Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

Form 10-Q

__________________________________________________



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020



☐	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

__________________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common shares, $1.25 par value per share	DBD	New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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	☒	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock outstanding as of April 30, 2020 was 77,642,200.

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

Form 10-Q

Index



Part I - Financial Information	3
Item 1: Financial Statements	3
Condensed Consolidated Balance Sheets – March 31, 2020 (Unaudited) and December 31, 2019	3
Condensed Consolidated Statements of Operations (Unaudited) – Three Months Ended March 31, 2020 and 2019	4
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – Three Months Ended March 31, 2020 and 2019	5
Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31, 2020 and 2019	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3: Quantitative and Qualitative Disclosures About Market Risk	51
Item 4: Controls and Procedures	52
Part II - Other Information	53
Item 1: Legal Proceedings	53
Item 1A: Risk Factors	53
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3: Defaults Upon Senior Securities	54
Item 4: Mine Safety Disclosures	54
Item 5: Other Information	54
Item 6: Exhibits	55
Signatures	56

Table of Contents

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)



	March 31, 2020			December 31, 2019
	(Unaudited)
ASSETS
Current assets
Cash, cash equivalents and restricted cash	$	512.1		$	280.9
Short-term investments	13.5			10.0
Trade receivables, less allowances for doubtful accounts of $44.1 and $42.2, respectively	594.5			619.3
Inventories	475.5			466.5
Prepaid expenses	44.1			51.3
Current assets held for sale	152.6			233.3
Other current assets	253.1			230.7
Total current assets	2,045.4			1,892.0
Securities and other investments	18.1			21.4
Property, plant and equipment, net of accumulated depreciation and amortization of $527.9 and $526.9, respectively	216.1			231.5
Goodwill	736.2			764.0
Deferred income taxes	118.9			120.8
Customer relationships, net	418.5			447.7
Other assets	285.6			313.2
Total assets	$	3,838.8		$	3,790.6
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current liabilities
Notes payable	$	103.4		$	32.5
Accounts payable	499.2			471.5
Deferred revenue	371.4			320.5
Payroll and other benefits liabilities	170.3			224.7
Other current liabilities	501.4			550.4
Total current liabilities	1,645.7			1,599.6
Long-term debt	2,353.4			2,108.7
Pensions, post-retirement and other benefits	221.4			237.7
Deferred income taxes	114.6			134.5
Other liabilities	193.7			195.5
Commitments and contingencies
Redeemable noncontrolling interests	20.6			20.9
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, 93,343,980 and 92,208,247 issued shares, 77,518,456 and 76,813,013 outstanding shares, respectively	116.7			115.3
Additional capital	776.5			773.9
Accumulated deficit	(565.1		)	(472.3		)
Treasury shares, at cost (15,825,524 and 15,395,234 shares, respectively)	(576.5		)	(571.9		)
Accumulated other comprehensive loss	(479.5		)	(375.3		)
Total Diebold Nixdorf, Incorporated shareholders' equity	(727.9		)	(530.3		)
Noncontrolling interests	17.3			24.0
Total equity	(710.6		)	(506.3		)
Total liabilities, redeemable noncontrolling interests and equity	$	3,838.8		$	3,790.6

See accompanying notes to condensed consolidated financial statements.

Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited)

(in millions, except per share amounts)



	Three Months Ended
	March 31,
	2020			2019
Net sales
Services	$	587.8		$	628.7
Products	322.9			399.4
	910.7			1,028.1
Cost of sales
Services	437.5			471.5
Products	246.4			310.5
	683.9			782.0
Gross profit	226.8			246.1
Selling and administrative expense	222.1			230.3
Research, development and engineering expense	32.5			36.9
(Gain) loss on sale of assets, net	(1.8		)	3.4
	252.8			270.6
Operating profit (loss)	(26.0		)	(24.5		)
Other income (expense)
Interest income	1.1			2.9
Interest expense	(48.0		)	(50.9		)
Foreign exchange gain, net	0.4			2.8
Miscellaneous, net	(0.9		)	(1.4		)
Loss before taxes	(73.4		)	(71.1		)
Income tax expense	20.0			60.4
Equity in earnings of unconsolidated subsidiaries	—			(0.4		)
Net loss	(93.4		)	(131.9		)
Net (loss) income attributable to noncontrolling interests	(0.6		)	0.8
Net loss attributable to Diebold Nixdorf, Incorporated	$	(92.8	)	$	(132.7	)

Basic and diluted weighted-average shares outstanding	77.2			76.4

Net loss attributable to Diebold Nixdorf, Incorporated
Basic and diluted loss per share	$	(1.20	)	$	(1.74	)

See accompanying notes to condensed consolidated financial statements.

