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

- Company: [DIEBOLD NIXDORF, Inc](/companies/dbd.md) (CIK 28823)
- Form: 10-Q
- Filed: 2018-11-08
- Accepted by EDGAR: Nov 8, 2018, 16:07 ET
- Period: 2018-09-30
- Accession: 0000028823-18-000164
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/28823/000002882318000164/dbd930201810q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/28823/000002882318000164/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2018-07-01 to 2018-09-30 | $890.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2018-01-01 to 2018-09-30 | $2.60bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2018-07-01 to 2018-09-30 | $228.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2018-01-01 to 2018-09-30 | $687.7m | us-gaap:GrossProfit |
| Research and development | 3 months, 2018-07-01 to 2018-09-30 | $36.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2018-01-01 to 2018-09-30 | $118.9m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2018-07-01 to 2018-09-30 | $216.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2018-01-01 to 2018-09-30 | $663.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-07-01 to 2018-09-30 | −$133.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | −$287.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-07-01 to 2018-09-30 | $45.2m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2018-01-01 to 2018-09-30 | $99.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-07-01 to 2018-09-30 | $45.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2018-01-01 to 2018-09-30 | $35.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-07-01 to 2018-09-30 | −$212.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | −$423.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-01 to 2018-09-30 | −$2.79 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | −$5.57 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-07-01 to 2018-09-30 | −$2.79 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2018-01-01 to 2018-09-30 | −$5.57 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-07-01 to 2018-09-30 | 76,100,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 76,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | −$372.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2018-01-01 to 2018-09-30 | $40.5m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2018-07-01 to 2018-09-30 | $0 | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 9 months, 2018-01-01 to 2018-09-30 | $7.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2018-01-01 to 2018-09-30 | $3.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2018-09-30 | $304.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-09-30 | $2.44bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-09-30 | $4.70bn | us-gaap:Assets |
| Current liabilities | at 2018-09-30 | $1.58bn | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2018-09-30 | −$7.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 69,833 characters.

### Significant Highlights

During the third quarter of 2018, Diebold Nixdorf:

- Transitioned to a new, streamlined and customer-centric operating model designed to drive global consistency across the organization while improving collaboration and enabling more agile decision-making.
- Initiated a services modernization program which includes updating customer touchpoints (ATM or POS), automating incident reporting and responses, and standardizing offerings and internal support processes.
- Raised $650.0 through a new term loan and revised the financial management covenants of the the Company's credit facility. This enhanced liquidity provides financial flexibility, facilitates acquiring the remaining shares of Diebold Nixdorf AG and supports DN Now initiatives.
- Increased its ownership stake in Diebold Nixdorf AG to 27.7 shares, or approximately 93 percent, as of September 30, 2018. The Company launched the formal process to merge the German subsidiary, Diebold Nixdorf AG, with and into Diebold KGaA. Once completed, it will result in a further simplified and streamlined corporate structure.
- Signed a $70.0, multiyear services contract covering about 1,000 Marks & Spencer stores in western Europe.
- Secured a multiyear managed services agreement valued at $68.0 for new POS devices and related software at a leading European home improvement retailer.
- Won Windows 10 ATM product upgrade contracts with several North America financial institutions, including an agreement with a regional United States (U.S.) bank for more than 500 DN Vynamic software licenses and a new managed services agreement.
- Renewed a five-year maintenance service contract with a top-three U.S. financial institution, also renewed a three-year contract with Caixa Bank to service 25,000 ATMs in Brazil.
- Acquired a $6, multiyear Vynamic View SaaS contract with a multinational financial institution.
- Secured a contract with Westpac in Australia for DN Vynamic software portfolio. Diebold Nixdorf is now the sole ATM software provider for Westpac's 2,600 machines.

### 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 customers' integrated solutions and design and deliver convenient, "always on" and highly secure solutions that bridge the physical and 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
- Initiating a services modernization plan
- Making changes to drive a more sustainable supply chain and improve net working capital

### (unaudited)

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

- Optimizing the portfolio of businesses and worldwide cost structure

The Company refers to these activities collectively as DN Now which is designed to improve its profitability and net leverage. The savings target for DN Now is in excess of $250, of which $100 is anticipated to be realized over the next year. 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 operating structure is focused on its two customer segments - Banking and Retail. Leveraging a broad portfolio of solutions, the Company offers customers the flexibility to purchase 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, differentiate the consumer experience, 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 AllConnectSM 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 life-cycle management and ATM as-a-service capabilities.

The Company also provides 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, as well as via digital channels such as online and mobile. 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 DN Vynamic, the first end-to-end Connected Commerce software portfolio in the banking marketplace. The DN 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.

### (unaudited)

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

An important enabler of the Company’s software offerings is the professional service employees who provide systems integration, customization, project management and consulting. 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.

The banking product portfolio 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 while 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 Payment Card Industry (PCI) regulations.

#### Retail

The Company’s comprehensive portfolio of retail devices, software and services enhances the shopping experiences and improves the checkout process for both retailers and consumers.

