets, net | 0.8 | (7.7) | 110.4 | (6.9) | (8.1) | 14.8 |
| Total operating expenses | $351.2 | $267.9 | 31.1 | $613.1 | $559.0 | 9.7 |
| Percent of net sales | 31.8% | 23.6% |  | 28.3% | 25.0% |  |

N/M = Not Meaningful

Selling and administrative expense in both the three and six months ended June 30, 2018 decreased $17.0 and $36.1, respectively. Excluding lower non-routine charges of $3.7 and higher restructuring of $0.6, the decrease in the three months ended June 30, 2018 was primarily attributable to lower corporate IT and associate related expense as well as cost reduction initiatives across the Company, specifically in the Americas and Eurasia banking segments. Excluding lower non-routine and restructuring charges of $14.3 and $6.5, respectively, the six months ended June 30, 2018 was favorable $15.3 due primarily to lower IT and associate

### (unaudited)

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

related expense as well as cost reduction initiatives in the Banking Eurasia and Americas segments. This decrease was partially offset by the Retail segment, primarily from increased investment in the new North America retail sales organization. Additionally, both the three and six months ended June 30, 2018 were favorably impacted $3.9 and $5.0, respectively, from the mark-to-market adjustment of the legacy Wincor Nixdorf stock option program. The decrease in selling and administrative expense was partially offset by an unfavorable currency impact of $7.3 and $28.5 in the three and six months ended June 30, 2018, respectively.

Non-routine cost in selling and administrative expense of $36.1 and $39.8 were included in the three months ended June 30, 2018 and 2017, respectively. The primary components of the non-routine expenses in the second quarter of 2018 pertained to purchase accounting adjustments of $22.3 related to intangible asset amortization and integration cost totaling $13.3. Selling and administrative expense included restructuring charges of $3.1 and $2.5 in the three months ended June 30, 2018 and 2017, respectively. Non-routine costs in selling and administrative expense of $74.6 and $88.9 were included in the six months ended June 30, 2018 and 2017, respectively. The primary components of the non-routine expenses in the six months ended June 30, 2018 pertained to purchase accounting adjustments of $46.1 related to intangible asset amortization and integration cost totaling $27.5. Selling and administrative expense included restructuring charges of $4.4 and $10.9 in the six months ended June 30, 2018 and 2017, respectively.

Research, development and engineering expense in the three months ended June 30, 2018 was flat including an unfavorable currency impact of $1.8. In the six months ended June 30, 2018, research, development and engineering expense included an unfavorable currency impact of $5.8. Excluding the impact of currency, research, development and engineering expense in the six months ended June 30, 2018 decreased primarily from higher capitalization of internally developed software.

The impairment increased $86.9 to $90.0 during the six months ended June 30, 2018 from $3.1 during the same period in 2017 primarily due to the impairment of goodwill in the second quarter of 2018.

In the three months ended June 30, 2018, the loss on sale of assets was primarily related to a settlement of certain open matters related to an Americas divestiture, partially offset by gains related to the sale of a certain China investment and a building in North America. The gain on sale of assets in the six months ended June 30, 2018 was primarily related to a gain on sale of buildings in North America of $4.8, the liquidation of the Barbados operating entity of $3.3 and gain related to a certain China investment. This gain on sale of assets was partially offset by the loss pertaining to a settlement of certain open matters related to an Americas divestiture in the second quarter of 2018.

Operating expense as a percent of net sales in the three months ended June 30, 2018 remained flat at 23.6 percent. In the six months ended June 30, 2018, operating expense as a percent of net sales was 24.1 percent compared with 25.0 in the same period of 2017 primarily related to lower restructuring and non-routine expense.

#### Operating Profit

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

|  | Three Months Ended June 30, 2018 | 2017 | % Change | Six Months Ended June 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | ---: |
| Operating profit (loss) | $(131.5) | $(30.1) | N/M | $(152.5) | $(78.7) | (93.8) |
| Operating profit margin | (11.9)% | (2.7)% |  | (7.0)% | (3.5)% |  |

The operating loss increased in the three months ended June 30, 2018 compared to the same period in 2017 due primarily to goodwill impairment, lower gross profit associated with decreased product volume and lower gross margins in services and software, partially offset by lower other non-routine and restructuring charges and favorable operating expense due to cost saving initiatives across the Company. The operating loss increased in the six months ended June 30, 2018 compared to the same period in 2017 due primarily due to goodwill impairment partially offset by lower other non-routine and restructuring charges as well as favorable operating expense attributable to cost saving initiatives.