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DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(in millions)



	Three Months Ended
	March 31,
	2020			2019
Net loss	$	(93.4	)	$	(131.9	)
Other comprehensive income (loss), net of tax
Translation adjustment	(96.6		)	3.6
Foreign currency hedges (net of tax of $0.3 and $0.4, respectively)	0.7			(0.6		)
Interest rate hedges
Net loss recognized in other comprehensive income (net of tax of $(4.1) and $0.5, respectively)	(19.7		)	(2.3		)
Reclassification adjustment for amounts recognized in net income	4.5			0.5
	(15.2		)	(1.8		)
Pension and other post-retirement benefits
Net actuarial gain (loss) amortization (net of tax of $3.5, and $(0.3), respectively)	6.8			(0.5		)
Other	(1.2		)	0.1
Other comprehensive (loss) income, net of tax	(105.5		)	0.8
Comprehensive loss	(198.9		)	(131.1		)
Less: comprehensive (loss) income attributable to noncontrolling interests	(1.9		)	3.5
Comprehensive loss attributable to Diebold Nixdorf, Incorporated	$	(197.0	)	$	(134.6	)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in millions)



	Three Months Ended
	March 31,
	2020			2019
Cash flow from operating activities
Net loss	$	(93.4	)	$	(131.9	)
Adjustments to reconcile net loss to cash flow used by operating activities:
Depreciation and amortization	53.5			58.4
Share-based compensation	4.0			9.3
Loss (gain) on sale of assets, net	(1.8		)	3.4
Deferred income taxes	(14.1		)	4.2
Other	—			0.4
Changes in certain assets and liabilities
Trade receivables	(8.0		)	33.2
Inventories	(33.9		)	(63.1		)
Accounts payable	47.3			(12.4		)
Deferred revenue	66.4			66.6
Sales tax and net value added tax	(20.4		)	(16.8		)
Income taxes	31.8			47.2
Accrued salaries, wages and commissions	(46.4		)	(13.3		)
Restructuring	(4.8		)	(17.7		)
Warranty liability	(3.6		)	(2.3		)
Liabilities held for sale	(13.1		)	(5.5		)
Pension and post retirement benefits	(11.0		)	(7.3		)
Certain other assets and liabilities	(32.4		)	(9.5		)
Net cash used by operating activities	(79.9		)	(57.1		)
Cash flow from investing activities
Capital expenditures	(5.4		)	(14.7		)
Proceeds from divestitures, net of cash divested	(38.5		)	4.2
Proceeds from maturities of short-term investments	40.1			52.7
Payments for purchases of short-term investments	(44.5		)	(48.3		)
Increase in certain other assets	(3.4		)	(5.4		)
Net cash used by investing activities	(51.7		)	(11.5		)
Cash flow from financing activities
Debt issuance costs	(3.8		)	—
Revolving credit facility borrowings	385.9			10.0
Other debt borrowings	20.0			5.0
Other debt repayments	(83.1		)	(16.8		)
Distributions and payments to noncontrolling interest holders	—			(11.0		)
Other	(5.0		)	(1.1		)
Net cash provided (used) by financing activities	314.0			(13.9		)
Effect of exchange rate changes on cash and cash equivalents	(15.6		)	(0.5		)
Change in cash, cash equivalents and restricted cash	166.8			(83.0		)
Add: Cash included in assets held for sale at beginning of period	97.2			7.3
Less: Cash included in assets held for sale at end of period	32.8			4.8
Cash, cash equivalents and restricted cash at the beginning of the period	280.9			458.4
Cash, cash equivalents and restricted cash at the end of the period	$	512.1		$	377.9

See accompanying notes to condensed consolidated financial statements.

