DBD 10-Q Quarterly Report June 30, 2017 | Alphaminr
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DBD 10-Q Quarter ended June 30, 2017

Balance Sheet
Cash Flow
Income Statement
Debt
DIEBOLD NIXDORF, INC
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10-Q 1 dbd630201710q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
Form 10-Q
__________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission file number 1-4879
_________________________________________________
Diebold Nixdorf, Incorporated
(Exact name of registrant as specified in its charter)
_________________________________________________
Ohio
34-0183970
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification Number)
5995 Mayfair Road, PO Box 3077, North Canton, Ohio
44720-8077
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (330) 490-4000
__________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
(Do not check if a smaller reporting company)
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No x
Number of shares of common stock outstanding as of July 21, 2017 was 75,510,876 .



DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Form 10-Q

Index


Part I – Financial Information
Item 1: Financial Statements
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in millions, except share and per share amounts)
June 30,
2017

December 31,
2016
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents

$
451.3


$
652.7

Short-term investments

76.9


64.1

Trade receivables, less allowances for doubtful accounts of $61.1 and $50.4, respectively
930.7

835.9

Inventories
779.3

737.7

Prepaid expenses
64.1

60.7

Income taxes
131.3

85.2

Other current assets
208.0

183.3

Total current assets
2,641.6

2,619.6

Securities and other investments
93.7

94.7

Property, plant and equipment, net of accumulated depreciation and amortization of $428.2 and $477.0, respectively
391.9

387.0

Goodwill
1,082.4

998.3

Deferred income taxes
359.9

309.5

Finance lease receivables
18.4

25.2

Customer relationships, net
617.6

596.3

Other intangible assets, net
160.5

176.6

Other assets
89.5

63.1

Total assets
$
5,455.5

$
5,270.3

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current liabilities
Notes payable
$
112.5

$
106.9

Accounts payable
602.4

560.5

Deferred revenue
426.1

404.2

Payroll and other benefits liabilities
176.4

172.5

Other current liabilities
565.0

580.4

Total current liabilities
1,882.4

1,824.5

Long-term debt
1,787.5

1,691.4

Pensions, post-retirement and other benefits
296.9

297.2

Deferred income taxes
281.0

300.6

Other liabilities
134.0

87.7

Commitments and contingencies




Redeemable noncontrolling interests
449.0

44.1

Equity
Diebold Nixdorf, Incorporated shareholders' equity
Preferred shares, no par value, 1,000,000 authorized shares, none issued
—

—

Common shares, $1.25 par value, 125,000,000 authorized shares, 90,448,283 and 89,924,378 issued shares, 75,504,941 and 75,144,784 outstanding shares, respectively
113.1

112.4

Additional capital
695.3

720.0

Retained earnings
558.0

662.7

Treasury shares, at cost (14,943,342 and 14,779,597 shares, respectively)
(566.9
)
(562.4
)
Accumulated other comprehensive loss
(212.3
)
(341.3
)
Total Diebold Nixdorf, Incorporated shareholders' equity
587.2

591.4

Noncontrolling interests
37.5

433.4

Total equity
624.7

1,024.8

Total liabilities, redeemable noncontrolling interests and equity
$
5,455.5

$
5,270.3

See accompanying notes to condensed consolidated financial statements.

3

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
(in millions, except per share amounts)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Net sales
Services and software
$
687.9

$
360.2

$
1,371.5

$
699.5

Systems
446.0

219.8

865.2

390.1

1,133.9

580.0

2,236.7


1,089.6

Cost of sales
Services and software
536.4

236.8

1,041.9

467.7

Systems
359.7

188.1

714.5

328.0

896.1

424.9

1,756.4

795.7

Gross profit
237.8

155.1

480.3

293.9

Selling and administrative expense
236.8


127.3

483.8

252.9

Research, development and engineering expense
38.8


17.6

80.2

36.1

Impairment of assets
—


—

3.1

—

(Gain) loss on sale of assets, net
(7.7
)
(0.1
)
(8.1
)
0.3

267.9

144.8

559.0

289.3

Operating profit (loss)
(30.1
)
10.3

(78.7
)

4.6

Other income (expense)
Interest income
5.1

6.3

11.5

11.2

Interest expense
(32.2
)
(24.3
)
(63.0
)
(35.8
)
Foreign exchange gain (loss), net
(4.6
)
(1.2
)
(7.7
)
(3.6
)
Miscellaneous, net
1.9

(26.8
)
3.2

7.8

Income (loss) from continuing operations before taxes
(59.9
)
(35.7
)
(134.7
)
(15.8
)
Income tax (benefit) expense
(36.3
)
(14.9
)
(58.9
)
(15.7
)
Income (loss) from continuing operations, net of tax
(23.6
)
(20.8
)
(75.8
)
(0.1
)
Income from discontinued operations, net of tax
—

0.5

—

148.3

Net income (loss)
(23.6
)
(20.3
)
(75.8
)
148.2

Net income attributable to noncontrolling interests
7.0

0.8

13.6

1.1

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(30.6
)
$
(21.1
)
$
(89.4
)
$
147.1

Basic weighted-average shares outstanding
75.5

65.2

75.4

65.1

Diluted weighted-average shares outstanding
75.5

65.2

75.4

65.7

Basic earnings (loss) per share
Income (loss) from continuing operations, net of tax
$
(0.41
)
$
(0.33
)
$
(1.19
)
$
(0.02
)
Income from discontinued operations, net of tax
—

0.01

—

2.28

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(0.41
)
$
(0.32
)
$
(1.19
)
$
2.26

Diluted earnings (loss) per share
Income (loss) from continuing operations, net of tax
$
(0.41
)
$
(0.33
)
$
(1.19
)
$
(0.02
)
Income from discontinued operations, net of tax
—

0.01

—

2.26

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(0.41
)
$
(0.32
)
$
(1.19
)
$
2.24

Amounts attributable to Diebold Nixdorf, Incorporated
Income (loss) before discontinued operations, net of tax
$
(30.6
)
$
(21.6
)
$
(89.4
)
$
(1.2
)
Income from discontinued operations, net of tax
—

0.5

—

148.3

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(30.6
)
$
(21.1
)
$
(89.4
)
$
147.1

Common dividends declared and paid per share
$
0.1000

$
0.2875

$
0.2000

$
0.5750

See accompanying notes to condensed consolidated financial statements.

4

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(in millions)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Net income (loss)
$
(23.6
)
$
(20.3
)
$
(75.8
)
$
148.2

Other comprehensive income (loss), net of tax
Translation adjustment
79.9

21.0

129.2

53.8

Foreign currency hedges (net of tax of $(2.5), $2.1, $(1.3) and $4.0, respectively)
5.6

(3.9
)
3.4

(7.5
)
Interest rate hedges








Net gain recognized in other comprehensive income (net of tax of $0.4 and $(0.4), respectively)
(0.5
)
—

1.5

—

Reclassification adjustment for amounts recognized in net income
(0.1
)
—

(0.4
)
(0.1
)
(0.6
)
—

1.1

(0.1
)
Pension and other post-retirement benefits
Net actuarial loss amortization (net of tax of $(0.5), $(0.5), $1.0 and $(1.0), respectively)
0.9

1.0

(3.0
)
1.9

Other comprehensive income (loss), net of tax
85.8

18.1

130.7

48.1

Comprehensive income (loss)
62.2

(2.2
)
54.9

196.3

Less: comprehensive income (loss) attributable to noncontrolling interests
8.7

0.2

15.3

0.6

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
$
53.5

$
(2.4
)
$
39.6

$
195.7

See accompanying notes to condensed consolidated financial statements.

5

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
Six Months Ended
June 30,
2017
2016
Cash flow from operating activities
Net income (loss)
$
(75.8
)
$
148.2

Income from discontinued operations, net of tax
—

148.3

Income (loss) from continuing operations, net of tax
(75.8
)
(0.1
)
Adjustments to reconcile net income (loss) to cash flow used by operating activities:
Depreciation and amortization
116.6

30.9

Share-based compensation
15.0

10.1

(Gain) loss on sale of assets, net
(8.1
)
0.3

Impairment of assets
3.1

—

Deferred financing costs write-off
2.7

—

Gain on foreign currency option and forward contracts, net
—

(12.9
)
Changes in certain assets and liabilities, net of the effects of acquisition
Trade receivables
(85.6
)
(94.4
)
Inventories
(32.0
)
(46.4
)
Income taxes
(46.1
)
(16.7
)
Accounts payable
36.4

(26.6
)
Deferred revenue
15.9

(13.0
)
Deferred income taxes
(63.4
)
6.0

Restructuring payments
(37.7
)
(4.8
)
Certain other assets and liabilities
(26.8
)
(32.2
)
Net cash used by operating activities - continuing operations
(185.8
)
(199.8
)
Net cash used by operating activities - discontinued operations
—

(6.2
)
Net cash used by operating activities
(185.8
)
(206.0
)
Cash flow from investing activities
Payment for acquisition
(2.4
)
—

Proceeds from maturities of investments
145.0

107.1

Proceeds from sale of foreign currency option contracts, net
—

42.6

Payments for purchases of investments
(173.7
)
(85.9
)
Proceeds from sale of assets
11.4

0.4

Capital expenditures
(26.4
)
(11.3
)
Restricted cash, net
—

(1,768.1
)
Increase in certain other assets
(17.6
)
(9.3
)
Net cash used by investing activities - continuing operations
(63.7
)
(1,724.5
)
Net cash provided by investing activities - discontinued operations
—

365.1

Net cash used by investing activities
(63.7
)
(1,359.4
)
Cash flow from financing activities
Dividends paid
(15.3
)
(38.0
)
Debt issuance costs
(1.1
)
(11.2
)
Restricted cash, net
—

(54.9
)
Revolving credit facility borrowings (repayments), net
119.1

142.0

Other debt borrowings
370.3

1,807.0

Other debt repayments
(416.5
)
(256.2
)
Distributions and payments to noncontrolling interest holders
(16.3
)
(2.0
)
Issuance of common shares
0.3

—

Repurchase of common shares
(4.5
)
(2.0
)
Net cash provided by financing activities
36.0

1,584.7

Effect of exchange rate changes on cash and cash equivalents
12.1

4.1

(Decrease) increase in cash and cash equivalents
(201.4
)
23.4

Add: Cash overdraft included in assets held for sale at beginning of period
—

(1.5
)
Cash and cash equivalents at the beginning of the period
652.7

313.6

Cash and cash equivalents at the end of the period
$
451.3

$
335.5

See accompanying notes to condensed consolidated financial statements.

6
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements
(unaudited)
(in millions, except per share amounts)

Note 1: Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements of Diebold Nixdorf, Incorporated and its subsidiaries (collectively, the Company) have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (U.S. GAAP) ; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods.

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s annual report on Form 10-K for the year ended December 31, 2016 . In addition, some of the Company’s statements in this quarterly report on Form 10-Q may involve risks and uncertainties that could significantly impact expected future results. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of results to be expected for the full year.

In August 2016, the Company acquired Diebold Nixdorf AG, formerly known as Wincor Nixdorf Aktiengesellschaft (the Acquisition). In connection with the business combination agreement related to the Acquisition, the Company announced the realignment of its lines of business to drive greater efficiency and further improve customer service. During the first quarter of 2017, the Company reorganized the management team reporting to the Chief Operating Decision Maker (CODM) and evaluated and assessed the line of business (LOB) reporting structure. The Company's reportable operating segments are based on the following three LOBs: Services, Software and Systems. As a result, the Company reclassified comparative periods for consistency.

The Company has reclassified the presentation of certain prior-year information to conform to the current presentation. The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, at the beginning of 2017 and accordingly retrospectively reclassified $0.2 of excess tax benefits from share-based compensation from financing activities to operating activities included in the condensed consolidated statements of cash flows for the six months ended June 30, 2016.

Recently Issued Accounting Guidance

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08). The FASB issued the amendment to clarify the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). The FASB issued the amendment to clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (ASU 2016-11). The FASB issued the amendment to rescind the following aspects of Topic 606. Specifically, registrants should not rely on the following SEC Staff Observer comments upon adoption of Topic 606: Revenue and Expense Recognition for Freight Services in Process, which is codified in paragraph 605-20-S99-2; Accounting for Shipping and Handling Fees and Costs, which is codified in paragraph 605-45-S99-1; Accounting for Consideration Given by a Vendor to a Customer (including Reseller of the Vendor’s Products), which is codified in paragraph 605-50-S99-1; Accounting for Gas-Balancing Arrangements (that is, use of the “entitlements method”), which is codified in paragraph 932-10-S99-5. Additionally, in May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing: Narrow-Scope Improvements and Practical Expedients (ASU 2016-12). The FASB issued the amendment to improve Topic 606 by reducing the potential for diversity in practice at initial application and reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis.

The standard, along with its amendments, are effective for the Company on January 1, 2018. Early application was permitted on the original adoption date of January 1, 2017. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method and we have not yet selected which transition method we will apply.


7
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


In 2015, we established a cross-functional steering committee and project implementation team to assess the impact of the standard on the Company's legacy revenue from contracts with customers. We utilized a bottoms-up approach to assess and document the impact of the standard on the Company's contract portfolio by reviewing its current accounting policies and practices against application of the requirements of the new standard to identify potential differences. A broad-scope contract analysis was carried out to substantiate the results of the assessment and a business process, systems and controls review was performed to identify necessary changes to support recognition and disclosure under the new standard.

The implementation team reported the findings and progress of the project to management and the Audit Committee of the Company's board of directors on a frequent basis over the last year. In late 2016, the impact assessment was expanded to include Diebold Nixdorf AG revenue from contracts with customers. The Company's initial assessment indicates potential for earlier timing of revenue recognition related to product shipments. The Company will continue its evaluation and assessment on the impact on the financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). This amendment requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The amendment simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The amendment requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Additionally, the update requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments and requires an entity to separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. The standard is effective for the Company on December 15, 2017, with early adoption permitted. The adoption of ASU 2016-01 is not expected to have a material impact on the financial statements of the Company.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). The FASB issued the update to require the recognition of lease assets and liabilities on the balance sheet of lessees. ASU 2016-02 will be effective for the Company on January 1, 2019, including interim periods. ASU 2016-02 requires a modified retrospective transition method with the option to elect a package of practical expedients. Early adoption is permitted. The Company is evaluating the effect that ASU 2016-02 will have on its financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). The FASB issued the update to simplify the measurement of goodwill by eliminating step 2 from the goodwill impairment test. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 will be effective for public companies for fiscal years beginning after December 15, 2019, including interim periods. Early adoption is permitted. The Company is evaluating the effect that ASU 2017-04 will have on its financial statements and related disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). The FASB issued the update to provide clarity and reduce the cost and complexity when applying the guidance in Topic 718. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 will be effective for public companies for fiscal years beginning after December 15, 2017, including interim periods. Early adoption is permitted. The Company is evaluating the effect that ASU 2017-09 will have on its financial statements and related disclosures.

In May 2017, the FASB issued ASU 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (ASU 2017-10). The FASB issued the update to eliminate uncertainty regarding how an operating entity determines the customer of the operation services for transactions within the scope of Topic 853. The amendments in this update clarify that the grantor is the customer of the operation services in all cases for service concession arrangements within the scope of Topic 853. ASU 2017-10 will be effective for public companies for fiscal years beginning after December 15, 2017, including

8
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


interim periods. Early adoption is permitted. The Company is evaluating the effect that ASU 2017-10 will have on its financial statements and related disclosures.


Note 2: Acquisitions

During the second quarter of 2017, the Company acquired certain assets and liabilities of a design company, Visio Objekt GmbH (Visio), for $2.4 . Visio is located in Germany and included in the Services LOB using the purchase method of accounting.

On August 15, 2016, the Company acquired, through Diebold Holding Germany Inc. & Co. KGaA (Diebold KGaA) , a German partnership limited by shares and a wholly owned subsidiary of the Company, 22.9 Diebold Nixdorf AG ordinary shares representing 69.2 percent of total number of Diebold Nixdorf AG ordinary shares inclusive of treasury shares ( 76.7 percent of all Diebold Nixdorf AG ordinary shares outstanding) in exchange for an aggregate preliminary purchase price consideration of $1,265.7 , which included the issuance of 9.9 common shares of the Company. The Company financed the cash portion of the Acquisition as well as the repayment of Diebold Nixdorf AG debt outstanding with funds available under the Company’s Credit Agreement (as defined in note 13 ) and proceeds from the issuance and sale of the $400.0 aggregate principal amount of 8.50 percent senior notes due 2024 (2024 Senior Notes).