### (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, 2018 | 2017 | % Change | Six Months Ended June 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $1.9 | $5.1 | (62.7) | $5.4 | $11.5 | (53.0) |
| Interest expense | (28.4) | (32.2) | 11.8 | (54.4) | (63.0) | 13.7 |
| Foreign exchange gain (loss), net | (3.1) | (4.6) | 32.6 | (4.5) | (7.7) | 41.6 |
| Miscellaneous, net | (1.9) | 1.9 | N/M | (0.9) | 3.2 | (128.1) |
| Other income (expense), net | $(31.5) | $(29.8) | (5.7) | $(54.4) | $(56.0) | 2.9 |

Interest income in both the three and six months ended June 30, 2018 decreased, compared with the same periods in 2017, primarily as a result of lower average balances and reduced current period rates of short-term investments in Brazil. Interest expense in both the three and six months was lower compared to the same prior-year periods due to the favorable impact of refinancing the debt related to the Diebold Nixdorf AG acquisition and lower fee amortization. Foreign exchange loss, decreased in both the three and six months ended June 30, 2018 compared to the same prior-year periods, primarily attributable to managing foreign exchange exposure, partially offset by the devaluation of the Argentina peso.

#### Net Income (Loss)

The following table represents information regarding the Company's net income (loss):

|  | Three Months Ended June 30, 2018 | 2017 | % Change | Six Months Ended June 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | ---: |
| Income (loss) before taxes | $(163.0) | $(59.9) | N/M | $(206.9) | $(134.7) | (53.6) |
| Income tax expense (benefit) | (29.6) | (36.3) | 18.5 | (10.2) | (58.9) | 82.7 |
| Net income (loss) | $(133.4) | $(23.6) | N/M | $(196.7) | $(75.8) | N/M |
| Percent of net sales | (12.1)% | (2.1)% |  | (9.1)% | (3.4)% |  |
| Effective tax rate | 18.2% | 60.6% |  | 4.9% | 43.7% |  |

The loss before taxes and net loss increased primarily due to the reasons described above. Net loss was also impacted by the change in the income tax benefit.

The effective tax rate on loss from continuing operations was 18.2 percent for the three months ended June 30, 2018 and 4.9 percent for the six months ended June 30, 2018. The benefit on the losses for these periods was decreased primarily due to nondeductible permanent discrete adjustment associated with the $90.0 of goodwill impairment charge and the impacts of the Tax Act, more specifically, impacts related to GILTI on the estimated annual tax rate. The effective tax rate could vary in future periods based on the Company’s earnings before taxes and clarifications around the Tax Act.

The effective tax rate on loss from continuing operations was 60.6 percent for the three months ended June 30, 2017 and 43.7 percent for the six months ended June 30, 2017. The tax rate on the loss for the three and six months ended June 30, 2017 was 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 were offset in part by additional discrete expense items recognized in the quarter related to uncertain tax positions.

### (unaudited)

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

### Segment Net Sales and Operating Profit Summary

The following tables represent information regarding the segment operating profit metrics excluding the impact of Deferred Revenue Adjustments, restructuring and non-routine charges, by reporting segment. Refer to note 20 of the condensed consolidated financial statements for further details of net sales and segment operating profit:

| Eurasia Banking: | Three Months Ended June 30, 2018 | 2017 | % Change | Six Months Ended June 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $437.5 | $473.5 | (7.6) | $872.6 | $911.5 | (4.3) |
| Segment operating profit (loss) | $17.7 | $29.9 | (40.8) | $36.6 | $51.0 | (28.2) |
| Segment operating profit margin | 4.0% | 6.3% |  | 4.2% | 5.6% |  |