Diebold Nixdorf AllConnectSM Services for retailers include:

- Maintenance and Availability Services - focuses on continuously improving retail self-service fleet availability and performance. First and second line maintenance, preventive maintenance and on-demand services utilize a standardized incident management process to assure high-quality service delivery.
- Total Implementation Services - reliable and scalable implementation solutions in support of both current and new store concepts. The Company leverages standard processes and tools, local resources and a single point of contact.
- Managed Mobility Services - centralizes asset management and repair of mobile devices, tailored to the unique needs of each business. Monitoring and advanced analytics capabilities provide operational insights and support new growth opportunities.
- Store Life-cycle Management - proactively monitors store IT endpoints and enables improved management of internal and external suppliers and delivery organizations. Service personnel supervise market entry, openings, renewals and transformation projects, with attention to local details and customers’ global IT infrastructure.

The DN Vynamic software suite for retailers provides a comprehensive, modular solution capable of enabling the most advanced omnichannel retail use cases. The 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. Operational 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 seamless and 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.

### (unaudited)

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

#### 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 maintenance services and managed services;
- Timing of product 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, 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 September 30, 2018 | 2017 | % Change | % Change in CC (1) | Percent of Total Net Sales for the Three Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $229.8 | $240.2 | (4.3) | (1.6) | 20.5 | 21.4 |
| Products | 152.0 | 167.5 | (9.3) | (7.1) | 13.6 | 14.9 |
| Software | 52.5 | 53.4 | (1.7) | 0.4 | 4.7 | 4.8 |
| Total Eurasia Banking | 434.3 | 461.1 | (5.8) | (3.4) | 38.8 | 41.1 |
| Americas Banking |  |  |  |  |  |  |
| Services | 237.2 | 245.8 | (3.5) | (1.6) | 21.2 | 21.9 |
| Products | 118.0 | 106.2 | 11.1 | 13.4 | 10.5 | 9.4 |
| Software | 27.3 | 24.7 | 10.5 | 15.2 | 2.5 | 2.2 |
| Total Americas Banking | 382.5 | 376.7 | 1.5 | 3.7 | 34.2 | 33.5 |
| Retail |  |  |  |  |  |  |
| Services | 116.9 | 119.8 | (2.4) | (0.2) | 10.5 | 10.7 |
| Products | 144.6 | 123.3 | 17.3 | 19.9 | 12.9 | 11.0 |
| Software | 40.7 | 41.8 | (2.6) | 0.5 | 3.6 | 3.7 |
| Total Retail | 302.2 | 284.9 | 6.1 | 8.6 | 27.0 | 25.4 |
| Total net sales | $1,119.0 | $1,122.7 | (0.3) | 2.0 | 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 September 30, 2018 compared with three months ended September 30, 2017

Net sales decreased $3.7 or 0.3 percent including a net unfavorable currency impact of $26.1 primarily related to the euro and Brazil real. Net sales in the three months ended September 30, 2017 were adversely impacted $9.7 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 $26.8 including a net unfavorable currency impact of $11.5 mainly related to the euro. Net sales in the prior-year quarter were adversely impacted $5.8 related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $21.1 due primarily to India from a roll off of a maintenance contract with a particular customer. Additionally, lower product volume primarily in AP was partially offset by increased unit replacements in Germany related to Windows 10 migrations.
- Americas Banking increased $5.8 including a net unfavorable currency impact of $7.9 related to the Brazil real. Excluding currency, net sales increased $13.7 from higher product project activity in Brazil, along with higher product volume in

### (unaudited)

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

Canada, U.S. national accounts and Mexico, partially offset by lower product volume in U.S. regional accounts and lower services net sales in Latin America.

- Retail net sales increased $17.3 including a net unfavorable currency impact of $6.7 mainly related to the euro. Prior year net sales were adversely impacted $3.9 related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales increased $20.1 due to a large North America kiosk project as well as higher POS activity in Spain. These increases were partially offset by lower POS volume in Germany.

| Segments Eurasia Banking | Nine Months Ended September 30, 2018 | 2017 | % Change | % Change in CC (1) | Percent of Total Net Sales for the Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $702.2 | $699.8 | 0.3 | (4.0) | 21.4 | 20.8 |
| Products | 451.7 | 527.0 | (14.3) | (17.8) | 13.7 | 15.7 |
| Software | 153.0 | 145.8 | 4.9 | 0.1 | 4.6 | 4.3 |
| Total Eurasia Banking | 1,306.9 | 1,372.6 | (4.8) | (8.9) | 39.7 | 40.8 |
| Americas Banking |  |  |  |  |  |  |
| Services | 706.7 | 729.7 | (3.2) | (2.2) | 21.5 | 21.7 |
| Products | 292.3 | 323.1 | (9.5) | (8.1) | 8.9 | 9.6 |
| Software | 87.8 | 75.9 | 15.7 | 18.2 | 2.7 | 2.3 |
| Total Americas Banking | 1,086.8 | 1,128.7 | (3.7) | (2.5) | 33.1 | 33.6 |
| Retail |  |  |  |  |  |  |
| Services | 360.7 | 329.8 | 9.4 | 4.1 | 11.0 | 9.8 |
| Products | 412.4 | 412.1 | 0.1 | (5.6) | 12.5 | 12.3 |
| Software | 122.0 | 116.2 | 5.0 | 0.4 | 3.7 | 3.5 |
| Total Retail | 895.1 | 858.1 | 4.3 | (1.1) | 27.2 | 25.6 |
| Total net sales | $3,288.8 | $3,359.4 | (2.1) | (4.8) | 100.0 | 100.0 |