The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of assets acquired and liabilities assumed which were determined with the assistance of independent valuations using discounted cash flow and comparative market multiple approaches, quoted market prices and estimates made by management. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets and liabilities acquired are fully evaluated by the Company, including but not limited to, the fair value accounting, legal and tax matters, obligations, deferred taxes and the allocation of goodwill.
The aggregate preliminary consideration, excluding $110.7 of cash acquired, for the Acquisition was $1,265.7 , which consisted of the following:
Cash paid
$
995.3

Less: cash acquired
(110.7
)
Payments for acquisition, net of cash acquired
884.6

Common shares issued to Diebold Nixdorf AG shareholders
279.7

Other consideration
(9.3
)
Total preliminary consideration, net of cash acquired
$
1,155.0


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


9
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following table presents the preliminary estimated fair value of the assets acquired and liabilities assumed from the Acquisition as of the date of acquisition based on the allocation of the total preliminary consideration, net of cash acquired:
Preliminary amounts recognized as of:
December 31, 2016
Measurement Period
June 30, 2017
Trade receivables
$
474.1

$
—

$
474.1

Inventories
487.2

(8.7
)
478.5

Prepaid expenses
39.3

—

39.3

Current assets held for sale
106.6

—

106.6

Other current assets
79.9

—

79.9

Property, plant and equipment
247.1

—

247.1

Intangible assets
802.1

6.7

808.8

Deferred income taxes
109.7

2.1

111.8

Other assets
27.0

—

27.0

Total assets acquired
2,373.0

0.1

2,373.1




Notes payable
159.8

—

159.8

Accounts payable
321.5

—

321.5

Deferred revenue
158.0

(6.2
)
151.8

Payroll and other benefits liabilities
191.6

—

191.6

Current liabilities held for sale
56.6

—

56.6

Other current liabilities
196.3

5.9

202.2

Pensions and other benefits
103.2

—

103.2

Other noncurrent liabilities
458.9

6.6

465.5

Total liabilities assumed
1,645.9

6.3

1,652.2

Redeemable noncontrolling interest
(46.8
)
—

(46.8
)
Fair value of noncontrolling interest
(407.9
)
—

(407.9
)
Total identifiable net assets acquired, including noncontrolling interest
272.4

(6.2
)
266.2

Total preliminary consideration, net of cash acquired
1,155.0

—

1,155.0

Goodwill
$
882.6

$
6.2

$
888.8


During the second quarter of 2017, the Company updated the preliminary measurement of inventory by $8.7 due to a change in the valuation of certain items. The preliminary measurement period adjusts related to customer relationships included in intangible assets, deferred income taxes, and deferred revenue of $6.7 , $2.1 and $6.2 , respectively, related to a change in the underlying valuation assumptions. Other current and noncurrent liabilities measurement period adjustments of $5.9 and $6.6 , respectively, related to certain onerous contracts, a certain settlement accrual and deferred income taxes. The impact of these updates resulted in an increase in net sales of $0.4 related to the adjustment in deferred revenue, a decrease in cost of sales of $0.9 related to adjustments of inventory, an increase in selling and administrative expense of $0.6 related to amortization of the adjusted customer relationships. The aggregate impact of the adjustments previously mentioned resulted in a minimal decrease in the income tax benefit.

10
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)



Included in the preliminary purchase price allocation are acquired identifiable intangibles of $808.8 , the fair value of which was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance.

The Company preliminarily recorded acquired intangible assets in the following table as of the acquisition date:
Classification on condensed consolidated statements of operations
Weighted-average useful lives
August 15, 2016
Trade name
Selling and administrative expense
3.0 years
$
30.1

Technologies
Cost of sales
4.0 years
107.2

Customer relationships
Selling and administrative expense
9.5 years
665.2

Other
various
various
6.3

Intangible assets
$
808.8


Noncontrolling interest reflects a fair value adjustment of $407.9 consisting of $386.7 related to the Diebold Nixdorf AG ordinary shares the Company did not acquire and $21.2 for the pre-existing noncontrolling interests. Noncontrolling interests with certain redemption features, such as put rights that are not within the control of the issuer and are considered redeemable noncontrolling interests.

Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed from the Acquisition, and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The Company has preliminarily allocated goodwill to its Services, Software and Systems reportable operating segments (refer to note 12 ).


Net sales, loss from continuing operations before taxes and loss attributable to Diebold Nixdorf, Incorporated from the Acquisition included in the Company’s results for the quarter ended June 30, 2017, are as follows:
Three Months Ended
June 30, 2017
Six Months Ended
June 30, 2017
Net sales
$
635.8

$
1,259.4

Loss from continuing operations before taxes
$
(6.5
)
$
(38.4
)
Loss attributable to Diebold Nixdorf, Incorporated
$
(14.7
)
$
(39.1
)

The Acquisition's loss from continuing operations before taxes subsequent to the acquisition date includes purchase accounting pretax charges for the three and six months ended June 30, 2017 related to deferred revenue of $10.3 and $20.7 and amortization of acquired intangibles of $33.4 and $65.2 , offset by a reduction of $1.6 and $3.2 depreciation expense related to the change in useful lives, respectively. The measurement period adjustment include an inventory valuation adjustment of $0.9 for the three and six months ended June 30. 2017.

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

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


11
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The pro forma information in the table below for the three and six months ended June 30, 2016 includes unaudited pro forma information that represents the consolidated results of the Company as if the Acquisition occurred as of January 1, 2015:
Unaudited pro forma information
Three Months Ended
Six Months Ended
June 30, 2016
June 30, 2016
Net sales
$
1,290.8

$
2,457.9

Gross profit
$
322.5

$
619.1

Operating profit
$
42.8

$
80.0

Net income (loss) attributable to Diebold Nixdorf, Incorporated (1)
$
(14.1
)
$
166.9

Net income (loss) attributable to Diebold Nixdorf, Incorporated per share - basic (1)
$
(0.19
)
$
2.22

Net income (loss) attributable to Diebold Nixdorf, Incorporated per share - diluted (1)
$
(0.19
)
$
2.21

Basic weighted-average shares outstanding
75.1

75.1

Diluted weighted-average shares outstanding
75.1

75.6

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


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

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

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

Note 3: Redeemable Noncontrolling Interests

Changes in redeemable noncontrolling interests were as follows:
Redeemable Noncontrolling Interests
Balance at December 31, 2016
$
44.1

Other comprehensive loss
(18.6
)
Redemption value adjustment
39.4

Redemption of shares
(2.6
)
Reclassification of noncontrolling interest
386.7

Balance at June 30, 2017
$
449.0


Subsequent to the closing of the Acquisition, the board of directors of the Company and the supervisory and management boards of Diebold Nixdorf AG, as well as the shareholders of Diebold KGaA and Diebold Nixdorf AG, on September 26, 2016 each approved the proposed the Domination and Profit and Loss Transfer Agreement (DPLTA) . The DPLTA became effective by entry in the commercial register at the local court of Paderborn (Germany) on February 14, 2017. As a result, the carrying value of the noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire of $386.7 , which was presented as a component of total equity as of December 31, 2016, was reclassified to redeemable noncontrolling interest during the first quarter of 2017. For the period of time that the DPLTA is effective, the noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire will remain in redeemable noncontrolling interest and presented outside of equity in the condensed consolidated balance sheets of the Company.


12
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Pursuant to the DPLTA, subject to certain limitations pursuant to applicable law, (i) Diebold KGaA has the ability to issue binding instructions to the management board of Diebold Nixdorf AG, (ii) Diebold Nixdorf AG will transfer all of its annual profits to Diebold KGaA, and (iii) Diebold KGaA will generally absorb all annual losses incurred by Diebold Nixdorf AG. In addition, the DPLTA offers the Diebold Nixdorf AG minority shareholders, at their election, (i) the ability to put their Diebold Nixdorf AG ordinary shares to Diebold KGaA in exchange for cash compensation of €55.02 per Diebold Nixdorf AG ordinary share or (ii) to remain Diebold Nixdorf AG minority shareholders and receive a recurring compensation in cash of €3.13 ( €2.82 net under the current taxation regime) per Diebold Nixdorf AG ordinary share for each full fiscal year of Diebold Nixdorf AG. The redemption value adjustment includes the updated cash compensation pursuant to the DPLTA. During 2017, the Company paid $2.6 in cash compensation to redeem Diebold Nixdorf AG ordinary shares in connection with the DPLTA. The ultimate timing and amount of any future cash payments related to the DPLTA are uncertain.

In connection with the Acquisition, the Company assumed pre-existing noncontrolling interests with certain redemption features, such as put rights that are not within the control of the issuer, which are considered redeemable noncontrolling interests. The redeemable noncontrolling interests were preliminarily recorded at fair value as of the Acquisition date by applying the income approach using unobservable inputs for projected cash flows and a discount rate, which are considered Level 3 inputs, and subject to change as the measurement period related to the Acquisition has not expired and purchase accounting remains preliminary. The Company adjusts the redeemable noncontrolling interest to redemption value (which approximates fair value) at each balance sheet date with changes recognized as an adjustment to additional paid-in capital. In the event the historical cost of the redeemable noncontrolling interest, which represents initial cost, adjusted for contributions, distributions and the allocation of profits or losses, is in excess of estimated fair value, the Company records the redeemable noncontrolling interest at historical cost. The ultimate amount and timing of any future cash payments related to the put rights are uncertain.

Note 4: Earnings (Loss) Per Share

Basic earnings (loss) per share is based on the weighted-average number of common shares outstanding. Diluted earnings (loss) per share includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing earnings (loss) per share, non-vested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating securities. The Company’s participating securities include restricted stock units (RSUs) , deferred shares, and shares that were vested, but deferred by the employee. The Company calculated basic and diluted earnings (loss) per share under both the treasury stock method and the two-class method. For the six months ended June 30, 2017 and 2016 , there was no impact in the per share amounts calculated under the two methods. Accordingly, the treasury stock method is disclosed.


13
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following represents amounts used in computing earnings (loss) per share and the effect on the weighted-average number of shares of dilutive potential common shares:
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Numerator
Income (loss) used in basic and diluted earnings (loss) per share
Income (loss) from continuing operations, net of tax
$
(23.6
)
$
(20.8
)
$
(75.8
)
$
(0.1
)
Net income attributable to noncontrolling interests
7.0

0.8

13.6

1.1

Income (loss) before discontinued operations, net of tax
(30.6
)
(21.6
)
(89.4
)
(1.2
)
Income from discontinued operations, net of tax
—

0.5

—

148.3

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(30.6
)
$
(21.1
)
$
(89.4
)
$
147.1

Denominator
Weighted-average number of common shares used in basic earnings (loss) per share
75.5

65.2

75.4

65.1

Effect of dilutive shares (1)
—

—

—

0.6

Weighted-average number of shares used in diluted earnings (loss) per share
75.5

65.2

75.4

65.7

Basic earnings (loss) per share
Income (loss) from continuing operations, net of tax
$
(0.41
)
$
(0.33
)
$
(1.19
)
$
(0.02
)
Income from discontinued operations, net of tax
—

0.01

—

2.28

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(0.41
)
$
(0.32
)
$
(1.19
)
$
2.26

Diluted earnings (loss) per share
Income (loss) from continuing operations, net of tax
$
(0.41
)
$
(0.33
)
$
(1.19
)
$
(0.02
)
Income from discontinued operations, net of tax
—

0.01

—

2.26

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(0.41
)
$
(0.32
)
$
(1.19
)
$
2.24

Anti-dilutive shares
Anti-dilutive shares not used in calculating diluted weighted-average shares
2.9

2.3

2.6

2.2

(1)
Incremental shares of 1.0 and 0.5 shares for the three months ended June 30, 2017 and 2016 , respectively, and 0.9 shares for the six months ended June 30, 2017 , were excluded from the computation of diluted earnings (loss) per share because their effect is anti-dilutive due to the net loss attributable to Diebold Nixdorf, Incorporated.


14
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 5: Equity

The following table presents changes in shareholders' equity attributable to Diebold Nixdorf, Incorporated and the noncontrolling
interests:
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Diebold Nixdorf, Incorporated shareholders' equity
Balance at beginning of period
$
533.1

$
595.6

$
591.4

$
412.4

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
53.5

(2.4
)
39.6

195.7

Common shares
0.1

0.1

0.7

0.4

Additional capital (1)
8.1

4.5

(24.7
)
9.8

Treasury shares
0.1

(0.3
)
(4.5
)
(2.0
)
Dividends paid
(7.7
)
(19.2
)
(15.3
)
(38.0
)
Balance at end of period
$
587.2

$
578.3

$
587.2

$
578.3

Noncontrolling interests
Balance at beginning of period
$
34.8

$
23.5

$
433.4

$
23.1

Comprehensive income attributable to noncontrolling interests, net
8.7

0.2

15.3

0.6

Reclassification to redeemable noncontrolling interest
—

—

(386.7
)
—

Reclassification of guaranteed dividend to accrued liabilities
(6.0
)
—

(11.7
)
—

Distributions to noncontrolling interest holders
—

—

(12.8
)
—

Balance at end of period
$
37.5

$
23.7

$
37.5

$
23.7

(1)
The decrease for the six months ended June 30, 2017 is primarily attributable to the redemption value adjustment to the redeemable noncontrolling interest.

Note 6: Accumulated Other Comprehensive Income (Loss) (AOCI)

The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the three months ended June 30, 2017 :
Translation
Foreign Currency Hedges
Interest Rate Hedges
Pension and Other Post-retirement Benefits
Other
Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2017
$
(201.9
)
$
(7.9
)
$
6.3

$
(93.2
)
$
0.3

$
(296.4
)
Other comprehensive income (loss) before reclassifications (1)
78.2

5.6

(0.5
)
—

—

83.3

Amounts reclassified from AOCI
—

—

(0.1
)
0.9

—

0.8

Net current-period other comprehensive income (loss)
78.2

5.6

(0.6
)
0.9

—

84.1

Balance at June 30, 2017
$
(123.7
)
$
(2.3
)
$
5.7

$
(92.3
)
$
0.3

$
(212.3
)
(1) Other comprehensive income (loss) before reclassifications within the translation component excludes $1.7 of translation attributable to noncontrolling interests.

15
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the three months ended June 30, 2016 :
Translation
Foreign Currency Hedges
Interest Rate Hedges
Pension and Other Post-retirement Benefits
Other
Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2016
$
(183.0
)
$
1.4

$
(0.2
)
$
(106.9
)
$
0.4

$
(288.3
)
Other comprehensive income (loss) before reclassifications (1)
21.8

(3.9
)
—

—

—

17.9

Amounts reclassified from AOCI
—

—

—

1.0

—

1.0

Net current-period other comprehensive income (loss)
21.8

(3.9
)
—

1.0

—

18.9

Balance at June 30, 2016
$
(161.2
)
$
(2.5
)
$
(0.2
)
$
(105.9
)
$
0.4

$
(269.4
)
(1) Other comprehensive income (loss) before reclassifications within the translation component excludes $(0.8) of translation attributable to noncontrolling interests.

The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the six months ended June 30, 2017 :

Translation
Foreign Currency Hedges
Interest Rate Hedges
Pension and Other Post-retirement Benefits
Other
Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2017
$
(251.2
)
$
(5.7
)
$
4.6

$
(89.3
)
$
0.3

$
(341.3
)
Other comprehensive income (loss) before reclassifications (1)
127.5

3.4

1.5

—

—

132.4

Amounts reclassified from AOCI
—

—

(0.4
)
(3.0
)
—

(3.4
)
Net current-period other comprehensive income (loss)
127.5

3.4

1.1

(3.0
)
—

129.0

Balance at June 30, 2017
$
(123.7
)
$
(2.3
)
$
5.7

$
(92.3
)
$
0.3

$
(212.3
)
(1) Other comprehensive income (loss) before reclassifications within the translation component excludes $1.7 of translation attributable to noncontrolling interests.

The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the six months ended June 30, 2016 :
Translation
Foreign Currency Hedges
Interest Rate Hedges
Pension and Other Post-retirement Benefits
Other
Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2016
$
(215.6
)
$
5.0

$
(0.1
)
$
(107.8
)
$
0.4

$
(318.1
)
Other comprehensive income (loss) before reclassifications (1)
54.4

(7.5
)
—

—

—

46.9

Amounts reclassified from AOCI
—

—

(0.1
)
1.9

—

1.8

Net current-period other comprehensive income (loss)
54.4

(7.5
)
(0.1
)
1.9

—

48.7

Balance at June 30, 2016
$
(161.2
)
$
(2.5
)
$
(0.2
)
$
(105.9
)
$
0.4

$
(269.4
)
(1)
Other comprehensive income (loss) before reclassifications within the translation component excludes $(0.6) of translation attributable to noncontrolling interests.


16
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following table summarizes the details about amounts reclassified from AOCI:
Three Months Ended
Six Months Ended
Affected Line Item in the Statement of Operations
2017
2016
2017
2016
Interest rate hedges
$
(0.1
)
$
—

$
(0.4
)
$
(0.1
)
Interest expense
Pension and post-retirement benefits:
Net actuarial loss amortization (net of tax of $(0.5), $(0.5), $1.0 and $(1.0), respectively)
0.9

1.0

(3.0
)
1.9

(1)
Total reclassifications for the period
$
0.8

$
1.0

$
(3.4
)
$
1.8

(1)
Pension and other post-retirement benefits AOCI components are included in the computation of net periodic benefit cost (refer to note 14 ).
Note 7: Share-Based Compensation

The Company’s share-based compensation payments to employees are recognized based on their grant-date fair values during the period in which the employee is required to provide services in exchange for the award. Share-based compensation is primarily recognized as a component of selling and administrative expense. Total share-based compensation expense was $8.2 and $4.5 for the three months ended June 30, 2017 and 2016 , respectively, and was $15.0 and $10.1 for the six months ended June 30, 2017 and 2016 , respectively.

Options outstanding and exercisable as of June 30, 2017 under the Company’s 1991 Equity and Performance Incentive Plan (as Amended and Restated as of February 12, 2014) (the 1991 Plan) and changes during the six months ended June 30, 2017 were as follows:
Number of
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value (1)

(per share)
(in years)
Outstanding at January 1, 2017
1.7

$
31.98

Expired or forfeited
(0.2
)
$
39.41

Granted
0.8

$
26.60

Outstanding at June 30, 2017
2.3

$
29.70

8
$
1.4

Options exercisable at June 30, 2017
1.1

$
32.13

6
$
0.1

Options vested and expected to vest at June 30, 2017 (2)
2.2

$
29.80

8
$
1.3

(1)
The aggregate intrinsic value (the difference between the closing price of the Company’s common shares on the last trading day of the second quarter of 2017 and the exercise price, multiplied by the number of “in-the-money” options) that would have been received by the option holders had all option holders exercised their options on June 30, 2017 . The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common shares.
(2)
The options expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding non-vested options.


17
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following table summarizes information on non-vested RSUs and performance shares relating to employees and non-employee directors for the six months ended June 30, 2017 :
Number of
Shares
Weighted-Average
Grant-Date Fair
Value

(per share)
RSUs:
Non-vested at January 1, 2017
1.2

$
29.50

Forfeited
(0.1
)
$
30.41

Vested
(0.4
)
$
30.44

Granted
0.7

$
26.92

Non-vested at June 30, 2017
1.4

$
27.96

Performance Shares:
Non-vested at January 1, 2017
1.2

$
31.77

Forfeited
(0.2
)
$
39.36

Vested
(0.2
)
$
23.64

Granted
1.8

$
31.31

Non-vested at June 30, 2017
2.6

$
31.34


Performance shares are granted to employees and vest based on the achievement of certain performance objectives, as determined by the board of directors each year. Each performance share earned entitles the holder to one common share of the Company. The Company's performance shares include performance objectives that are assessed after a three-year period as well as performance objectives that are assessed annually over a three-year period. No shares are vested unless certain performance threshold objectives are met.