Eurasia Banking net sales decreased $36.0 and $38.9 in the three and six months ended June 30, 2018, respectively, including a net favorable currency impact of $21.3 in the three months June 30, 2018 and $73.2 in the six months ended June 30, 2018, mainly related to the euro. In addition, prior year net sales in the three and six months ended June 30, 2017 were adversely impacted $6.2 and $12.4, respectively, related to Deferred Revenue Adjustments. Excluding currency and deferred revenue adjustments, net sales in the three and six months ended June 30, 2018 decreased $63.5 and $124.5, respectively, due to lower product volume in various countries throughout the segment related to fewer product deployments and projects, particularly in Indonesia, southern Europe and Australia, in addition to decreased services in India as a result of a lower maintenance contract base.

Segment operating profit decreased $12.2 and $14.4 in the three and six months ended June 30, 2018, respectively, compared to the prior-year same periods. Both the three and six month ended June 30, 2018, decreased primarily as a result of lower gross profit due to lower product volume combined with increased manufacturing cost and an unfavorable software customer mix. Lower gross profit was partially offset by favorable operating expense from cost reduction initiatives.

Segment operating profit margin decreased in the three and six months ended June 30, 2018 compared to the prior-year same periods due to unfavorable software customer mix partially offset by lower operating expense related to cost reduction initiatives.

| Americas Banking: | Three Months Ended June 30, 2018 | 2017 | % Change | Six Months Ended June 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $370.6 | $370.4 | 0.1 | $704.3 | $752.0 | (6.3) |
| Segment operating profit (loss) | $(0.1) | $10.1 | (101.0) | $7.6 | $35.5 | (78.6) |
| Segment operating profit margin | —% | 2.7% |  | 1.1% | 4.7% |  |

Americas Banking net sales were flat in the three months ended June 30, 2018, including a net unfavorable currency impact of $5.5 related to the Brazil real. Excluding currency, net sales increased $5.7 from higher national account volume in North America and increased product related project activity in Latin America, specifically in Mexico and Ecuador. These increases were partially offset by product volume declines in Brazil and North America regional accounts. In the six months ended June 30, 2018, net sales decreased $47.7 including a net unfavorable currency impact of $5.7 related to the Brazil real. Excluding currency, net sales decreased $42.0 due to lower product volume in Brazil and the North America regional business which was adversely impacted by supply chain delays in the first quarter of 2018. These declines were partially offset by additional product volume in Mexico and Ecuador.

Segment operating profit decreased $10.2 and $27.9 in the three and six months ended June 30, 2018, respectively, compared to the prior-year same periods. Both the three and six months ended June 30, 2018 were adversely impacted by lower installation activity associated with decreased product volume and higher non-recurring services and software cost in Brazil. Additionally, supply chain delays and corresponding expedited freight costs unfavorably impacted North America. These decreases were partially offset by increased software license and professional services volume throughout the region and operating cost reduction initiatives in Brazil.

### (unaudited)

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

Segment operating profit margin decreased in the three and six months ended June 30, 2018 compared to the prior-year same periods due to higher cost resulting from non-recurring cost in Brazil and increased freight expense partially offset by lower operating expense associated with cost reduction initiatives primarily in Brazil.

| Retail: | Three Months Ended June 30, 2018 | 2017 | % Change | Six Months Ended June 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $297.5 | $290.0 | 2.6 | $592.9 | $573.2 | 3.4 |
| Segment operating profit (loss) | $6.2 | $26.3 | (76.4) | $17.3 | $44.0 | (60.7) |
| Segment operating profit margin | 2.1% | 9.1% |  | 2.9% | 7.7% |  |

Retail net sales increased $7.5 and $19.7 in the three and six months ended June 30, 2018, respectively, including a net favorable currency impact of $16.6 in the three months and $53.5 in the six months ended June 30, 2018, mainly related to the euro. In addition, net sales were adversely impacted $4.1 and $8.3 in the three and six months ended June 30, 2017, respectively, related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $13.2 and $42.1, in the three and six months ended June 30, 2018, respectively, due to lower point of sale and kiosk volume, particularly in Germany. These declines were partially offset by higher volume in France, Benelux and Central Eastern Europe and a large retail kiosk project in North America.