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DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

Notes to Condensed Consolidated Financial Statements

(unaudited)

(in millions, except per share amounts)

Note 1: Basis of Presentation

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, 2019. 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 months ended March 31, 2020 are not necessarily indicative of results to be expected for the full year.

The Company has reclassified the presentation of certain prior-year information to conform to the current presentation.

Recently Adopted Accounting Guidance



Standards Adopted	Description	Effective Date
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement	The standard is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. The adoption of this Accounting Standard Update (ASU) did not have a significant impact on the Company's condensed consolidated financial statements.	January 1, 2020
ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606	The amendments in this update provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for under Topic 606. The adoption of this ASU did not have a significant impact on the Company's condensed consolidated financial statements.	January 1, 2020
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The amendments in this update replace the incurred loss impairment methodology with the current expected credit loss methodology. This will change the measurement of credit losses on financial instruments and the timing of when such losses are recorded. The adoption of this ASU did not have a significant impact on the Company's condensed consolidated financial statements.	January 1, 2020
ASU 2019-01, Leases (Topic 842): Codification Improvements	The standard is designed to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing essential information about leasing transactions. The adoption of this ASU did not have a significant impact on the Company's condensed consolidated financial statements.	January 1, 2020
ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments	The standard is designed to clarify, correct, and improve various aspects of the guidance in the following ASUs related to financial instruments: ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Liabilities, ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments and ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements for Hedging Activities. The adoption of this ASU did not have a significant impact on the Company's condensed consolidated financial statements.	January 1, 2020

Note 2: Leases

The Company utilizes lease agreements to meet its operating needs. These leases support global staff via the use of office space, warehouses, vehicles and information technology (IT) equipment. The Company utilizes both operating and finance leases in its portfolio of leased assets, however, the majority of these leases are classified as operating. A significant portion of the volume of the lease portfolio is in fleet vehicles and IT office equipment; however, real estate leases constitute a majority of the value of the

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DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(in millions, except per share amounts)

ROU assets. Lease agreements are utilized worldwide, with the largest location concentration in the United States, Germany and India. The Company's lease population has initial lease terms ranging from less than one year to approximately ten years. Some leases include one or more options to renew, with renewal terms that can extend the lease term from six months to 15 years.

The following table summarizes the weighted-average remaining lease terms and discount rates related to the Company's lease population at:



	March 31, 2020		March 31, 2019
Weighted-average remaining lease terms (in years)
Operating leases	4.1		4.5
Finance leases	3.2		2.8
Weighted-average discount rate
Operating leases	10.6	%	14.3	%
Finance leases	14.6	%	26.7	%

The weighted-average discount rates used for operating and finance leases varies due to the jurisdictional composition. The Company has an immaterial amount of finance leases that are primarily comprised of leases in Turkey which have higher interest rates.

Certain lease agreements include payments based on a variety of global indexes or rates. These payment amounts have been projected using the index or rate as of lease commencement or the transition date and measured in ROU assets and lease liabilities. Other leases contain variable payments that are based on actual usage of the underlying assets and, therefore, are not measured in assets or liabilities as the variable payments are not based on an index or a rate. For real estate leases, these payments are most often tied to non-committed maintenance or utilities charges, and for equipment leases, to actual output or hours in operation. These amounts typically become known when the invoice is received, which is when expense is recognized. In rare circumstances, the Company's lease agreements may contain residual value guarantees. The Company's lease agreements do not contain any restrictions or covenants, such as those relating to dividends or incurring additional financial obligations.

As of March 31, 2020, the Company did not have any material leases that have not yet commenced but that create significant rights and obligations.

The Company determines whether an arrangement is or includes a lease at contract inception. All contracts containing the right to use an underlying asset are reviewed to confirm that the contract meets the definition of a lease. ROU assets and liabilities are recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term.

As most leases do not provide an explicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. In order to apply the incremental borrowing rate, a rate table was developed to assign the appropriate rate to each lease based on lease term and currency of payments. For leases with large numbers of underlying assets, a portfolio approach with a collateralized rate was utilized. Assets were grouped based on similar lease terms and economic environments in a manner whereby the Company reasonably expects that the application does not differ materially from a lease-by-lease approach.