As of June 30, 2017 , there were 0.1 non-employee director deferred shares vested and outstanding.

On April 26, 2017, the Company's shareholders approved the Company's 2017 Equity and Performance Incentive Plan (the 2017 Plan), which provides for approximately 4.9 of common shares available for grant. The 2017 Plan is expected to attract and retain directors, officers and employees of the Company by providing incentives and rewards for performance.

Note 8: Income Taxes

The effective tax rate on loss from continuing operations was 60.6 percent and 41.7 percent for the three months ended June 30, 2017 and June 30, 2016 , respectively. The effective tax rate was 43.7 percent and 99.4 percent for the six months ended June 30, 2017 and June 30, 2016 , respectively.

The tax rate on the loss for the three and six months ended June 30, 2017 increased due to the jurisdictional income (loss) mix and varying statutory rates in the Company’s global footprint. These increases to the overall tax rate for these periods was offset in part by additional discrete expense items recognized in the quarter related to uncertain tax positions.

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

Note 9: Investments

The Company’s investments, primarily in Brazil, consist of certificates of deposit that are classified as available-for-sale and stated at fair value based upon quoted market prices. Unrealized gains and losses are recorded in AOCI. Realized gains and losses are recognized in investment income and are determined using the specific identification method. There were no realized gains from the sale of securities and proceeds from the sale of available-for-sale securities for the three and six months ended June 30, 2017 and 2016 .

The Company has certain strategic alliances that are not consolidated. The Company tests these strategic alliances annually, individually and in aggregate, to determine materiality. The Company owns 40.0 percent of Inspur (Suzhou) Financial Technology Service Co. Ltd. (Inspur JV) and 43.6 percent of Aisino-Wincor Retail & Banking Systems (Shanghai) Co., Ltd . (Aisino JV) . The Company engages in transactions in the ordinary course of business. The Company's strategic alliances were determined to be immaterial to the Company and were accounted for under the equity method of investments. In May 2017, the Company announced a strategic partnership with Kony Inc. (Kony), which is located in Texas, a leading enterprise mobility and application company, to offer white label mobile application solutions for financial institutions and retailers. The Company acquired a minority equity stake in Kony, which is accounted for using the cost method of accounting.

The Company’s investments, respectively, consist of the following:
Cost Basis
Unrealized Gain
Fair Value
As of June 30, 2017
Short-term investments
Certificates of deposit
$
76.9

$
—

$
76.9

Long-term investments
Assets held in a rabbi trust
$
7.8

$
1.1

$
8.9

As of December 31, 2016
Short-term investments
Certificates of deposit
$
64.1

$
—

$
64.1

Long-term investments
Assets held in a rabbi trust
$
7.9

$
0.6

$
8.5


Securities and other investments also includes a cash surrender value of insurance contracts of $78.5 and $77.8 as of June 30, 2017 and December 31, 2016 , respectively. In addition, securities and other investments includes an interest rate swap asset carrying value of $6.3 and $8.4 as of June 30, 2017 and December 31, 2016 , respectively, which also represents fair value (refer to note 18 ).


18
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 10: Allowance for Credit Losses

The following table summarizes the Company’s allowance for credit losses for the six months ended June 30, 2017 and 2016 :
Finance
Leases
Notes
Receivable
Total
Allowance for credit losses
Balance at January 1, 2017
$
0.3

$
4.1

$
4.4

Write-offs
(0.1
)
—

(0.1
)
Balance at June 30, 2017
$
0.2

$
4.1

$
4.3

Balance at January 1, 2016

$
0.5


$
4.1


$
4.6

Write-offs

—


—


—

Balance at June 30, 2016

$
0.5


$
4.1


$
4.6


There were no significant changes in provision for credit losses, recoveries and write-offs during the six months ended June 30, 2017 and 2016 . As of June 30, 2017 , finance leases and notes receivable individually evaluated for impairment were $43.2 and $20.8 , respectively, of which $22.9 and $13.2 , respectively, relates to the Acquisition, with no provision recorded. As of June 30, 2016 , finance leases and notes receivable individually evaluated for impairment were $63.5 and $8.7 , respectively. As of June 30, 2017 and December 31, 2016 , the Company’s finance lease receivables in Brazil were $11.0 and $26.1 , respectively. The decrease is related primarily to recurring customer payments for financing arrangements.

The Company records interest income and any fees or costs related to financing receivables using the effective interest method over the term of the lease or loan. The Company reviews the aging of its financing receivables to determine past due and delinquent accounts. Credit quality is reviewed at inception and is re-evaluated as needed based on customer-specific circumstances. Receivable balances 60 days to 89 days past due are reviewed and may be placed on nonaccrual status based on customer-specific circumstances. Receivable balances are placed on nonaccrual status upon reaching greater than 89 days past due. Upon receipt of payment on nonaccrual financing receivables, interest income is recognized and accrual of interest is resumed once the account has been made current or the specific circumstances have been resolved.

As of June 30, 2017 and December 31, 2016 , the recorded investment in past due financing receivables on nonaccrual status was $0.6 and $0.4 , respectively, and there were no recorded investments in finance receivables past due 90 days or more and still accruing interest. The recorded investment in impaired notes receivable was $4.1 and $4.0 as of June 30, 2017 and December 31, 2016 , respectively, and was fully reserved.

The following table summarizes the Company’s aging of past-due notes receivable balances:
June 30, 2017
December 31, 2016
30-59 days past due
$
0.1

$
0.1

60-89 days past due
—

—

> 89 days past due (1)
4.0

3.9

Total past due
$
4.1

$
4.0

(1)
Past due notes receivable balances greater than 89 days are fully reserved.

Note 11: Inventories

Major classes of inventories are summarized as follows:
June 30, 2017
December 31, 2016
Finished goods
$
339.4

$
330.5

Service parts
251.6

235.2

Raw materials and work in process
188.3

172.0

Total inventories
$
779.3

$
737.7



19
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 12: Goodwill and Other Assets

The Company’s three reportable operating segments are Services, Software and Systems. The Company has preliminarily allocated goodwill to its Services, Software and Systems reportable operating segments. The changes in carrying amounts of goodwill within the Company's segments are summarized as follows:
Services
Software
Systems
Total
Goodwill
$
452.2

$
—

$
—

$
452.2

Accumulated impairment losses
(290.7
)
—

—

(290.7
)
Balance at January 1, 2016
$
161.5

$
—

$
—

$
161.5

Goodwill acquired
459.1

238.7

184.8

882.6

Goodwill adjustment
(0.5
)
—

—

(0.5
)
Currency translation adjustment
(20.8
)
(13.8
)
(10.7
)
(45.3
)
Goodwill
$
890.0

$
224.9

$
174.1

$
1,289.0

Accumulated impairment losses
(290.7
)
—

—

(290.7
)
Balance at December 31, 2016
$
599.3

$
224.9

$
174.1

$
998.3

Goodwill acquired
1.6

—

—

1.6

Goodwill adjustment
4.1

0.9

1.2

6.2

Currency translation adjustment
42.4

19.1

14.8

76.3

Goodwill
$
938.1

$
244.9

$
190.1

$
1,373.1

Accumulated impairment losses
(290.7
)
—

—

(290.7
)
Balance at June 30, 2017
$
647.4

$
244.9

$
190.1

$
1,082.4


In August 2016 , the Company acquired Diebold Nixdorf AG. During the first quarter of 2017, in connection with the business combination agreement related to the Acquisition, the Company realigned its reportable operating segment to its lines of business to drive greater efficiency and further improve customer service.

The acquired Diebold Nixdorf AG goodwill is primarily the result of anticipated synergies achieved through increased scale, a streamlined portfolio of products and solutions, higher utilization of the service organization, workforce rationalization in overlapping regions and shared back office resources. The Company also expects, after completion of the business combination and related integration, to generate strong free cash flow, which would be used to make investments in innovative software and solutions and reduce debt. The Company has preliminarily allocated goodwill to its Services, Software and Systems reportable operating segments. The goodwill associated with the Acquisition is not deductible for income tax purposes.

In connection with the recasting from geographical regions to lines of business reportable operating segments, the Company has identified nine reporting units, which are summarized below.
Services
Software
Systems
EMEA
EMEA
EMEA
Americas
Americas
Americas
AP
AP
AP

There have been no impairment indicators identified during the six months ended June 30, 2017 .


20
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following summarizes information on intangible assets by major category:
June 30, 2017
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying Amount
Accumulated
Amortization
Net
Carrying
Amount
Internally-developed software
$
172.4

$
(76.7
)
$
95.7

$
151.0

$
(53.2
)
$
97.8

Development costs non-software
52.2

(23.4
)
28.8

48.4

(9.7
)
38.7

Customer relationships
681.0

(63.4
)
617.6

621.7

(25.4
)
596.3

Other intangibles
87.3

(51.3
)
36.0

85.3

(45.2
)
40.1

Total
$
992.9

$
(214.8
)
$
778.1

$
906.4

$
(133.5
)
$
772.9


Amortization expense on capitalized software of $9.7 and $2.6 was included in service and software cost of sales for the three months ended June 30, 2017 and 2016 , respectively, and $19.3 and $5.8 for the six months ended June 30, 2017 and 2016 , respectively. The Company's total amortization expense, including deferred financing costs, was $39.5 and $4.5 for the three months ended June 30, 2017 and 2016 , respectively, and $78.9 and $9.4 for the six months ended June 30, 2017 and 2016 , respectively. The year-over-year increase in amortization expense was primarily related to the identifiable intangibles related to the Acquisition.

Note 13: Debt

Outstanding debt balances were as follows:
June 30, 2017
December 31, 2016
Notes payable
Uncommitted lines of credit
$
65.5

$
9.4

Term Loan A Facility
20.1

17.3

Delayed Draw Term Loan A Facility
14.1

—

Term Loan B Facility - USD
4.8

10.0

Term Loan B Facility - Euro
4.7

3.7

European Investment Bank
—

63.1

Other
3.3

3.4

$
112.5

$
106.9

Long-term debt
Revolving credit facility
$
79.1

$
—

Term Loan A Facility
189.8

201.3

Delayed Draw Term Loan A Facility
235.9

—

Term Loan B Facility - USD
469.1

787.5

Term Loan B Facility - Euro
468.3

363.5

2024 Senior Notes
400.0

400.0

Other
0.6

0.8

1,842.8

1,753.1

Long-term deferred financing fees
(55.3
)
(61.7
)
$
1,787.5

$
1,691.4


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


21
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The cash flows related to debt borrowings and repayments were as follows:
Six Months Ended
June 30,
2017
2016
Revolving credit facility borrowings (repayments), net
$
119.1

$
142.0

Other debt borrowings
Proceeds from Delayed Draw Term Loan A Facility under the Credit Agreement
$
250.0

$
—

Proceeds from Term Loan B Facility - USD under the Credit Agreement
—

990.0

Proceeds from Term Loan B Facility - Euro under the Credit Agreement
73.3

398.1

Proceeds from 2024 Senior Notes
—

393.0

International short-term uncommitted lines of credit borrowings
47.0

25.9

$
370.3

$
1,807.0

Other debt repayments
Payments on 2006 Senior Notes
$
—

$
(225.0
)
Payments on Term Loan A Facility under the Credit Agreement
(8.6
)
(5.8
)
Payments on Term Loan B Facility - USD under the Credit Agreement
(323.7
)
—

Payments on Term Loan B Facility - Euro under the Credit Agreement
(2.1
)
—

Payments on European Investment Bank
(63.1
)
—

International short-term uncommitted lines of credit and other repayments
(19.0
)
(25.4
)
$
(416.5
)
$
(256.2
)

The Company entered into a revolving and term loan credit agreement (the Credit Agreement) , dated as of November 23, 2015, among the Company and certain of the Company's subsidiaries, as borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders named therein. The Credit Agreement included, among other things, mechanics for the Company’s existing revolving and term loan A facilities to be refinanced under the Credit Agreement. On December 23, 2015, the Company entered into a Replacement Facilities Effective Date Amendment, which amended the Credit Agreement, among the Company, certain of the Company’s subsidiaries, the lenders identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to which the Company refinanced its $520.0 revolving and $230.0 term loan A senior unsecured credit facilities (which have been terminated and repaid in full) with, respectively, a new unsecured revolving facility (the Revolving Facility) in an amount of up to $520.0 and a new (non-delayed draw) unsecured term loan A facility (the Term Loan A Facility) on substantially the same terms as the Delayed Draw Term Loan A Facility (as defined in the Credit Agreement) in the amount of up to $230.0 . On December 23, 2020, the Term Loan A Facility will mature and the Revolving Facility will automatically terminate. The weighted-average interest rate on outstanding Revolving Facility borrowings as of June 30, 2017 and December 31, 2016 was 3.00 percent and 2.56 percent , respectively, which is variable based on the London Interbank Offered Rate ( LIBOR ). The amount available under the Revolving Facility as of June 30, 2017 was $440.9 .

On April 19, 2016, the Company issued the $400.0 aggregate principal amount of 2024 Senior Notes in an offering exempt from the registration requirements of the Securities Act of 1933 (the Securities Act) in connection with the Acquisition. The 2024 Senior Notes are and will be guaranteed by certain of the Company’s existing and future domestic subsidiaries.

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

In connection with the Incremental Agreement, the interest rate with respect to the Term Loan B Facility - USD is based on, at the Company’s option, adjusted LIBOR plus 2.75 percent (with a floor of 0.00 percent) or Alternate Base Rate (ABR) plus 1.75 percent

22
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


(with an ABR floor of 1.00 percent) and the interest rate with respect to the Term Loan B Facility - Euro is based on adjusted Euro Interbank Offered Rate (EURIBOR) plus 3.00 percent (with a floor of 0.00 percent). Prior to the Incremental Agreement, the interest rate for the Term Loan B Facility - USD was LIBOR plus an applicable margin of 4.50 percent (or, at the Company’s option, prime plus an applicable margin of 3.50 percent) , and the interest rate for the Term Loan B Facility - Euro was at the EURIBOR plus an applicable margin of 4.25 percent . As a result of the Incremental Agreement, the Company anticipates an approximate $5.0 reduction in interest expense per quarter.

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

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

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

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

Below is a summary of financing and replacement facilities information:
Financing and Replacement Facilities
Interest Rate
Index and Margin
Maturity/Termination Dates
Term (Years)
Credit Agreement facilities
Revolving Facility
LIBOR + 1.75%
December 2020
5
Term Loan A Facility
LIBOR + 1.75%
December 2020
5
Delayed Draw Term Loan A Facility
LIBOR + 1.75%
December 2020
5
Term Loan B Facility - USD
LIBOR (i) + 2.75%
November 2023
7.5
Term Loan B Facility - Euro
EURIBOR (ii) + 3.00%
November 2023
7.5
2024 Senior Notes
8.5%
April 2024
8
(i)
LIBOR with a floor of 0.0% .
(ii)
EURIBOR with a floor of 0.0% .

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.

As of June 30, 2017 , the Company was in compliance with the financial and other covenants within its debt agreements.


23
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 14: Benefit Plans

The Company has qualified retirement plans covering certain U.S. employees that have been closed to new participants since 2003 and frozen since December 2013. Plans that cover salaried employees provide retirement benefits based on an employee’s compensation during the ten years before the date of the plan freeze or the date of the employee's actual separation from service, if earlier. The Company’s funding policy for salaried plans is to contribute annually based on actuarial projections and applicable regulations. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The Company’s funding policy for hourly plans is to make at least the minimum annual contributions required by applicable regulations.

In connection with the Acquisition, the Company acquired postemployment benefit plans for certain groups of employees at the Company’s new operations outside of the U.S. Plans vary depending on the legal, economic, and tax environments of the respective country. For financially significant defined benefit plans, accruals for pensions and similar commitments have been included in the results for this year. The new significant defined benefit plans are mainly arranged for employees in Germany, Switzerland and the Netherlands.

•
In Germany, post-employment benefit plans are set up as employer funded pension plans and deferred compensation plans. The employer funded pension commitments in Germany are based upon direct performance-related commitments in terms of defined contribution plans. Each beneficiary receives, depending on individual pay-scale grouping, contractual classification, or income level, different yearly contributions. The contribution is multiplied by an age factor appropriate to the respective pension plan and credited to the individual retirement account of the employee. The retirement accounts may be used up at retirement by either a one-time lump-sum payout or payments of up to ten years. Insured events include disability, death and reaching of retirement age.

•
In Switzerland, the post-employment benefit plan is required due to statutory provisions. The employees receive their pension payments as a function of contributions paid, a fixed interest rate and annuity factors. Insured events are disability, death and reaching of retirement age.

•
In the Netherlands, there is an average career salary plan, which is employer- and employee-financed and handled by an external fund. Insured events are disability, death and reaching of retirement age. In the Netherlands, the plan assets are currently invested in a company pension fund.

Other financially significant defined benefit plans exist in the United Kingdom, Belgium and France.

The Company has non-qualified pension plans to provide supplemental retirement benefits to certain officers, which has been frozen since December 2013. Benefits are payable at retirement based upon a percentage of the participant’s compensation, as defined. In addition to providing retirement benefits, the Company provides post-retirement healthcare and life insurance benefits (referred to as other benefits) for certain retired employees. Retired eligible employees in the U.S. may be entitled to these benefits based upon years of service with the Company, age at retirement and collective bargaining agreements. There are no plan assets and the Company funds the benefits as the claims are paid. The post-retirement benefit obligation was determined by application of the terms of medical and life insurance plans together with relevant actuarial assumptions and healthcare cost trend rates.