Segment operating profit decreased $20.1 and $26.7 in the three and six months ended June 30, 2018, respectively, compared to the prior-year same periods. The decrease in both the three and six months ended June 30, 2018 was due primarily to lower gross profit in Eurasia as well as the Americas attributable to lower product volume and an unfavorable customer and solutions mix negatively impacting service and software margin. Additionally, in the six months ended June 30, 2018, operating profit was unfavorably impacted by increased operating expense in Eurasia related to increased research, development and engineering cost and higher Americas selling and administrative expense from developing the North America retail sales organization. Both periods in 2018 were impacted by under performance of non-core retail businesses.

Segment operating profit margin decreased in the three and six months ended June 30, 2018 compared to the prior-year same periods due to unfavorable customer and solutions mix. In addition, the six months ended June 30, 2018 included higher operating expense related to the development of the retail business which negatively affected operating profit margin.

### Liquidity and Capital Resources

The Company's total cash and cash availability as of June 30, 2018 and December 31, 2017 was as follows:

|  | June 30, 2018 | December 31, 2017 |
| --- | ---: | ---: |
| Cash and cash equivalents | $299.0 | $535.2 |
| Additional cash availability from |  |  |
| Uncommitted lines of credit | 188.7 | 216.9 |
| Revolving Facility | 380.0 | 445.0 |
| Short-term investments | 14.5 | 81.4 |
| Total cash and cash availability | $882.2 | $1,278.5 |

Capital resources are obtained from income retained in the business, borrowings under the Company’s committed and uncommitted credit facilities and operating and capital leasing arrangements. Management expects that the Company’s capital resources will be sufficient to finance planned working capital needs, research and development activities, investments in facilities or equipment, pension contributions, the payment of dividends and any repurchases of the Company’s common shares for at least the next 12 months. As of June 30, 2018, $313.5 or 96.1 percent of the Company's cash and cash equivalents and short-term investments reside in international tax jurisdictions. Repatriation of certain international funds could be negatively impacted by potential payments for foreign taxes. The Company has approximately $1,400 of earnings that are available for repatriation with no additional tax expense. The Company has made acquisitions in the past and may make acquisitions in the future. Part of the Company’s strategy is to optimize the business portfolio through divestitures and complementary acquisitions. The Company intends to finance

### (unaudited)

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

any future acquisitions with cash and short-term investments, cash provided from operations, borrowings under available credit facilities, proceeds from debt or equity offerings and/or the issuance of common shares.

The 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: | 2018 | 2017 |
| --- | ---: | ---: |
| Net cash provided (used) by operating activities | $(256.6) | $(185.8) |
| Net cash provided (used) by investing activities | 30.2 | (63.7) |
| Net cash provided (used) by financing activities | 1.0 | 36.0 |
| Effect of exchange rate changes on cash and cash equivalents | (10.8) | 12.1 |
| Increase (decrease) in cash and cash equivalents | $(236.2) | $(201.4) |

### 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 and integration activities, pension funding and other items impact reported cash flows.

Net cash used by operating activities was $256.6 for the six months ended June 30, 2018, an increase in use of $70.8 from $185.8 for the same period in 2017.

- The net aggregate of trade accounts receivable, inventories and accounts payable used $101.5 and $81.2 in operating cash flows during the six months ended June 30, 2018 and 2017, 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 had less usage compared to the prior-year same period primarily due to lower net sales in Eurasia partially offset by slower collections in AP and the Americas. Inventory cash use increased compared to the same period in the prior year primarily due to increased build up of inventory to satisfy various customer demand, as well as the aforementioned supply chain issues. The supply chain issues were primarily resolved and are anticipated to convert to cash within the year. Accounts payable cash inflow decreased primarily related to reduced spending in the Americas.
- In the aggregate, the other combined certain assets and liabilities used $124.6 and $94.7 of operating cash during the six months ended June 30, 2018 and 2017, respectively. The increase in use was primarily due to a reduction in deferred revenue cash provided by the collection of customer prepayments, mainly on service contracts, compared to the same period in the prior year.