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

#### Nine months ended September 30, 2018 compared with nine months ended September 30, 2017

Net sales decreased $70.6 or 2.1 percent including a net favorable currency impact of $94.9 primarily related to the euro and Brazil real. Net sales in the prior-year were adversely impacted $30.5 related to Deferred Revenue Adjustments. The following results include the impact of foreign currency and Deferred Revenue Adjustments:

### Segments

- Eurasia Banking net sales decreased $65.7 including a net favorable currency impact of $61.7 to the euro. Net sales in the prior-year were adversely impacted $18.3, including a net favorable currency impact of $1.4, related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $147.1 due to lower product volume in various countries throughout the segment related to fewer product deployments and projects, particularly in Turkey, Indonesia, Australia and the Middle East, in addition to decreased services in India as a result of a maintenance contract roll off with a particular customer. These decreases were partially offset by increased unit replacements in Germany related to Windows 10 migrations.
- Americas Banking net sales decreased $41.9 including a net unfavorable currency impact of $13.6 related to the Brazil real. Excluding currency, net sales decreased $28.3 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 half of 2018. Additionally, service revenue was impacted by lower maintenance revenue from two large customers in North America and $4.1 lower electronic security revenue in Chile due to the business divestiture in September of 2017. These declines were partially offset by

### (unaudited)

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

additional product volume in Mexico, Ecuador and Canada as well as additional professional services volume in North America and software license volume in Brazil.

- Retail net sales increased $37.0 including a favorable net currency impact of $46.8 mostly related to the euro. Prior year net sales were adversely impacted $12.2, including a net favorable currency impact of $1.0, related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $23.0 due to large prior year non-recurring POS and kiosk activity in Germany for multiple customers and to a lesser extent, the U.K. Additionally, the Company experienced lower product volume in the non-core business in Eurasia and Brazil. These declines were partially offset by higher product volume in France, Central Eastern Europe and Southern Europe as well as a large retail kiosk project in North America.

#### Gross Profit

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

|  | Three Months Ended September 30, 2018 | 2017 | % Change | Nine Months Ended September 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross profit - services | $132.3 | $135.1 | (2.1) | $392.1 | $397.2 | (1.3) |
| Gross profit - products | 66.7 | 69.0 | (3.3) | 198.2 | 219.7 | (9.8) |
| Gross profit - software | 29.3 | 35.9 | (18.4) | 97.4 | 101.4 | (3.9) |
| Total gross profit | $228.3 | $240.0 | (4.9) | $687.7 | $718.3 | (4.3) |
| Gross margin - services | 22.7% | 22.3% |  | 22.2% | 22.6% |  |
| Gross margin - products | 16.1% | 17.4% |  | 17.1% | 17.4% |  |
| Gross margin - software | 24.3% | 29.9% |  | 26.8% | 30.0% |  |
| Total gross margin | 20.4% | 21.4% |  | 20.9% | 21.4% |  |

Services gross margin was relatively flat in both the three and nine months ended September 30, 2018 and was favorably impacted by lower restructuring charges of $9.9 and $24.7 in the three and the nine months ended, respectively. Lower non-routine charges of $5.1 and $14.3 in the three and nine months ended, respectively, were primarily related to lower purchase accounting adjustments inclusive of amortization and prior-year quarter deferred revenue. Excluding restructuring and non-routine charges, services gross margin decreased in both the three and nine months ended September 30, 2018 by 1.9 and 2.4 percent, respectively. The three and nine months ended were adversely impacted by an unfavorable banking services mix in North America and higher non-recurring services cost in Brazil banking, primarily in the nine-month period. Additionally, both the three and nine months ended included unfavorable banking customer and services mix in Eurasia, negatively impacting gross margin.

Product gross margin decreased 1.3 percent in the three months ended and was relatively flat in the nine months ended September 30, 2018. The three months ended September 30, 2018 was unfavorably impacted by higher restructuring charges of $1.8 while both the three and the nine months ended were favorably impacted by lower non-routine charges of $10.0 and $29.5, respectively. Lower non-routine charges in both the three and nine months ended included decreased Purchase Accounting Adjustments of amortization and prior-year deferred revenue of $10.4 and $24.2 while the nine months ended also benefited $3.7 from the Brazil indirect tax accrual reversal in the first quarter of 2018. Excluding restructuring and non-routine charges, product gross margin decreased 3.1 and 2.3 percent in the three and nine months ended, respectively, primarily as a result of unfavorable banking and retail customer mix in the Americas as well as supply chain delays in the first half of 2018 and the corresponding expedited freight cost.