The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans and other benefits for the three months ended June 30 :
Pension Benefits
Other Benefits
2017
2016
2017
2016
Components of net periodic benefit cost
Service cost
$
3.6

$
0.9

$
—

$
—

Interest cost
7.9

6.2

0.1

0.1

Expected return on plan assets
(8.6
)
(6.8
)
—

—

Recognized net actuarial loss
1.4

1.4

—

—

Net periodic pension benefit cost (1)
$
4.3

$
1.7

$
0.1

$
0.1

(1) The increase in net periodic pension benefit cost is a result of the Acquisition.


24
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans and other benefits for the six months ended June 30 :
Pension Benefits
Other Benefits
2017
2016
2017
2016
Components of net periodic benefit cost
Service cost
$
7.2

$
1.8

$
—

$
—

Interest cost
15.8

12.4

0.2

0.2

Expected return on plan assets
(17.2
)
(13.5
)
—

—

Recognized net actuarial loss
2.8

2.8

—

0.1

Net periodic pension benefit cost (1)
$
8.6

$
3.5

$
0.2

$
0.3

(1) The increase in net periodic pension benefit cost is a result of the Acquisition.

Contributions

There have been no significant changes to the expected 2017 plan year contribution amounts previously disclosed. For the six months ended June 30, 2017 and 2016 , contributions of $13.6 and $1.7 , respectively, were made to the qualified and non-qualified pension plans.

Note 15: Guarantees and Product Warranties

The Company provides its global operations guarantees and standby letters of credit through various financial institutions for suppliers, customers, regulatory agencies and insurance providers. If the Company is not able to make payment or fulfill contractual obligations, the suppliers, customers, regulatory agencies and insurance providers may draw on the pertinent bank. At June 30, 2017 , the maximum future payment obligations related to these various guarantees totaled $162.1 , of which $28.0 represented standby letters of credit to insurance providers, and no associated liability was recorded. At December 31, 2016 , the maximum future payment obligations relative to these various guarantees totaled $183.3 , of which $28.0 represented standby letters of credit to insurance providers, and no associated liability was recorded.

The Company provides its customers a manufacturer’s warranty and records, at the time of the sale, a corresponding estimated liability for potential warranty costs. Estimated future obligations due to warranty claims are based upon historical factors such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts. As of June 30, 2017 and 2016 , the Company’s warranty liability balances were $84.7 and $67.1 , respectively. The increase in the warranty liability was primarily attributable to the acquired warranty accruals associated with the Acquisition.

Changes in the Company’s warranty liability balance are illustrated in the following table:
2017
2016
Balance at January 1
$
99.4

$
73.6

Current period accruals
8.5

6.2

Current period settlements
(21.9
)
(20.6
)
Currency translation adjustment
(1.3
)
7.9

Balance at June 30
$
84.7

$
67.1



25
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 16: Commitments and Contingencies

Contractual Obligations

At June 30, 2017 , the Company had purchase commitments due within one year totaling $15.0 for materials through contract manufacturing agreements at negotiated prices.

Indirect Tax Contingencies

The Company accrues non-income-tax liabilities for indirect tax matters when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they are charged against income. In evaluating indirect tax matters, management takes into consideration factors such as historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. Management evaluates and updates accruals as matters progress over time. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably to the Company and could require recognizing future expenditures. Also, statutes of limitations could expire without the Company paying the taxes for matters for which accruals have been established, which could result in the recognition of future gains upon reversal of these accruals at that time.

At June 30, 2017 , the Company was a party to several routine indirect tax claims from various taxing authorities globally that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the consolidated financial statements would not be materially affected by the outcome of these indirect tax claims and/or proceedings or asserted claims.

In addition to these routine indirect tax matters, the Company was a party to the proceedings described below:

In August 2012, one of the Company's Brazil subsidiaries was notified of a tax assessment of approximately R$270.0 , including penalties and interest, regarding certain Brazil federal indirect taxes (Industrialized Products Tax, Import Tax, Programa de Integração Social and Contribution to Social Security Financing) for 2008 and 2009. The assessment alleges improper importation of certain components into Brazil's free trade zone that would nullify certain indirect tax incentives. On September 10, 2012, the Company filed its administrative defenses with the tax authorities.

In March 2017, the administrative proceedings concluded and the assessment has been reduced approximately 95 percent to a total of R$17.3 including penalties and interest as of March 2017. The Company is pursuing its remedies in the judicial sphere and management continues to believe that it has valid legal positions. In addition, this matter could negatively impact Brazil federal indirect taxes in other years that remain open under statute. It is reasonably possible that the Company could be required to pay taxes, penalties and interest related to this matter, which could be material to the Company's condensed consolidated financial statements.

The Company has challenged customs rulings in Thailand seeking to retroactively collect customs duties on previous imports of ATMs. Management believes that the customs authority’s attempt to retroactively assess customs duties is in contravention of World Trade Organization agreements and, accordingly, is challenging the rulings. In the third quarter of 2015, the Company received a prospective ruling from the United States Customs Border Protection which is consistent with the Company's interpretation of the treaty in question. The Company has submitted that ruling for consideration in its ongoing dispute with Thailand. In August 2016 and February 2017, the tax court of appeals rendered two decisions in favor of the Company related to more than half of the assessments at issue. The remaining matters are currently in various stages of the appeals process and management continues to believe that the Company has a valid legal position in these appeals. Accordingly, the Company has not accrued any amount for this contingency; however, the Company cannot provide any assurance that it will not ultimately be subject to retroactive assessments.

At June 30, 2017 and December 31, 2016 , the Company had an accrual related to the Brazil indirect tax matter disclosed above of $7.2 and $7.3 , respectively.

A loss contingency is reasonably possible if it has a more than remote but less than probable chance of occurring. Although management believes the Company has valid defenses with respect to its indirect tax positions, it is reasonably possible that a loss could occur in excess of the estimated accrual. The Company estimated the aggregate risk at June 30, 2017 to be up to approximately

26
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


$135.0 for its material indirect tax matters, of which $46.3 and $25.0 , respectively, relates to the Brazil indirect tax matter and Thailand customs matter disclosed above. The aggregate risk related to indirect taxes is adjusted as the applicable statutes of limitations expire.

Legal Contingencies

At June 30, 2017 , the Company was a party to several lawsuits that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the Company's condensed consolidated financial statements would not be materially affected by the outcome of these legal proceedings, commitments or asserted claims.

Note 17: Derivative Instruments and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate and foreign exchange rate risk, through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business or financing activities. The Company’s derivative foreign currency instruments are used to manage differences in the amount of the Company’s known or expected cash receipts and cash payments principally related to the Company’s non functional currency assets and liabilities. The Company's interest rate derivatives are used to manage the differences in amount due to variable rate interest rate borrowings.

The Company uses derivatives to mitigate the economic consequences associated with fluctuations in currencies and interest rates. The following table summarizes the gain (loss) recognized on derivative instruments:
Derivative instrument
Classification on condensed consolidated statements of operations
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Non-designated hedges and interest rate swaps
Interest expense
$
(0.9
)
$
(2.1
)
$
(2.1
)
$
(3.1
)
Gain (loss) on foreign currency option contracts - acquisition related
Miscellaneous, net
—

(0.9
)
—

35.6

Foreign exchange forward contracts and cash flow hedges
Foreign exchange gain (loss), net
4.2

4.1

4.0

0.3

Foreign exchange forward contracts - acquisition related
Miscellaneous, net
—

(22.7
)
—

(22.7
)
Total
$
3.3

$
(21.6
)
$
1.9

$
10.1


Foreign Exchange

Net Investment Hedges The Company has international subsidiaries with net balance sheet positions that generate cumulative translation adjustments within AOCI. The Company uses derivatives to manage potential changes in value of its net investments. The Company uses the forward-to-forward method for its quarterly measurement of ineffectiveness assessments of hedge effectiveness. No ineffectiveness results if the notional amount of the derivative matches the portion of the net investment designated as being hedged because the Company uses derivative instruments with underlying exchange rates consistent with its functional currency and the functional currency of the hedged net investment. Changes in value that are deemed effective are accumulated in AOCI where they will remain until they are reclassified to income together with the gain or loss on the entire investment upon substantial liquidation of the subsidiary. The fair value of the Company’s net investment hedge contracts were $1.0 and $(0.3) as of June 30, 2017 and December 31, 2016 , respectively. The net gain (loss) recognized in AOCI on net investment hedge derivative instruments was $1.5 and $(6.0) in the three months ended June 30, 2017 and 2016 , respectively. and $(1.4) and $(11.5) in the six months ended June 30, 2017 and 2016 , respectively.


27
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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

Non-Designated Hedges A substantial portion of the Company’s operations and revenues are international. As a result, changes in foreign exchange rates can create substantial foreign exchange gains and losses from the revaluation of non-functional currency monetary assets and liabilities. The Company’s policy allows the use of foreign exchange forward contracts with maturities of up to 24 months to mitigate the impact of currency fluctuations on those foreign currency asset and liability balances. The Company elected not to apply hedge accounting to its foreign exchange forward contracts. Thus, spot-based gains/losses offset revaluation gains/losses within foreign exchange loss, net and forward-based gains/losses represent interest expense or income. The fair value of the Company’s non-designated foreign exchange forward contracts was $(0.9) and $2.6 as of June 30, 2017 and December 31, 2016 , respectively.

Cash Flow Hedges The Company is exposed to fluctuations in various foreign currencies against its functional currency. At the Company, both sales and purchases are transacted in foreign currencies. Wincor Nixdorf International GmbH (WNI) is the Diebold Nixdorf AG currency management center. Currency risks in the aggregate are identified, quantified, and controlled at the WNI treasury center, and furthermore, it provides foreign currencies if necessary. The Diebold Nixdorf AG subsidiaries are primarily exposed to the USD and GBP as the EUR is its functional currency. This risk is considerably reduced by natural hedging (i.e. management of sales and purchases by choice location and suppliers). For the remainder of the risk that is not naturally hedged, foreign currency forwards are used to manage the exposure between EUR-GBP and EUR-USD.

Derivative transactions are recorded on the balance sheet at fair value. For transactions designated as cash flow hedges, the effective portion of changes in the fair value are recorded in AOCI and are subsequently reclassified into earnings in the period that the hedged forecasted transactions impact earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. As of June 30, 2017 , the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:
Foreign Currency Derivative
Number of Instruments
Notional Sold
Notional Purchased
Currency forward agreements (EUR-USD)
16

73.2

USD
66.2

EUR
Currency forward agreements (EUR-GBP)
13

30.3

GBP
34.9

EUR
Currency forward agreements (EUR-CAD)
1

4.5

CAD
3.0

EUR
Currency forward agreements (EUR-CZK)
2

159.2

CZK
5.9

EUR

The remaining net currency risk not hedged by forward currency transactions amounts to approximately $28.6 and £8.5 for the six months ended June 30, 2017 . The flows of foreign currency are recorded centrally for Diebold Nixdorf AG and, where feasible, equalized out. No foreign currency options were transacted during the current and previous year. If the euro had been revalued and devalued respectively by 10 percent against the U.S. dollar the other components of equity (before deferred taxes) and the fair value of forward currency transactions would have been €5.7 higher, and €7.0 lower, respectively for the six months ended June 30, 2017 . If the euro had been revalued and devalued respectively by 10 percent against pounds sterling as of June 30, 2017 , the other components of equity (before deferred taxes) and the fair value of forward currency transactions would have been €3.1 higher and €3.8 lower, respectively, for the six months ended June 30, 2017 .

Foreign Currency Option Contracts - acquisition related On November 23, 2015, the Company entered into two foreign currency option contracts to purchase €1,416.0 for $1,547.1 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro-denominated transaction related costs and any

28
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


outstanding Diebold Nixdorf AG borrowings. At that time, the euro-denominated cash component of the purchase price consideration was €1,162.2 . The weighted average strike price was $1.09 per euro.

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

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

During the year ended December 31, 2016, the Company recorded a $9.3 mark-to-market gain (loss) on foreign currency and forward option contracts reflected in miscellaneous, net.

Interest Rate

Cash Flow Hedges The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During November 2016, the Company entered into multiple pay-fixed receive-variable interest rate swaps outstanding with an aggregate notional amount of $400.0 .

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the fourth quarter of 2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company estimates that an additional $0.1 will be reclassified as an increase to interest expense over the next year.

Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

In connection with the Acquisition, the Company acquired an interest swap for a nominal sum of €50.0 , which was entered into in May 2010 with a ten-year term from October 1, 2010 until September 30, 2020. For this interest swap, the three-month EURIBOR is received and a fixed interest of 2.97 percent is paid. The fair value, which is measured at market prices. As of June 30, 2017 and December 31, 2016 , the fair value was €(6.0) and €(6.3) , respectively. Because this swap was accounted for as a cash flow hedge, the change in fair value of €0.3 was directly recognized in AOCI. For the six months ended June 30, 2017 , the amount reclassified from equity to profit or loss was not significant.

In December 2005 and January 2006, the Company executed cash flow hedges by entering into pay-fixed receive-variable interest rate swaps, with a total notional amount of $200.0 , related to the 2006 Senior Notes. Amounts previously recorded in AOCI related to the pre-issuance cash flow hedges were reclassified to interest expense on a straight-line basis through February 2016. The gain recognized on designated cash flow hedge derivative instruments was minimal for the six months ended June 30, 2016.


29
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 18: Fair Value of Assets and Liabilities

Assets and Liabilities Recorded at Fair Value

Assets and liabilities subject to fair value measurement are as follows:
June 30, 2017
December 31, 2016
Fair Value Measurements Using
Fair Value Measurements Using
Classification on condensed consolidated Balance Sheets
Fair Value
Level 1
Level 2
Fair Value
Level 1
Level 2
Assets
Short-term investments
Certificates of deposit
Short-term investments
$
76.9

$
76.9

$
—

$
64.1

$
64.1

$
—

Assets held in rabbi trusts
Securities and other investments
8.9

8.9

—

8.5

8.5

—

Foreign exchange forward contracts
Other current assets
4.3

—

4.3

7.2

—

7.2

Internal currency swap
Other current assets
2.9

—

2.9

—

—

—

Interest rate swaps
Other current assets
0.6

—

0.6

—

—

—

Interest rate swaps
Securities and other investments
6.3

—

6.3

8.4

—

8.4

Internal currency swap
Other assets
13.4

—

13.4

—

—

—

Total
$
113.3

$
85.8

$
27.5

$
88.2

$
72.6

$
15.6

Liabilities
Foreign exchange forward contracts
Other current liabilities
$
5.4

$
—

$
5.4

$
7.7

$
—

$
7.7

Interest rate swaps
Other current liabilities
6.9

—

6.9

6.9

—

6.9

Internal currency swap
Other current liabilities
2.9

—

2.9

—

—

—

Internal currency swap
Other liabilities
13.4

—

13.4

—

—

—

Deferred compensation
Other liabilities
8.9

8.9

—

8.5

8.5

—

Total
$
37.5

$
8.9

$
28.6

$
23.1

$
8.5

$
14.6


The Company uses the end of period when determining the timing of transfers between levels. During the six months ended June 30, 2017 , there were no transfers between levels.


30
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The fair value and carrying value of the Company’s debt instruments are summarized as follows:
June 30, 2017
December 31, 2016
Fair Value
Carrying
Value
Fair Value
Carrying
Value
Notes payable
$
112.5

$
112.5

$
106.9

$
106.9

Term Loan A Facility
189.8

189.8

201.3

201.3

Delayed Draw Term Loan A Facility
235.9

235.9

—

—

Term Loan B Facility - USD
469.1

469.1

787.5

787.5

Term Loan B Facility - Euro
468.3

468.3

363.5

363.5

2024 Senior Notes
446.0

400.0

426.0

400.0

Other
0.6

0.6

0.8

0.8

Long-term deferred financing fees
(55.3
)
(55.3
)
(61.7
)
(61.7
)
Long-term debt
1,833.5

1,787.5

1,717.4

1,691.4

Total debt instruments
$
1,946.0

$
1,900.0

$
1,824.3

$
1,798.3


Refer to note 13 for further details surrounding the increase in long-term debt as of June 30, 2017 compared to December 31, 2016 .

Note 19: Restructuring

The following table summarizes the impact of the Company’s restructuring charges on the condensed consolidated statements of operations:
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Cost of sales – services and software
$
12.6

$
1.4

$
15.6

$
1.7

Cost of sales – systems
1.0

—

1.6

—

Selling and administrative expense
2.4

3.5

10.8

3.6

Research, development and engineering expense
(1.6
)
0.1

(0.7
)
0.1

Total
$
14.4

$
5.0

$
27.3

$
5.4


The following table summarizes the Company’s type of restructuring charges by reportable operating segment:
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Severance
Services
$
14.2

$
2.3

$
18.9

$
2.3

Software
0.5

0.2

(0.2
)
0.5

Systems
0.9

0.8

3.5

0.9

Corporate
(1.2
)
1.7

5.1

1.7

Total severance
$
14.4

$
5.0

$
27.3

$
5.4


Multi-Year Transformation Plan

During the first quarter of 2013, the Company announced a multi-year transformation plan, which focused on globalizing the Company's service organization and creating a unified center-led global organization for research and development, as well as transforming the Company's general and administrative cost structure. Restructuring charges related to the Company's multi-year transformation plan were $5.0 and $5.4 for the three and six months ended June 30, 2016 , respectively. The multi-year transformation plan was considered complete as of December 31, 2016.

DN2020 Plan

As of August 15, 2016, the date of the Acquisition, the Company launched a multi-year integration and transformation program, known as DN2020. The DN2020 plan focuses on the utilization of cost efficiencies and synergy opportunities that result from the Acquisition, which aligns employee activities with the Company's goal of delivering net operating profit savings of approximately $240 by the year 2020. The Company incurred restructuring charges of $14.4 and $27.3 for the three and six months ended June 30, 2017 related to DN2020. The Company anticipates additional restructuring costs of approximately $75 primarily related to severance anticipated for completion of the Company's integration and transformation plans throughout the three lines of business to be incurred through the end of DN2020.

