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 March 31, 2018
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 April 26, 2018 was 75,958,013.



DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Form 10-Q

Index
 

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,
2018

December 31,
2017
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents

$
362.1


$
535.2

Short-term investments

24.2


81.4

Trade receivables, less allowances for doubtful accounts of $74.2 and $71.7, respectively
 
852.2

 
830.1

Inventories
 
831.3

 
737.0

Prepaid expenses
 
70.1

 
65.7

Income taxes
 
67.0

 
73.4

Other current assets
 
206.6

 
185.6

Total current assets
 
2,413.5

 
2,508.4

Securities and other investments
 
97.5

 
96.8

Property, plant and equipment, net of accumulated depreciation and amortization of $421.3 and $418.8, respectively
 
365.5

 
364.5

Goodwill
 
1,131.8

 
1,117.1

Deferred income taxes
 
311.7

 
293.8

Customer relationships, net
 
634.6

 
633.3

Other intangible assets, net
 
134.0

 
140.5

Other assets
 
89.8

 
95.8

Total assets
 
$
5,178.4

 
$
5,250.2

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Notes payable
 
$
76.6

 
$
66.7

Accounts payable
 
560.5

 
562.2

Deferred revenue
 
502.0

 
437.5

Payroll and other benefits liabilities
 
175.2

 
198.9

Other current liabilities
 
532.9

 
534.1

Total current liabilities
 
1,847.2

 
1,799.4

Long-term debt
 
1,712.5

 
1,787.1

Pensions, post-retirement and other benefits
 
259.8

 
266.4

Deferred income taxes
 
285.5

 
287.1

Other liabilities
 
100.7

 
111.3

Commitments and contingencies
 


 


Redeemable noncontrolling interests
 
509.6

 
492.1

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, 91,074,945 and 90,524,360 issued shares, 75,955,097 and 75,558,544 outstanding shares, respectively
 
113.8

 
113.2

Additional capital
 
734.5

 
721.5

Retained earnings
 
354.0

 
399.0

Treasury shares, at cost (15,119,848 and 14,965,816 shares, respectively)
 
(569.9
)
 
(567.4
)
Accumulated other comprehensive loss
 
(205.5
)
 
(196.3
)
Total Diebold Nixdorf, Incorporated shareholders' equity
 
426.9

 
470.0

Noncontrolling interests
 
36.2

 
36.8

Total equity
 
463.1

 
506.8

Total liabilities, redeemable noncontrolling interests and equity
 
$
5,178.4

 
$
5,250.2

See accompanying notes to condensed consolidated financial statements.

3
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,
 
 
2018
 
2017
Net sales
 
 
 
 
Services and software
 
$
711.7

 
$
683.6

Systems
 
352.5

 
419.2

 
 
1,064.2


1,102.8

Cost of sales
 
 
 
 
Services and software
 
539.2

 
505.5

Systems
 
284.1

 
354.8

 
 
823.3

 
860.3

Gross profit
 
240.9

 
242.5

Selling and administrative expense
 
227.9

 
247.0

Research, development and engineering expense
 
41.7

 
41.4

Impairment of assets
 
—

 
3.1

(Gain) loss on sale of assets, net
 
(7.7
)
 
(0.4
)
 
 
261.9

 
291.1

Operating profit (loss)
 
(21.0
)

(48.6
)
Other income (expense)
 
 
 
 
Interest income
 
3.5

 
6.4

Interest expense
 
(26.0
)
 
(30.8
)
Foreign exchange gain (loss), net
 
(1.4
)
 
(3.1
)
Miscellaneous, net
 
1.0

 
1.3

Income (loss) before taxes
 
(43.9
)
 
(74.8
)
Income tax expense (benefit)
 
19.4

 
(22.6
)
Net income (loss)
 
(63.3
)
 
(52.2
)
Net income attributable to noncontrolling interests
 
7.6

 
6.6

Net income (loss) attributable to Diebold Nixdorf, Incorporated
 
$
(70.9
)
 
$
(58.8
)
 
 
 
 
 
Basic weighted-average shares outstanding
 
75.8

 
75.3

Diluted weighted-average shares outstanding
 
75.8

 
75.3

 
 
 
 
 
Net income (loss) attributable to Diebold Nixdorf, Incorporated
 
 
 
 
Basic earnings (loss) per share
 
$
(0.94
)
 
$
(0.78
)
Diluted earnings (loss) per share
 
$
(0.94
)
 
$
(0.78
)
 
 
 
 
 
Common dividends declared and paid per share
 
$
0.10

 
$
0.10

See accompanying notes to condensed consolidated financial statements.

4
Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Net income (loss)
 
$
(63.3
)
 
$
(52.2
)
Other comprehensive income (loss), net of tax
 
 
 
 
Adoption of accounting standards
 
(29.0
)
 
—

Translation adjustment
 
18.2

 
49.3

Foreign currency hedges (net of tax of $1.0 and $1.2, respectively)
 
(2.8
)
 
(2.2
)
Interest rate hedges
 


 


Net gain recognized in other comprehensive income (net of tax of $(0.6) and $(0.8), respectively)
 
2.2

 
2.0

Reclassification adjustment for amounts recognized in net income
 
0.4

 
(0.3
)
 
 
2.6

 
1.7

Pension and other post-retirement benefits
 
 
 
 
Net actuarial loss amortization (net of tax of $(0.4) and $1.5, respectively)
 
1.8

 
(3.9
)
Other comprehensive income (loss), net of tax
 
(9.2
)
 
44.9

Comprehensive income (loss)
 
(72.5
)
 
(7.3
)
Less: comprehensive income attributable to noncontrolling interests
 
7.6

 
6.6

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
 
$
(80.1
)
 
$
(13.9
)
See accompanying notes to condensed consolidated financial statements.