Software gross margin decreased 5.6 and 3.2 percent in the three and nine months ended September 30, 2018, respectively. Restructuring charges were higher by $1.7 and $2.6 in the three and nine months ended, respectively, while non-routine charge were lower by $1.4 and $8.3 in the three and nine months ended, respectively, primarily due to decreased Purchase Accounting Adjustments related to amortization. Excluding restructuring and non-routine charges, software gross margin decreased 6.1 and 5.1 percent in the three and nine months ended, respectively, primarily due to lower margin Latin America licenses net sales. Additionally, the nine months ended was adversely impacted from lower margin professional services in Eurasia.

### (unaudited)

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

#### Operating Expenses

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

|  | Three Months Ended September 30, 2018 | 2017 | % Change | Nine Months Ended September 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling and administrative expense | $216.2 | $208.8 | 3.5 | $663.9 | $692.6 | (4.1) |
| Research, development and engineering expense | 36.6 | 34.2 | 7.0 | 118.9 | 114.4 | 3.9 |
| Impairment of assets | 109.3 | — | — | 199.3 | 3.1 | N/M |
| (Gain) loss on sale of assets, net | 0.1 | 5.6 | (98.2) | (6.8) | (2.5) | (172.0) |
| Total operating expenses | $362.2 | $248.6 | 45.7 | $975.3 | $807.6 | 20.8 |
| Percent of net sales | 32.4% | 22.1% |  | 29.7% | 24.0% |  |

N/M = Not Meaningful

Selling and administrative expense in the three months ended September 30, 2018 increased $7.4 including higher incremental restructuring of $25.9 and lower non-routine charges of $8.4. Excluding the impact of restructuring, non-routine charges and a net $4.0 favorable currency impact, mostly related to the Brazil real and euro, selling and administrative expense was $6.1 lower, primarily from lower incentive compensation related to the Company’s annual incentive program (AIP) and initial benefits of the DN Now plan. Selling and administrative expense in the nine months ended September 30, 2018 decreased $28.7 including higher incremental restructuring of $19.5 and lower non-routine charges of $22.7. Excluding the impact of restructuring and non-routine charges and a net favorable currency impact of $15.1, due to the euro and Brazil real, selling and administrative expense was lower $40.6, primarily from cost reduction initiatives across the Company related to restructuring programs and decreased AIP cost as well as a $4.5 benefit from the mark-to-market adjustment of the legacy Wincor Nixdorf stock option program. The decrease in the nine months ended was partially offset by the retail segment from increased investment in the new North America retail sales organization.

Non-routine cost in selling and administrative expense of $35.3 and $43.7 were included in the three months ended September 30, 2018 and 2017, respectively. The primary components of the non-routine expenses in the third quarter of 2018 pertained to purchase accounting adjustments of $21.7 related to intangible asset amortization, integration cost totaling $9.3 and legal and consulting cost of $4.3. Selling and administrative expense included restructuring charges of $28.6 and $2.5 in the three months ended September 30, 2018 and 2017, respectively, primarily due to the workforce alignment actions under the DN Now plan. Non-routine cost in selling and administrative expense of $109.9 and $132.5 were included in the nine months ended September 30, 2018 and 2017, respectively. The primary components of the non-routine expenses in the nine months ended September 30, 2018 pertained to purchase accounting adjustments of $67.8 related to intangible asset amortization, integration cost totaling $36.8 and legal and consulting cost of $5.1. Selling and administrative expense included restructuring charges of $33.0 and $13.5 in the nine months ended September 30, 2018 and 2017, respectively.

Research, development and engineering expense in the three months ended September 30, 2018 was relatively flat excluding higher restructuring of $1.4. In the nine months ended September 30, 2018, research, development and engineering expense included an unfavorable currency impact of $5.3. Excluding the impact of currency, research, development and engineering expense in the nine months ended was flat, primarily from lower AIP cost which was mostly offset by increased restructuring of $2.0.

As a result of certain impairment triggering events, the Company performed an impairment test of goodwill for its four reporting units during the third quarter of 2018. Based on the results of the impairment testing, the Company recorded a non-cash goodwill impairment loss of $109.3 related to the Eurasia Banking, EMEA Retail and Rest of World Retail reporting units during the third quarter of 2018. During the second quarter of 2018, the Company performed an impairment test of goodwill for all of its LoB reporting units due to the change in its reportable operating segments which resulted in a $90.0 non-cash impairment loss. The nine months ended September 30, 2018 recorded impairment of $199.3, related to the impairment of goodwill in the second and third quarters, compared to $3.1 in the same prior year period related to information technology transformation and integration activities.

### (unaudited)

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

No material gain or loss on assets was recorded in the three months ended September 30, 2018. The gain on sale of assets in the nine months ended September 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 September 30, 2018 increased 10.3 percent to 32.4 percent compared to the same period in 2017 primarily related the non-cash impairment losses and higher restructuring cost. The nine months ended increased to 29.7 percent compared to 24.0 percent in the same period in 2017 primarily related to the non-cash impairment losses recorded during the second quarter and third quarter of 2018.