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DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(in millions, except per share amounts)

The following table summarizes the components of lease expense:



	Three Months Ended
	March 31, 2020		March 31, 2019
Lease expense
Operating lease expense	$	24.0	$	20.6
Finance lease expense
Amortization of ROU lease assets	$	0.3	$	0.1
Interest on lease liabilities	$	0.1	$	0.1
Variable lease expense	$	1.8	$	3.2

The following table summarizes the maturities of lease liabilities:



	Operating			Finance
2020 (excluding the three months ended March 31, 2020)	$	58.1		$	1.2
2021	50.3			1.6
2022	29.9			0.7
2023	17.4			0.2
2024	12.7			0.1
Thereafter	23.5			0.1
Total	191.9			3.9
Less: Present value discount	(38.4		)	(0.6		)
Lease liability	$	153.5		$	3.3

The following table summarizes the cash flow information related to leases:



	Three Months Ended
	March 31, 2020		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating - operating cash flows	$	25.4	$	21.9
Finance - financing cash flows	$	0.3	$	0.1
Finance - operating cash flows	$	0.1	$	0.1
ROU lease assets obtained in the exchange for lease liabilities
Operating leases	$	4.6	$	14.7
Finance leases	$	1.2	$	2.0

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DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(in millions, except per share amounts)

The following table summarizes the balance sheet information related to leases:



	March 31, 2020		December 31, 2019
Assets
Operating	$	151.9	$	167.5
Finance	4.2		2.4
Total leased assets	$	156.1	$	169.9

Current liabilities
Operating	$	57.0	$	62.8
Finance	1.2		0.9
Noncurrent liabilities
Operating	96.5		106.4
Finance	2.1		1.4
Total lease liabilities	$	156.8	$	171.5

Operating and finance leases are included in other assets, other current liabilities and other liabilities on the condensed consolidated balance sheets.

Note 3: 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), director deferred shares and shares that were vested but deferred by employees. The Company calculated basic and diluted earnings (loss) per share under both the treasury stock method and the two-class method. For the three months ended March 31, 2020 and 2019, there were no differences in the earnings (loss) per share amounts calculated under the two methods. Accordingly, the treasury stock method is disclosed below; however, the weighted-average number of shares used in the computation of diluted earnings (loss) per share are excluded due to the Company's net loss.

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DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(in millions, except per share amounts)

The following table 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
	March 31,
	2020			2019
Numerator
Income (loss) used in basic and diluted loss per share
Net loss	$	(93.4	)	$	(131.9	)
Net (loss) income attributable to noncontrolling interests	(0.6		)	0.8
Net loss attributable to Diebold Nixdorf, Incorporated	$	(92.8	)	$	(132.7	)
Denominator
Weighted-average number of common shares used in basic and diluted loss per share ⁽¹⁾	77.2			76.4
Net loss attributable to Diebold Nixdorf, Incorporated
Basic and diluted loss per share	$	(1.20	)	$	(1.74	)

Anti-dilutive shares
Anti-dilutive shares not used in calculating diluted weighted-average shares	2.8			3.7


⁽¹⁾	Incremental shares of 3.1 and 1.2 for the three months ended March 31, 2020 and 2019, respectively, would have been included in the weighted-average number of shares used in the computation of diluted earnings (loss) per share because their effects are dilutive, but are excluded due to the Company's net loss.

Note 4: Share-Based Compensation

The Company’s share-based compensation to employees is recognized based on 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 $4.0 and $9.3 for the three months ended March 31, 2020 and 2019, respectively. Share-based compensation decreased $5.3 to $4.0 for the three months ended March 31, 2020 primarily due to a reduction in shares granted. The Company has certain performance and restricted stock units that will be settled in cash and are accounted for as liabilities. The total compensation expense was $3.1 and $2.1 for the three months ended March 31, 2020 and 2019. These awards vest ratably over a three year period.