Delta Program

At the beginning of the 2015, Diebold Nixdorf AG initiated the Delta Program related to restructuring and realignment. As part of a change process that will span several years, the Delta Program is designed to hasten the expansion of software and professional services operations and to further enhance profitability in the services business. This program includes expansion in the high-end fields of managed services and outsourcing. It also involves capacity adjustments on the hardware side, enabling the Company to respond more effectively to market volatility while maintaining its abilities with innovation. As of August 15, 2016, the date of the Acquisition, the restructuring accrual balance acquired was $45.5 and consisted of severance activities. The Company did not incur restructuring charges during the three and six months ended June 30, 2017 related to this plan. As of June 30, 2017 , the Company does not anticipate additional restructuring costs to be incurred through the end of the plan.


31
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Strategic Alliance Plan

On November 10, 2016, the Company entered into a strategic alliance plan with the Inspur Group, a Chinese cloud computing and data center company, to develop, manufacture and distribute banking solutions in China. The Company did not incur restructuring charges during the three and six months ended June 30, 2017 related to this plan. The Company anticipates additional restructuring costs primarily related to severance of approximately $1.0 to be incurred through the end of the plan.

The following table summarizes the Company's cumulative total restructuring costs by plan as of June 30, 2017 :
DN2020 Plan
Delta Program
Strategic Alliance
Total

Services
$
40.3

$
0.1

$
2.0

$
42.4

Software
5.8

1.8

0.1

7.7

Systems
16.8

—

3.6

20.4

Corporate
7.2

1.3

—

8.5

Total
$
70.1

$
3.2

$
5.7

$
79.0


The following table summarizes the Company’s restructuring accrual balances and related activity for the six months ended June 30 :
2017
2016
Balance at January 1
$
89.9

$
4.7

Liabilities incurred
27.3

5.4

Liabilities paid/settled
(37.7
)
(4.8
)
Balance at June 30
$
79.5

$
5.3


Note 20: Segment Information

The Company's accounting policies derive segment results that are the same as those the CODM regularly reviews and uses to make decisions, allocate resources and assess performance. The Company continually considers its operating structure and the information subject to regular review by its Chief Executive Officer, who is the CODM, to identify reportable operating segments. The Company’s operating structure is based on a number of factors that management uses to evaluate, view and run its business operations, which currently includes, but is not limited to, product, service and solution. The Company measures the performance of each segment based on several metrics, including net sales and segment operating profit. The CODM uses these results to make decisions, allocate resources and assess performance by the LOBs.

Segment revenue represents revenues from sales to external customers. Segment operating profit is defined as revenues less expenses identifiable to those segments. The Company does not allocate to its segments certain operating expenses, which it manages at the corporate level; that are not routinely used in the management of the segments; or information that is impractical to report. These unallocated costs include certain corporate costs, amortization of acquired intangible assets and deferred revenue, restructuring charges, impairment charges, legal, indemnification, and professional fees related to corporate monitor efforts, acquisition and divestiture expenses, along with other income (expenses). Segment operating profit reconciles to consolidated income (loss) from continuing operations before income taxes by deducting corporate costs and other income or expense items that are not attributed to the segments. Assets are not allocated to segments, and thus are not included in the assessment of segment performance, and consequently, we do not disclose total assets and depreciation and amortization expense by reportable operating segment.

In August 2016, in connection with the business combination agreement related to the Acquisition, the Company announced the realignment of its lines of business to drive greater efficiency and further improve customer service. During the first quarter of 2017, the Company reorganized the management team reporting to the CODM and evaluated and assessed the LOB reporting structure. The Company's reportable operating segments are based on the following three LOBs: Services, Systems, and Software. As a result, the Company reclassified comparative periods for consistency. The presentation of comparative periods also reflects the reclassification of certain global manufacturing administration expenses from corporate charges not allocated to segments to segment operating profit.

Services

32
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Product-related services provided by the Company include proactive monitoring and rapid resolution of incidents through remote service capabilities or an on-site visit. First and second line maintenance, preventive maintenance and on-demand services keep the distributed assets of the Company's customers up and running through a standardized incident management process. Managed services and outsourcing consists of the end-to-end business processes, solution management, upgrades and transaction processing. The global service supply chain optimizes the process for obtaining replacement parts, making repairs, and implementing new features and functionality. 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.

Software
The Company provides front end applications for consumer connection points and back end platforms that manage channel transactions, operations and integration. The Company’s hardware-agnostic software applications facilitate millions of transactions via ATMs, point of sale (POS) terminals, kiosks, and a host of other self-service devices. The Company’s platform software facilitates omni-channel transactions, endpoint monitoring, remote asset management, marketing, merchandise management and analytics.

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

Systems
The systems portfolio consists of cash recyclers and dispensers, intelligent deposit terminals, teller automation tools, physical security devices, integrated and mobile POS systems. Supplementing the POS system is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio which offers a wide range of banknote and coin processing systems. Also in the portfolio, the Company provides self-checkout terminals and ordering kiosks.

The following tables represent information regarding the Company’s segment information and provides a reconciliation between segment operating profit and the consolidated income (loss) from continuing operations before income taxes:
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Revenue summary by segment
Services
$
580.2

$
329.6

$
1,153.4

$
646.5

Software
107.7

30.6

218.1

53.0

Systems
446.0

219.8

865.2

390.1

Total revenue
$
1,133.9

$
580.0

$
2,236.7

$
1,089.6

Segment operating profit
Services
$
77.0

$
71.8

$
158.2

$
134.0

Software
6.4

0.2

11.7

(8.1
)
Systems
(1.6
)
(14.0
)
(5.5
)
(29.1
)
Total segment operating profit
81.8

58.0

164.4

96.8

Corporate charges not allocated to segments (1)
(41.4
)
(24.5
)
(82.3
)
(54.5
)
Restructuring charges
(14.4
)
(5.0
)
(27.3
)
(5.4
)
Net non-routine expense
(56.1
)
(18.2
)
(133.5
)
(32.3
)
(111.9
)
(47.7
)
(243.1
)
(92.2
)
Operating profit (loss)
(30.1
)
10.3

(78.7
)
4.6

Other income (expense)
(29.8
)
(46.0
)
(56.0
)
(20.4
)
Income (loss) from continuing operations before taxes
$
(59.9
)
$
(35.7
)
$
(134.7
)
$
(15.8
)
(1)
Corporate charges not allocated to segments include headquarter-based costs associated with procurement, human resources, compensation and benefits, finance and accounting, global development/engineering, global strategy/mergers and acquisitions, global information technology, tax, treasury and legal.

Net non-routine expense consists of items that the Company has determined are non-routine in nature and not allocated to the LOBs. Net non-routine expense of $133.5 for the six months ended June 30, 2017 was due to legal, acquisition and divestiture

33
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


expenses of $17.4 inclusive of the mark-to-mark impact on Diebold Nixdorf AG stock options and Acquisition integration expenses of $34.9 primarily within selling and administrative expense and purchase accounting pretax charges, which included deferred revenue of $20.7 and amortization of acquired intangibles of $65.2 offset by a decrease in cost of sales of $0.9 related to measurement period adjustments of inventory. Net non-routine expense of $32.3 for the six months ended June 30, 2016 was primarily due to legal, acquisition and divestiture related costs of $31.2 within selling and administrative expense.

The following table presents information regarding the Company’s revenue by service and product solution:
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Banking
Services and software
$
541.1

$
362.3

$
1,087.0

$
703.4

Systems
302.8

202.0

576.5

368.5

Total banking
843.9

564.3

1,663.5

1,071.9

Retail
Services and software
146.8

—

284.5

—

Systems
143.2

15.7

288.7

17.7

Total retail
290.0

15.7

573.2

17.7

$
1,133.9

$
580.0

$
2,236.7

$
1,089.6



34
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 21: Divestitures

During the second quarter of 2017, the Company divested its legacy Diebold business in the United Kingdom to Cennox Group for $5.0 , fulfilling the requirements previously set forth by the U.K. Competition and Markets Authority (CMA). The divestiture closed on June 30, 2017. The legacy, independent Wincor Nixdorf U.K. and Ireland business will be completely integrated into the global Diebold Nixdorf operations and brand. Additionally, as part of the Company's routine efforts to evaluate its business operations, during the second quarter of 2017, the Company agreed to sell its electronic security business located in Mexico to a wholly-owned subsidiary of Securitas AB. The Company recorded a pre-tax gain of $7.4 related to these transactions. The combined net sales of the business in the United Kingdom and the electronic security business located in Mexico represented less than one percent of total net sales of the Company for the 2017 and 2016.

In December 2015, the Company announced it was forming a new strategic alliance with a subsidiary of the Inspur Group, a Chinese cloud computing and data center company, to develop, manufacture and distribute banking solutions in China. The Inspur Group holds a majority stake of 51.0 percent in the new jointly owned company, Inspur JV. In November 2016, the Inspur JV was formed and the Company did not have a significant gain or loss from the transaction. The Inspur JV offers a complete range of self-service terminals within the Chinese market, including ATMs. The Company serves as the exclusive distributor outside of China for all products developed by the Inspur JV, which is sold under the Diebold Nixdorf brand. The Company does not consolidate Inspur JV and includes its results of operations in equity in earnings of an investee included in other income (expense) of the condensed consolidated statements of operations.

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

During the third quarter of 2016, the Company received cash proceeds of $27.7 related to the sale of stock in its Aevi International GmbH and Diebold Nixdorf AG China subsidiaries. In addition to the cash proceeds received, the Company recorded deferred payments of $44.7 for the divestiture of its Diebold Nixdorf AG China subsidiaries. The Diebold Nixdorf AG China sale was reflected in the opening balance sheet and no gain or loss was recorded. The Diebold Nixdorf AG China sale was in connection with the June 2016 Diebold Nixdorf AG announcement to establish a strategic alliance with Aisino Corporation, to position itself in China to offer solutions that meet Chinese banking regulations. Aisino Corporation is a Chinese company that specializes in intelligent anti-forgery tax control systems, electronic fund transfer (EFT) POS solutions, financial IC cards, bill receipt printing solutions and public IT security solutions. Following the closing of the transaction, the Company holds a noncontrolling interest in the Aisino JV of 43.6 percent . The Company includes the Aisino JV results of operations in equity in earnings of investees included in other income (expense) of the condensed consolidated statements of operations.

On October 25, 2015, the Company entered into a definitive asset purchase agreement with a wholly-owned subsidiary of Securitas AB (Securitas Electronic Security) to divest its electronic security (ES) business located in the U.S. and Canada for an aggregate purchase price of $350.0 in cash, 10.0 percent of which was contingent based on the successful transition of certain customer relationships, which was paid in the first quarter of 2016. For ES to continue its growth, it would require resources and investment that Diebold Nixdorf is not committed to make given its focus on the self-service market. The Company recorded a pre-tax gain of $239.5 on the ES divestiture, which was recognized during 2016.

The Company had also agreed to provide certain transition services to Securitas Electronic Security after the closing, including providing Securitas Electronic Security a $6.0 credit for such services, of which $5.0 relates to a quarterly payment to Securitas Electronic Security and $1.0 is a credit against payments due from Securitas Electronic Security. During the year ended December 31, 2016, $5.0 was paid as part of the quarterly payments and $1.0 was used against amounts owed by Securitas Electronic Security, fulfilling the Company's obligation.

The closing of the transaction occurred on February 1, 2016. The operating results for the NA electronic security business were previously included in the Company's former NA segment and have been reclassified to discontinued operations for all of the periods presented. Cash flows provided or used by the NA electronic security business are presented as cash flows from discontinued operations for all of the periods presented. The operating results, assets and liabilities and cash flows from discontinued operations are no longer included in the financial statements of the Company from the closing date.

35
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following summarizes select financial information included in income from discontinued operations, net of tax:
Three Months Ended
Six Months Ended
June 30, 2016
June 30, 2016
Net sales
Services and software
$
—

$
16.3

Systems
—

8.5

—

24.8

Cost of sales
Services and software
—

15.1

Systems
—

6.9

—

22.0

Gross profit
—

2.8

Selling and administrative expense
—

4.8

Income from discontinued operations before taxes
—

(2.0
)
Income tax benefit
—

(0.7
)
—

(1.3
)
Gain on sale of discontinued operations before taxes
—

243.3

Income tax (benefit) expense
(0.5
)
93.7

Gain on sale of discontinued operations, net of tax
0.5

149.6

Income from discontinued operations, net of tax
$
0.5

$
148.3



36
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 22: Supplemental Guarantor Information

The Company issued the 2024 Senior Notes in an offering exempt from the registration requirements of the Securities Act in connection with the Acquisition. The 2024 Senior Notes are and will be guaranteed by certain of the Company's existing and future domestic subsidiaries. The following presents the condensed consolidating financial information separately for:

(i)
Diebold Nixdorf, Incorporated (the Parent Company), the issuer of the guaranteed obligations;

(ii)
Guarantor Subsidiaries, on a combined basis, as specified in the indenture governing the Company's obligations under the 2024 Senior Notes;

(iii)
Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between the Parent Company, the Guarantor Subsidiaries and the Non-guarantor Subsidiaries, (b) eliminate the investments in its subsidiaries, and (c) record consolidating entries; and

(iv)
Diebold Nixdorf, Incorporated and Subsidiaries on a consolidated basis.

Each guarantor subsidiary is 100 percent owned by the Parent Company at the date of each balance sheet presented. The notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each entity in the consolidating financial information follows the same accounting policies as described in the condensed consolidated financial statements, except for the use by the Parent Company and the guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation. Changes in intercompany receivables and payables related to operations, such as intercompany sales or service charges, are included in cash flows from operating activities. Intercompany transactions reported as investing or financing activities include the sale of capital stock of various subsidiaries, loans and other capital transactions between members of the consolidated group.

Certain non-guarantor subsidiaries of the Parent Company are limited in their ability to remit funds to it by means of dividends, advances or loans due to required foreign government and/or currency exchange board approvals or limitations in credit agreements or other debt instruments of those subsidiaries.


37
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Condensed Consolidating Balance Sheets
As of June 30, 2017
Parent
Combined
Guarantor
Subsidiaries
Combined
Non-Guarantor
Subsidiaries
Reclassifications/
Eliminations
Consolidated
ASSETS
Current assets
Cash and cash equivalents
$
6.5

$
2.2

$
442.6

$
—

$
451.3

Short-term investments
—

—

76.9

—

76.9

Trade receivables, net
144.1

0.3

786.3

—

930.7

Intercompany receivables
757.2

929.7

1,944.3

(3,631.2
)
—

Inventories
164.5

0.2

614.6

—

779.3

Prepaid expenses
9.6

0.9

53.6

—

64.1

Income taxes
—

4.1

132.0

(4.8
)
131.3

Other current assets
7.4

1.1

199.5

—

208.0

Total current assets
1,089.3

938.5

4,249.8

(3,636.0
)
2,641.6

Securities and other investments
93.7

—

—

—

93.7

Property, plant and equipment, net
96.7

3.2

292.0

—

391.9

Goodwill
55.5

—

1,026.9

—

1,082.4

Deferred income taxes
241.0

7.8

111.1

—

359.9

Finance lease receivables
—

3.4

15.0

—

18.4

Intangible assets, net
0.9

10.7

766.5

—

778.1

Investment in subsidiary
2,719.5

—

15.9

(2,735.4
)
—

Other assets
30.3

—

59.2

—

89.5

Total assets
$
4,326.9

$
963.6

$
6,536.4

$
(6,371.4
)
$
5,455.5

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current liabilities
Notes payable
$
83.7

$
0.6

$
28.2

$
—

$
112.5

Accounts payable
99.7

0.2

502.5

—

602.4

Intercompany payable
1,320.5

179.1

2,131.6

(3,631.2
)
—

Deferred revenue
99.7

0.3

326.1

—

426.1

Payroll and other benefits liabilities
15.5

0.9

160.0

—

176.4

Other current liabilities
97.1

2.0

470.7

(4.8
)
565.0

Total current liabilities
1,716.2

183.1

3,619.1

(3,636.0
)
1,882.4

Long-term debt
1,786.9

0.2

0.4

—

1,787.5

Pensions, post-retirement and other benefits
211.2

—

85.7

—

296.9

Deferred income taxes
13.3

—

267.7

—

281.0

Other liabilities
12.1

—

121.9

—

134.0

Commitments and contingencies
Redeemable noncontrolling interests
—

—

449.0

—

449.0

Total Diebold Nixdorf, Incorporated shareholders' equity
587.2

780.3

1,955.1

(2,735.4
)
587.2

Noncontrolling interests
—

—

37.5

—

37.5

Total liabilities, redeemable noncontrolling interests and equity
$
4,326.9

$
963.6

$
6,536.4

$
(6,371.4
)
$
5,455.5


38
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Condensed Consolidating Balance Sheets
As of December 31, 2016
Parent
Combined
Guarantor
Subsidiaries
Combined
Non-Guarantor
Subsidiaries
Reclassifications/
Eliminations
Consolidated
ASSETS
Current assets
Cash and cash equivalents
$
138.4

$
2.3

$
512.0

$
—

$
652.7

Short-term investments
—

—

64.1

—

64.1

Trade receivables, net
119.0

—

717.5

(0.6
)
835.9

Intercompany receivables
883.0

783.7

480.1

(2,146.8
)
—

Inventories
110.5

16.2

611.0

—

737.7

Prepaid expenses
14.7

0.8

45.2

—

60.7

Income taxes
0.3

25.4

84.9

(25.4
)
85.2

Other current assets
3.2

1.6

178.5

—

183.3

Total current assets
1,269.1

830.0

2,693.3

(2,172.8
)
2,619.6

Securities and other investments
94.7

—

—

—

94.7

Property, plant and equipment, net
102.7

9.0

275.3

—

387.0

Goodwill
55.5

—

942.8

—

998.3

Deferred income taxes
173.1

7.8

128.6

—

309.5

Finance lease receivables
—

4.8

20.4

—

25.2

Intangible assets, net
1.8

13.6

757.5

—

772.9

Investment in subsidiary
2,619.6

—

9.3

(2,628.9
)
—

Other assets
2.9

0.1

60.1

—

63.1

Total assets
$
4,319.4

$
865.3

$
4,887.3

$
(4,801.7
)
$
5,270.3

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current liabilities
Notes payable
$
30.9