5
Table of Contents

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Cash flow from operating activities
 
 
 
 
Net income (loss)
 
$
(63.3
)
 
$
(52.2
)
Adjustments to reconcile net income (loss) to cash flow used by operating activities:
 
 
 
 
Depreciation and amortization
 
67.1

 
58.6

Share-based compensation
 
13.7

 
6.8

Gain on sale of assets, net
 
(7.7
)
 
(0.4
)
Impairment of assets
 
—

 
3.1

Deferred income taxes
 
(17.9
)
 
(8.7
)
Other
 
(1.9
)
 
0.8

Changes in certain assets and liabilities, net of the effects of acquisitions
 
 
 
 
Trade receivables
 
(17.9
)
 
(36.8
)
Inventories
 
(92.5
)
 
(16.9
)
Accounts payable
 
(3.6
)
 
(22.4
)
Prepaid and other current assets
 
(29.1
)
 
(31.2
)
Deferred revenue
 
60.3

 
82.0

Warranty liability
 
(12.9
)
 
(8.5
)
Certain other assets and liabilities
 
(36.6
)
 
(40.5
)
Net cash provided (used) by operating activities
 
(142.3
)
 
(66.3
)
Cash flow from investing activities
 
 
 
 
Capital expenditures
 
(20.2
)
 
(12.1
)
Payment for acquisitions
 
(5.8
)
 
—

Proceeds from maturities of investments
 
104.6

 
84.9

Payments for purchases of investments
 
(45.5
)
 
(95.1
)
Proceeds from sale of assets
 
9.2

 
2.0

Increase in certain other assets
 
(3.2
)
 
(8.7
)
Net cash provided (used) by investing activities
 
39.1

 
(29.0
)
Cash flow from financing activities
 
 
 
 
Dividends paid
 
(7.7
)
 
(7.6
)
Revolving credit facility (repayments) borrowings, net
 
(75.0
)
 
20.0

Other debt borrowings
 
26.0

 
19.1

Other debt repayments
 
(31.7
)
 
(84.0
)
Distributions and payments to noncontrolling interest holders
 
(0.5
)
 
(15.7
)
Issuance of common shares
 
—

 
0.3

Repurchase of common shares
 
(2.5
)
 
(4.6
)
Net cash provided (used) by financing activities
 
(91.4
)
 
(72.5
)
Effect of exchange rate changes on cash and cash equivalents
 
21.5

 
5.2

Increase (decrease) in cash and cash equivalents
 
(173.1
)
 
(162.6
)
Cash and cash equivalents at the beginning of the period
 
535.2

 
652.7

Cash and cash equivalents at the end of the period
 
$
362.1

 
$
490.1

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
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, 2017. 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, 2018 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. The Company included finance lease receivables of $13.3 and $14.4 in other assets as of March 31, 2018 and December 31, 2017, respectively, in the condensed consolidated balance sheets.


7
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Recently Adopted Accounting Guidance
Standards Adopted
 
Description
 
Effective
Date
Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers
 
The standard replaced most previously existing revenue recognition guidance in U.S. GAAP and required additional financial statement disclosures. The standard requires revenue to be recognized when the Company expects to be entitled in exchange for the transfer of promised goods or services to customers. The standard was adopted using a modified retrospective approach to open contracts as of the effective date, January 1, 2018. The standard is intended to reduce potential for diversity in practice at initial application and reducing the cost and complexity of applying Topic 606 both at transition and prospectively. As a result of the adoption, the cumulative impact to the Company's retained earnings at January 1, 2018 was $4.6.
 
January 1, 2018
ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
 
The standard was issued to address the net presentation of the components of net benefit cost. The standard requires that service cost be presented in the same line item as other current employee compensation costs and that the remaining components of net benefit cost be presented in a separate line item outside of any subtotal for income from operations. The adoption of this update did not have a material impact on the financial statements of the Company.

 
January 1, 2018
ASU 2017-12, Derivatives and Hedging: Target Improvements to Accounting for Hedging Activities
 
The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. For existing hedges as of the date of the adoption, the Company eliminated a minimal amount of ineffectiveness by means of a cumulative-effect adjustment to accumulated other comprehensive income (AOCI) with a corresponding adjustment to retained earnings. As a result of the standard, $2.6 was included in net sales and $0.1 in cost of sales for the three months ended March 31, 2018.

 
Early adopted January 1, 2018
ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
 
The standard allows for reclassification of stranded tax effects on items resulting from the Tax Cuts and Jobs Act (the Tax Act) from AOCI to retained earnings. Tax effects unrelated to the Tax Act are released from AOCI using either the specific identification approach or the portfolio approach based on the nature of the underlying item. As a result of the adoption, during the first quarter of 2018, the Company recorded an adjustment to retained earnings resulting in a increase of $29.0, with a corresponding decrease to AOCI due to the reduction in the corporate tax rate.

 
Early adopted January 1, 2018
ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
 
The standard simplifies 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. The adoption of this update did not have an impact on the financial statements of the Company and only simplifies the procedure for the goodwill impairment test.
 
Early adopted January 1, 2018



8
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Recently Issued Accounting Guidance
Standards Pending Adoption
 
Description
 
Effective/Adoption Date
 
Anticipated Impact
ASU 2016-02, Leases
 
The standard requires that a lessee recognize on its balance sheet right-of-use assets and corresponding liabilities resulting from leasing transactions, as well as additional financial statement disclosures. Currently, U.S. GAAP only requires balance sheet recognition for leases classified as capital leases. The provisions of this update apply to substantially all leased assets.

 
January 1, 2019
 
The Company is currently evaluating the impact the standard will have on its financial information and related disclosures. The standard requires a modified retrospective transition method with the option to elect a package of practical expedients, which the Company anticipates utilizing and will continue to evaluate. The Company anticipates a material balance sheet gross-up for the right-of-use assets and corresponding liabilities, with no anticipated impact to debt covenants.

ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulleting No. 118
 
This guidance amends SEC paragraphs in Topic 740, Income Taxes, to reflect SAB 118, which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Act in the period of enactment.

 
January 1, 2021
 
This guidance also includes amendments to the XBRL Taxonomy. For public business entities, the amendments in ASU 2018-05 are effective for fiscal years ending after December 15, 2020 and early adoption is permitted. The Company does not expect adoption of this guidance to have a significant impact on our condensed consolidated financial statements.


Note 2: Revenue

Revenue is measured based on a consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

The Company's payment terms vary depending on the individual contracts and are generally fixed fee. The Company recognizes advance payments and billings in excess of revenue recognized as deferred revenue. In certain contracts where services are provided prior to billing, the Company recognizes a contract asset within trade receivables.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

The Company recognizes shipping and handling fees billed when products are shipped or delivered to a customer and includes such amounts in net sales. Although infrequent, shipping and handling associated with outbound freight after control over a product has transferred to a customer is not a separate performance obligation, rather is accounted for as a fulfillment cost. Third-party freight payments are recorded in cost of sales.

The Company includes a warranty in connection with certain contracts with customers, which are not considered to be separate performance obligations. 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. For additional information on product warranty refer to note 9. The Company also has extended warranty and service contracts available for its customers, which are recognized as separate performance obligations. Revenue is recognized on these contracts ratably as the Company has a stand-ready obligation to provide services when or as needed by the customer. This input method is the most accurate assessment of progress toward completion the Company can apply.