#### Operating Profit

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

|  | Three Months Ended September 30, 2018 | 2017 | % Change | Nine Months Ended September 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | ---: |
| Operating profit (loss) | $(133.9) | $(8.6) | N/M | $(287.6) | $(89.3) | (222.1) |
| Operating margin | (12.0)% | (0.8)% |  | (8.7)% | (2.7)% |  |

The operating loss increased in the three months ended September 30, 2018 compared to the same period in 2017 due primarily to a non-cash goodwill impairment loss along with lower gross profit in all business lines combined with increased restructuring expense. The operating loss increased in the nine months ended September 30, 2018 compared to the same period in 2017 due primarily to the goodwill impairment in the second and third quarters of 2018 and lower product gross profit in line with decreased volume, partially offset by favorable selling and administrative expense attributable to cost saving initiatives.

#### Other Income (Expense)

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

|  | Three Months Ended September 30, 2018 | 2017 | % Change | Nine Months Ended September 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $2.2 | $4.3 | (48.8) | $7.6 | $15.8 | (51.9) |
| Interest expense | (45.2) | (27.7) | (63.2) | (99.6) | (90.7) | (9.8) |
| Foreign exchange gain (loss), net | 2.2 | 3.2 | (31.3) | (2.3) | (4.5) | 48.9 |
| Miscellaneous, net | 1.8 | (1.5) | N/M | 0.9 | 1.7 | (47.1) |
| Other income (expense), net | $(39.0) | $(21.7) | (79.7) | $(93.4) | $(77.7) | (20.2) |

Interest income in both the three and nine months ended September 30, 2018 decreased, compared with the same periods in 2017, primarily as a result of overall lower average balances as well as lower rates on short term investments and repatriation of cash in Brazil. Interest expense in both the three and nine months was higher compared to the same prior-year periods due to higher domestic interest rates and the acquisition of the additional $650.0 of Term Loan A-1 Facility debt with higher incremental interest rates and related fee amortization. Miscellaneous net, increased in the three months ended due primarily to increased income from the strategic alliances in China while the nine months ended was unfavorably impacted by higher cost and lower benefits associated with the company owned life insurance.

### (unaudited)

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

#### Net Income (Loss)

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

|  | Three Months Ended September 30, 2018 | 2017 | % Change | Nine Months Ended September 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | --- |
| Income (loss) before taxes | $(172.9) | $(30.3) | N/M | $(381.0) | $(167.0) | N/M |
| Income tax expense (benefit) | 45.8 | (0.9) | N/M | 35.6 | (60.5) | N/M |
| Net income (loss) | $(218.7) | $(29.4) | N/M | $(416.6) | $(106.5) | N/M |
| Percent of net sales | (19.5)% | (2.6)% |  | (12.7)% | (3.2)% |  |
| Effective tax rate | (26.5)% | 3.0% |  | (9.3)% | 36.2% |  |

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 expense (benefit).

The Tax Act was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings for certain foreign subsidiaries and creates new taxes on certain foreign sourced earnings. The Company applied the guidance in SAB 118 when accounting for the enactment date effects of the Tax Act. As of September 30, 2018, the Company has not completed the accounting for all the tax effects of the Tax Act. However, upon further analysis of certain aspects of the Tax Act and refinements to the Company’s calculations, the Company has increased the provisional estimate relating to deemed repatriation transition tax (transition tax) by $46.8. This increase in the provisional estimate has been included as a discrete item in the interim period ended September 30, 2018. The Company will continue to refine the provision estimate over the one-year measurement period ending December 31, 2018 which will include the period in which the Company filed its U.S. Corporation Income Tax Return. The final impacts of the Tax Act may differ materially as additional guidance and information becomes available and the U.S. federal tax filing, including transition tax, is complete.

The effective tax rate on the loss before taxes was (26.5) percent for the three months ended September 30, 2018 and (9.3) percent for the nine months ended September 30, 2018. The expense on the loss for the three months ended and nine months ended was primarily due to a goodwill impairment charge, the impacts of the Tax Act and the higher interest expense burden resulting from the debt restructuring. More specifically, the expense on the loss reflects refinement of the transition tax, the impacts related to GILTI and the business interest deduction limitation which, as a result of the Company’s debt restructuring activities during the quarter, required a full valuation allowance on the current year nondeductible business interest expense. In addition, the benefit on the losses for the nine months is reduced by the goodwill impairment charge, which for tax purposes is primarily nondeductible, of $109.3 and $90.0 incurred in the third and second quarter, respectively. The effective tax rate could vary in future periods based on the Company’s earnings before taxes and clarification around the Tax Act.

The effective tax rate on the loss before taxes was 3.0 percent for the three months ended September 30, 2017 and 36.2 percent for the nine months ended September 30, 2017. The tax for the three months ended September 30, 2017 reflects an unfavorable adjustment relating to year-to-date changes in the Company’s valuation allowance as well as higher than anticipated losses incurred in jurisdictions with a full valuation allowance throughout the period. During the three and nine months ended September 30, 2017, the overall reduction in the tax benefit was offset by the repatriation of foreign earnings and the associated recognition of foreign tax credits as well as favorable discrete items associated with the release of uncertain tax positions due to the expiration of the statute of limitations and reductions in the Company’s deferred tax liability relating to undistributed foreign subsidiary earnings.