$
1.3

$
74.7

$
—

$
106.9

Accounts payable
101.6

1.1

458.4

(0.6
)
560.5

Intercompany payable
1,376.6

175.9

594.3

(2,146.8
)
—

Deferred revenue
114.7

0.7

288.8

—

404.2

Payroll and other benefits liabilities
21.0

1.4

150.1

—

172.5

Other current liabilities
156.1

3.9

445.8

(25.4
)
580.4

Total current liabilities
1,800.9

184.3

2,012.1

(2,172.8
)
1,824.5

Long-term debt
1,690.5

0.4

0.5

—

1,691.4

Pensions, post-retirement and other benefits
212.6

—

84.6

—

297.2

Deferred income taxes
13.4

—

287.2

—

300.6

Other liabilities
10.6

—

77.1

—

87.7

Commitments and contingencies
Redeemable noncontrolling interests
—

—

44.1

—

44.1

Total Diebold Nixdorf, Incorporated shareholders' equity
591.4

680.6

1,948.3

(2,628.9
)
591.4

Noncontrolling interests
—

—

433.4

—

433.4

Total liabilities, redeemable noncontrolling interests and equity
$
4,319.4

$
865.3

$
4,887.3

$
(4,801.7
)
$
5,270.3





39
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended June 30, 2017
Parent
Combined
Guarantor
Subsidiaries
Combined
Non-Guarantor
Subsidiaries
Reclassifications/
Eliminations
Consolidated
Net sales
$
253.8

$
1.4

$
879.4

$
(0.7
)
$
1,133.9

Cost of sales
198.6

2.7

695.5

(0.7
)
896.1

Gross profit
55.2

(1.3
)
183.9

—

237.8

Selling and administrative expense
75.8

2.1

158.9

—

236.8

Research, development and engineering expense
1.0

9.8

28.0

—

38.8

(Gain) loss on sale of assets, net
—

0.1

(7.8
)
—

(7.7
)
76.8

12.0

179.1

—

267.9

Operating profit (loss)
(21.6
)
(13.3
)
4.8

—

(30.1
)
Other income (expense)
Interest income
0.4

—

4.7

—

5.1

Interest expense
(29.7
)
—

(2.5
)
—

(32.2
)
Foreign exchange gain (loss), net
2.3

—

(6.9
)
—

(4.6
)
Equity in earnings of subsidiaries
(21.1
)
—

—

21.1

—

Miscellaneous, net
1.1

2.1

(1.3
)
—

1.9

Income (loss) from continuing operations before taxes
(68.6
)
(11.2
)
(1.2
)
21.1

(59.9
)
Income tax (benefit) expense
(38.0
)
(16.3
)
18.0

—

(36.3
)
Net income (loss)
(30.6
)
5.1

(19.2
)
21.1

(23.6
)
Net income attributable to noncontrolling interests
—

—

7.0

—

7.0

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(30.6
)
$
5.1

$
(26.2
)
$
21.1

$
(30.6
)
Comprehensive income (loss)
$
53.5

$
5.1

$
76.5

$
(72.9
)
$
62.2

Less: comprehensive income (loss) attributable to noncontrolling interests
—

—

8.7

—

8.7

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
$
53.5

$
5.1

$
67.8

$
(72.9
)
$
53.5


40
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended June 30, 2016
Parent
Combined
Guarantor
Subsidiaries
Combined
Non-Guarantor
Subsidiaries
Reclassifications/
Eliminations
Consolidated
Net sales
$
289.6

$
27.1

$
289.9

$
(26.6
)
$
580.0

Cost of sales
214.3

24.5

212.6

(26.5
)
424.9

Gross profit
75.3

2.6

77.3

(0.1
)
155.1

Selling and administrative expense
77.9

3.1

46.3

—

127.3

Research, development and engineering expense
1.1

11.6

4.9

—

17.6

(Gain) loss on sale of assets, net
0.1

(0.2
)
—

—

(0.1
)
79.1

14.5

51.2

—

144.8

Operating profit (loss)
(3.8
)
(11.9
)
26.1

(0.1
)
10.3

Other income (expense)
Interest income
0.8

0.2

5.3

—

6.3

Interest expense
(23.6
)
—

(0.7
)
—

(24.3
)
Foreign exchange gain (loss), net
(1.3
)
—

0.1

—

(1.2
)
Equity in earnings of subsidiaries
18.9

—

—

(18.9
)
—

Miscellaneous, net
(26.8
)
1.7

(1.7
)
—

(26.8
)
Income (loss) from continuing operations before taxes
(35.8
)
(10.0
)
29.1

(19.0
)
(35.7
)
Income tax (benefit) expense
(14.2
)
(2.0
)
1.3

—

(14.9
)
Income (loss) from continuing operations, net of tax
(21.6
)
(8.0
)
27.8

(19.0
)
(20.8
)
Income from discontinued operations, net of tax
0.5

—

—

—

0.5

Net income (loss)
(21.1
)
(8.0
)
27.8

(19.0
)
(20.3
)
Net income attributable to noncontrolling interests
—

—

0.8

—

0.8

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(21.1
)
$
(8.0
)
$
27.0

$
(19.0
)
$
(21.1
)
Comprehensive income (loss)
$
(2.4
)
$
(7.9
)
$
48.9

$
(40.8
)
$
(2.2
)
Less: comprehensive income (loss) attributable to noncontrolling interests
—

—

0.2

—

0.2

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
$
(2.4
)
$
(7.9
)
$
48.7

$
(40.8
)
$
(2.4
)



41
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Six Months Ended June 30, 2017
Parent
Combined
Guarantor
Subsidiaries
Combined
Non-Guarantor
Subsidiaries
Reclassifications/
Eliminations
Consolidated
Net sales
$
505.0

$
6.2

$
1,730.5

$
(5.0
)
$
2,236.7

Cost of sales
398.4

8.6

1,354.4

(5.0
)
1,756.4

Gross profit
106.6

(2.4
)
376.1

—

480.3

Selling and administrative expense
142.9

5.0

335.9

—

483.8

Research, development and engineering expense
0.9

19.6

59.7

—

80.2

Impairment of assets
3.1

—

—

—

3.1

(Gain) loss on sale of assets, net
—

0.1

(8.2
)
—

(8.1
)
146.9

24.7

387.4

—

559.0

Operating profit (loss)
(40.3
)
(27.1
)
(11.3
)
—

(78.7
)
Other income (expense)
Interest income
0.9

0.1

10.5

—

11.5

Interest expense
(58.8
)
—

(4.2
)
—

(63.0
)
Foreign exchange gain (loss), net
2.3

0.1

(10.1
)
—

(7.7
)
Equity in earnings of subsidiaries
(47.4
)
—

—

47.4

—

Miscellaneous, net
0.9

4.0

(0.8
)
(0.9
)
3.2

Income (loss) from continuing operations before taxes
(142.4
)
(22.9
)
(15.9
)
46.5

(134.7
)
Income tax (benefit) expense
(53.0
)
(20.3
)
14.4

—

(58.9
)
Net income (loss)
(89.4
)
(2.6
)
(30.3
)
46.5

(75.8
)
Net income attributable to noncontrolling interests
—

—

13.6

—

13.6

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(89.4
)
$
(2.6
)
$
(43.9
)
$
46.5

$
(89.4
)
Comprehensive income (loss)
$
39.6

$
(2.6
)
$
122.7

$
(104.8
)
$
54.9

Less: comprehensive income (loss) attributable to noncontrolling interests
—

—

15.3

—

15.3

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
$
39.6

$
(2.6
)
$
107.4

$
(104.8
)
$
39.6



42
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Six Months Ended June 30, 2016
Parent
Combined
Guarantor
Subsidiaries
Combined
Non-Guarantor
Subsidiaries
Reclassifications/
Eliminations
Consolidated
Net sales
$
550.8

$
52.8

$
537.8

$
(51.8
)
$
1,089.6

Cost of sales
405.0

51.4

390.6

(51.3
)
795.7

Gross profit
145.8

1.4

147.2

(0.5
)
293.9

Selling and administrative expense
155.9

5.7

91.3

—

252.9

Research, development and engineering expense
2.4

23.7

10.0

—

36.1

(Gain) loss on sale of assets, net
0.2

(0.1
)
0.2

—

0.3

158.5

29.3

101.5

—

289.3

Operating profit (loss)
(12.7
)
(27.9
)
45.7

(0.5
)
4.6

Other income (expense)
Interest income
1.0

0.4

9.8

—

11.2

Interest expense
(34.9
)
(0.1
)
(0.8
)
—

(35.8
)
Foreign exchange gain (loss), net
(3.0
)
—

(0.6
)
—

(3.6
)
Equity in earnings of subsidiaries
34.7

—

—

(34.7
)
—

Miscellaneous, net
6.4

3.2

(1.8
)
—

7.8

Income (loss) from continuing operations before taxes
(8.5
)
(24.4
)
52.3

(35.2
)
(15.8
)
Income tax (benefit) expense
(17.2
)
(4.9
)
6.4

—

(15.7
)
Income (loss) from continuing operations, net of tax
8.7

(19.5
)
45.9

(35.2
)
(0.1
)
Income from discontinued operations, net of tax
138.4

—

9.9

—

148.3

Net income (loss)
147.1

(19.5
)
55.8

(35.2
)
148.2

Net income attributable to noncontrolling interests
—

—

1.1

—

1.1

Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
147.1

$
(19.5
)
$
54.7

$
(35.2
)
$
147.1

Comprehensive income (loss)
$
195.7

$
(19.5
)
$
109.6

$
(89.5
)
$
196.3

Less: comprehensive income (loss) attributable to noncontrolling interests
—

—

0.6

—

0.6

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
$
195.7

$
(19.5
)
$
109.0

$
(89.5
)
$
195.7

















43
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2017
Parent
Combined
Guarantor
Subsidiaries
Combined
Non-Guarantor
Subsidiaries
Reclassifications/
Eliminations
Consolidated
Net cash used by operating activities
$
(116.1
)
$
(13.3
)
$
(163.7
)
$
107.3

$
(185.8
)
Cash flow from investing activities
Payments for acquisition
—

—

(2.4
)
—

(2.4
)
Proceeds from maturities of investments
(0.7
)
—

145.7

—

145.0

Payments for purchases of investments
(14.0
)
—

(159.7
)
—

(173.7
)
Proceeds from sale of assets
—

—

11.4

—

11.4

Capital expenditures
(2.9
)
—

(23.5
)
—

(26.4
)
Increase in certain other assets
(4.9
)
3.9

(16.6
)
—

(17.6
)
Capital contributions and loans paid
(252.6
)
—

—

252.6

—

Proceeds from intercompany loans
171.9

—

—

(171.9
)
—

Net cash (used) provided by investing activities
(103.2
)
3.9

(45.1
)
80.7

(63.7
)
Cash flow from financing activities
Dividends paid
(15.3
)
—

—

—

(15.3
)
Debt issuance costs
(1.1
)
—

—

—

(1.1
)
Revolving credit facility borrowings (repayments), net
119.1

—

—

—

119.1

Other debt borrowings
323.3

—

154.3

(107.3
)
370.3

Other debt repayments
(334.4
)
(0.8
)
(81.3
)
—

(416.5
)
Distributions to noncontrolling interest holders
—

—

(16.3
)
—

(16.3
)
Issuance of common shares
0.3

—

—

—

0.3

Repurchase of common shares
(4.5
)
—

—

—

(4.5
)
Capital contributions received and loans incurred
—

37.4

215.2

(252.6
)
—

Payments on intercompany loans
—

(27.3
)
(144.6
)
171.9

—

Net cash provided (used) by financing activities
87.4

9.3

127.3

(188.0
)
36.0

Effect of exchange rate changes on cash and cash equivalents
—

—

12.1

—

12.1

Increase (decrease) in cash and cash equivalents
(131.9
)
(0.1
)
(69.4
)
—

(201.4
)
Cash and cash equivalents at the beginning of the period
138.4

2.3

512.0

—

652.7

Cash and cash equivalents at the end of the period
$
6.5

$
2.2

$
442.6

$
—

$
451.3



44
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2016
Parent
Combined
Guarantor
Subsidiaries
Combined
Non-Guarantor
Subsidiaries
Reclassifications/
Eliminations
Consolidated
Net cash used by operating activities
$
(152.1
)
$
(27.6
)
$
(26.3
)
$
—

$
(206.0
)
Cash flow from investing activities
Proceeds from maturities of investments
—

—

107.1

—

107.1

Proceeds from sale of foreign currency option and forward contracts, net
42.6

—

—

—

42.6

Payments for purchases of investments
—

—

(85.9
)
—

(85.9
)
Proceeds from sale of assets
—

—

0.4

—

0.4

Capital expenditures
(3.1
)
(0.4
)
(7.8
)
—

(11.3
)
Restricted cash, net
(1,768.1
)
—

—

—

(1,768.1
)
Increase in certain other assets
(13.2
)
(3.0
)
6.9

—

(9.3
)
Capital contributions and loans paid
(90.1
)
—

—

90.1

—

Proceeds from intercompany loans
74.7

—

—

(74.7
)
—

Net cash (used) provided by investing activities - continuing operations
(1,757.2
)
(3.4
)
20.7

15.4

(1,724.5
)
Net cash provided by investing activities - discontinued operations
365.1

—

—

—

365.1

Net cash (used) provided by investing activities
(1,392.1
)
(3.4
)
20.7

15.4

(1,359.4
)
Cash flow from financing activities
Dividends paid
(38.0
)
—

—

—

(38.0
)
Debt issuance costs
(11.2
)
—

—

—

(11.2
)
Restricted cash, net
(54.9
)
—

—

—

(54.9
)
Revolving credit facility borrowings (repayments), net
142.0

—

—

—

142.0

Other debt borrowings
1,781.1

—

25.9

—

1,807.0

Other debt repayments
(230.8
)
(0.5
)
(24.9
)
—

(256.2
)
Distributions to noncontrolling interest holders
—

—

(2.0
)
—

(2.0
)
Repurchase of common shares
(2.0
)
—

—

—

(2.0
)
Capital contributions received and loans incurred
—

77.8

12.3

(90.1
)
—

Payments on intercompany loans
—

(51.5
)
(23.2
)
74.7

—

Net cash provided (used) by financing activities
1,586.2

25.8

(11.9
)
(15.4
)
1,584.7

Effect of exchange rate changes on cash and cash equivalents
—

—

4.1

—

4.1

(Decrease) increase in cash and cash equivalents
42.0

(5.2
)
(13.4
)
—

23.4

Add: Cash overdraft included in assets held for sale at beginning of period
(1.5
)
—

—

—

(1.5
)
Cash and cash equivalents at the beginning of the period
20.3

7.9

285.4

—

313.6

Cash and cash equivalents at the end of the period
$
60.8

$
2.7

$
272.0

$
—

$
335.5



45
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Significant Highlights

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

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

Overview

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

Introduction
The Company provides connected commerce services, software and technology to enable millions of transactions each day. The Company’s approximately 24,000 employees design and deliver convenient, “always on” and highly secure solutions that bridge the physical and the digital worlds of transactions. Customers of the Company include nearly all of the world’s top 100 financial institutions and a majority of the top 25 global retailers.

Strategy
The Company’s connected commerce strategy seeks to continually enhance the customer experience at banking and retail locations by integrating services, software and systems. This requires ongoing investment and development of its industry-leading field services organization as well as the development and integration of innovative technology including cloud computing technology, sensors and connectivity to the Internet of Things, as well as open and agile software. The Company will continuously refine its research and development (R&D) priorities in support of a better transaction experience for consumers.

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

Advancing the Company's Connected Commerce Strategy - the Company will continue to develop innovative technology and partner with external companies to deliver highly secure customer-centric solutions. This includes the application of cloud computing technology, mobile technology, sensors and the Internet of Things, as well as open and agile software delivered “as a service”.
Pursuing Finance Excellence - the Company will continuously improve its financial reporting, analysis and forecasting by emulating best practices from similar business entities. The Company's initiatives are designed to improve forecasting accuracy, optimize working capital management and pursue prudent capital allocation strategies which enhance

46
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

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

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

•
Realizing volume discounts on direct materials
•
Harmonizing the solutions set
•
Increasing utilization rates of the service technicians
•
Rationalizing facilities in the regions
•
Streamlining corporate and general and administrative functions
•
Harmonizing back office solutions.

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

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

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

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

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

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

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

47
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

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

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

Under DN2020, the Services LOB has a dual mandate of delivering moderate revenue growth and increased efficiency. We expect to generate modest top-line growth by increasing the Company's service attach rate on the unserved Diebold Nixdorf ATMs, POS and self-checkout systems in use, up-selling current customers on managed services and increasing billed work revenue by leveraging best practices across different countries and regions. The Company acquired a design company in Germany which advises and supports innovative solutions for branch modernization. The Services line will achieve higher levels of efficiency by standardizing the service offerings, service tools and processes, increasing the market acceptance of remote monitoring and resolution, and streamlining global delivery centers and stocking facilities.
Software LOB
The Company provides front-end applications for consumer connection points and back-end platforms that manage channel transactions, operations and integration. The Company’s hardware-agnostic software applications facilitate millions of transactions via ATMs, POS terminals, kiosks, and a host of other self-service devices. Diebold Nixdorf’s platform software is installed within bank and retail data centers to facilitate omni-channel transactions, endpoint monitoring, remote asset management, marketing, merchandise management and analytics. These offerings include highly configurable, application program interface enabled software that automates and migrates legacy banking and retail transactions across channels. As a result of these innovations, the Company's customers are transforming the shopping and banking experience to be more intelligent and highly personalized. The Company's software is supported by a global network of more than 1,600 professional service employees who tailor the software to meet customer needs.