Nature of goods and services

The following is a description of principal activities, separated by reportable operating segments, from which the Company generates its revenue. For more detailed information about reportable operating segments, see note 20.


9
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Services

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 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.

Services may be sold separately or in bundled packages. The typical contract length for service is generally one year and is billed and paid in advance except for installations, among others.

For bundled packages, the Company accounts for individual services separately if they are distinct. A distinct service is separately identifiable from other items in the bundled package if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate services in a bundle based on their stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the services. For items that are not sold separately, the Company estimates stand-alone selling prices using the cost plus expected margin approach. Revenue on service contracts is recognized ratably over time, generally using an input measure, as the customer simultaneously receives and consumes the benefits of the Company’s performance as the services are performed. In some circumstances, when global service supply chain services are not included in a term contract and rather billed as they occur, revenue on these billed work services are recognized at a point in time as transfer of control occurs.

The Company applies the ‘as invoiced’ practical expedient related to performance obligations satisfied over time which permits the Company to recognize revenue in the amount to which it has a right to invoice the customer if that amount corresponds directly with the value to the customer of the Company’s performance completed to date.

Software

The Company provides front-end applications for consumer connection points and back-end platforms that manage channel transactions, operations and integration. These hardware-agnostic software applications facilitate millions of transactions via automated teller machines (ATMs), point of sale (POS) terminals, kiosks and other self-service devices. The Company's platform software is installed within bank and retail data centers to facilitate omnichannel transactions, endpoint monitoring, remote asset management, customer marketing, merchandise management and analytics. These offerings include highly configurable, application program interface (API) enabled software that automates legacy banking and retail transactions across channels.

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

Software licenses and professional services may be sold separately or in bundled packages. Software licenses when bundled with significant professional services, where the service is modifying the intellectual property (IP), is non-distinct from the professional service. The consideration (including any discounts) is allocated between distinct obligations in a bundle based on their stand-alone selling prices. For items that are not sold separately, the Company estimates stand-alone selling prices using the cost plus expected margin approach or in the case of the software license the residual approach may be used. The Company’s software licenses are functional in nature (the IP has significant standalone functionality); as such, the revenue recognition of distinct software license sales is at the point in time that the customer obtains control of the rights granted by the license. Revenue from professional services are recognized over time, because the customer simultaneously receives and consumes the benefits of the Company’s performance as the services are performed. In the case of more significant professional services agreements, when the Company’s performance creates an asset with no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date, revenue is also recognized over time. Generally revenue will be recognized using an input measure, typically cost incurred, in the more significant professional services agreements.


10
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Systems

The systems portfolio for banking customers consists of cash recyclers and dispensers, intelligent deposit terminals, teller automation tools and physical security devices. For retail customers, the checkout portfolio includes modular, integrated and mobile POS systems that meet evolving automation and omnichannel requirements of consumers. Supplementing the POS system is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio which offers a wide range of banknote and coin processing systems. 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 an attended operator to self-checkout with the press of a button as traffic conditions warrant throughout the business day.

For bundled packages, the Company accounts for individual system products separately if they are distinct - i.e. if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between distinct obligations in a bundle based on their stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the products. For items that are not sold separately, the Company estimates stand-alone selling prices using the cost plus expected margin approach. Revenue on systems is recognized at the point in time that the customer obtains control of the system, which could be upon delivery or upon completion of installation services, depending on contract terms.

Disaggregation of revenue

For additional information related to revenue disaggregation by reportable segment, geographical region and solution, refer to note 20. In the following table, revenue is disaggregated by timing of revenue recognition:
 
 
Three Months Ended
March 31,
Timing of revenue recognition
 
2018
 
2017
Products transferred at a point in time
 
35%
 
41%
Products and services transferred over time
 
65%
 
59%
Net sales
 
100%
 
100%

Contract balances

The following table provides 2018 information about receivables and deferred revenue which represent contract liabilities from contracts with customers:
Contract balance information
 
Trade Receivable
 
Contract liabilities
Balance at January 1
 
$
830.1

 
$
437.5

Balance at March 31
 
$
852.2

 
$
502.0


Contract assets are minimal for the periods presented. The amount of revenue recognized in 2018 from performance obligations satisfied (or partially satisfied) in previous periods, mainly due to the changes in the estimate of variable consideration and contract modifications was de minimis. There have been $8.8 and $9.8 impairment losses recognized during the three months ended March 31, 2018 and 2017, respectively, related to receivables or contract assets arising from the Company's contracts with customers.

As of January 1, 2018, the Company had $437.5 of unrecognized deferred revenue constituting the remaining performance obligations that are either unsatisfied (or partially unsatisfied). In 2018, the Company recognized revenue of $121.9 related to the Company's deferred revenue balance at January 1, 2018.

Contract assets are the rights to consideration in exchange for goods or services that the Company has transferred to a customer when that right is conditional on something other than the passage of time. Contract assets of the Company primarily relate to the Company's rights to consideration for goods shipped and services provided but not contractually billable at the reporting date.


11
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The contract assets are reclassified into the receivables balance when the rights to receive payment become unconditional. Contract liabilities are recorded for any services billed to customers and not yet recognizable if the contract period has commenced or for the amount collected from customers in advance of the contract period commencing. In addition, contract liabilities are recorded as advanced payments for products and other deliverables that are billed to and collected from customers prior to revenue being recognizable.

Transaction price and variable consideration
 
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding amounts collected on behalf of third parties. This consideration can include fixed and variable amounts and is determined at contract inception and updated each reporting period for any changes in circumstances. The transaction price also considers variable consideration, time value of money and the measurement of any non-cash consideration, all of which are estimated at contract inception and updated at each reporting date for any changes in circumstances.

Transaction price allocated to the remaining performance obligations

As of March 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $2,200. The Company expects to recognize revenue on the remaining performance obligations over the next twelve months. The Company enters into service agreements with cancellable terms after a certain period without penalty. Unsatisfied obligations reflect only the obligation during the initial term. The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

Cost to obtain and cost to fulfill a contract

The Company has minimal cost to obtain or fulfill contracts for customers for the periods presented. The Company pays commissions to the sales force based on multiple factors including but not limited to order entry, revenue recognition and portfolio growth. These incremental commission fees paid to the sales force meet the criteria to be considered a cost to obtain a contract, as they are directly attributable to a contract, incremental and management expects the fees are recoverable. The Company applies the practical expedient and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. The costs that are not capitalized are included in cost of sales. The costs related to contracts with greater than a one-year term are immaterial and continue to be recognized in cost of sales.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales. The Company has minimal cost for shipping and handling costs for the periods presented.