### (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 September 30, 2018 | 2017 | % Change | Nine Months Ended September 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $434.3 | $461.1 | (5.8) | $1,306.9 | $1,372.6 | (4.8) |
| Segment operating profit (loss) | $43.2 | $40.0 | 8.0 | $79.8 | $91.0 | (12.3) |
| Segment operating profit margin | 9.9% | 8.7% |  | 6.1% | 6.6% |  |

In the three months ended September 30, 2018, Eurasia Banking net sales decreased $26.8 including a net unfavorable currency impact of $11.5 mainly related to the euro. Net sales in the prior-year quarter were adversely impacted $5.8 related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $21.1 due primarily to India from a roll off of a low-margin maintenance services contract with a particular customer. Additionally, lower product volume primarily in AP was partially offset by increased unit replacements in Germany related to Windows 10 migrations. In the nine months ended September 30, 2018, Eurasia Banking net sales decreased $65.7 including a net favorable currency impact of $61.7 to the euro. Net sales in the prior-year were adversely impacted $18.3, including a net favorable currency impact of $1.4, related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $147.1 due to lower product volume in various countries throughout the segment related to fewer product deployments and projects, particularly in Turkey, Indonesia, Australia and the Middle East, in addition to decreased services in India as a result of a maintenance contract roll off with a particular customer. These decreases were partially offset by increased unit replacements in Germany related to Windows 10 migrations.

Segment operating profit increased $3.2 in the three months and decreased $11.2 in the nine months ended September 30, 2018, respectively, compared to the prior-year same periods. The three months ended operating profit increased primarily due to lower operating expense from lower AIP cost and the workforce alignment actions under the DN Now plan as well as higher software volume and associated profit. The increase was partially offset by lower services and product gross profit from decreased service base in AP and unfavorable services customer and solution mix in EMEA as well as unfavorable solutions mix in the Eurasia non-core business. The nine months ended was unfavorably impacted by lower gross profit attributable to lower product volume and service base loss in AP, as well as lower product volume and unfavorable services mix in the non-core business. Decreased selling and administrative and research, development and engineering expense partially offset lower gross profit in the nine months ended from a combination of lower AIP expense and cost saving initiatives related to the restructuring programs.

Segment operating profit margin increased in the three months ended primarily as a result of lower operating expense, related to lower AIP cost and cost saving initiatives, as well as higher software gross profit, partially offset by lower services and product gross profit. The nine months ended September 30, 2018 decreased compared to the prior-year same period due to decreased product and services gross profit, partially offset by favorable selling and administrative expense attributable to lower AIP cost and cost saving initiatives.

| Americas Banking: | Three Months Ended September 30, 2018 | 2017 | % Change | Nine Months Ended September 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $382.5 | $376.7 | 1.5 | $1,086.8 | $1,128.7 | (3.7) |
| Segment operating profit (loss) | $4.0 | $14.5 | (72.4) | $10.4 | $48.0 | (78.3) |
| Segment operating profit margin | 1.0% | 3.8% |  | 1.0% | 4.3% |  |

In the three months ended September 30, 2018, Americas Banking increased $5.8 including a net unfavorable currency impact of $7.9 related to the Brazil real. Excluding currency, net sales increased $13.7 from higher product volume in Brazil, Canada, U.S. national accounts and Mexico, partially offset by lower product volume in U.S. regional accounts. In the nine months ended September 30, 2018, Americas Banking net sales decreased $41.9 including a net unfavorable currency impact of $13.6 related to the Brazil real. Excluding currency, net sales decreased $28.3 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 half of 2018. Additionally, service revenue

### (unaudited)

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

was impacted by lower maintenance revenue from two large customers in North America and $4.1 lower electronic security revenue in Chile due to the business divestiture in September of 2017. These declines were partially offset by additional product volume in Mexico, Ecuador and Canada as well as additional professional services volume in North America and software license volume in Brazil.

Segment operating profit decreased $10.5 and $37.6 in the three and nine months ended September 30, 2018, respectively. Both the three and nine months ended were adversely impacted by lower services gross profit attributable to an unfavorable customer and solution mix in North America as well as higher non-recurring services cost in Brazil banking, primarily in the nine-month period. The decreases were partially offset by a repairable service parts inventory item correcting current and prior year cost of sales resulting in a larger unfavorable impact in 2017. Product gross profit decreased in both the three and nine months ended due primarily to higher freight cost as well as lower volume impacting the nine months ended from supply chain delays in the first half of 2018. Software gross profit was lower in the three months ended due to higher cost while the nine months ended was favorable due to increased professional services activity in North America and software license volume in Brazil. Partially offsetting these declines in both the three and nine months ended, selling and marketing expense decreased from lower AIP cost and associate related cost as well as cost reduction initiatives in Brazil.