Options outstanding and exercisable as of March 31, 2020 are included under the Company’s 1991 Equity and Performance Incentive Plan (as Amended and Restated as of February 12, 2014) (the 1991 Plan) and the Company's 2017 Equity and Performance Incentive Plan (the 2017 Plan). Changes during the three months ended March 31, 2020 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, 2020	2.4		$	14.89
Expired or forfeited	(0.1	)	$	31.25
Granted	0.4		$	12.54
Outstanding at March 31, 2020	2.7		$	14.38	8	$	7.0
Options exercisable at March 31, 2020	1.4		$	19.82	7	$	2.3
Options vested and expected to vest⁽²⁾ at March 31, 2020	2.7		$	14.38	8	$	7.0

⁽¹⁾

The aggregate intrinsic value (the difference between the closing price of the Company’s common shares on the last trading day of the first quarter of 2020 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 March 31, 2020. 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.

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DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

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 three months ended March 31, 2020:



	Number of Shares		Weighted-Average Grant-Date Fair Value
RSUs:
Non-vested at January 1, 2020	2.2		$	9.99
Forfeited	(0.1	)	$	15.83
Vested	(0.8	)	$	12.26
Granted	0.8		$	11.71
Non-vested at March 31, 2020	2.1		$	9.74
Performance Shares:
Non-vested at January 1, 2020	2.4		$	26.44
Forfeited	(0.8	)	$	34.78
Vested	(0.3	)	$	26.60
Non-vested at March 31, 2020	1.3		$	21.77

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 March 31, 2020, there were 0.1 non-employee director deferred shares vested and outstanding.

On May 1, 2020, the Company's shareholders approved amendments to the 2017 Plan, which provide for an additional 1.9 common shares available for award. The 2017 Plan is expected to attract and retain directors, officers and employees of the Company by providing incentives and rewards for performance.

Note 5: Income Taxes

The effective tax rate on the loss from continuing operations was (27.2) percent for the three months ended March 31, 2020. The expense on the loss was primarily due to the tax impacts of the U.S. Tax Cuts and Jobs Act (Tax Act) on the estimated projected tax rate and, more specifically, the impacts related to global intangible low-taxed income (GILTI). In addition, a partial valuation allowance against interest expense carryforwards and the Company’s jurisdictional income (loss) mix at varying statutory rates impacted the estimated projected tax rate.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted providing $2.2 trillion of economic stimulus relief to address the market conditions due to the recent outbreak of the coronavirus (COVID-19). Among other things, the CARES Act provides a package of corporate tax provisions including the ability for companies to carry back to five preceding years net operating loss (NOL) carryforwards generated in tax years starting after December 31, 2017 and before January 1, 2021. Also, the 80 percent taxable income limitation was temporarily removed increasing the amount of NOL carryforwards that can be deducted in 2018, 2019 and 2020, and the CARES Act increased the deduction limitation for business interest expense to 50 percent from 30 percent. The Company evaluated the impact of the CARES Act to its income tax provision and cash flow and does not believe the effects are material.

The effective tax rate on the loss before taxes was (85.0) percent for the three months ended March 31, 2019. The expense on the loss is due primarily to the tax impacts of the Tax Act on the estimated projected tax rate. More specifically, the impacts of the GILTI and base erosion and anti-abuse tax (BEAT). In addition, the Company collapsed its Barbados structure to meet the debt covenant requirements from our lenders during the quarter which resulted in additional discrete tax expense which is being offset in part by the valuation allowance release relating to the Company’s nondeductible interest expense resulting in no additional cash taxes. The above items noted as well as the Company’s jurisdictional income (loss) mix and varying respective statutory rates are the primary drivers of the quarterly tax rate.

Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(in millions, except per share amounts)

Note 6: Inventories

Major classes of inventories are summarized as follows:



	March 31, 2020		December 31, 2019
Finished goods	$	153.0	$	157.4
Service parts	162.9		175.4
Raw materials and work in process	159.6		133.7
Total inventories	$	475.5	$	466.5

Note 7: 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 accumulated other comprehensive loss (AOCI). Realized gains and losses are recognized in investment income, determined using the specific identification method, and were minimal. There were no realized gains from the sale of securities or proceeds from the sale of available-for-sale securities for the three months ended March 31, 2020 and 2019.