Changes in accounting policies

Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements.

The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below.

The Company applied Topic 606 using the cumulative effect method - i.e. by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity at January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The Company applied the practical expedient related to assessment of contract modifications, whereby the Company is essentially allowed to use hindsight when assessing the effect of a modification and accounting for the modified contract as if it existed from the beginning of the original contract.

The details of the significant changes and quantitative impact of the changes are set out below.


12
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Professional service contracts

Previously, the Company recognized revenue for professional services contracts either on a milestone method or completed contract basis. Under Topic 606, the Company recognizes revenue when control transfers to a customer. As professional services can be highly customized for each customer, there is no alternative use for the services. When there is an enforceable right to payment for service completed combined with no alternative use of the services, the services meet criteria for over time revenue recognition. Revenue is recognized as the services are provided and as the customer benefits from the service. Revenue is recognized progressively based on the costs incurred method. When the professional services are not highly customized as in basic software installation services, customers do not take control of the services until they are completed. Therefore, the Company continues to recognize revenue for such contracts when the services are completed and customers formally accept them.

Impacts on financial statements

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated financial statements as of and for the period ended March 31, 2018 as if the Company continued to follow its accounting policies under the previous revenue recognition guidance.
 
 
Impact of changes in accounting policy for the three months ended March 31, 2018 (unaudited)
 
 
As Reported
 
Adjustments
 
Balances without adoption of Topic 606
Trade receivables, less allowances for doubtful accounts of $74.2 and $71.7, respectively
 
$
852.2

 
$
(3.2
)
 
$
849.0

Inventories
 
$
831.3

 
$
11.5

 
$
842.8

Deferred revenue
 
$
502.0

 
$
13.1

 
$
515.1

Deferred income taxes
 
$
285.5

 
$
(0.8
)
 
$
284.7

Retained earnings
 
$
354.0

 
$
(4.0
)
 
$
350.0


The impact to net sales and cost of sales for the quarter ended March 31, 2018 would have been an increase of $0.9 and a decrease of $0.3, respectively. The impact after tax was $0.8 and was primarily a result of timing of deferred revenue related to Systems and Software for certain amounts being recognized that would have previously been deferred, and certain amounts being deferred that would have previously been recognized.

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 years presented there were no differences in the earnings (loss) per share amounts calculated under the two methods. Accordingly, the treasury stock method is disclosed below.


13
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
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,
 
 
2018
 
2017
Numerator
 
 
 
 
Income (loss) used in basic and diluted earnings (loss) per share
 
 
 
 
Net income (loss)
 
$
(63.3
)
 
$
(52.2
)
Net income attributable to noncontrolling interests
 
7.6

 
6.6

Net income (loss) attributable to Diebold Nixdorf, Incorporated
 
$
(70.9
)
 
$
(58.8
)
Denominator
 
 
 
 
Weighted-average number of common shares used in basic earnings (loss) per share
 
75.8

 
75.3

Weighted-average number of shares used in diluted earnings (loss) per share (1)
 
75.8

 
75.3

Net income (loss) attributable to Diebold Nixdorf, Incorporated
 
 
 
 
Basic earnings (loss) per share
 
$
(0.94
)
 
$
(0.78
)
Diluted earnings (loss) per share
 
$
(0.94
)
 
$
(0.78
)
 
 
 
 
 
Anti-dilutive shares
 
 
 
 
Anti-dilutive shares not used in calculating diluted weighted-average shares
 
4.3

 
1.9

(1) 
Incremental shares of 0.9 shares for both the three months ended March 31, 2018 and 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.

In May 2018, the Company announced its decision to reallocate future dividend funds towards debt reduction and other capital resource needs.

Note 4: 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 $13.7 and $6.8 for the three months ended March 31, 2018 and 2017, respectively.


14
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Options outstanding and exercisable as of March 31, 2018 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). In conjunction with the appointment of the Chief Executive Officer on February 21, 2018, the board approved the grant of options, performance share units and RSUs outside of the the 2017 Plan. Changes during the three months ended March 31, 2018 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, 2018
 
2.3

 
$
29.68

 
 
 
 
Granted
 
0.5

 
$
17.54

 
 
 
 
Outstanding at March 31, 2018
 
2.8

 
$
27.28

 
8
 
$
—

Options exercisable at March 31, 2018
 
1.6

 
$
30.81

 
7
 
$
—

Options vested and expected to vest(2) at March 31, 2018
 
2.6

 
$
27.47

 
8
 
$
—

(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 2018 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, 2018. 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.

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, 2018:
 
 
Number of
Shares
 
Weighted-Average
Grant-Date Fair
Value
 
 
 
 
 
RSUs:
 
 
 
 
Non-vested at January 1, 2018
 
1.3

 
$
27.76

Vested
 
(0.5
)
 
$
28.57

Granted
 
1.0

 
$
18.32

Non-vested at March 31, 2018
 
1.8

 
$
21.73

Performance Shares:
 
 
 
 
Non-vested at January 1, 2018
 
2.5

 
$
31.77

Forfeited
 
(0.4
)
 
$
30.79

Vested
 
(0.2
)
 
$
32.38

Granted
 
1.6

 
$
22.62

Non-vested at March 31, 2018
 
3.5

 
$
26.93


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, 2018, there were 0.1 non-employee director deferred shares vested and outstanding.

On April 25, 2018, the Company's shareholders approved amendments to the 2017 Plan, which provide for an additional 1.2  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.


15
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 5: Income Taxes

The effective tax rate on the net loss was (44.2) percent three months ended March 31, 2018. The tax expense on the loss is due primarily from impacts of the Tax Act, more specifically, impacts related to the global intangible low-taxed income (GILTI) on the estimated annual tax rate. The effective tax rate could vary in future periods based on the Company's earnings before taxes and clarifications around the Tax Act.

The effective tax rate on the net loss was 30.2 percent for the three months ended 2017. Companies are required to apply their estimated annual tax rate on a year-to-date basis in each interim period. Companies should not apply the estimated annual tax rate to interim financial results if the estimated annual tax rate is not reliably predictable. In this situation, the interim tax rate should be based on the actual year-to-date results. As of March 31, 2017, the Company was not able to reasonably estimate the annual effective tax rate for the year ending December 31, 2017, because small fluctuations in the Company's earnings before taxes could have resulted in a material change in the estimated annual tax rate. For this reason, the Company did not believe the estimated annual tax rate would provide a reliable estimate and as a result, the Company computed the interim tax rate based on the actual year-to-date results. The effective tax rate for the three months ended March 31, 2017 was primarily a result of the jurisdictional income (loss) mix and varying statutory rates in the Company's global footprint.