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

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

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

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


48
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

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

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

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

For retail customers, the checkout portfolio includes modular, integrated and mobile POS systems that meet evolving automation and omni-channel requirements of consumers. Supplementing the POS system is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio which offers a wide range of banknote and coin processing systems. Also in the portfolio, the Company provides self-checkout terminals and ordering kiosks which facilitate an efficient and user-friendly purchasing experience. The Company’s hybrid product line can alternate from attended operation to self-checkout by the cashier with the press of a button as traffic conditions warrant throughout the business day.

DN2020 empowers the Systems LOB to align the portfolio with market demand, deliver innovations and increase operating efficiencies on innovation and efficiency. With respect to innovation, the Company will continue to spend significant R&D dollars on the latest technology. Current areas of innovations include;
•
mobile technologies to support advanced connectivity including contactless transactions;
•
new sensors and the Internet of Things to support real-time monitoring activities;
•
miniaturization technologies needed for branch/store transformation; and
•
advanced security capabilities including anti-skimming card readers and biometric authentication.

With respect to operating efficiencies, the Systems LOB has initiated the following activities:
•
leveraging the purchasing power of the Company through a new procurement partnership program;
•
streamlining the product portfolio - including terminals, core technologies and components;
•
developing a partner ecosystem to complement the Company's core technologies;
•
consolidating manufacturing capacity to optimize fixed costs; and
•
re-allocating R&D spend to areas of innovation.

Leveraging the broad portfolio from each LOB , the Company allows customers the flexibility to select the combination of services, software and systems that drives the most value to their business. For example, the Company offers end-to-end branch and store automation solutions that consist of the complete value chain of consult, design, build and operate. Branch and store automation helps financial institutions grow revenue, reduce costs, and increase convenience and security for the banks’ customers by migrating routine transactions, typically done inside the branch or store, to lower-cost automated channels. The Company’s advisory services team collaborates with its clients to define the ideal customer experience, modify processes, refine existing staffing models and deploy technologies that meet business objectives.


49
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(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 managed services and professional services;
•
timing of system upgrades and/or replacement cycles for ATMs, POS and SCO;
•
demand for security products and services for the financial, retail and commercial sectors;
•
integration of legacy salesforce, business processes, procurement, and internal IT systems; and
•
realization of cost synergies, which leverage the Company's global scale, reduce overlap and improve operating efficiencies.

Results of Operations

The following discussion of the Company’s financial condition and results of operations provides information that will assist in understanding the financial statements and the changes in certain key items in those financial statements. The following discussion should be read in conjunction with the condensed consolidated financial statements and the accompanying notes that appear elsewhere in this quarterly report on Form 10-Q.
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Amount
% of
Net sales
Amount
% of
Net sales
Amount
% of
Net sales
Amount
% of
Net sales
Net sales
$
1,133.9

100.0

$
580.0

100.0

$
2,236.7

100.0

$
1,089.6

100.0
Gross profit
$
237.8

21.0

$
155.1

26.7

$
480.3

21.5

$
293.9

27.0
Operating expenses
$
267.9

23.6

$
144.8

25.0

$
559.0

25.0

$
289.3

26.6
Operating profit (loss)
$
(30.1
)
(2.7
)
$
10.3

1.8

$
(78.7
)
(3.5
)
$
4.6

0.4
Net income (loss) (1)
$
(23.6
)
(2.1
)
$
(20.3
)
(3.5
)
$
(75.8
)
(3.4
)
$
148.2

13.6
Net income attributable to noncontrolling interests
$
7.0

0.6

$
0.8

0.1

$
13.6

0.6

$
1.1

0.1
Net income (loss) attributable to Diebold Nixdorf, Incorporated
$
(30.6
)
(2.7
)
$
(21.1
)
(3.6
)
$
(89.4
)
(4.0
)
$
147.1

13.5
(1) Net income (loss) for the the three and six months ended June 30, 2016 includes income from discontinued operations, net of tax of $0.5 and $148.3 , respectively.

50
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)


Net Sales

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

Three Months Ended
Percent of Total Net Sales for the Three Months Ended
June 30,
June 30,
2017
2016
% Change
% Change in CC (1)
2017
2016
Segments
Services
$
580.2

$
329.6

76.0
75.4

51.2
56.8
Software
107.7

30.6

252.0
248.5

9.5
5.3
Systems
446.0

219.8

102.9
102.9

39.3
37.9
Net Sales
$
1,133.9

$
580.0

95.5
95.0

100.0
100.0
Geographic Regions
Americas
$
390.3

$
388.0

0.6
(0.2
)
34.4
66.9
EMEA
587.5

106.5

451.6
457.9

51.8
18.4
AP
156.1

85.5

82.6
83.4

13.8
14.7
Net Sales
$
1,133.9

$
580.0

95.5
95.0

100.0
100.0
Solutions
Banking
$
843.9

$
564.3

49.5
49.3

74.4
97.3
Retail
290.0

15.7

N/M
N/M

25.6
2.7
Net Sales
$
1,133.9

$
580.0

95.5
95.0

100.0
100.0
(1) The Company calculates constant currency by translating the prior-year period results at the current year exchange rate.
N/M = Not Meaningful

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

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

Segments

•
Services net sales increased $250.6 , with $266.2 attributable to the Acquisition and included an unfavorable impact of $5.1 related to purchase accounting adjustments. Excluding the impact of the Acquisition, services sales decreased $15.6 primarily due to the run-off of multi-vendor service contracts in the Americas, as well as, lower installation revenue tied to decreased Systems volumes in the Americas and Europe, Middle East, and Africa (EMEA).

•
Software net sales increased $77.1 , with $84.5 attributable to the Acquisition and included an unfavorable impact of $2.8 related to purchase accounting adjustments. Excluding the impact of the Acquisition, software sales decreased $7.4 primarily associated with lower Systems volume in the Americas.

•
Systems net sales increased $226.2 , with $285.1 attributable to the Acquisition and included an unfavorable impact of $2.4 related to purchase accounting adjustments . Excluding the impact of the Acquisition, systems sales decreased $58.9 primarily attributable to banking solutions activity across the Company. EMEA has been unfavorably impacted by the alignment of customer portfolio and solution offerings between the legacy companies which may be reflected as part of the sales attributable to the Acquisition. In the Americas, the volume declines were due to non-recurring projects and in Asia Pacific (AP) mainly due to structural changes in the market.


51
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

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

Geographic Regions

•
Americas net sales increased $2.3 or 0.6 percent , with $39.3 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales decreased in NA related to lower multi-vendor service contract revenue. In addition, there were fewer large systems projects across NA and Latin America (LA), that were partially offset by higher systems volume in Brazil.

•
EMEA net sales increased $481.0 or 451.6 percent , with $513.9 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales has been unfavorably impacted as a result of the alignment of customer portfolio and solution offerings between the legacy companies which may be reflected as part of the sales attributable to the Acquisition. Additionally, there were two large projects in Switzerland in the prior year period that did not recur.

•
AP net sales increased $70.6 or 82.6 percent , with $82.6 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales decreased primarily due to lower systems volume due to the market structure change in China. Also contributing to the decline, the sequencing of large system deployments in the current year is expected to be more weighted towards the second half of the year.

Solutions

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

•
Retail net sales increased $274.3 , with $283.5 attributable to the Acquisition and included an unfavorable impact of $4.1 related to purchase accounting adjustments. Excluding the impact of the Acquisition, net sales decreased primarily due to lower demand in Brazil for voting solutions.

Six Months Ended
Percent of Total Net Sales for the Six Months Ended
June 30,
June 30,
2017
2016
% Change
% Change in CC (1)
2017
2016
Segments
Services
$
1,153.4

$
646.5

78.4
77.0
51.6
59.3
Software
218.1

53.0

311.5
303.9
9.8
4.9
Systems
865.2

390.1

121.8
120.7
38.6
35.8
Net Sales
$
2,236.7

$
1,089.6

105.3
103.8
100.0
100.0
Geographic Regions
Americas
$
786.5

$
731.5

7.5
5.8
35.2
67.1
EMEA
1,149.5

192.1

498.4
504.7
51.4
17.6
AP
300.7

166.0

81.1
83.2
13.4
15.3
Net Sales
$
2,236.7

$
1,089.6

105.3
103.8
100.0
100.0
Solutions
Banking
$
1,663.5

$
1,071.9

55.2
54.2
74.4
98.4
Retail
573.2

17.7

N/M
N/M
25.6
1.6
Net Sales
$
2,236.7

$
1,089.6

105.3
103.8
100.0
100.0
(1) The Company calculates constant currency by translating the prior-year period results at the current year exchange rate.
N/M = Not Meaningful


52
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

Six months ended June 30, 2017 compared with six months ended June 30, 2016
Net sales increased $1,147.1 or 105.3 percent including a net favorable currency impact of $7.9 primarily related to the Brazil real, which was partially offset by smaller unfavorable currency movements in Asia and Europe. The Acquisition accounted for $1,259.4 in net sales. In addition, net sales was adversely impacted $20.7 related to deferred revenue purchase accounting adjustments. The amounts attributable to the Acquisition are impacted by the alignment and integration of customer portfolios, solution offerings and operations between the legacy companies, which may result in unfavorable comparisons to prior year. The following results include the impact of foreign currency and purchase accounting adjustments:

Segments

•
Services net sales increased $506.9 , with $529.1 attributable to the Acquisition and included an unfavorable impact of $10.3 related to purchase accounting adjustments. Excluding the impact of the Acquisition, services sales decreased $22.2 primarily due to the run-off of multi-vendor service contracts in the Americas, as well as lower installation revenue tied to decreased Systems volumes in the Americas and EMEA.

•
Software net sales increased $165.1 , with $168.6 attributable to the Acquisition and included an unfavorable impact of $2.8 related to purchase accounting adjustments. Excluding the impact of the Acquisition, software sales were relatively flat.

•
Systems net sales increased $475.1 , with $561.7 attributable to the Acquisition and included an unfavorable impact of $7.6 related to purchase accounting adjustments. Excluding the impact of the Acquisition, systems sales decreased $86.6 primarily attributable to banking solutions activity across the Company. EMEA has been unfavorably impacted by the alignment of customer portfolio and solution offerings between the legacy companies which may be reflected as part of the sales attributable to the Acquisition. In the Americas, the volume declines were due to non-recurring projects and in AP mainly due to structural changes in the market.

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

Geographic Regions

•
Americas net sales increased $55.0 or 7.5 percent , with $92.2 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales decreased in NA related to lower multi-vendor service contract revenue. In addition, there were fewer large systems projects across NA and LA, that were partially offset by higher systems volume in Brazil.

•
EMEA net sales increased $957.4 or 498.4 percent , with $1,009.1 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales has been unfavorably impacted as a result of the alignment of customer portfolio and solution offerings between the legacy companies which may be reflected as part of the sales attributable to the Acquisition. Additionally, there were two large projects in Switzerland in the prior-year period that did not recur.

•
AP net sales increased $134.7 or 81.1 percent , with $158.1 attributable to the Acquisition. Excluding the impact of the Acquisition, net sales decreased primarily due to lower systems volume due to the market structure change in China. Also contributing to the decline, the sequencing of large system deployments in the current year is more weighted towards the second half of the year.

Solutions

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


53
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

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

Gross Profit

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

Six Months Ended
June 30,

June 30,
2017
2016
% Change
2017
2016
% Change
Gross profit - services and software
$
151.5

$
123.4

22.8
$
329.6

$
231.8

42.2
Gross profit - systems
86.3

31.7

N/M
150.7

62.1

142.7
Total gross profit
$
237.8

$
155.1

53.3
$
480.3

$
293.9

63.4
Gross margin - services and software
22.0
%
34.3
%
24.0
%
33.1
%
Gross margin - systems
19.3
%
14.4
%

17.4
%
15.9
%
Total gross margin
21.0
%
26.7
%
21.5
%
27.0
%

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

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

Operating Expenses

The following table represents information regarding the Company's operating expenses:
Three Months Ended
Six Months Ended
June 30,
June 30,
2017

2016
% Change
2017
2016
% Change
Selling and administrative expense
$
236.8

$
127.3

86.0
$
483.8

$
252.9

91.3
Research, development and engineering expense
38.8

17.6

120.5
80.2

36.1

122.2
Impairment of assets
—

—

—
3.1

—

N/M
(Gain) loss on sale of assets, net
(7.7
)
(0.1
)
N/M
(8.1
)
0.3

N/M
Total operating expenses
$
267.9

$
144.8

85.0
$
559.0

$
289.3

93.2


54
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

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

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

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

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

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

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

Operating Profit

The following table represents information regarding the Company's operating profit:
Three Months Ended
Six Months Ended
June 30,
June 30,
2017

2016
% Change
2017
2016
% Change
Operating profit (loss)
$
(30.1
)
$
10.3

N/M
$
(78.7
)
$
4.6

N/M
Operating profit margin
(2.7
)%
1.8
%
(3.5
)%
0.4
%

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


55
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(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
Six Months Ended
June 30,
June 30,
2017

2016
% Change
2017
2016
% Change
Interest income
$
5.1

$
6.3

(19.0
)
$
11.5

$
11.2

2.7

Interest expense
(32.2
)
(24.3
)
(32.5
)
(63.0
)
(35.8
)
(76.0
)
Foreign exchange gain (loss), net
(4.6
)
(1.2
)
—

(7.7
)
(3.6
)
(113.9
)
Miscellaneous, net
1.9

(26.8
)
N/M

3.2

7.8

(59.0
)
Other income (expense), net
$
(29.8
)
$
(46.0
)
35.2

$
(56.0
)
$
(20.4
)
(174.5
)

The decrease in interest income in the three months ended June 30, 2017, compared with the same period in 2016, was as a result of lower interest income in Brazil. In addition, the Company's cash balances in the prior year three month time period included funds held for the purchase of Wincor Nixdorf which generated additional interest income. Interest expense was higher in both the three and six months ended compared to the same prior-year periods associated with the financing required for the Acquisition. Foreign exchange gain (loss), net in the three and six months ended was unfavorable as a result of the impact of the Acquisition. Miscellaneous, net in the three months ended June 30, 2016 included a mark-to-market loss of $22.7 associated with the Company’s foreign currency forward contract entered into on April 29, 2016 and $6.3 in financing fees related to the Company’s bridge financing required for the debt undertaken for the Acquisition. In addition, the six months ended June 30, 2016 included a mark-to-market gain of $35.6 associated with the Company's foreign currency option contracts entered into on November 23, 2015.

Income (Loss) From Continuing Operations, Net of Tax

The following table represents information regarding the Company's income (loss) from continuing operations, net of tax:
Three Months Ended
Six Months Ended
June 30,
June 30,
2017

2016
% Change
2017
2016
% Change
Income (loss) from continuing operations, net of tax
$
(23.6
)
$
(20.8
)
13.5
$
(75.8
)
$
(0.1
)
N/M
Percent of net sales
(2.1
)%
(3.6
)%
(3.4
)%
—
%

Effective tax rate
60.6
%
41.7
%
43.7
%
99.4
%

Income (loss) from continuing operations, net of tax was $(23.6) and $(20.8) for the three months ended June 30, 2017 and 2016 , respectively. The decrease is primarily due to the reasons described above and the change in income tax (benefit) expense.

The tax rate on the loss for the three and six months ended June 30, 2017 increased due to the jurisdictional income (loss) mix and varying statutory rates in the Company’s global footprint. These increases to the overall tax rate for these periods was offset in part by additional discrete expense items recognized in the quarter related to uncertain tax positions.

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

Income (Loss) From Discontinued Operations, Net of Tax

Income from discontinued operations, net of tax was $0.5 for the three months ended June 30, 2016 . The closing of the NA electronic security divestiture occurred on February 1, 2016 and the Company recorded a gain (loss) on sale, net of tax, of $149.6 for the six months ended June 30, 2016 . Additionally, the income from discontinued operations, net of tax includes a net loss of $1.3 as a result of the operations included through February 1, 2016.

56
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)


Net Income (Loss)

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

Segment Revenue and Operating Profit Summary

The following tables represent information regarding the Company's revenue and operating profit by reporting segment:
Three Months Ended
Six Months Ended
June 30,
June 30,
Services:
2017
2016
% Change
2017
2016
% Change
Revenue
$
580.2

$
329.6

76.0
$
1,153.4

$
646.5

78.4
Segment operating profit (loss)
$
77.0

$
71.8

7.2
$
158.2

$
134.0

18.1
Segment operating profit margin
13.3
%
21.8
%
13.7
%

20.7
%

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

Segment operating profit increased in both the three and six months ended June 30, 2017 as a result of $60.4 and $116.7 incremental gross profit, respectively, partially offset by $31.5 and $62.5 of operating expense, respectively, associated with the Acquisition. Segment operating profit was unfavorably impacted by lower contract maintenance revenue in Americas combined with increased labor investments. The labor investments are a result of higher turnover rates of technicians and the associated training to support additional product lines. In the six months ended June 30, 2017, EMEA gross margin was unfavorably impacted by large systems projects in the prior year that carried a higher margin.
Three Months Ended
Six Months Ended
June 30,
June 30,
Software:
2017
2016
% Change
2017
2016
% Change
Revenue
$
107.7

$
30.6

252.0
$
218.1

$
53.0

311.5
Segment operating profit (loss)
$
6.4

$
0.2

N/M
$
11.7

$
(8.1
)
244.4
Segment operating profit margin
5.9
%
0.7
%
5.4
%
(15.3
)%

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

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

57
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

Three Months Ended
Six Months Ended
June 30,
June 30,
Systems:
2017
2016
% Change
2017
2016
% Change
Revenue
$
446.0

$
219.8

102.9
$
865.2

$
390.1

121.8
Segment operating profit (loss)
$
(1.6
)
$
(14.0
)
88.6
$
(5.5
)
$
(29.1
)
81.1
Segment operating profit margin
(0.4
)%
(6.4
)%
(0.6
)%
(7.5
)%

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

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

Refer to note 20 to the condensed consolidated financial statements for further details of segment revenue and operating profit.