The Company has deferred compensation plans that enable certain employees to defer receipt of a portion of their cash, 401(k) or share-based compensation and non-employee directors to defer receipt of director fees at the participants’ discretion. For deferred cash-based compensation, the Company established rabbi trusts (refer to note 18), which are recorded at fair value of the underlying securities within securities and other investments. The related deferred compensation liability is recorded at fair value within other long-term liabilities. Realized and unrealized gains and losses on marketable securities in the rabbi trusts are recognized in interest income.

The Company’s investments subject to fair value measurement consist of the following:



	Cost Basis		Unrealized Gain / (Loss)			Fair Value
As of March 31, 2020
Short-term investments
Certificates of deposit	$	13.5	$	—		$	13.5
Long-term investments
Assets held in a rabbi trust	$	5.4	$	(0.5	)	$	4.9

As of December 31, 2019
Short-term investments
Certificates of deposit	$	10.0	$	—		$	10.0
Long-term investments
Assets held in a rabbi trust	$	5.5	$	0.7		$	6.2

Securities and other investments also includes a cash surrender value of insurance contracts of $13.2 and $15.2 as of March 31, 2020 and December 31, 2019, respectively. The decrease is primarily due to death benefits paid.

The Company has certain strategic alliances that are not consolidated. The Company tests these strategic alliances annually, individually and in the 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 with its strategic alliances. The Company's strategic alliances are not significant subsidiaries and are accounted for under the equity method of accounting. As of March 31, 2020, the Company had accounts receivable and accounts payable balances with these strategic alliances of $8.8 and $17.6, respectively, which are included in trade receivables, less allowances for doubtful accounts and accounts payable on the condensed consolidated balance sheets. The Company continues to assess these strategic alliances as part of the optimization of its portfolio

of businesses, which may include the exit or restructuring of these businesses.

Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(in millions, except per share amounts)

The Company provides financing arrangements to customers purchasing its products. These financing arrangements are largely classified and accounted for as sales-type leases.

The following table presents the components of finance lease receivables as of March 31, 2020 and December 31, 2019:



	March 31, 2020			December 31, 2019
Gross minimum lease receivables	39.4			41.8
Allowance for credit losses	(0.2		)	(0.3		)
Estimated unguaranteed residual values	0.2			0.2
	39.4			41.7
Less:
Unearned interest income	(2.0		)	(2.8		)
Unearned residuals	(0.2		)	—
	(2.2		)	(2.8		)
Total	$	37.2		$	38.9

Future minimum payments due from customers under finance lease receivables as of March 31, 2020 are as follows:



2020	10.2
2021	6.2
2022	7.2
2023	7.2
2024	6.2
Thereafter	2.4
	$	39.4

There were no significant changes in provision for credit losses, recoveries and write-offs during the three months ended March 31, 2020 and 2019. As of March 31, 2020, finance leases and notes receivable individually evaluated for impairment were $37.6 and $4.6, respectively, with no provision recorded. As of March 31, 2019, finance leases and notes receivable individually evaluated for impairment were $36.6 and $4.8, respectively. There have been no material changes to the maturities on the finance lease receivables since December 31, 2019. The income related to the finance lease receivables was minimal for the three months ended March 31, 2020.

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. 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.

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended actions for containment and mitigation. The Company is actively monitoring the impact of the COVID-19 pandemic, which will likely impact the global economy including our business and results of operations for the rest of 2020, and the extent of the impact cannot be reasonably estimated at this time. The extent of the COVID-19 impact to our operations will depend largely on future developments, along with any new information that may emerge regarding the severity of the pandemic and the actions taken by government authorities to mitigate the spread of the virus, among other factors, all of which are highly uncertain and cannot be accurately predicted.

Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(in millions, except per share amounts)

As a result of the disruption and uncertainty related to the COVID-19 pandemic, the Company continues to assess the impacts on its investments and credit losses.