Segment operating profit margin decreased in the three and nine months ended September 30, 2018 compared to the prior-year same periods due to higher cost resulting from non-recurring expense in Brazil and unfavorable services customer and solutions mix in North America and increased product freight expense, partially offset by lower operating expense from cost reduction initiatives in Brazil and lower AIP cost.

| Retail: | Three Months Ended September 30, 2018 | 2017 | % Change | Nine Months Ended September 30, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $302.2 | $284.9 | 6.1 | $895.1 | $858.1 | 4.3 |
| Segment operating profit (loss) | $19.2 | $27.3 | (29.7) | $36.5 | $71.3 | (48.8) |
| Segment operating profit margin | 6.4% | 9.6% |  | 4.1% | 8.3% |  |

In the three months ended September 30, 2018, retail net sales increased $17.3 including a net unfavorable currency impact of $6.7 mainly related to the euro. Prior year net sales were adversely impacted $3.9 related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales increased $20.1 due to a large North America kiosk project as well as higher POS activity in Spain. These increases were partially offset by lower POS volume in Germany. In the nine months ended September 30, 2018, retail net sales increased $37.0 including a favorable net currency impact of $46.8 mostly related to the euro. Prior year net sales were adversely impacted $12.2, including a net favorable currency impact of $1.0, related to Deferred Revenue Adjustments. Excluding currency and Deferred Revenue Adjustments, net sales decreased $23.0 due to large prior year non-recurring POS and kiosk activity in Germany for multiple customers and to a lesser extent, the U.K. Additionally, the Company experienced lower product volume in the non-core business in Eurasia and Brazil. These declines were partially offset by higher product volume in France, Central Eastern Europe and Southern Europe as well as a large retail kiosk project in North America.

Segment operating profit decreased $8.1 and $34.8 in the three and nine months ended September 30, 2018, respectively. The decrease in both the three and nine months ended was due primarily to Eurasia from lower product volume combined with an unfavorable customer mix, impacting the gross profit of both the services and software business, as well as an unfavorable product customer mix in the Americas. Additionally, the three and nine months ended were unfavorably impacted by increased operating expense in Eurasia related to research, development, engineering cost and higher selling and administrative expense from developing the North America retail sales organization, as well as lower product volume in Eurasia, unfavorably impacting gross profit from lower product activity in the current year.

Segment operating profit margin decreased in the three and nine months ended September 30, 2018 compared to the prior-year same periods due to an unfavorable customer and solutions mix. In addition, the nine months ended September 30, 2018 included higher operating expense related to the development of the retail business as well as higher research, development and engineering cost in Eurasia which negatively affected operating profit margin.

### (unaudited)

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

### Liquidity and Capital Resources

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

|  | September 30, 2018 | December 31, 2017 |
| --- | ---: | ---: |
| Cash and cash equivalents | $304.4 | $535.2 |
| Additional cash availability from |  |  |
| Uncommitted lines of credit | 44.1 | 216.9 |
| Revolving Facility | 240.0 | 445.0 |
| Short-term investments | 5.0 | 81.4 |
| Total cash and cash availability | $593.5 | $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 September 30, 2018, $295.2 or 95.4 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 $1,600 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 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 nine months ended September 30:

| Summary of cash flows: | 2018 | 2017 |
| --- | ---: | ---: |
| Net cash provided (used) by operating activities | $(372.1) | $(235.3) |
| Net cash provided (used) by investing activities | 90.1 | (70.8) |
| Net cash provided (used) by financing activities | 196.9 | 22.7 |
| Effect of exchange rate changes on cash and cash equivalents | (14.4) | 19.3 |
| Increase (decrease) in cash, cash equivalents and restricted cash | $(99.5) | $(264.1) |

### 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 $372.1 for the nine months ended September 30, 2018, an increase in use of $136.8 from $235.3 for the same period in 2017.

- The net aggregate of trade accounts receivable, inventories and accounts payable used $156.1 and $93.3 in operating cash flows during the nine months ended September 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 decreased usage compared to the same period in the prior-year primarily due to improvement in collections in Eurasia. 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 over the coming quarters. Cash provided by accounts payable decreased primarily related to reduced spending in the Americas partially offset by increased spending in AP.

### (unaudited)

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

- In the aggregate, the other combined certain assets and liabilities used $158.3 and $206.9 of operating cash during the nine months ended September 30, 2018 and 2017, respectively. The decrease 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.

Depreciation and amortization expense increased $9.3 to $194.7 during the nine months ended September 30, 2018 compared to $185.4 during the same period in 2017 primarily due to incremental increase in depreciation expense offset by lower amortization expense. Share-based compensation increased $4.1 to $27.2 for the nine months ended September 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 goodwill impairment was $199.3 for the nine months ended September 30, 2018 as compared to $3.1 of other asset impairments during the same period in 2017.

### Investing Activities

The maturities and purchases of investments primarily relate to short-term investment activity in Brazil. The $160.9 change was primarily due to the monetization of the Company's investment in the company owned life insurance plans and utilization of short-term investments in Brazil for cash needs across the organization.