Liquidity and Capital Resources

The Company's total cash and cash availability as of June 30, 2017 and December 31, 2016 was as follows:
June 30,
2017
December 31,
2016
Cash and cash equivalents
$
451.3

$
652.7

Additional cash availability from
Uncommitted lines of credit
160.0

198.6

Revolving credit facility
440.9

520.0

Short-term investments
76.9

64.1

Total cash and cash availability
$
1,129.1

$
1,435.4


Capital resources are obtained from income retained in the business, borrowings under the Company’s senior notes, committed and uncommitted credit facilities and operating and capital leasing arrangements. Management expects that the Company’s capital resources will be sufficient to finance planned working capital needs, research and development activities, restructuring and integration activities, investments in facilities or equipment, pension contributions, repayments of debt, redemption payments for redeemable noncontrolling interests, the payment of dividends on the Company’s common shares and any repurchases of the Company’s common shares for at least the next 12 months. As of June 30, 2017 , $519.5 or 98.3 percent of the Company's cash and cash equivalents and short-term investments reside in international tax jurisdictions. Repatriation of these funds could be negatively impacted by potential payments for foreign and domestic taxes. The Company has approximately $180 of earnings that are available for repatriation with no additional tax expense as the Company has already provided for such taxes. Part of the Company’s growth strategy is to pursue acquisitions complementary to the Company's future structure. The Company has made acquisitions in the past and intends to make acquisitions in the future. The Company intends to finance any future acquisitions with either cash and short-term investments, cash provided from operations, borrowings under available credit facilities, proceeds from debt or equity offerings and/or the issuance of common shares.

58
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)


The following table summarizes the results of the Company's condensed consolidated statement of cash flows for the six months ended June 30 :
Summary of cash flows:
2017
2016
Net cash used by operating activities - continuing operations
$
(185.8
)
$
(199.8
)
Net cash used by investing activities - continuing operations
(63.7
)
(1,724.5
)
Net cash provided by financing activities
36.0

1,584.7

Discontinued operations, net
—

358.9

Effect of exchange rate changes on cash and cash equivalents
12.1

4.1

(Decrease) increase in cash and cash equivalents
$
(201.4
)
$
23.4


Operating Activities

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

Net cash used by operating activities - continuing operations was $185.8 for the six months ended June 30, 2017 , a decrease in use of $14.0 from $199.8 for the same period in 2016 .

•
The net aggregate of trade accounts receivable, inventories and accounts payable used $81.2 and $167.4 in operating cash flows during the six months ended June 30, 2017 and 2016 , respectively. In general, the amount of cash flow provided or used by the aggregate of trade accounts payable, inventories and trade accounts receivable depends upon how effectively the Company manages the cash conversion cycle, which represents the number of days that elapse from the day it pays for the purchase of raw materials and components to the collection of cash from its customers and can be significantly impacted by the timing of collections and payments in a period. Accounts receivable cash use improved compared to prior-year same period improved primarily due to collections in AP and EMEA. Inventory cash use improved compared to the same period in the prior year due to normalization of inventory in the United States, primarily due to working capital initiatives, and in Europe along with inventory reductions in Brazil due to reduced demand. Accounts payable activities improved $63.0 from a use of $26.6 during the six months ended June 30, 2016 to cash provided of $36.4 during the six months ended June 30, 2017 due to a decrease in payments and working capital initiatives compared to the prior-year same period.

•
In the aggregate, the other combined certain assets and liabilities used $158.1 and $60.7 of operating cash during the six months ended June 30, 2017 and 2016 , respectively. The increase in use was primarily due to interest paid, restructuring payments, VAT payments and a transition service netting settlement with Securitas AB offset by deferred revenue cash provided by the collection of customer prepayments, mainly on service contracts compared to the same period in the prior year. Additionally, there were non-cash uses primarily related to taxes offset by non-cash sources of Diebold Nixdorf AG accrued noncontrolling interest dividend.

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


59
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

Investing Activities

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

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

Financing Activities

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

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

The Company entered into a revolving and term loan credit agreement (the Credit Agreement) , dated as of November 23, 2015, among the Company and certain of the Company's subsidiaries, as borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders named therein. The Credit Agreement included, among other things, mechanics for the Company’s existing revolving and term loan A facilities to be refinanced under the Credit Agreement. On December 23, 2015, the Company entered into a Replacement Facilities Effective Date Amendment, which amended the Credit Agreement, among the Company, certain of the Company’s subsidiaries, the lenders identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to which the Company refinanced its $520.0 revolving and $230.0 term loan A senior unsecured credit facilities (which have been terminated and repaid in full) with, respectively, a new unsecured revolving facility (the Revolving Facility) in an amount of up to $520.0 and a new (non-delayed draw) unsecured term loan A facility (the Term Loan A Facility) on substantially the same terms as the Delayed Draw Term Loan A Facility (as defined in the Credit Agreement) in the amount of up to $230.0 . On December 23, 2020, the Term Loan A Facility will mature and the Revolving Facility will automatically terminate. The weighted-average interest rate on outstanding Revolving Facility borrowings as of June 30, 2017 and December 31, 2016 was 3.00 percent and 2.56 percent , respectively, which is variable based on the London Interbank Offered Rate ( LIBOR ). The amount available under the Revolving Facility as of June 30, 2017 was $440.9 .

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

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


60
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

In connection with the Incremental Agreement, the interest rate with respect to the Term Loan B Facility - USD is based on, at the Company’s option, adjusted LIBOR plus 2.75 percent (with a floor of 0.00 percent) or Alternate Base Rate (ABR) plus 1.75 percent (with an ABR floor of 1.00 percent) and the interest rate with respect to the Term Loan B Facility - Euro is based on adjusted Euro Interbank Offered Rate (EURIBOR) plus 3.00 percent (with a floor of 0.00 percent). Prior to the Incremental Agreement, the interest rate for the Term Loan B Facility - USD was LIBOR plus an applicable margin of 4.50 percent (or, at the Company’s option, prime plus an applicable margin of 3.50 percent), and the interest rate for the Term Loan B Facility - Euro was at the EURIBOR plus an applicable margin of 4.25 percent. As a result of the Incremental Agreement, the Company anticipates an approximate $5.0 reduction in interest expense per quarter.

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

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

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

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

Below is a summary of financing and replacement facilities information:
Financing and Replacement Facilities
Interest Rate
Index and Margin
Maturity/Termination Dates
Term (Years)
Credit Agreement facilities
Revolving Facility
LIBOR + 1.75%
December 2020
5
Term Loan A Facility
LIBOR + 1.75%
December 2020
5
Delayed Draw Term Loan A Facility
LIBOR + 1.75%
December 2020
5
Term Loan B Facility - USD
LIBOR (i) + 2.75%
November 2023
7.5
Term Loan B Facility - Euro
EURIBOR (ii) + 3.00%
November 2023
7.5
2024 Senior Notes
8.5%
April 2024
8
(i)
LIBOR with a floor of 0.0%.
(ii)
EURIBOR with a floor of 0.0%.

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

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

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

61
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)


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

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

Pursuant to the DPLTA, subject to certain limitations pursuant to applicable law, (i) Diebold KGaA has the ability to issue binding instructions to the management board of Diebold Nixdorf AG, (ii) Diebold Nixdorf AG will transfer all of its annual profits to Diebold KGaA, and (iii) Diebold KGaA will generally absorb all annual losses incurred by Diebold Nixdorf AG. In addition, the DPLTA offers the Diebold Nixdorf AG minority shareholders, at their election, (i) the ability to put their Diebold Nixdorf AG ordinary shares to Diebold KGaA in exchange for cash compensation of €55.02 per Diebold Nixdorf AG ordinary share or (ii) to remain Diebold Nixdorf AG minority shareholders and receive a recurring compensation in cash of €3.13 ( €2.82 net under the current taxation regime) per Diebold Nixdorf AG ordinary share for each full fiscal year of Diebold Nixdorf AG. The ultimate timing and amount of any future cash payments related to the DPLTA are uncertain.

Except for the items noted above, all contractual cash obligations with initial and remaining terms in excess of one year and contingent liabilities remained generally unchanged at June 30, 2017 compared to December 31, 2016 .

Off-Balance Sheet Arrangements The Company enters into various arrangements not recognized in the condensed consolidated balance sheets that have or could have an effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources. The principal off-balance sheet arrangements that the Company enters into are guarantees, operating leases and sales of finance receivables. The Company provides its global operations guarantees and standby letters of credit through various financial institutions to suppliers, regulatory agencies and insurance providers. If the Company is not able to make payment, the suppliers, regulatory agencies and insurance providers may draw on the pertinent bank. Refer to note 15 to the condensed consolidated financial statements for further details of guarantees. The Company has sold finance receivables to financial institutions while continuing to service the receivables. The Company records these sales by removing finance receivables from the condensed consolidated balance sheets and recording gains and losses in the condensed consolidated statements of operations.

Critical Accounting Policies and Estimates

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

Management believes there have been no significant changes during the six months ended June 30, 2017 to the items that the Company disclosed as its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s annual report on Form 10-K for the year ended December 31, 2016 .


62
Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)

Forward-Looking Statement Disclosure

In this quarterly report on Form 10-Q, statements that are not reported financial results or other historical information are “forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.” Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. These forward-looking statements relate to, among other things, the Company's future operating performance, the Company's share of new and existing markets, the Company's short- and long-term revenue and earnings growth rates, and the Company's implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the Company's manufacturing capacity.

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

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

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

Item 3: Quantitative and Qualitative Disclosures About Market Risk

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

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


63
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
(in millions, except share and per share amounts)

Item 4: Controls and Procedures

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

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

Disclosure Controls and Procedures

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

In connection with the preparation of this quarterly report on Form 10-Q, the Company's management, under the supervision and with the participation of the CEO and CFO, conducted an evaluation of disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that such disclosure controls and procedures were effective as of June 30, 2017 .

Change in Internal Controls

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

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



64
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
(in millions, except share and per share amounts)

Part II – Other Information
Item 1: Legal Proceedings

At June 30, 2017 , the Company was a party to several lawsuits that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the Company's condensed consolidated financial statements would not be materially affected by the outcome of these legal proceedings, commitments or asserted claims.

For more information regarding legal proceedings, please refer to Part I, Item 3 of the Company's annual report on Form 10-K for the year ended December 31, 2016. There have been no material developments with respect to the legal proceedings reported in the Company's annual report on Form 10-K for the year ended December 31, 2016.

Item 1A: Risk Factors

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

The Company is exposed to additional litigation risk and uncertainty with respect to the remaining minority shareholders of Diebold Nixdorf AG.

As a result of the Acquisition, the Company continues to be exposed to litigation risk and uncertainty associated with the remaining minority shareholders of Diebold Nixdorf AG. The Company’s willingness and/or ability to acquire all issued and outstanding shares of Diebold Nixdorf AG, and the timing of any such potential acquisition, is uncertain. In addition, the adequacy of both forms of compensation payments to minority shareholders agreed under the terms of the DPLTA has been challenged by several minority shareholders of Diebold Nixdorf AG by initiating court-led appraisal proceedings under German law. The Company cannot rule out that the competent court in such appraisal proceeding may adjudicate a higher exit compensation or recurring payment obligation (in each case, including interest thereon) than agreed upon in the DPLTA, the financial impact and timing of which is uncertain.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Information concerning the Company’s share repurchases made during the second quarter of 2017 :
Period
Total Number of
Shares
Purchased (1)
Average Price
Paid Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans (2)
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans (2)
April
163

$
30.70

—

2,426,177

May
—

$
—

—

2,426,177

June
1,122

$
28.56

—

2,426,177

Total
1,285

$
28.83

—

(1)
All shares were surrendered or deemed surrendered to the Company in connection with the Company’s share-based compensation plans.
(2)
The total number of shares repurchased as part of the publicly announced share repurchase plan since its inception was 13,450,772 as of June 30, 2017 . The plan was approved by the Board of Directors in 1997. The Company may purchase shares from time to time in open market purchases or privately negotiated transactions. The Company may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans. The plan has no expiration date. The following table provides a summary of Board of Directors approvals to repurchase the Company’s outstanding common shares:

Total Number of Shares
Approved for Repurchase
1997
2,000,000

2004
2,000,000

2005
6,000,000

2007
2,000,000

2011
1,876,949

2012
2,000,000

15,876,949


65
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
(in millions, except share and per share amounts)


Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

Item 6: Exhibits
3.1(i)
Amended and Restated Articles of Incorporation of Diebold, Incorporated – incorporated by reference to Exhibit 3.1(i) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994 (Commission File No. 1-4879)
3.1(ii)
Amended and Restated Code of Regulations – incorporated by reference to Exhibit 3.1(ii) to Registrant’s Current Report on Form 8-K filed on February 17, 2017 (Commission File No. 1-4879)
3.2
Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated – incorporated by reference to Exhibit 3.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (Commission File No. 1-4879)
3.3
Certificate of Amendment to Amended Articles of Incorporation of Diebold, Incorporated – incorporated by reference to Exhibit 3.3 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998 (Commission File No. 1-4879)
3.4
Certificate of Amendment to Amended Articles of Incorporation of Diebold Nixdorf, Incorporated – incorporated by reference to Exhibit 3.1(i) to Registrant’s Current Report on Form 8-K filed on December 12, 2016 (Commission File No. 1-4879)
3.5
Certificate of Amendment to Amended Articles of Incorporation of Diebold Nixdorf, Incorporated, effective April 26, 2017 – incorporated by reference to Exhibit 3.5 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (Commission File No. 1-4879)
10.1
Jürgen Wunram Amended Service Agreement – incorporated by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (Commission File No. 1-4879)
10.2
Christopher Chapman Service Agreement – incorporated by reference to Exhibit 10.7 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (Commission File No. 1-4879)
10.3
Diebold Nixdorf, Incorporated 2017 Equity and Performance Incentive Plan – incorporated by reference to Exhibit 4.6 to Registrant’s Registration Statement on Form S-8 filed on April 26, 2017 (Registration Statement No. 333-217476)
10.4
Form of Non-Qualified Stock Option Agreement (2017 Plan) – incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.5
Form of Restricted Share Agreement (2017 Plan) – incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.6
Form of Restricted Stock Unit Agreement - Cliff Vest (2017 Plan) – incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.7
Form of Restricted Stock Unit Agreement - Ratable Vest (2017 Plan) – incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.8
Form of Restricted Stock Unit Agreement - Non-employee Directors (2017 Plan) – incorporated by reference to Exhibit 10.5 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.9
Form of Stock Appreciation Rights Agreement (2017 Plan) – incorporated by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)

66
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of June 30, 2017
(in millions, except share and per share amounts)

10.10
Form of Performance Shares Agreement (2017 Plan) – incorporated by reference to Exhibit 10.7 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.11
Form of Performance Units Agreement (2017 Plan) – incorporated by reference to Exhibit 10.8 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.12
Incremental Amendment to Credit Agreement, dated as of May 9, 2017, among Diebold Nixdorf, Incorporated, certain subsidiary borrowers party thereto, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document


67

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DIEBOLD NIXDORF, INCORPORATED
Date:
July 26, 2017
/s/ Andreas W. Mattes
By:
Andreas W. Mattes
President and Chief Executive Officer
(Principal Executive Officer)
Date:
July 26, 2017
/s/ Christopher A. Chapman
By:
Christopher A. Chapman
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)


68

EXHIBIT INDEX
EXHIBIT NO.
DOCUMENT DESCRIPTION
3.1(i)
Amended and Restated Articles of Incorporation of Diebold, Incorporated – incorporated by reference to Exhibit 3.1(i) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994 (Commission File No. 1-4879)
3.1(ii)
Amended and Restated Code of Regulations – incorporated by reference to Exhibit 3.1(ii) to Registrant’s Current Report on Form 8-K filed on February 17, 2017 (Commission File No. 1-4879)
3.2
Certificate of Amendment by Shareholders to Amended Articles of Incorporation of Diebold, Incorporated – incorporated by reference to Exhibit 3.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (Commission File No. 1-4879)
3.3
Certificate of Amendment to Amended Articles of Incorporation of Diebold, Incorporated – incorporated by reference to Exhibit 3.3 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998 (Commission File No. 1-4879)
3.4
Certificate of Amendment to Amended Articles of Incorporation of Diebold Nixdorf, Incorporated – incorporated by reference to Exhibit 3.1(i) to Registrant’s Current Report on Form 8-K filed on December 12, 2016 (Commission File No. 1-4879)
3.5
Certificate of Amendment to Amended Articles of Incorporation of Diebold Nixdorf, Incorporated, effective April 26, 2017 – incorporated by reference to Exhibit 3.5 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (Commission File No. 1-4879)
10.1
Jürgen Wunram Amended Service Agreement – incorporated by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (Commission File No. 1-4879)
10.2
Christopher Chapman Service Agreement – incorporated by reference to Exhibit 10.7 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (Commission File No. 1-4879)
10.3
Diebold Nixdorf, Incorporated 2017 Equity and Performance Incentive Plan – incorporated by reference to Exhibit 4.6 to Registrant’s Registration Statement on Form S-8 filed on April 26, 2017 (Registration Statement No. 333-217476)
10.4
Form of Non-Qualified Stock Option Agreement (2017 Plan) – incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.5
Form of Restricted Share Agreement (2017 Plan) – incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.6
Form of Restricted Stock Unit Agreement - Cliff Vest (2017 Plan) – incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.7
Form of Restricted Stock Unit Agreement - Ratable Vest (2017 Plan) – incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.8
Form of Restricted Stock Unit Agreement - Non-employee Directors (2017 Plan) – incorporated by reference to Exhibit 10.5 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.9
Form of Stock Appreciation Rights Agreement (2017 Plan) – incorporated by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.10
Form of Performance Shares Agreement (2017 Plan) – incorporated by reference to Exhibit 10.7 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.11
Form of Performance Units Agreement (2017 Plan) – incorporated by reference to Exhibit 10.8 to Registrant’s Current Report on Form 8-K filed on April 28, 2017 (Commission File No. 1-4879)
10.12
Incremental Amendment to Credit Agreement, dated as of May 9, 2017, among Diebold Nixdorf, Incorporated, certain subsidiary borrowers party thereto, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

69

32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document


70
TABLE OF CONTENTS