Note 8: Goodwill and Other Assets

The Company’s three reportable operating segments are Eurasia Banking, Americas Banking and Retail. The Company has allocated goodwill to its Eurasia Banking, Americas Banking and Retail reportable operating segments. The changes in carrying amounts of goodwill within the Company's segments are summarized as follows:



	Eurasia Banking			Americas Banking			Retail			Total
Goodwill	$	598.6		$	437.3		$	233.2		$	1,269.1
Accumulated impairment	(291.7		)	(122.0		)	(57.2		)	(470.9		)
Balance at January 1, 2019	$	306.9		$	315.3		$	176.0		$	798.2
Transferred to assets held for sale	(11.7		)	—			—			(11.7		)
Divestitures	(0.4		)	—			(3.9		)	(4.3		)
Currency translation adjustment	(7.3		)	(6.0		)	(4.9		)	(18.2		)
Goodwill	$	579.2		$	431.3		$	224.4		$	1,234.9
Accumulated impairment	(291.7		)	(122.0		)	(57.2		)	(470.9		)
Balance at December 31, 2019	$	287.5		$	309.3		$	167.2		$	764.0
Transferred to assets held for sale	(6.4		)	—			—			(6.4		)
Currency translation adjustment	(8.5		)	(7.1		)	(5.8		)	(21.4		)
Goodwill	$	564.3		$	424.2		$	218.6		$	1,207.1
Accumulated impairment	(291.7		)	(122.0		)	(57.2		)	(470.9		)
Balance at March 31, 2020	$	272.6		$	302.2		$	161.4		$	736.2

In accordance with the Company's accounting policy, goodwill is tested for impairment annually during the fourth quarter.

The Company identified four reporting units, which are Eurasia Banking, Americas Banking, EMEA Retail and Rest of World Retail. The Company considered there to be a triggering event and as a result of analysis performed during the first quarter of 2020, the Eurasia Banking, Americas Banking and EMEA Retail reporting units had sufficient cushion of estimated fair value in excess of carrying value as of March 31, 2020. Rest of World Retail had no goodwill as of March 31, 2020 and December 31, 2019. Changes in certain assumptions or the Company's inability to execute on the current plan could have a significant impact to the estimated fair value of the reporting units.

As a result of the uncertainty related to the COVID-19 pandemic, the Company could experience unfavorable impacts in the results of the reporting units and to the various assumptions used in the analysis of goodwill and will continue to assess potential triggering events.

Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES

FORM 10-Q as of March 31, 2020

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(in millions, except per share amounts)

The following summarizes information on intangible assets by major category:



		March 31, 2020							December 31, 2019
	Weighted-average remaining useful lives	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships, net	5.9 years	$	681.5	$	(263.0	)	$	418.5	$	698.7	$	(251.0	)	$	447.7

Internally-developed software	3.1 years	181.8		(138.5		)	43.3		178.2		(132.2		)	46.0
Development costs non-software	1.9 years	50.1		(48.4		)	1.7		51.5		(47.5		)	4.0
Other intangibles	2.7 years	75.8		(71.8		)	4.0		79.3		(74.7		)	4.6
Other intangible assets, net		307.7		(258.7		)	49.0		309.0		(254.4		)	54.6
Total		$	989.2	$	(521.7	)	$	467.5	$	1,007.7	$	(505.4	)	$	502.3

Amortization expense on capitalized software of $7.2 and $8.6 was included in service and software cost of sales for the three months ended March 31, 2020 and 2019, respectively. The Company's total amortization expense, including deferred financing costs, was $33.2 and $37.1 for the three months ended March 31, 2020 and 2019, respectively.

Note 9: 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 payments or fulfill contractual obligations, the suppliers, customers, regulatory agencies and insurance providers may draw on the pertinent bank. At March 31, 2020, the maximum future payment obligations related to these various guarantees totaled $91.5, of which $26.6 represented standby letters of credit to insurance providers, and no associated liability was recorded. At December 31, 2019, the maximum future payment obligations relative to these various guarantees totaled $108.2, of which $25.2 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.

Changes in the Company’s warranty liability balance are illustrated in the following table:



	2020			2019
Balance at January 1	$	36.9		$	40.1
Current period accruals	5.0			3.9
Current period settlements	(8.6		)	(6.0		)
Currency translation adjustment	(2.0		)	(0.3		)
Balance at March 31