Note 6: Inventories

Major classes of inventories are summarized as follows:
 
 
March 31, 2018
 
December 31, 2017
Finished goods
 
$
368.1

 
$
301.9

Service parts
 
283.8

 
270.6

Raw materials and work in process
 
179.4

 
164.5

Total inventories
 
$
831.3

 
$
737.0


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 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 or proceeds from the sale of available-for-sale securities for the three months ended March 31, 2018 and 2017.

The Company’s investments subject to fair value measurement consist of the following:
 
 
Cost Basis
 
Unrealized Gain
 
Fair Value
As of March 31, 2018
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
24.2

 
$
—

 
$
24.2

Long-term investments
 
 
 
 
 
 
Assets held in a rabbi trust
 
$
8.3

 
$
0.9

 
$
9.2

 
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
Certificates of deposit
 
$
81.4

 
$
—

 
$
81.4

Long-term investments
 
 
 
 
 
 
Assets held in a rabbi trust
 
$
8.3

 
$
1.1

 
$
9.4


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 with its strategic alliances. The Company's strategic alliances are not significant subsidiaries and are accounted for under the equity method of investments. As of March 31, 2018 and December

16
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


31, 2017, the Company had accounts receivable with these affiliates of $13.0 and $15.6, respectively, which are included in trade receivables, less allowances for doubtful accounts on the condensed consolidated balance sheets. As of March 31, 2018 and December 31, 2017, the Company had accounts payable balances with these affiliates of $26.1 and $17.8, respectively, which are included in accounts payables on the condensed consolidated balance sheets.

In May 2017, the Company announced a strategic partnership with Kony, 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. As of March 31, 2018, the Company's carrying value in Kony was $14.0 and the fair value was not estimated as there were no events or changes in circumstances in the investment.

Securities and other investments also includes a cash surrender value of insurance contracts of $78.8 and $79.8 as of March 31, 2018 and December 31, 2017, respectively. In addition, it includes an interest rate swap asset carrying value of $9.5 and $7.6 as of March 31, 2018 and December 31, 2017, respectively, which also represents fair value (refer to note 18).

The Company has finance lease receivables of $13.3 and $14.4 in other assets as of March 31, 2018 and December 31, 2017, respectively, in the condensed consolidated balance sheets.

There were no significant changes in provision for credit losses, recoveries and write-offs during the three months ended March 31, 2018 and 2017. As of March 31, 2018, finance leases and notes receivable individually evaluated for impairment were $32.4 and $15.0, respectively, with no provision recorded. As of March 31, 2017, finance leases and notes receivable individually evaluated for impairment were $56.9 and $18.6, respectively.

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 March 31, 2018 and December 31, 2017, the recorded investment in past due financing receivables on nonaccrual status was $0.3 and $0.6, 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 as of March 31, 2018 and December 31, 2017 and was fully reserved and as of March 31, 2018 are all greater than 89 days past due.


17
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 8: Goodwill and Other Assets

As of March 31, 2018, the Company’s three reportable operating segments are Services, Software and Systems. The Company has 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
$
890.0

 
$
224.9

 
$
174.1

 
$
1,289.0

Accumulated impairment losses
(290.7
)
 
—

 
—

 
(290.7
)
Balance at January 1, 2017
$
599.3

 
$
224.9

 
$
174.1

 
$
998.3

Goodwill acquired
5.6

 
—

 
—

 
5.6

Goodwill adjustment
(1.1
)
 
(1.0
)
 
(0.8
)
 
(2.9
)
Currency translation adjustment
62.7

 
30.1

 
23.3

 
116.1

Goodwill
$
957.2

 
$
254.0

 
$
196.6

 
$
1,407.8

Accumulated impairment losses
(290.7
)
 
—

 
—

 
(290.7
)
Balance at December 31, 2017
$
666.5

 
$
254.0

 
$
196.6

 
$
1,117.1

Currency translation adjustment
7.1

 
4.3

 
3.3

 
14.7

Goodwill
$
964.3

 
$
258.3

 
$
199.9

 
$
1,422.5

Accumulated impairment losses
(290.7
)
 
—

 
—

 
(290.7
)
Balance at March 31, 2018
$
673.6

 
$
258.3

 
$
199.9

 
$
1,131.8


In 2018, the Company acquired the remaining portion of the noncontrolling interest in its China operations for $5.8 for which no goodwill was recorded. In 2017, the $5.6 acquired goodwill from Moxx Group B.V. (Moxx) and Visio Objekt GmbH (Visio) primarily relates to anticipated synergies achieved through increased scale and higher utilization of the service organization.

The Company has identified nine reporting units, which are summarized below:
Geographic Regions
 
Services
 
Software
 
Systems
Europe, Middle East and Africa (EMEA)
 
EMEA Services
 
EMEA Software
 
EMEA Systems
Americas
 
Americas Services
 
Americas Software
 
Americas Systems
Asia Pacific (AP)
 
AP Services
 
AP Software
 
AP Systems

In 2017, the Company recorded impairments totaling $3.1 related to information technology (IT) transformation and integration activities. There have been no impairment indicators identified during the three months ended March 31, 2018.


18
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
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, 2018
 
December 31, 2017
 
Weighted-average remaining useful lives
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships, net
7.4 years
$
766.4

 
$
(131.8
)
 
$
634.6

 
$
741.5

 
$
(108.2
)
 
$
633.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Internally-developed software
2.3 years
201.5

 
(107.7
)
 
93.8

 
192.9

 
(99.8
)
 
93.1

Development costs non-software
1.3 years
56.3

 
(39.1
)
 
17.2

 
55.3

 
(35.1
)
 
20.2

Other intangibles
1.4 years
78.6

 
(55.6
)
 
23.0

 
84.5

 
(57.3
)
 
27.2

Other intangible assets, net
 
336.4

 
(202.4
)
 
134.0

 
332.7

 
(192.2
)
 
140.5

Total
 
$
1,102.8

 
$
(334.2
)
 
$
768.6

 
$
1,074.2

 
$
(300.4
)
 
$
773.8


Amortization expense on capitalized software of $8.8 and $9.6 was included in service and software cost of sales for the three months ended March 31, 2018 and 2017, respectively. The Company's total amortization expense, including deferred financing costs, was $39.9 and $39.4 for the three months ended March 31, 2018 and 2017, 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, 2018, the maximum future payment obligations related to these various guarantees totaled $182.0, of which $28.0 represented standby letters of credit to insurance providers, and no associated liability was recorded. At December 31, 2017, the maximum future payment obligations relative to these various guarantees totaled $195.1, 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. The decrease in the liability was primarily due to warranties expiring in Brazil.