The most significant changes in adjustments to net income includes increased depreciation and amortization expense and additional share-based compensation. Depreciation and amortization expense increased $14.1 to $130.7 during the six months ended June 30, 2018 compared to $116.6 during the same period in 2017 primarily due to incremental intangible assets amortization expense related to the finalization of purchase accounting. Share-based compensation increased $5.3 to $20.3 for the six months ended June 30, 2018 primarily due to a change in non-substantive vesting terms of certain awards and an increased number of non-vested awards granted. The impairment increased $86.9 to $90.0 during the six months ended June 30, 2018 from $3.1 during the same period in 2017 primarily due to the impairment of goodwill.

### Investing Activities

The maturities and purchases of investments primarily relate to short-term investment activity in Brazil. The $93.9 change was primarily due to the utilization of short-term investments in Brazil for cash needs across the organization.

### (unaudited)

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

### Financing Activities

Net cash provided by financing activities was $1.0 and $36.0 for the six months ended June 30, 2018 and 2017, respectively, a decrease of $35.0. The change was primarily due to an additional $31.1 in debt repayments, net of borrowings primarily related to payment of the Revolving Facility and higher cash distributions to noncontrolling interests of $29.1 for the six months ended June 30, 2018 compared to $12.8 in the prior-year period primarily related to cash compensation due to Diebold Nixdorf AG minority shareholders. Refer to note 11 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, 2018, the Company had various international short-term uncommitted lines of credit with borrowing limits of $198.3. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of June 30, 2018 and December 31, 2017 was 8.25 percent and 9.17 percent, respectively. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at June 30, 2018 was $188.7.

The Credit Agreement includes the Revolving Facility in the amount of up to $520.0 and the Term Loan A Facility 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, 2018 and December 31, 2017 was 4.13 percent and 3.63 percent, respectively, which is variable based on the LIBOR. The amount available under the Revolving Facility as of June 30, 2018 was $380.0.

The Company has $400.0 aggregate principal amount of 2024 Senior Notes which are and will be guaranteed by certain of the Company’s existing and future domestic subsidiaries and mature in 2024.

On May 9, 2017, the Company entered into the Incremental Agreement which reduced the initial 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.

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 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 EURIBOR plus 3.00 percent (with a floor of 0.00 percent).

The Incremental Agreement also renewed the repricing premium of 1.00 percent in relation to the Term Loan B Facility, 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 certain assets acquired. All other material provisions under the Credit Agreement were unchanged.

On April 17, 2018, the Company entered into an amendment to its Credit Agreement which modified its calculation of total net debt and its maximum allowable Leverage Ratio. The Credit Agreement financial covenant ratios at June 30, 2018 are as follows:

- a maximum Leverage Ratio of 4.75 to 1.00 as of June 30, 2018 (reducing to 4.50 on December 31, 2018, and then further reduced to 4.25 on December 31, 2019); and
- a minimum Coverage Ratio of not less than 3.00 to 1.00

### (unaudited)

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

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 | Initial Term (Years) |
| --- | --- | --- | ---: |
| Revolving Facility | LIBOR + 2.00% | December 2020 | 5 |
| Term Loan A Facility | LIBOR + 2.00% | December 2020 | 5 |
| Delayed Draw Term Loan A Facility | LIBOR + 2.00% | 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%.

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 financial covenants, including net debt to capitalization, net debt to EBITDA and net interest coverage ratio. As of June 30, 2018, the Company was in compliance with the financial and other covenants in its debt agreements. However, the Company’s current operating performance has been below expectations that existed at the time that the financial covenant levels were established, and if financial performance does not improve, we anticipate noncompliance with the net debt to EBITDA financial covenant at the end of the third quarter of 2018. The Company is in process of seeking an amendment to that covenant or obtaining a waiver thereof from our lenders. There can be no assurance that the Company will be successful in obtaining an amendment or waiver on commercially reasonable terms or at all.