### Financing Activities

Net cash provided by financing activities was $196.9 and $22.7 for the nine months ended September 30, 2018 and 2017, respectively, an increase of $174.2. The change was primarily due to an additional $650.0 in proceeds received from the Term Loan A-1 Facility and an increase in net borrowings of the Revolving Facility. The increase in borrowings were partially offset by $306.7 in debt repayments and higher cash distributions primarily related to the redemption of shares and cash compensation to Diebold Nixdorf AG minority shareholders of $337.8 for the nine months ended September 30, 2018 compared to $16.3 in the prior-year period. 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 September 30, 2018, the Company had various international short-term uncommitted lines of credit with borrowing limits of $67.6. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of September 30, 2018 and December 31, 2017 was 5.89 percent and 9.17 percent, respectively, and primarily relate to short-term uncommitted lines of credit in India and Brazil. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at September 30, 2018 was $44.1.

The Credit Agreement includes the Revolving Facility in the amount of up to $500.0 and the Term Loan A Facility in the amount of up to $230.0 as of September 30, 2018. 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 September 30, 2018 and December 31, 2017 was 4.38 percent and 3.63 percent, respectively, which is variable based on the LIBOR. The amount available under the Revolving Facility as of September 30, 2018 was $240.0.

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 August 30, 2018, the Company entered into the Sixth Amendment to its Credit Agreement. The Amendment amended the financial covenants and established a new senior secured incremental term A-1 facility in an aggregate principal amount of $650.0 and makes certain other changes to the Credit Agreement.

The interest rate with respect to the Term Loan A-1 Facility is based on, at the Company’s option, either the ABR plus 8.25% or a eurocurrency rate plus 9.25%. The Term A-1 Facility will mature in August 2022, the fourth anniversary of the Sixth Amendment. The Term Loan A-1 Facility is subject to a maximum consolidated net leverage ratio, a minimum consolidated interest coverage ratio and Covenant Reset Triggers as described in the Sixth Amendment. Upon the occurrence of any Covenant Reset Trigger, the financial covenant levels will automatically revert to previous financial covenant levels in effect prior to the Sixth Amendment.

### (unaudited)

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

A portion of the proceeds of the Term Loan A-1 Facility are restricted to fund the purchase of the remaining shares of Diebold Nixdorf AG not owned by the Company. The proceeds were used to make optional prepayments of existing term A loans in the amount of $130.0 and to permanently reduce revolving credit commitments in an amount of $20.0 and to make a purchase pursuant to an offer open to all term B lenders on a pro rata basis for $100.0 in face principal amount of term B loans. Any remaining proceeds were used for general corporate and working capital purposes.

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

The Credit Agreement financial covenant rations at September 30, 2018 are as follows:

- a maximum allowable Leverage Ratio of 7.00 to 1.00 as of September 30, 2018 (reducing to 6.5 on June 30, 2020, further reduced to 6.25 on December 31, 2020, further reduced to 6.00 on June 30, 2021 and further reduced to 5.75 on December 31, 2021); and
- a minimum adjusted EBITDA to net interest expense coverage ratio of not less than 1.38 to 1.00 (increasing to 1.5 on December 31, 2020 and further increased to 1.63 on December 31, 2021)

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 + 3.50% | December 2020 | 5 |
| Term Loan A Facility | LIBOR + 3.50% | December 2020 | 5 |
| Term Loan A-1 Facility | LIBOR + 9.25% | August 2022 | 4 |
| Delayed Draw Term Loan A Facility | LIBOR + 3.50% | 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. Under the Sixth Amendment, the Term Loan A-1 Facility is under a covenant holiday period until the earlier of any covenant reset trigger or April 1, 2019. As of September 30, 2018, the Company was in compliance with the financial and other covenants in its debt agreements.

**Dividends** The Company paid dividends of $7.7 and $22.9 in the nine months ended September 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 September 30, 2018. The quarterly dividend was $0.10 per share for the three months ended September 30, 2017.

**Contractual Obligations** In the first nine 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 September 30, 2018, the Company had purchase commitments due within one year totaling $0.9 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

### (unaudited)

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

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. A portion of the proceeds of the Term A-1 Facility are restricted to fund the purchase of the remaining shares of Diebold Nixdorf AG not owned by the Company. The Company classified the proceeds set aside to purchase the remaining shares in restricted cash in the condensed consolidated balance sheets.

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 September 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.

### 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 nine months ended September 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

### (unaudited)

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

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 Company's ability to comply with the covenants contained in the agreements governing its debt;
- 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 impact of the Company's strategic initiatives, including DN Now;
- the Company's success in divesting, reorganizing or exiting non-core businesses;
- 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 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
- 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, 2,713 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 three and nine months ended September 30, 2018, respectively. As of June 30, 2018, the Company concluded that the Argentina financial results was 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 $(0.5) and $4.9 for the three months ended September 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 €101.1 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. On July 23, 2018, the Company de-designated €180.2 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.

## Controls and procedures

As filed, 2,006 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 September 30, 2018.

### Change in Internal Controls

During the quarter ended September 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.

## 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 Nov 8, 2018.
Source: SEC EDGAR, the filing index for accession 0000028823-18-000164. Last ingested by Listed: Oct 28, 2026, 07:18 ET. No prices; not investment advice.