Changes in the Company’s warranty liability balance are illustrated in the following table:
 
 
2018
 
2017
Balance at January 1
 
$
76.7

 
$
101.6

Current period accruals
 
7.5

 
7.1

Current period settlements
 
(19.0
)
 
(12.8
)
Currency translation adjustment
 
1.5

 
0.8

Balance at March 31
 
$
66.7

 
$
96.7



19
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 10: Restructuring

The following table summarizes the impact of the Company’s restructuring charges on the condensed consolidated statements of operations:
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Cost of sales – services and software
 
$
2.0

 
$
3.0

Cost of sales – systems
 
0.6

 
0.6

Selling and administrative expense
 
1.3

 
8.4

Research, development and engineering expense
 
—

 
0.9

Total
 
$
3.9

 
$
12.9


The following table summarizes the Company’s type of restructuring charges by reportable operating segment:
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Severance
 
 
 
 
Services
 
$
1.7

 
$
4.7

Software
 
0.5

 
0.1

Systems
 
0.9

 
1.8

Corporate
 
0.8

 
6.3

Total severance
 
$
3.9

 
$
12.9


DN2020 Plan

During 2016, 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 transformational acquisition of Wincor Nixdorf AG (Diebold Nixdorf AG), which aligns employee activities with the Company's goal of delivering cost reductions of approximately $240 by the year 2020. The Company incurred restructuring charges of $3.8 and $12.9 for the three months ended March 31, 2018 and 2017, respectively, related to DN2020. The Company anticipates additional restructuring costs of approximately $50 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 has spanned 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. There were no charges during the periods presented. As of the date of the acquisition of Diebold Nixdorf AG, the restructuring accrual balance acquired was $45.5 and consisted of severance activities. During the third quarter of 2017, the Company recorded a measurement period adjustment of $8.2 to the acquired restructuring accrual resulting in a final fair value of $37.3. As of March 31, 2018, the Company does not anticipate additional restructuring costs to be incurred through the end of the plan.

Strategic Alliance Plan

During 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 incurred $0.1 restructuring charges during the three months ended March 31, 2018 related to this plan. There were no charges during 2017. The Company anticipates minimal additional restructuring costs to be incurred through the end of the plan.


20
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


The following table summarizes the Company's cumulative total restructuring costs by plan as of March 31, 2018:
 
DN2020 Plan
 
Delta Program
 
Strategic Alliance
 
Total

 
 
 
 
 
 
 
Services
$
54.5

 
$
0.1

 
$
3.1

 
$
57.7

Software
8.5

 
1.8

 
0.5

 
10.8

Systems
21.9

 
—

 
4.6

 
26.5

Corporate
8.7

 
1.3

 
—

 
10.0

Total
$
93.6

 
$
3.2

 
$
8.2

 
$
105.0


The following table summarizes the Company’s restructuring accrual balances and related activity for the three months ended March 31:
 
 
2018
 
2017
Balance at January 1
 
$
54.0

 
$
89.9

Liabilities incurred
 
3.9

 
12.9

Liabilities paid/settled
 
(10.2
)
 
(27.2
)
Balance at March 31
 
$
47.7

 
$
75.6


Note 11: Debt

Outstanding debt balances were as follows:
 
 
March 31, 2018
 
December 31, 2017
Notes payable
 
 
 
 
Uncommitted lines of credit
 
$
19.3

 
$
16.2

Term Loan A Facility
 
24.4

 
23.0

Delayed Draw Term Loan A Facility
 
18.8

 
17.2

Term Loan B Facility - USD
 
4.8

 
4.8

Term Loan B Facility - Euro
 
5.1

 
5.0

Other
 
4.2

 
0.5

 
 
$
76.6

 
$
66.7

Long-term debt
 
 
 
 
Revolving Facility
 
$
—

 
$
75.0

Term Loan A Facility
 
171.1

 
178.3

Delayed Draw Term Loan A Facility
 
221.9

 
226.6

Term Loan B Facility - USD
 
465.5

 
466.7

Term Loan B Facility - Euro
 
501.2

 
489.5

2024 Senior Notes
 
400.0

 
400.0

Other
 
0.7

 
1.4

 
 
1,760.4

 
1,837.5

Long-term deferred financing fees
 
(47.9
)
 
(50.4
)
 
 
$
1,712.5

 
$
1,787.1


As of March 31, 2018, the Company had various international short-term uncommitted lines of credit with borrowing limits of $213.2. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of March 31, 2018 and December 31, 2017 was 9.16 percent and 9.17 percent, respectively, and primarily relate to short-term uncommitted lines of credit in India. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at March 31, 2018 was $193.9.


21
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
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:
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Revolving credit facility (repayments) borrowings, net
 
$
(75.0
)
 
$
20.0

 
 
 
 
 
Other debt borrowings
 
 
 
 
International short-term uncommitted lines of credit borrowings
 
$
26.0

 
$
19.1

 
 
 
 
 
Other debt repayments
 
 
 
 
Payments on Term Loan A Facility under the Credit Agreement
 
$
(5.8
)
 
$
(4.3
)
Payments on Delayed Draw Term Loan A Facility under the Credit Agreement
 
(3.1
)
 
—

Payments on Term Loan B Facility - USD under the Credit Agreement
 
(1.2
)
 
(2.5
)
Payments on Term Loan B Facility - Euro under the Credit Agreement
 
(1.3
)
 
(1.0
)
Payments on European Investment Bank
 
—

 
(63.1
)
International short-term uncommitted lines of credit and other repayments
 
(20.3
)
 
(13.1
)
 
 
$
(31.7
)
 
$
(84.0
)

The Company has a revolving and term loan credit agreement (the Credit Agreement), with a revolving facility of up to $520.0 (Revolving Facility) and an unsecured term loan A facility (the Term Loan A Facility) in the amount of up to $230.0. On December 23, 2020, the Term Loan A Facility will mature and the Revolving Facility will automatically terminate. The weighted-average interest rate on outstanding Revolving Facility borrowings as of December 31, 2017 was 3.63 percent, which is variable based on the London Interbank Offered Rate (LIBOR). The amount available under the revolving facility as of March 31, 2018 was $520.0.