**Dividends** The Company paid dividends of $7.7 and $15.3 in the six months ended June 30, 2018 and 2017, respectively. In May 2018, the Company announced its decision to reallocate future dividend funds towards debt reduction and other capital resource needs. As a result, there was no quarterly dividend for the three months ended June 30, 2018. The quarterly dividend was $0.10 per share for the three months ended June 30, 2017.

**Contractual Obligations** In the first six months ended 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, 2018, the Company had purchase commitments due within one year totaling $3.4 for materials through contract manufacturing agreements at negotiated prices.

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 €2.82 per Diebold Nixdorf AG ordinary share for each full fiscal year of Diebold Nixdorf AG. In early August 2018, Diebold Nixdorf AG shareholders have requested redemption of approximately 2.4 shares with a value of $160. The Company expects to utilize cash on hand and borrowings under its Revolving Facility to fund the obligations. 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, 2018 compared to December 31, 2017.

**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 9 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.

### (unaudited)

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

### 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, 2018 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, 2017.

### 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 cost reductions and synergies;
- the Company's ability to successfully operate its strategic alliances in China;
- changes in political, economic or other factors such as currency exchange rates, inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting the worldwide business in each of the Company's operations, including the impact of the Tax Act;
- the Company’s reliance on suppliers and any potential disruption to the Company’s global supply chain;
- the impact of market and economic conditions economic conditions, including any additional deterioration and disruption in the financial and service markets, including the bankruptcies, restructurings or consolidations of financial institutions, which could reduce our customer base and/or adversely affect our customers' ability to make capital expenditures, as well as adversely impact the availability and cost of credit;
- interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation rates;
- the acceptance of the Company's product and technology introductions in the marketplace;
- competitive pressures, including pricing pressures and technological developments;
- changes in the Company's relationships with customers, suppliers, distributors and/or partners in its business ventures;
- the effect of legislative and regulatory actions in the U.S. and internationally and 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 other acquisitions into its operations;
- the Company's ability to maintain effective internal controls;
- changes in the Company's intention to further repatriate cash and cash equivalents and short-term investments residing in international tax jurisdictions, which could negatively impact foreign and domestic taxes;
- unanticipated litigation, claims or assessments, as well as the outcome/impact of any current/pending litigation, claims or assessments;
- potential security violations to the Company's IT systems;
- the investment performance of our pension plan assets, which could require us to increase our pension contributions, and significant changes in healthcare costs, including those that may result from government action;
- the amount and timing of repurchases of the Company's common shares, if any;
- the Company's ability to complete divestitures for optimization of its business portfolio and to realize any of the contingent purchase price consideration related thereto; and

### (unaudited)

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

- the Company's ability to achieve benefits from its cost-reduction initiatives and other strategic initiatives, including its planned restructuring actions.

## Market risk

As filed, 2,637 characters.

The Company operates in Argentina through a wholly-owned subsidiary, Diebold Argentina, S.A. The Argentina operations represent less than one percent of the Company's total assets and total net sales as of and for the six months ended June 30, 2018. As of June 30, 2018, the Company concluded that the Argentina financial results will be measured using the U.S. dollar as its functional currency in the third quarter of 2018 because its economy is considered highly inflationary. The operating environment in Argentina continues to present business challenges, including continuing devaluation of Argentina’s currency and high inflation.

The Company is closely monitoring developments in Argentina and intends to take steps to mitigate adverse conditions, but there can be no assurances that these actions will be able to mitigate these conditions as they may occur.

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 $11.2 and $5.4 for the three months ended June 30, 2018 and 2017, respectively. 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 11. On September 21, 2017, the Company de-designated €100.0 of its euro-denominated Term Loan B Facility. On June 21, 2018, the Company re-designated €30.2 of its euro-denominated Term Loan B Facility.

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2017 for a discussion of market risk exposures. There have been no material changes in this information since December 31, 2017.

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

## Controls and procedures

As filed, 2,049 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, 2018.

### Change in Internal Controls

During the quarter ended June 30, 2018, there have been no 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, 166 characters.

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

Filed Aug 6, 2018.
Source: SEC EDGAR, the filing index for accession 0000028823-18-000135. Last ingested by Listed: Oct 28, 2026, 07:18 ET. No prices; not investment advice.