The Company has $400.0 aggregate principal amount of senior notes due 2024 (the 2024 Senior Notes) which are and will be guaranteed by certain of the Company’s existing and future domestic subsidiaries and expire in April 2024.

On May 9, 2017, the Company entered into an incremental amendment to its Credit Agreement (the 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 (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).

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


22
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


On April 17, 2018, the Company entered into an amendment to its Credit Agreement which modified its calculation of total net debt and its maximum allowable total net debt to the trailing twelve month's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) leverage ratio (Leverage Ratio). The Credit Agreement financial covenant ratios at March 31, 2018 are as follows:

•
a maximum leverage ratio of 4.25 to 1.00 as of March 31, 2018 (increasing to 4.75 on June 30, 2018, reducing to 4.50 on December 31, 2018, and then further reduced to 4.25 on December 31, 2019); and
•
a minimum adjusted EBITDA to net interest expense coverage ratio (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
 
Initial 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.

The Company's financing agreements contain various financial covenants, including net debt to capitalization, net debt to EBITDA and net interest coverage ratio. As of March 31, 2018, the Company was in compliance with the financial and other covenants in its debt agreements.

Note 12: Redeemable Noncontrolling Interests

Changes in the Company's redeemable noncontrolling interests balance are illustrated in the following table:
 
 
2018
 
2017
Balance at January 1
 
$
492.1

 
$
44.1

Other comprehensive income
 
—

 
(18.6
)
Redemption value adjustment
 
17.5

 
39.4

Redemption of shares
 
—

 
(1.7
)
Reclassification of noncontrolling interest
 
—

 
386.7

Balance at March 31
 
$
509.6

 
$
449.9


The Domination and Profit and Loss Transfer Agreement between Diebold Holding Germany Inc. & Co. KGaA (Diebold KGaA), a wholly-owned subsidiary of the Company and Diebold Nixdorf AG (the DPLTA) became effective by entry in the commercial register at the local court of Paderborn (Germany) on February 14, 2017. At which time, the carrying value of the noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire of $386.7 and 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. As of March 31, 2018 and December 31, 2017, the balance related to the redeemable noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire was $466.7 and $454.6, respectively. The change in the balance is related to the euro strengthening.


23
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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. The Company paid $1.7 during the first quarter of 2017, along with a minimal impact in 2018, 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.

The remaining balance relates to certain noncontrolling interests with redemption features, that include put rights that are not within the control of the issuer, which are considered redeemable noncontrolling interests. The redeemable noncontrolling interests were recorded at fair value as by applying the income approach using unobservable inputs for projected cash flows, including but not limited, to net sales and operating profit, and a discount rate, which are considered Level 3 inputs. The results of operations for these redeemable noncontrolling interests were not significant. The ultimate amount and timing of any future cash payments related to the put rights are uncertain.

Note 13: Equity

The following table presents changes in shareholders' equity attributable to Diebold Nixdorf, Incorporated and the noncontrolling
interests:
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Diebold Nixdorf, Incorporated shareholders' equity
 
 
 
 
Balance at beginning of period
 
$
470.0

 
$
591.4

Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated
 
(80.1
)
 
(13.9
)
Common shares
 
0.6

 
0.6

Additional capital (1)
 
13.0

 
(32.8
)
Treasury shares
 
(2.5
)
 
(4.6
)
Dividends paid
 
(7.7
)
 
(7.6
)
Adoption of accounting standards
 
33.6

 
—

Balance at end of period
 
$
426.9

 
$
533.1

 
 
 
 
 
Noncontrolling interests
 
 
 
 
Balance at beginning of period
 
$
36.8

 
$
433.4

Comprehensive income attributable to noncontrolling interests, net
 
7.6

 
6.6

Reclassification to redeemable noncontrolling interest
 
—

 
(386.7
)
Reclassification of guaranteed dividend to accrued liabilities
 
(4.4
)
 
(5.7
)
Distributions to noncontrolling interest holders
 
(0.5
)
 
(12.8
)
Sale of minority interest
 
(3.3
)
 
—

Balance at end of period
 
$
36.2

 
$
34.8

(1) 
The decrease for the three months ended March 31, 2017 is primarily attributable to the redemption value adjustment to the redeemable noncontrolling interest.


24
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


Note 14: Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the three months ended March 31, 2018:

 
Translation
 
Foreign Currency Hedges
 
Interest Rate Hedges
 
Pension and Other Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2018
 
$
(116.8
)
 
$
(5.1
)
 
$
8.1

 
$
(82.6
)
 
$
0.1

 
$
(196.3
)
Adoption of accounting standards (1)
 
(9.1
)
 
(1.0
)
 
1.3

 
(20.2
)
 
—

 
(29.0
)
Other comprehensive income (loss) before reclassifications
 
18.2

 
(2.8
)
 
2.2

 
—

 
—

 
17.6

Amounts reclassified from AOCI
 
—

 
—

 
0.4

 
1.8

 
—

 
2.2

Net current-period other comprehensive income (loss)
 
9.1

 
(3.8
)
 
3.9

 
(18.4
)
 
—

 
(9.2
)
Balance at March 31, 2018
 
$
(107.7
)
 
$
(8.9
)
 
$
12.0

 
$
(101.0
)
 
$
0.1

 
$
(205.5
)
(1) Stranded tax effects reclassified from AOCI to retained earnings from the adoption of ASU 2018-02

The following table summarizes the changes in the Company’s AOCI, net of tax, by component for the three months ended March 31, 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
 
49.3

 
(2.2
)
 
2.0

 
—

 
—

 
49.1

Amounts reclassified from AOCI
 
—

 
—

 
(0.3
)
 
(3.9
)
 
—

 
(4.2
)
Net current-period other comprehensive income (loss)
 
49.3

 
(2.2
)
 
1.7

 
(3.9
)
 
—

 
44.9

Balance at March 31, 2017
 
$
(201.9
)
 
$
(7.9
)
 
$
6.3

 
$
(93.2
)
 
$
0.3

 
$
(296.4
)

The following table summarizes the details about amounts reclassified from AOCI:
 
 
Three Months Ended
 
Affected Line Item in the Statement of Operations
 
 
2018
 
2017
 
Interest rate hedges
 
$
0.4

 
$
(0.3
)
 
Interest expense
Pension and post-retirement benefits:
 
 
 
 
 
 
Net actuarial loss amortization (net of tax of $(0.4) and $1.5, respectively)
 
1.8

 
(3.9
)
 
(1) 
Total reclassifications for the period
 
$
2.2

 
$
(4.2
)
 
 
(1) 
Pension and other post-retirement benefits AOCI components are included in the computation of net periodic benefit cost (refer to note 16).

Note 15: Acquisitions and Divestitures

In the first quarter of 2018, the Company acquired the remaining portion of it's noncontrolling interest in its China operations for $5.8 in the aggregate.

During 2017, the Company acquired all the capital stock of Moxx and certain assets and liabilities of Visio for $5.6 in the aggregate, net of cash acquired, which are included in the Services the line of business (LOB). During the third quarter of 2017, the Company acquired Moxx, which is a Netherlands based managed services company that provides managed mobility solutions for enterprises that use a large number of mobile assets in their business operations. In the second quarter of 2017, the Company acquired Visio, which is a design company based in Germany.


25
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


During 2017, the Company divested its legacy Diebold business in the U.K. 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. As part of the Company's routine efforts to evaluate its business operations, during 2017, the Company divested its electronic security (ES) businesses located in Mexico and Chile in the second and third quarters of 2017, respectively. The Company recorded a pre-tax gain of $2.2 related to these transactions. The combined net sales of the divestitures represented less than one percent of total net sales of the Company for 2017.

Note 16: 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.

The Company has non-qualified pension plans to provide supplemental retirement benefits to certain officers, which were also 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 Company also has defined benefit plans in Germany and Switzerland, among others. 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.

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 March 31:
 
 
Pension Benefits

 
 
 
U.S.Plans
 
Non-U.S. Plans
 
Other Benefits
 
 
2018
 
2017
 
2018
 
2017

2018

2017
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
1.0

 
$
1.0

 
$
2.8

 
$
2.6

 
$
—

 
$
—

Interest cost
 
5.2

 
5.7

 
1.6

 
2.2

 
0.1

 
0.1

Expected return on plan assets
 
(6.2
)
 
(6.5
)
 
(2.7
)
 
(2.1
)
 
—

 
—

Recognized net actuarial loss
 
1.6

 
1.5

 
(0.2
)
 
(0.1
)
 
—

 
—

Net periodic pension benefit cost
 
$
1.6

 
$
1.7

 
$
1.5

 
$
2.6

 
$
0.1

 
$
0.1


Contributions

There have been no significant changes to the expected 2018 plan year contribution amounts previously disclosed. For the three months ended March 31, 2018 and 2017, contributions of $22.6 and $6.9, respectively, were made to the qualified and non-qualified pension plans.


26
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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
 
March 31,
 
2018
 
2017
Non-designated hedges and interest rate swaps
 
Interest expense
 
$
(0.3
)
 
$
(1.2
)
Foreign exchange forward contracts and cash flow hedges
 
Net sales
 
2.6

 
—

Foreign exchange forward contracts and cash flow hedges
 
Cost of sales
 
(0.1
)
 
—

Foreign exchange forward contracts and cash flow hedges
 
Foreign exchange gain (loss), net
 
(0.2
)
 
(0.8
)
Total
 
 
 
$
2.0

 
$
(2.0
)

As a result of the adoption of ASU 2017-12, $2.6 was included in net sales and $0.1 in cost of sales for the three months ended March 31, 2018 which would have been included in foreign exchange gain (loss), net in the prior period.

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 $(0.1) and $2.0 as of March 31, 2018 and December 31, 2017, respectively. The net loss recognized in AOCI on net investment hedge derivative instruments $0.9 and $3.0 in the three months ended March 31, 2018 and 2017, respectively.

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 loss recognized in AOCI on net investment hedge foreign currency borrowings was $5.8 and $6.1 for the three months ended March 31, 2018 and 2017, respectively. On March 30, 2017, the Company de-designated €130.6 of its euro-denominated Term Loan B Facility and on May 9, 2017, the Company designated an additional €66.8 of its euro-denominated Term Loan B Facility as a result of its repricing described under note 11. On September 21, 2017, the Company de-designated €100.0 of its euro-denominated Term Loan B Facility.

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

27
Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(in millions, except per share amounts)


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 $(0.5) and $(4.9) as of March 31, 2018 and December 31, 2017, 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. The Company has certain subsidiaries with the euro (EUR) as its functional currency that are primarily exposed to the U.S. dollar (USD) and Great Britain pound sterling (GBP). 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 within the same income statement line item as the earnings effect of the hedged transaction. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. As of March 31, 2018, 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)
 
9

 
18.4

USD
 
16.6

EUR
Currency forward agreements (EUR-GBP)
 
12

 
31.0

GBP
 
32.6

EUR
Currency forward agreements (EUR-CZK)
 
3

 
182.5

CZK
 
6.5

EUR

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. The Company has 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. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The fair value of the Company's interest rate contracts was $13.1 and $9.8 as of March 31, 2018 and December 31, 2017, respectively.

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 a minimal amount will be reclassified as a decrease to interest expense over the next year.

The Company has an interest rate 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. This interest rate swap mitigated the interest rate risk associated with the European Investment Bank debt, which was paid in full during 2017. For this interest rate 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 March 31, 2018 and December 31, 2017 was $(6.1) and $(5.5), respectively. The interest rate contract is not designated and changes in the fair value of non-designated interest rate swap agreements are recognized in miscellaneous, net in the condensed consolidated statements of operations. The Company recognized $0.5 and $0.3 in interest expense relating to the interest rate swap for the three months ended March 31, 2018 and 2017, respectively.

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

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Table of Contents
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-Q as of March 31, 2018
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:
 
 
 
 
March 31, 2018
 
December 31, 2017
 
 
 
 
 
 
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
 
$
24.2

 
$
24.2

 
$
—

 
$
81.4

 
$
81.4

 
$
—

Assets held in rabbi trusts
 
Securities and other investments
 
9.2

 
9.2

 
—

 
9.4

 
9.4

 
—

Foreign exchange forward contracts
 
Other current assets
 
3.2

 
—

 
3.2

 
6.7

 
—

 
6.7

Interest rate swaps
 
Other current assets
 
3.6

 
—

 
3.6

 
2.2

 
—

 
2.2

Interest rate swaps
 
Securities and other investments
 
9.5

 
—

 
9.5

 
7.6

 
—

 
7.6

Total
 
 
 
$
49.7

 
$
33.4

 
$
16.3

 
$
107.3

 
$
90.8

 
$
16.5

Liabilities